sv1za
As filed
with the Securities and Exchange Commission on June 15,
2010
Registration
No. 333-166825
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
NuPathe
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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2834
(Primary Standard
Industrial
Classification Code Number)
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20-2218246
(I.R.S. Employer
Identification Number)
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227 Washington Street, Suite 200
Conshohocken, Pennsylvania 19428
(484) 567-0130
(Address, including zip code and
telephone number, including area code, of registrants
principal executive offices)
Jane H. Hollingsworth
Chief Executive Officer
NuPathe Inc.
227 Washington Street, Suite 200
Conshohocken, Pennsylvania 19428
(484) 567-0130
(Name, address, including zip
code and telephone number, including area code, of agent for
service)
Copies
to:
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Michael N. Peterson, Esq.
James W. McKenzie, Jr., Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
(215) 963-5000
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Suzanne M. Hanlon, Esq.
V.P. Administration, General Counsel, Secretary
NuPathe Inc.
227 Washington Street, Suite 200
Conshohocken, Pennsylvania 19428
(484) 567-0130
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David E. Redlick, Esq.
Brian A. Johnson, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
399 Park Avenue
New York, New York 10022
(212) 230-8800
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this registration statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is declared effective. This preliminary prospectus is
not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED
JUNE 15, 2010
PROSPECTUS
Shares
Common Stock
NuPathe Inc. is offering shares of
common stock. This is our initial public offering, and no public
market currently exists for our common stock. We anticipate that
the initial public offering price will be between
$ and $ per share.
We have applied to have our common stock listed on The NASDAQ
Global Market under the symbol PATH.
Investing in our common stock involves risks. See Risk
Factors beginning on page 8.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to us
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$
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$
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We have granted the underwriters an option for 30 days from
the date of this prospectus to purchase up to
additional shares of our common stock at the initial public
offering price, less underwriting discounts and commissions, to
cover over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of common stock on
or about , 2010.
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Leerink Swann
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Lazard Capital Markets
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Thomas Weisel Partners LLC
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Needham & Company, LLC
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The date of this prospectus is , 2010.
TABLE OF
CONTENTS
You should rely only on the information contained in this
prospectus and any free writing prospectus prepared by or on
behalf of us or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. We are offering to sell shares of our common stock,
and seeking offers to buy shares of our common stock, only in
jurisdictions where offers and sales are permitted. The
information in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
Until
,
2010, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
For investors outside the United States: Neither we nor any of
the underwriters have taken any action to permit a public
offering of the shares of our common stock or the possession or
distribution of this prospectus in any jurisdiction where action
for that purpose is required, other than the United States. You
are required to inform yourselves about and to observe any
restrictions relating to this offering and the distribution of
this prospectus.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information you should consider before investing in our common
stock. Before you decide to invest in our common stock, you
should read the entire prospectus carefully, including the
Risk Factors section and the financial statements
and related notes appearing at the end of this prospectus.
Our
Company
We are a specialty pharmaceutical company focused on the
development and commercialization of branded therapeutics for
diseases of the central nervous system, including neurological
and psychiatric disorders. Our most advanced product candidate,
Zelrix, is a single-use patch applied to the arm or thigh for
the treatment of migraine. Zelrix actively delivers sumatriptan
through the skin in a controlled manner using our proprietary
SmartRelief technology. Sumatriptan, currently available in
oral, nasal and injectable formulations, is the most widely
prescribed migraine medication. We designed Zelrix for patients
who suffer from nausea or vomiting with migraines and for those
who experience inconsistent relief or adverse events from their
current treatment.
We successfully completed a pivotal Phase III clinical
trial for Zelrix in July 2009 and expect to submit a New Drug
Application, or NDA, to the United States Food and Drug
Administration, or FDA, in the fourth quarter of 2010. Subject
to FDA approval of our NDA, we plan to build our own specialty
sales force in the U.S. to launch Zelrix in the first half
of 2012.
We have two other proprietary product candidates in preclinical
development that address large market opportunities: NP201 for
the continuous symptomatic treatment of Parkinsons
disease, and NP202 for the long-term treatment of schizophrenia
and bipolar disorder. We expect to submit an Investigational New
Drug Application, or IND, to the FDA in the first half of 2011
for NP201 and in 2012 for NP202 in order to initiate human
clinical trials of these product candidates.
Our
Product Candidates
Zelrix
for the treatment of acute migraine
Migraine is a debilitating neurological disease that affects
approximately 28 million people in the U.S. Symptoms
of migraine include moderate to severe headache pain, nausea and
vomiting, photophobia, or abnormal sensitivity to light, and
phonophobia, or abnormal sensitivity to sound. Most migraines
last between four and 24 hours. Symptoms other than
headache pain contribute significantly to the disability caused
by acute migraine. In particular, nausea and vomiting during a
migraine can be severe and incapacitating and prevent or
discourage migraine patients, or migraineurs, from taking their
migraine medication.
According to IMS Health Inc., or IMS, a leading provider of
pharmaceutical industry market data, over 13 million
prescriptions for the treatment of acute migraine were filled in
the U.S. in 2009, with more than 90% of these prescriptions
for triptans. Triptan sales in the U.S. in 2009 exceeded
$2.0 billion, with approximately 123 million
individual units sold. Currently, triptans constitute the most
prescribed class of medication for the treatment of acute
migraine, and sumatriptan is the most widely prescribed triptan.
We believe that most marketed migraine therapies have
significant limitations. Zelrix is a transdermal patch designed
to provide migraineurs fast onset and sustained relief through a
tolerable, non-oral route of administration. We believe Zelrix
offers a better alternative to migraineurs by providing the
following benefits:
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Circumventing nausea and vomiting. According
to a survey of over 500 respondents conducted by the National
Headache Foundation in 2008, 90% of migraineurs have experienced
nausea with a migraine and 59% of migraineurs have experienced
vomiting with a migraine. In this survey, 48% of respondents who
ever experienced nausea or vomiting with a migraine reported
that the nausea or vomiting had a moderate to major impact on
when or how they take migraine medications. The American Academy
of Neurology guidelines recommend non-oral therapies for
migraineurs who experience nausea or vomiting as significant
migraine symptoms. Because Zelrix is administered transdermally,
we believe
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that it will be attractive to migraineurs suffering from nausea
or vomiting who might otherwise delay or avoid taking medication.
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Increasing consistency of response. According
to a 2001 article by Dr. Michel Ferrari published in The
Lancet, a peer-reviewed medical journal, clinical trials
have demonstrated that at least 40% of migraineurs fail to
respond consistently to oral triptans. We believe this results
from a variety of causes, including low and inconsistent
absorption of oral medication because of a compromised ability
to digest, or decreased gastric motility. Because Zelrix does
not depend on gastrointestinal absorption, we believe that it
will provide more consistent relief than oral triptans.
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Minimizing triptan adverse events. According
to a 2003 article by Dr. R. Michael Gallagher published in
Headache, a peer-reviewed medical journal, 67% of
migraineurs who use prescription migraine medication reported
that they had delayed or avoided taking a prescription migraine
medication due to concerns about adverse events. In our clinical
trials, treatment with Zelrix resulted in a low incidence of
triptan adverse events while effectively treating migraine.
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We plan to develop marketing, sales and distribution
capabilities for the commercial launch of Zelrix in the U.S.,
including the hiring of a specialty sales force of approximately
100 people after marketing approval. We expect to direct
our marketing efforts to high potential prescribers of Zelrix,
including neurologists, headache specialists and select primary
care physicians. We may seek to further penetrate the
U.S. market in the future by expanding our sales force or
through collaborations with other pharmaceutical and
biotechnology companies. We may also seek to commercialize
Zelrix outside the U.S., although we currently plan to do so
only with a partner.
NP201
for the continuous symptomatic treatment of Parkinsons
disease
According to the Parkinsons Disease Foundation,
Parkinsons disease affects about one million people
in the U.S. and more than four million people
worldwide. Symptoms of Parkinsons disease can appear at
any age, but the average age of onset is 60. According to IMS,
2009 sales of Parkinsons disease therapies in the U.S.,
European Union and Japan totaled approximately $3.6 billion.
We designed NP201 to provide continuous delivery of
Parkinsons disease medication in an easy to administer and
tolerable dose formulation. After administration, NP201 is
designed to slowly release ropinirole, an FDA approved
medication. Based on data from our preclinical studies, we
believe that NP201 has the potential to provide continuous
symptomatic relief for up to two months per dose and to
significantly decrease the incidence of adverse events
associated with current treatments. We plan to submit an IND to
the FDA in the first half of 2011.
NP202
for the long-term treatment of schizophrenia and bipolar
disorder
According to the National Alliance on Mental Illness, in the
U.S., schizophrenia affects over two million adults and
bipolar disorder affects over ten million adults. In an
attempt to improve patient compliance, physicians currently
administer antipsychotic drugs through depot injections, which
release medication over a longer period than conventional
injections or oral medications.
We designed NP202 to provide continuous delivery of an FDA
approved atypical antipsychotic medication in an easy to
administer and tolerable dose formulation. We believe that NP202
will provide a significant improvement over existing treatment
options because we are designing and developing it to deliver up
to three months of continuous medication with a single
dose and be an easy to administer, pre-loaded, injectable
product that can be stored at room temperature. We have
developed NP202 prototype products, initiated pre-IND activities
and plan to submit an IND to the FDA in 2012.
Our
Proprietary Delivery Technologies
We hold exclusive worldwide rights to two proprietary drug
delivery technologies: SmartRelief and LAD. Zelrix uses
SmartRelief, while NP201 and NP202 both use our long-acting
delivery, or LAD, technology.
2
SmartRelief is our proprietary transdermal delivery technology
based on iontophoresis, a non-invasive method of transporting a
molecule through the skin by applying a mild electrical current.
Unlike passive transdermal technologies, which rely on diffusion
for medication delivery, SmartRelief controls the amount and
rate of medication delivery. The SmartRelief technology
facilitates active transdermal delivery, which is important for
molecules, such as sumatriptan, that are not able to be
delivered passively through the skin.
LAD is comprised of a biodegradable polymer matrix using
commonly available medical polymers and an active drug. It is
formed into a small implant for injection just below the skin.
We designed LAD to improve the control, consistency and
convenience of medication delivery.
Risks
Associated with Our Business
Our business is subject to a number of risks of which you should
be aware before making an investment decision. These risks are
described in more detail in the Risk Factors section
of this prospectus immediately following this prospectus
summary. These risks include the following:
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We have not received, and we may not receive, marketing approval
for, or commercial revenues from, Zelrix or any other product
candidate;
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The commercial success of Zelrix and any other product candidate
that we develop, if approved, will depend upon significant
market acceptance among physicians and patients and the
availability of adequate reimbursement from third party payors;
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If we are unable to establish effective marketing and sales
capabilities or enter into agreements with third parties to
perform these functions, we will not be able to commercialize
Zelrix or any other product candidate that we develop, if
approved;
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We have incurred significant operating losses since inception,
which has raised substantial doubt regarding our ability to
continue as a going concern; and
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We use third parties to manufacture all of our product
candidates, including Zelrix, and the machinery to produce the
commercial supply of Zelrix must be designed, built and
validated.
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Our
Corporate Information
We were incorporated under the laws of the State of Delaware in
January 2005. Our principal executive offices are located at 227
Washington Street, Suite 200, Conshohocken, Pennsylvania
19428 and our telephone number is
(484) 567-0130.
Our website address is www.nupathe.com. The information
contained on, or that can be accessed through, our website is
not part of this prospectus. We have included our website
address in this prospectus solely as an inactive textual
reference.
In this prospectus, unless otherwise stated or the context
otherwise indicates, references to NuPathe,
we, us, our and similar
references refer to NuPathe Inc. The name
NuPathe®
is our registered trademark.
Zelrixtm,
SmartRelieftm
and
LADtm
are our trademarks. All other trademarks, trade names and
service marks appearing in this prospectus are the property of
their respective owners.
3
THE
OFFERING
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Common stock offered by us |
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shares |
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Common stock to be outstanding after this offering |
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shares |
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Over-allotment option |
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We have granted the underwriters an option for 30 days from
the date of this prospectus to purchase up
to additional
shares of common stock to cover over-allotments. |
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Use of proceeds |
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We intend to use the net proceeds from this offering to complete
the clinical development of, seek marketing approval for and, if
approved, commercially launch Zelrix in the U.S., to continue
preclinical and clinical development of NP201 and NP202 and for
working capital and other general corporate purposes. See
Use of Proceeds on page 34. |
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Proposed NASDAQ Global Market symbol |
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PATH |
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Risk factors |
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You should read the Risk Factors section of this
prospectus for a discussion of factors to consider carefully
before deciding to invest in shares of our common stock. |
The number of shares of common stock to be outstanding after
this offering is based on 3,143,905 shares of common stock
outstanding as of May 31, 2010 and also includes:
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62,178,093 shares of common stock issuable upon the
automatic conversion of all outstanding shares of our preferred
stock, including accrued dividends, upon the closing of this
offering, assuming that the closing occurred on May 31,
2010; and
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shares
of common stock issuable upon the automatic conversion of all
principal and accrued interest outstanding under secured
subordinated promissory notes that we issued and sold to
investors in April 2010, or the April 2010 Convertible Notes,
upon the closing of this offering, assuming an initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover page of this
prospectus, and that the closing occurred on May 31, 2010.
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The number of shares of common stock to be outstanding after
this offering excludes:
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7,520,075 shares of common stock issuable upon the exercise
of options outstanding as of May 31, 2010 at a weighted
average exercise price of $0.23 per share;
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1,126,298 shares of common stock issuable upon the exercise
of warrants outstanding as of May 31, 2010 at a weighted
average exercise price of $0.93 per share; and
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846,020 additional shares of common stock available for future
issuance as of May 31, 2010 under our 2005 Equity
Compensation Plan, or our 2005 Plan.
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Unless otherwise indicated, all information in this prospectus
assumes:
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No exercise of the outstanding options or warrants described
above;
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No exercise by the underwriters of their option to purchase up
to shares
of common stock to cover over-allotments;
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The automatic conversion of all outstanding shares of our
preferred stock, including accrued dividends, into an aggregate
of 62,178,093 shares of common stock upon the closing of
this offering, assuming that the closing occurred on
May 31, 2010;
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The automatic conversion of all principal and accrued interest
outstanding under the April 2010 Convertible Notes into an
aggregate
of shares
of common stock upon the closing of this
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offering, assuming an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover page of this prospectus, and
that the closing occurred on May 31, 2010;
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The warrants outstanding as of May 31, 2010 to purchase an
aggregate of 1,126,298 shares of preferred stock have
become, in accordance with their terms, warrants to purchase
1,126,298 shares of common stock at an exercise price of
$0.93 per share of common stock upon the closing of this
offering; and
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The restatement of our amended and restated certificate of
incorporation and our bylaws upon the closing of this offering.
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In addition, unless otherwise indicated, all information in this
prospectus gives effect to the
one-for-
reverse stock split of common stock that will be completed prior
to the closing of this offering.
5
SUMMARY
FINANCIAL DATA
You should read the following summary financial data together
with the Capitalization, Selected Financial
Data and Managements Discussion and Analysis
of Financial Condition and Results of Operations sections
of this prospectus and our financial statements and the related
notes appearing at the end of this prospectus. We have derived
the statement of operations data for the years ended
December 31, 2007, 2008 and 2009 from our audited financial
statements appearing at the end of this prospectus. We have
derived the statement of operations data for the three months
ended March 31, 2009 and 2010 and for the period from January 7,
2005 (inception) through March 31, 2010 and the balance sheet
data as of March 31, 2010 from our unaudited financial
statements appearing at the end of this prospectus. Our
historical results for any prior period are not necessarily
indicative of results to be expected in any future period and
our interim period results are not necessarily indicative of
results for a full year.
See note 3(j) to our financial statements appearing at the
end of this prospectus for information regarding computation of
basic and diluted net loss per common share, unaudited pro forma
basic and diluted net loss per common share and the unaudited
pro forma weighted average basic and diluted common shares
outstanding used in computing pro forma basic and diluted net
loss per common share.
The unaudited pro forma balance sheet data set forth below give
effect to:
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The automatic conversion of all outstanding shares of our
preferred stock, including accrued dividends, into an aggregate
of 62,178,093 shares of common stock upon the closing of
this offering, assuming that the closing occurred on
May 31, 2010;
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The receipt in April 2010 of gross proceeds of $10,062,500 upon
the issuance of the April 2010 Convertible Notes and the
automatic conversion of all principal and accrued interest
outstanding under the April 2010 Convertible Notes into an
aggregate
of shares
of common stock upon the closing of this offering, assuming an
initial public offering price of $
per share, the midpoint of the price range set forth on the
cover page of this prospectus, and that the closing occurred on
May 31, 2010;
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The receipt in May 2010 of gross proceeds of $5,000,000 upon
entering into a secured term loan facility, or the May 2010 Loan
Facility, the issuance of warrants to purchase
255,376 shares of Series B preferred stock, with an
estimated fair value of $203,255, to the lenders under such
facility and the repayment in full of the $555,208 outstanding
as of March 31, 2010 under a term loan that we entered into
in 2007; and
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The warrants outstanding as of May 31, 2010 to purchase an
aggregate of 1,126,298 shares of our preferred stock
becoming, in accordance with their terms, warrants to purchase
1,126,298 shares of common stock at an exercise price of
$0.93 per share of common stock upon the closing of this
offering and the reclassification of the warrant liability with
respect to warrants outstanding as of March 31, 2010 to
additional paid-in capital.
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The pro forma as adjusted balance sheet data set forth below
give further effect to the issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover page of this
prospectus, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
6
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January 7, 2005
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(inception)
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Three Months Ended
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through
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Year Ended December 31,
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March 31,
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March 31,
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2007
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2008
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2009
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2009
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2010
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2010
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(Unaudited)
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(Unaudited)
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(In thousands, except share and per share data)
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Statement of Operations Data:
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Operating expenses:
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Research and development
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$
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7,761
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$
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8,815
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$
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11,310
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$
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2,996
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$
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3,390
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$
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35,178
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Acquired in-process research and development
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5,500
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5,500
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General and administrative
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1,884
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3,075
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3,142
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796
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873
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10,700
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Total operating expenses
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(9,645
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(17,390
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(14,452
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(3,792
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(4,263
|
)
|
|
|
(51,378
|
)
|
Interest income (expense), net
|
|
|
(30
|
)
|
|
|
(121
|
)
|
|
|
(1,289
|
)
|
|
|
(37
|
)
|
|
|
(10
|
)
|
|
|
(2,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax benefit
|
|
|
(9,675
|
)
|
|
|
(17,511
|
)
|
|
|
(15,741
|
)
|
|
|
(3,829
|
)
|
|
|
(4,273
|
)
|
|
|
(53,484
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
151
|
|
|
|
320
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(9,675
|
)
|
|
|
(17,511
|
)
|
|
|
(15,590
|
)
|
|
|
(3,678
|
)
|
|
|
(3,953
|
)
|
|
$
|
(53,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable convertible preferred stock
|
|
|
(1,126
|
)
|
|
|
(2,330
|
)
|
|
|
(3,617
|
)
|
|
|
(830
|
)
|
|
|
(1,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(10,801
|
)
|
|
$
|
(19,841
|
)
|
|
$
|
(19,207
|
)
|
|
$
|
(4,508
|
)
|
|
$
|
(4,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(3.67
|
)
|
|
$
|
(6.49
|
)
|
|
$
|
(6.28
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(1.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic and diluted common shares outstanding
|
|
|
2,947,005
|
|
|
|
3,059,137
|
|
|
|
3,060,000
|
|
|
|
3,060,000
|
|
|
|
3,060,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net loss
|
|
|
|
|
|
|
|
|
|
$
|
(15,590
|
)
|
|
|
|
|
|
$
|
(3,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average basic and diluted common
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma as
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
Adjusted
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
592
|
|
|
$
|
15,100
|
|
|
$
|
|
|
Working capital
|
|
|
(2,372
|
)
|
|
|
12,691
|
|
|
|
|
|
Total assets
|
|
|
1,580
|
|
|
|
16,290
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
56,572
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(59,390
|
)
|
|
|
8,053
|
|
|
|
|
|
Each $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease each of cash and cash equivalents,
working capital, total assets and total stockholders
equity on a pro forma as adjusted basis by approximately
$ million, assuming that the
number of shares of common stock offered by us, as set forth on
the cover page of this prospectus, remains the same and after
deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
7
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
Before you decide to invest in our common stock, you should
consider carefully the risks described below, together with the
other information contained in this prospectus, including our
financial statements and the related notes appearing at the end
of this prospectus. We believe the risks described below are the
risks that are material to us as of the date of this prospectus.
If any of the following risks actually occur, our business,
financial condition, results of operations and future growth
prospects would likely be materially and adversely affected. In
these circumstances, the market price of our common stock could
decline, and you may lose all or part of your investment.
Risks
Related to Development and Commercialization of Our Product
Candidates
We are
heavily dependent on the success of Zelrix. If we fail to obtain
marketing approval for and commercialize Zelrix, or experience
delays in doing so, our business will be materially
harmed.
We have invested a significant portion of our efforts and
financial resources in the development of our most advanced
product candidate, Zelrix. Zelrix is the only product candidate
for which we have conducted clinical trials, and to date we have
not marketed, distributed or sold any products. Our ability to
generate revenues in the near term is substantially dependent on
our ability to develop and commercialize Zelrix. In the fourth
quarter of 2010, we plan to submit a new drug application, or
NDA, seeking approval to commercialize Zelrix for treatment of
acute migraine. We cannot commercialize Zelrix prior to
obtaining FDA approval. Even though Zelrix has completed its
pivotal Phase III clinical trial with positive results,
Zelrix is still, nonetheless, susceptible to the risks of
failure inherent at any stage of drug development, including the
appearance of unexpected adverse events and the FDAs
determination Zelrix is not approvable. If we do not receive FDA
approval for and commercialize Zelrix, we will not be able to
generate product revenues in the foreseeable future, or at all.
As a company, we have never obtained marketing approval for or
commercialized a drug. It is possible that the FDA may refuse to
accept our NDA for substantive review or may review our data and
conclude that our application is insufficient to obtain
marketing approval of Zelrix. Before we submit our NDA, we must:
|
|
|
|
|
Complete two ongoing pharmacokinetic trials in healthy subjects,
submit interim safety data from our two ongoing open label
Phase III long-term safety trials, or our Phase III
safety trials, and complete a skin irritation study; and
|
|
|
|
|
|
Obtain a waiver from the FDA with respect to the conduct of a
separate skin sensitization study or complete such a study.
|
In addition, the FDA has requested that we provide data in our
NDA regarding an in vitro analytical testing method
for Zelrix. However, to date, for technical reasons we have not
been able to develop an appropriate in vitro
analytical testing method for Zelrix, and we are working
with the FDA to develop acceptable alternatives. Any
difficulties or delays we experience in obtaining the data from
our pharmacokinetic and Phase III safety trials will delay
the submission of our NDA and the FDAs review of the NDA.
In addition, delay or failure to develop an in vitro
analytical testing method for Zelrix or reach agreement with the
FDA on an alternative may delay marketing approval of Zelrix.
If, following submission, our NDA is not accepted for
substantive review or approved, the FDA may require that we
conduct additional clinical or preclinical trials, manufacture
additional validation batches or develop additional analytical
test methods before it will reconsider our application. If the
FDA requires additional studies or data, we would incur
increased costs and delays in the marketing approval process,
which may require us to expend more resources than we have
available. In addition, the FDA may not consider sufficient any
additional required trials that we perform and complete.
Even if we believe that the data from our clinical trials and
analytical testing methods support marketing approval of Zelrix
in the U.S., the FDA may not agree with our analysis and approve
our NDA. Any delay in obtaining, or an inability to obtain,
marketing approvals would prevent us from commercializing
Zelrix, generating revenues and achieving profitability.
8
The
commercial success of Zelrix and any other product candidates
that we develop, if approved in the future, will depend upon
significant market acceptance of these products among
physicians, patients and third party payors.
As a company, we have never commercialized a product candidate
for any indication. Even if any product candidate that we
develop, including Zelrix, is approved by the appropriate
regulatory authorities for marketing and sale, it may not gain
acceptance among physicians, patients and third party payors. If
our products for which we obtain marketing approval do not gain
an adequate level of acceptance, we may not generate significant
product revenues or become profitable. Market acceptance of
Zelrix, and any other product candidates that we develop, by
physicians, patients and third party payors will depend on a
number of factors, some of which are beyond our control,
including:
|
|
|
|
|
The efficacy, safety and other potential advantages in relation
to alternative treatments;
|
|
|
|
The relative convenience and ease of administration;
|
|
|
|
The availability of adequate coverage or reimbursement by third
parties, such as insurance companies and other healthcare
payors, and by government healthcare programs, including
Medicare and Medicaid;
|
|
|
|
The prevalence and severity of adverse events;
|
|
|
|
The cost of treatment in relation to alternative treatments,
including generic products;
|
|
|
|
The extent and strength of marketing and distribution support;
|
|
|
|
The limitations or warnings contained in a products FDA
approved labeling; and
|
|
|
|
Distribution and use restrictions imposed by the FDA or to which
we agree as part of a mandatory risk evaluation and mitigation
strategy or voluntary risk management plan.
|
For example, even if the medical community accepts that Zelrix
is safe and effective for its approved indications, physicians
and patients may not immediately be receptive to Zelrix and may
be slow to adopt it as an accepted treatment for acute migraine.
In addition, even though we believe Zelrix has significant
advantages, because no head-to-head trials comparing Zelrix to
competing products have been conducted, it is unlikely that any
labeling approved by the FDA will contain claims that Zelrix is
safer or more effective than competitive products or will permit
us to promote Zelrix as being superior to competing products.
Further, the availability of numerous inexpensive generic forms
of migraine therapy products may also limit acceptance of Zelrix
among physicians, patients and third party payors. If Zelrix is
approved but does not achieve an adequate level of acceptance
among physicians, patients and third party payors, we may not
generate meaningful revenues from Zelrix and we may not become
profitable.
It
will be difficult for us to profitably sell any of our product
candidates that the FDA approves, including Zelrix, if
reimbursement for such product candidate is
limited.
Market acceptance and sales of Zelrix or any other product
candidates that we develop will depend on reimbursement policies
and may be affected by future healthcare reform measures.
Government authorities and third party payors, such as private
health insurers and health maintenance organizations, decide
which medications they will pay for and establish reimbursement
levels. A primary trend in the U.S. healthcare industry and
elsewhere is cost containment. Government authorities and these
third party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular
medications. We cannot be sure that reimbursement will be
available for Zelrix or any other product candidates that we
develop and, if reimbursement is available, the level of
reimbursement. Reimbursement may impact the demand for, or the
price of, our products for which we obtain marketing approval.
Numerous generic products may be available at lower prices than
branded therapy products, such as Zelrix, if it is approved,
which may also reduce the likelihood and level of reimbursement
for our product candidates, including Zelrix. If reimbursement
is not available or is available only to limited levels, we may
not be able to successfully commercialize Zelrix or any other
product candidates that we develop.
9
If we
are unable to establish effective marketing and sales
capabilities or enter into agreements with third parties to
market and sell our product candidates after they are approved,
we may be unable to generate product revenues.
We currently do not have a commercial infrastructure for the
marketing, sales and distribution of pharmaceutical products. In
order to commercialize our products, we must build our
marketing, sales and distribution capabilities or make
arrangements with third parties to perform these services. If
Zelrix is approved by the FDA, we plan to build a commercial
infrastructure to launch Zelrix in the U.S., including a
specialty sales force of approximately 100 people. We may
seek to further penetrate the U.S. market in the future by
expanding our sales force or through collaborations with other
pharmaceutical or biotechnology companies. We may also seek to
commercialize Zelrix outside the U.S., although we currently
plan to do so only with a collaborator.
The establishment and development of our own sales force and
related compliance plans to market any products we may develop
will be expensive and time consuming and could delay any product
launch, and we may not be able to successfully develop this
capability. We, or our future collaborators, will have to
compete with other pharmaceutical and biotechnology companies to
recruit, hire, train and retain marketing and sales personnel.
In the event we are unable to develop a marketing and sales
infrastructure, we would not be able to commercialize Zelrix or
any other product candidates that we develop, which would limit
our ability to generate product revenues.
Companies such as ours often expand their sales force and
marketing capabilities for a product prior to it being approved
by the FDA so that the drug can be commercialized upon approval.
Although our current plan is to hire most of our sales and
marketing personnel only if Zelrix is approved by the FDA, we
will incur expenses prior to product launch in recruiting this
sales force and developing a marketing and sales infrastructure.
If the commercial launch of Zelrix is delayed as a result of FDA
requirements or other reasons, we would incur these expenses
prior to being able to realize any revenue from product sales.
Even if we are able to effectively hire a sales force and
develop a marketing and sales infrastructure, our sales force
and marketing teams may not be successful in commercializing
Zelrix or any other product candidates that we develop.
To the extent we rely on third parties to commercialize any
products for which we obtain marketing approval, we may receive
less revenues than if we commercialized these products
ourselves. In addition, we would have less control over the
sales efforts of any other third parties involved in our
commercialization efforts. In the event we are unable to
collaborate with a third party marketing and sales organization,
our ability to generate product revenues may be limited either
in the U.S. or internationally.
We
face significant competition from other pharmaceutical and
biotechnology companies. Our operating results will suffer if we
fail to compete effectively.
The pharmaceutical and biotechnology industries are intensely
competitive and subject to rapid and significant technological
change. Our major competitors include organizations such as
major multinational pharmaceutical companies, established
biotechnology companies and specialty pharmaceutical and generic
drug companies. Many of our competitors have greater financial
and other resources than we have, such as larger research and
development staff and more extensive marketing and manufacturing
organizations. As a result, these companies may obtain marketing
approval more rapidly than we are able to and may be more
effective in selling and marketing their products. Smaller or
early stage companies may also prove to be significant
competitors, particularly through collaborative arrangements
with large, established companies.
Our competitors may succeed in developing, acquiring or
licensing on an exclusive basis technologies and drug products
that are more effective or less costly than Zelrix or any other
drug candidate that we are currently developing or that we may
develop, which could render our products obsolete and
noncompetitive. We expect any products that we develop and
commercialize to compete on the basis of, among other things,
efficacy, safety, convenience of administration and delivery,
price, the level of generic competition and the availability of
reimbursement from government and other third party payors. We
also expect to face
10
competition in our efforts to identify appropriate collaborators
or partners to help commercialize our product candidates in our
target commercial markets.
The competition in the market for acute migraine medication is
intense. The majority of marketed prescription products for
treatment of acute migraine in the U.S. are in the triptan
class in tablet, orally-disintegrating tablet, nasal spray and
injectable therapies. The largest selling triptan is
sumatriptan, with 2009 sales of approximately $800 million
in the U.S., including approximately $200 million
attributable to GlaxoSmithKline plcs, or GlaxoSmithKline,
branded sumatriptan, Imitrex. There are at least eight other
branded triptan therapies being sold by pharmaceutical and
biotechnology companies, including Maxalt from Merck &
Co., Inc., or Merck, and Treximet from GlaxoSmithKline. In July
2009, the FDA approved Zogenix, Inc.s Sumavel DosePro
needle-free sumatriptan injection for the treatment of acute
migraine and cluster headache.
If approved, Zelrix will face competition from inexpensive
generic versions of sumatriptan and generic versions of other
branded products of competitors that have lost or will lose
their patent exclusivity. For example, we expect Amerge, the
branded version of naratriptan, to lose patent protection in
July 2010. In addition, we expect other triptan patents to
expire between 2012 and 2025. Many of these products are
manufactured and marketed by large pharmaceutical companies and
are well accepted by physicians, patients and third party
payors. Because of the low cost, health insurers likely would
require or encourage use of, and consumers likely would use, a
generic triptan prior to trying Zelrix.
In addition to marketed migraine medications, if approved,
Zelrix may face competition from migraine product candidates in
various stages of clinical development by both large and small
companies. These include Mercks telcagepant, an orally
administered calcitonin gene related peptide antagonist, and
Levadex from MAP Pharmaceuticals, Inc., an inhaled formulation
of dihydroergotamine, both for acute migraine, and Allergan,
Inc.s Botox for chronic migraine. Each of these has either
completed or is in Phase III clinical development. Zelrix
may also compete with other drug candidates that receive
marketing approval before Zelrix. If we are unable to
demonstrate the advantages of Zelrix over competing drugs and
drug candidates, we will not be able to successfully
commercialize Zelrix and our results of operations will suffer.
As with Zelrix, if approved, each of NP201 and NP202 will face
competition from generic and branded products. Specifically,
NP201, a biodegradable, subcutaneous, injectable polymer implant
combined with ropinirole, will face competition from generic
immediate release and extended release versions of ropinirole
and the dopamine agonist pramiprexole, as well as from two
continuous delivery medications, a levadopa gel and an
injectable apomorphine. NP202, a biodegradable, subcutaneous,
injectable polymer implant combined with an atypical
antipsychotic medication, will face competition from a variety
of branded and generic versions of antipsychotic medications, in
addition to several other sustained delivery depot formulations
of atypical antipsychotics.
As a result of all of these factors, our competitors may succeed
in obtaining patent protection or FDA approval or discovering,
developing and commercializing migraine and other therapies
before we do.
Any
failure or delay in preclinical studies or clinical trials for
our product candidates may cause us to incur additional costs or
delay or prevent the commercialization of our product candidates
and could severely harm our business.
Before obtaining marketing approval for the sale of our product
candidates, we must conduct, at our own expense, extensive
preclinical tests and then clinical trials to demonstrate the
safety and efficacy of our product candidates in humans.
Clinical testing, in particular, is expensive, difficult to
design and implement, can take many years to complete and is
uncertain as to outcome. The outcome of preclinical studies and
early clinical trials may not be predictive of the success of
later clinical trials, and interim results of a clinical trial
do not necessarily predict final results. Even if preclinical
studies and early phase clinical trials succeed, it is necessary
to conduct additional clinical trials in larger numbers of
subjects taking the medication for longer periods before seeking
FDA approval to market and sell a medication in the
U.S. Clinical data is often susceptible to varying
interpretations and analyses, and many companies that have
believed their product candidates performed satisfactorily in
clinical trials have nonetheless failed to obtain FDA approval
for their products. A failure of one or more of our clinical
trials can occur at any stage of testing.
11
We may experience numerous unforeseen events during, or as a
result of, the clinical trial process, which could delay or
prevent us from receiving marketing approval or commercializing
our product candidates, including the following:
|
|
|
|
|
Regulators or institutional review boards may not authorize us
to commence a clinical trial or conduct a clinical trial at a
prospective trial site;
|
|
|
|
Our clinical trials may produce negative or inconclusive
results, and we may decide, or regulators may require us, to
conduct additional clinical trials or we may abandon projects
that we expect to be promising;
|
|
|
|
The number of subjects required for our clinical trials may be
larger than we anticipate, enrollment in our clinical trials may
be slower than we anticipate, or participants may drop out of
our clinical trials at a higher rate than we anticipate;
|
|
|
|
We might have to suspend or terminate our clinical trials if the
participants are being exposed to unacceptable health risks;
|
|
|
|
Regulators or institutional review boards may require that we
hold, suspend or terminate clinical research for various
reasons, including noncompliance with regulatory requirements or
our clinical protocols;
|
|
|
|
Regulators may refuse to accept or consider data from clinical
trials for various reasons, including noncompliance with
regulatory requirements or our clinical protocols;
|
|
|
|
The cost of our clinical trials may be greater than we
anticipate;
|
|
|
|
The supply or quality of our product candidates or other
materials necessary to conduct our clinical trials may be
insufficient or inadequate; and
|
|
|
|
The effects of our product candidates may not be the desired
effects or the desired level of effect or may include
undesirable side effects or the product candidates may have
other unexpected characteristics.
|
A number of these risks remain applicable to our pharmacokinetic
and Phase III safety trials required for our NDA submission
for Zelrix.
Subject enrollment, which is a significant factor in the timing
of clinical trials, is affected by a variety of factors,
including the following:
|
|
|
|
|
The size and nature of the subject population;
|
|
|
|
The proximity of subjects to clinical sites;
|
|
|
|
The eligibility criteria for the trial;
|
|
|
|
The design of the clinical trial;
|
|
|
|
Competing clinical trials; and
|
|
|
|
Clinicians and subjects perceptions as to the
potential advantages of the medication being studied in relation
to other available therapies, including any new medications that
may be approved for the indications we are investigating.
|
Furthermore, we plan to rely on clinical trial sites to ensure
the proper and timely conduct of our clinical trials, and while
we have agreements governing their committed activities, we have
limited influence over their actual performance. Any delays or
unanticipated problems during clinical testing, such as
enrollment in our clinical trials being slower than we
anticipate or participants dropping out of our clinical trials
at a higher rate than we anticipate, could increase our costs,
slow down our product development and approval process and
jeopardize our ability to commence product sales and generate
revenues.
12
Serious
adverse events or other safety risks could require us to abandon
development and preclude or limit approval of our product
candidates.
We may voluntarily suspend or terminate our clinical trials if
at any time we believe that they present an unacceptable risk to
participants. In addition, regulatory agencies or institutional
review boards may at any time order the temporary or permanent
discontinuation of our clinical trials or of investigators in
the clinical trials if they believe that the clinical trials are
not being conducted in accordance with applicable regulatory
requirements, or that they present an unacceptable safety risk
to participants. If we elect or are forced to suspend or
terminate a clinical trial of any product candidates, the
commercial prospects of such product candidates will be harmed
and our ability to generate product revenues from any of these
product candidates, if at all, will be delayed or eliminated.
Clinical trials for our product candidates involve testing in
large subject populations, which could reveal a high prevalence
of adverse events. If these effects include undesirable serious
adverse events or have unexpected characteristics, we may need
to abandon our development of these product candidates.
Alternatively, the identification of serious adverse events or
other significant safety risks could result in the imposition of
approval requirements, such as labeling or distribution and use
restrictions that limit the available market for our product
candidates.
Even
if Zelrix receives FDA marketing approval, we may not be able to
secure marketing exclusivity in the U.S.
Although we plan to seek three years marketing exclusivity in
the U.S. if we receive FDA approval for Zelrix, we may not
be entitled to such marketing exclusivity if the FDA determines
that our clinical investigations were not essential to the
approval of the Zelrix NDA. This three year marketing
exclusivity period, if granted, would be coterminous with any
patent coverage for Zelrix. We also intend to seek an additional
period of six months pediatric exclusivity in the U.S., but may
not be able to secure such exclusivity if the FDA does not
request pediatric trials for Zelrix or we are unable to complete
the trials that the FDA requests. The six month pediatric
exclusivity period, if granted, would be in addition to the term
of any existing regulatory exclusivity or listed patent term. If
we are unable to secure marketing exclusivity and any patents
that we are issued do not provide sufficient protection, our
business and ability to generate revenues may be harmed
significantly.
If we
fail to acquire, develop and commercialize product candidates
other than Zelrix, our prospects for future growth and our
ability to sustain profitability may be limited.
A key element of our strategy is to develop and commercialize a
portfolio of product candidates in addition to Zelrix. To do so,
we plan to obtain additional product candidates or technologies
primarily through acquisitions or licenses. We may not be
successful in our efforts to identify and develop additional
product candidates, and any product candidates we do identify
may not produce commercially viable drugs that safely and
effectively treat their indicated conditions. To date, our
efforts have yielded two product candidates in addition to
Zelrix, both of which are currently in preclinical development.
Our development programs may initially show promise in
identifying potential product leads, yet fail to produce product
candidates for clinical development. In addition, identifying
new treatment needs and product candidates requires substantial
technical, financial and human resources on our part. If we are
unable to maintain or secure additional development program
funding or continue to devote substantial technical and human
resources to such programs, we may have to delay or abandon
these programs. Any product candidate that we successfully
identify may require substantial additional development efforts
prior to commercial sale, including preclinical studies,
extensive clinical testing and approval by the FDA and
applicable foreign regulatory authorities. All product
candidates are susceptible to the risks of failure that are
inherent in pharmaceutical product development.
We may be unable to license or acquire suitable product
candidates or technologies from third parties for a number of
reasons. In particular, the licensing and acquisition of
pharmaceutical products is competitive. A number of more
established companies are also pursuing strategies to license or
acquire products. These
13
established companies may have a competitive advantage over us
due to their size, cash resources or greater clinical
development and commercialization capabilities. In addition, we
expect competition in acquiring product candidates to increase,
which may lead to fewer suitable acquisition opportunities for
us as well as higher acquisition prices.
Other factors that may prevent us from licensing or otherwise
acquiring suitable product candidates include the following:
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We may be unable to license or acquire the relevant technology
on terms that would allow us to make an appropriate return from
such product;
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Companies that perceive us to be their competitors may be
unwilling to assign or license their product rights to
us; or
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We may be unable to identify suitable products or product
candidates within our areas of expertise.
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Product
liability lawsuits could divert our resources, result in
substantial liabilities and reduce the commercial potential of
any products that we may successfully develop.
The risk that we may be sued on product liability claims is
inherent in the development of pharmaceutical products. We will
face an even greater risk if we commercially sell any products
that we develop. If we cannot successfully defend ourselves
against claims that our product candidates, or any products we
may commercialize, cause injuries, we will incur substantial
liabilities. Regardless of merit or eventual outcome, these
lawsuits may:
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Expose us to adverse publicity;
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Decrease demand for any products that we successfully develop;
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Cause clinical trial participants to withdraw from clinical
trials or be reluctant to enroll;
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Divert our management from pursuing our business strategy;
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Increase warnings on our product label;
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Be costly to defend; and
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Force us to limit or forgo further development and
commercialization of these products.
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Although we maintain general liability and product liability
insurance with limits, subject to deductibles, of
$2.0 million in the aggregate for general liability,
$1.0 million in the aggregate for umbrella liability
coverage for payments that exceed the general liability limits
and $2.0 million in the aggregate for product liability,
this insurance may not fully cover potential liabilities. The
cost of any products liability litigation or other proceedings,
even if resolved in our favor, could be substantial. In
addition, inability to obtain or maintain sufficient insurance
coverage at an acceptable cost or to otherwise protect against
potential product liability claims could prevent or inhibit the
development and commercial production and sale of our products,
which could adversely affect our business, operating results and
financial condition.
A
variety of risks associated with our planned international
business relationships could materially adversely affect our
business.
We may enter into agreements with third parties for the
development and commercialization of Zelrix and possibly other
products in international markets. If we do so, we would be
subject to additional risks related to entering into
international business relationships, including:
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Differing regulatory requirements for drug approvals in foreign
countries;
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Potentially reduced protection for intellectual property rights;
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The potential for so-called parallel importing, which is what
happens when a local seller, faced with high or higher local
prices, opts to import goods from a foreign market, with low or
lower prices, rather than buying them locally;
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Unexpected changes in tariffs, trade barriers and regulatory
requirements;
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Economic weakness, including inflation, or political instability
in particular foreign economies and markets;
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Compliance with tax, employment, immigration and labor laws for
employees traveling abroad;
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Foreign taxes;
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Foreign currency fluctuations, which could result in increased
operating expenses and reduced revenues, and other obligations
incident to doing business in another country;
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Workforce uncertainty in countries where labor unrest is more
common than in the U.S.;
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Production shortages resulting from any events affecting raw
material supply or manufacturing capabilities abroad; and
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Business interruptions resulting from geo-political actions,
including war and terrorism, or natural disasters, including
earthquakes, volcanoes, typhoons, floods, hurricanes and fires.
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These and other risks may materially adversely affect our
ability to attain or sustain profitable operations.
Risks
Related to Our Financial Condition and Capital
Requirements
We
have incurred significant operating losses since inception and
anticipate that we will incur continued losses for the
foreseeable future. We may never become
profitable.
As of March 31, 2010, we had an accumulated deficit of
approximately $59.4 million. We are a development stage
specialty pharmaceutical company with no products approved for
commercial sale and, to date, have not generated any revenues.
We have funded our operations to date primarily with the
proceeds of the sale of convertible preferred stock, convertible
notes and borrowings under debt facilities. We expect to
continue to incur substantial additional operating losses for at
least the next several years as we continue to develop our
product candidates and seek marketing approval and, subject to
obtaining such approval, the eventual commercialization of
Zelrix and our other product candidates. In addition, we will
incur additional costs of operating as a public company and, if
we obtain marketing approval for Zelrix, will incur significant
sales, marketing and outsourced manufacturing expenses. As a
result, we expect to continue to incur significant and
increasing losses for the foreseeable future.
To achieve and maintain profitability, we need to generate
significant revenues from future product sales. This will
require us to be successful in a range of challenging
activities, including:
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Obtaining marketing approval for the marketing of Zelrix and
possibly other product candidates;
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Commercializing Zelrix and any other product candidates for
which we obtain marketing approval; and
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Achieving market acceptance of Zelrix and any other product
candidates for which we obtain marketing approval in the medical
community and with patients and third party payors.
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Zelrix will require additional clinical trials and evaluation,
marketing approval and investment in commercial capabilities,
including manufacturing and sales and marketing efforts, before
its product sales generate any revenues for us. Because of the
numerous risks and uncertainties associated with drug
development and commercialization, we are unable to predict the
extent of any future losses. We may never successfully
commercialize any products, generate significant future revenues
or achieve and sustain profitability.
15
If we
fail to obtain additional financing, we may not be able to
complete development of and commercialize Zelrix or any other
product candidates.
Our operations have consumed substantial amounts of cash since
inception. We expect to continue to spend substantial amounts to:
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Complete development of and seek marketing approval for Zelrix;
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Launch and commercialize Zelrix and any other product candidates
for which we obtain marketing approval; and
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Continue our development programs to advance our internal
product pipeline, which currently consists of two preclinical
product candidates.
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We will need substantial additional funding and may be unable to
raise capital when needed or on attractive terms, which would
force us to significantly delay, scale back or discontinue the
development or commercialization of Zelrix or our other product
candidates.
We expect that the net proceeds from this offering and our
existing cash and cash equivalents will be sufficient to fund
our operations and capital requirements for at least the
next months. We believe that these available
funds will be sufficient to complete the development of Zelrix
through FDA approval and to fund the expected commercial launch
of Zelrix in the U.S. in the first half of 2012. However,
changing circumstances may cause us to consume capital
significantly faster than we currently anticipate, and we may
need to spend more money than currently expected because of
circumstances beyond our control.
Our future capital requirements will depend on many factors,
including the following:
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The timing of our submission to the FDA and outcome of the
FDAs review of the NDA for Zelrix;
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The extent to which the FDA may require us to perform additional
clinical trials for Zelrix;
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The timing and success of this offering;
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The costs of our commercialization activities for Zelrix, if it
is approved by the FDA;
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The cost of purchasing manufacturing and other capital equipment
for our potential products;
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The scope, progress, results and costs of development for our
other product candidates;
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The cost, timing and outcome of regulatory review of our other
product candidates;
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The extent to which we acquire or invest in products, businesses
and technologies;
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The extent to which we choose to establish collaboration,
co-promotion, distribution or other similar agreements for
product candidates; and
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The costs of preparing, submitting and prosecuting patent
applications and maintaining, enforcing and defending
intellectual property claims.
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To the extent that our capital resources are insufficient to
meet our future operating and capital requirements, we will need
to finance our cash needs through public or private equity
offerings, debt financings, corporate collaboration and
licensing arrangements or other financing alternatives. The
covenants under the May 2010 Loan Facility and the pledge of our
assets as collateral limit our ability to obtain additional debt
financing. We have no committed external sources of funds.
Additional equity or debt financing or corporate collaboration
and licensing arrangements may not be available on acceptable
terms, if at all. If we are unable to raise additional capital
in sufficient amounts or on terms acceptable to us, we will be
prevented from pursuing acquisition, licensing, development and
commercialization efforts and our ability to generate revenues
and achieve or sustain profitability will be substantially
harmed.
If we raise additional funds by issuing equity securities, our
stockholders will experience dilution. Debt financing, if
available, would result in increased fixed payment obligations
and may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as
incurring additional debt,
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making capital expenditures or declaring dividends. Any debt
financing or additional equity that we raise may contain terms,
such as liquidation and other preferences, that are not
favorable to us or our stockholders. If we raise additional
funds through collaboration and licensing arrangements with
third parties, it may be necessary to relinquish valuable rights
to our technologies, future revenue streams or product
candidates or to grant licenses on terms that may not be
favorable to us.
Our
recurring operating losses have raised substantial doubt
regarding our ability to continue as a going
concern.
Our recurring operating losses raise substantial doubt about our
ability to continue as a going concern. As a result, our
independent registered public accounting firm included an
explanatory paragraph in its report on our financial statements
as of and for the year ended December 31, 2009 with respect
to this uncertainty. We have no current source of revenues to
sustain our present activities, and we do not expect to generate
revenues until, and unless, the FDA or other regulatory
authorities approve Zelrix or our other product candidates and
we successfully commercialize any such product candidates.
Accordingly, our ability to continue as a going concern will
require us to obtain additional financing to fund our
operations. The perception of our ability to continue as a going
concern may make it more difficult for us to obtain financing
for the continuation of our operations and could result in the
loss of confidence by investors, suppliers and employees.
Our
indebtedness may limit cash flow available to invest in the
ongoing needs of our business.
Upon closing of this offering, we will have $5.0 million
principal amount of indebtedness outstanding under the May 2010
Loan Facility. We may incur additional indebtedness beyond this
amount, including, subject to our satisfaction of specified
conditions and approval by the lenders in their sole discretion,
up to $6.0 million under the May 2010 Loan Facility. Our
indebtedness combined with our other financial obligations and
contractual commitments, including amounts due under an
equipment funding agreement with LTS Lohmann Therapie-Systeme
AG, or LTS, could have significant adverse consequences,
including:
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Requiring us to dedicate a substantial portion of our cash
resources to the payment of interest on, and principal of, our
debt, which will reduce the amounts available to fund working
capital, capital expenditures, product development efforts and
other general corporate purposes;
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Increasing our vulnerability to adverse changes in general
economic, industry and competitive conditions and adverse
changes in government regulation;
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Limiting our flexibility in planning for, or reacting to,
changes in our business and our industry; and
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Placing us at a competitive disadvantage compared to our
competitors that have less debt.
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In addition, we are vulnerable to increases in the market rate
of interest because amounts outstanding under the May 2010 Loan
Facility bear interest at a variable rate. If the market rate of
interest increases, we may have to pay additional interest on
our outstanding debt, which would reduce cash available for our
other business needs. Further, we are subject to fluctuations in
exchange rates because amounts due under the equipment funding
agreement with LTS are in Euros. If the U.S. dollar weakens
against the Euro, our costs in U.S. dollars will increase, which
would also reduce cash available for our other business needs.
We may need external sources of funds to repay our indebtedness
as it matures. We may not have sufficient funds or may be unable
to arrange for additional financing to pay the amounts due under
the May 2010 Loan Facility or any other borrowings. Funds
from external sources may not be available on acceptable terms,
if at all. In addition, a failure to comply with the covenants
under the May 2010 Loan Facility or future indebtedness could
result in an event of default. In the event of an acceleration
of amounts due under our debt instruments as a result of an
event of default or the occurrence of a mandatory prepayment
event, we may not have sufficient funds or may be unable to
arrange for additional financing to repay our indebtedness or to
make any accelerated payments, and the lenders could seek to
enforce security interests in the collateral securing such
indebtedness. Because of the covenants under our existing debt
instruments and the pledge of our assets as collateral, we have
a limited ability to obtain additional debt financing.
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We
have a limited operating history, which makes it difficult to
evaluate our business and growth prospects.
We were incorporated in Delaware in January 2005. Our operations
to date have been limited to organizing and staffing our
company, conducting product development activities for Zelrix
and performing preclinical development of our other product
candidates. As a company, we have not yet demonstrated an
ability to obtain marketing approval for or commercialize a
product candidate. Consequently, any predictions about our
future performance may not be as accurate as they could be if we
had a history of successfully developing and commercializing
pharmaceutical products as a company.
In addition, as a new business, we may encounter unforeseen
expenses, difficulties, complications, delays and other known
and unknown factors. We will need to transition from a company
with a development focus to a company capable of supporting
commercial activities. We may not be successful in such a
transition.
Risks
Related to Our Dependence on Third Parties
We use
third parties to manufacture all of our product candidates,
including Zelrix, and the machinery to produce the commercial
supply of Zelrix must be designed, built and validated. This may
increase the risk that we will not have sufficient quantities of
our product candidates or such quantities at an acceptable cost,
which could result in clinical development and commercialization
of our product candidates being delayed, prevented or
impaired.
We do not own or operate, and have no plans to establish, any
manufacturing facilities for our product candidates. We have
limited personnel with experience in drug manufacturing and we
lack the resources and the capabilities to manufacture any of
our product candidates on a clinical or commercial scale.
We currently outsource all manufacturing of our preclinical and
clinical product candidates to third parties, including
sumatriptan and key components of Zelrix, typically without any
guarantee that there will be sufficient supplies to fulfill our
requirements or that we may obtain such supplies on acceptable
terms. Any delays in obtaining adequate supplies with respect to
our preclinical and clinical product candidates may delay the
development or commercialization of Zelrix or our other product
candidates.
In addition, we do not currently have any agreements with third
party manufacturers for the long-term commercial supply of our
product candidates. We may be unable to enter agreements for
commercial supply with third party manufacturers, or may be
unable to do so on acceptable terms. Even if we enter into these
agreements, the various manufacturers of each product candidate
will likely be single source suppliers to us for a significant
period of time.
In particular, LTS manufactures Zelrix using sumatriptan and
components that we purchase from third parties. Although LTS has
considerable experience in the manufacturer of passive
transdermal drug patches, it does not have such experience in
manufacturing active transdermal patches such as Zelrix. In
order for LTS to produce our commercial supply of Zelrix, LTS
must successfully complete the following:
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Transfer technology and production capabilities from its German
facility where our clinical supply has been produced to its
manufacturing facility in New Jersey;
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Assemble the commercial scale manufacturing equipment for Zelrix
using components purchased from third party suppliers; and
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Test and validate the newly-assembled machinery and production
process.
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The machinery that LTS will use to produce the commercial supply
of Zelrix will be customized to the particular manufacturing
specifications of Zelrix and does not exist currently. In
June 2010, we entered into an equipment funding agreement
with LTS, under which we agreed to fund the purchase by LTS of
the manufacturing equipment for Zelrix. If LTS is unable to
assemble and validate this equipment, or to validate the
production process at its New Jersey facility, in each case in a
timely manner, our ability to launch and commercialize Zelrix
will be compromised significantly. If this customized equipment
malfunctions at any
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time during the production process, the time it may take LTS to
secure replacement parts, to undertake repairs and to revalidate
the equipment and process could limit our ability to meet the
commercial demand for Zelrix.
Reliance on third party manufacturers subjects us to risks that
would not affect us if we manufactured the product candidates
ourselves, including:
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Reliance on the third parties for regulatory compliance and
quality assurance;
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The possible breach of the manufacturing agreements by the third
parties because of factors beyond our control;
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The possibility of termination or nonrenewal of the agreements
by the third parties because of our breach of the manufacturing
agreement or based on their own business priorities; and
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The disruption and costs associated with changing suppliers.
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Our product candidates may compete with other products and
product candidates for access to manufacturing facilities. There
are a limited number of manufacturers that operate under current
good manufacturing practice, or cGMP, regulations and that are
both capable of manufacturing for us and willing to do so. If
our existing third party manufacturers, or the third parties
that we engage in the future to manufacture a product for
commercial sale or for our clinical trials, should cease to
continue to do so for any reason, we likely would experience
delays in obtaining sufficient quantities of our product
candidates for us to meet commercial demand or to advance our
clinical trials while we identify and qualify replacement
suppliers. If for any reason we are unable to obtain adequate
supplies of our product candidates or the drug substances used
to manufacture them, it will be more difficult for us to develop
our product candidates and compete effectively.
Our suppliers are subject to regulatory requirements, covering
manufacturing, testing, quality control, manufacturing, and
record keeping relating to our product candidates, and subject
to ongoing inspections by the regulatory agencies. Failure by
any of our suppliers to comply with applicable regulations may
result in long delays and interruptions to our manufacturing
capacity while we seek to secure another supplier that meets all
regulatory requirements.
We may
rely on third parties to conduct aspects of our clinical trials.
If these third parties do not successfully carry out their
contractual duties or meet expected deadlines, we may be delayed
in obtaining or ultimately not be able to obtain marketing
approval to commercialize Zelrix or any other product
candidates.
We currently rely on contract research organizations, or CROs,
for some aspects of our clinical trials, including data
management, statistical analysis and electronic compilation of
our NDA. We may enter into additional agreements with CROs to
obtain additional resources and expertise in an attempt to
accelerate our progress with regard to ongoing clinical and
preclinical programs. Entering into relationships with CROs
involves substantial cost and requires extensive management time
and focus. In addition, typically there is a transition period
when a CRO commences work. As a result, delays may occur, which
may materially impact our ability to meet our desired clinical
development timelines and ultimately have a material adverse
impact on our operating results, financial condition or future
prospects.
As CROs are not our employees, we cannot control whether or not
they devote sufficient time and resources to our ongoing
clinical and preclinical programs in which they are engaged to
perform. If the CROs we engage 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 data they provide is compromised due to the
failure to adhere to regulatory requirements, or for other
reasons, our development programs may be extended, delayed or
terminated, and we may not be able to obtain marketing approval
for or successfully commercialize Zelrix or any other product
candidates that we develop. As a result, our financial results
and the commercial prospects for Zelrix and any other product
candidates that we develop would be harmed, our costs could
increase and our ability to generate revenues could be delayed.
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Any
collaboration arrangements that we may enter into in the future
may not be successful, which could adversely affect our ability
to develop and commercialize our product
candidates.
We may seek collaboration arrangements with pharmaceutical or
biotechnology companies for the development or commercialization
of our product candidates in the future. We may enter into such
arrangements on a selective basis depending on the merits of
retaining commercialization rights for ourselves as compared to
entering into selective collaboration arrangements with leading
pharmaceutical or biotechnology companies for each product
candidate, both in the U.S. and internationally. We will
face, to the extent that we decide to enter into collaboration
agreements, significant competition in seeking appropriate
collaborators. Moreover, collaboration arrangements are complex
and time consuming to negotiate, document and implement. We may
not be successful in our efforts to establish and implement
collaborations or other alternative arrangements should we so
chose to enter into such arrangements. The terms of any
collaborations or other arrangements that we may establish may
not be favorable to us.
Any future collaborations that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our
collaborators. Collaborators generally have significant
discretion in determining the efforts and resources that they
will apply to these collaborations.
Disagreements between parties to a collaboration arrangement
regarding clinical development and commercialization matters can
lead to delays in the development process or commercializing the
applicable product candidate and, in some cases, termination of
the collaboration arrangement. These disagreements can be
difficult to resolve if neither of the parties has final
decision making authority.
Collaborations with pharmaceutical or biotechnology companies
and other third parties often are terminated or allowed to
expire by the other party. Any such termination or expiration
would adversely affect us financially and could harm our
business reputation.
Risks
Related to Regulatory Matters
If we
are unable to obtain marketing approval for Zelrix or our other
product candidates, we will not be able to commercialize our
product candidates and our business will be substantially
harmed.
Our product candidates and the activities associated with their
development and commercialization, including their testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage,
approval, advertising, promotion, sale and distribution, are
subject to comprehensive regulation by the FDA and other
regulatory agencies in the U.S. and by comparable
authorities in other countries. Failure to obtain marketing
approval for a product candidate will prevent us from
commercializing the product candidate. As a company, we have not
received approval from the FDA or demonstrated our ability to
obtain marketing approval for any drugs that we have developed
or are developing. Securing FDA approval requires the submission
of extensive preclinical and clinical data and supporting
information to the FDA for each therapeutic indication to
establish the product candidates safety and efficacy.
Securing FDA approval also requires the submission of
information about the product manufacturing process to, and
inspection of manufacturing facilities by, the FDA. Our other
product candidates may not be effective, may be only moderately
effective or may prove to have undesirable or unintended side
effects, toxicities or other characteristics that may preclude
our obtaining marketing approval or prevent or limit commercial
use.
The process of obtaining marketing approvals is expensive and
often takes many years, if approval is obtained at all, and can
vary substantially based upon a variety of factors, including
the type, complexity and novelty of the product candidates
involved and the nature of the disease or condition to be
treated. We intend to seek approval of Zelrix and likely other
product candidates pursuant to Section 505(b)(2) of the
Federal Food, Drug, and Cosmetic Act, or FDCA, in the U.S.,
which enables an NDA applicant to rely in part on findings of
safety and efficacy of a product already approved by the FDA. We
may fail to obtain marketing approval for Zelrix or any other
product candidates for many reasons, including the following:
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We may not be able to demonstrate to the satisfaction of the FDA
or comparable foreign regulatory authorities that a product
candidate is safe and effective for any indication;
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The results of clinical trials may not meet the level of
statistical or clinical significance required by the FDA or
comparable foreign regulatory authorities for approval;
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The FDA or comparable foreign regulatory authorities may
disagree with the number, design, conduct or implementation of
our clinical trials;
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We may not be able to demonstrate that a product
candidates clinical and other benefits outweigh its safety
risks;
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We may not be able to demonstrate that a product candidate
provides an advantage over current standard of care or future
competitive therapies in development;
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The FDA or comparable foreign regulatory authorities may
disagree with our interpretation of data from preclinical
studies or clinical trials;
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The FDA or comparable foreign regulatory authorities may not
accept data generated at our clinical trial sites;
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The data collected from clinical trials of any product
candidates that we develop may not be sufficient to support the
submission of an NDA or other submission or to obtain marketing
approval in the U.S. or elsewhere;
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The FDA may determine that we have identified the wrong
reference listed drug or drugs or that approval of our 505(b)(2)
application for Zelrix or any other product candidate is blocked
by patent or non-patent exclusivity of the reference listed drug
or drugs; and
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The FDA or comparable foreign regulatory authorities may
identify deficiencies in the manufacturing processes or
facilities of third party manufacturers with which we enter into
agreements for clinical and commercial supplies.
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This lengthy approval process, as well as the unpredictability
of future clinical trial results, may result in our failing to
obtain marketing approval to market Zelrix or any future product
candidates, which would significantly harm our business, results
of operations and prospects.
Even
if we obtain marketing approval for Zelrix or any of our other
product candidates, we will continue to face extensive
regulatory requirements and our products may face future
development and regulatory difficulties.
Even if marketing approval in the U.S. is obtained, the FDA
may still impose significant restrictions on a products
indicated uses or marketing, including risk evaluation and
mitigation strategies, or impose ongoing requirements, including
with respect to:
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Post-market surveillance, post-market studies or post-market
clinical trials;
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Labeling, packaging, storage, distribution, safety surveillance,
advertising, promotion, recordkeeping and reporting of safety
and other post-market information;
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Monitoring and reporting adverse events and instances of the
failure of a product to meet the specifications in the NDA;
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Changes to the approved product, product labeling or
manufacturing process;
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Advertising and other promotional material; and
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Disclosure of clinical trial results on publicly available
databases.
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In addition, manufacturers of drug products and their facilities
are subject to continual review and periodic inspections by the
FDA and other regulatory authorities for compliance with cGMP
regulations. The distribution, sale and marketing of our
products are subject to a number of additional requirements,
including:
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State wholesale drug distribution laws and the distribution of
our product samples to physicians must comply with the
requirements of the Prescription Drug Marketing Act;
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Sales, marketing and scientific or educational grant programs
must comply with the anti-kickback and fraud and abuse
provisions of the Social Security Act, the transparency
provision of the Patient Protection and Affordable Care Act and
an associated reconciliation bill that became law in
March 2010, which we refer to collectively as the Health
Care Reform Law, the False Claims Act and similar state laws;
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Pricing and rebate programs must comply with the Medicaid rebate
requirements of the Omnibus Budget Reconciliation Act of 1990
and the Veterans Health Care Act of 1992; and
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If products are made available to authorized users of the
Federal Supply Schedule of the General Services Administration,
additional laws and requirements apply.
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All of these activities are also potentially subject to federal
and state consumer protection and unfair competition laws.
If we or any third parties involved in our commercialization
efforts fail to comply with applicable regulatory requirements,
a regulatory agency may:
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Issue warning letters or untitled letters asserting that we are
in violation of the law;
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Seek an injunction or impose civil or criminal penalties or
monetary fines;
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Suspend or withdraw marketing approval;
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Suspend any ongoing clinical trials;
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Refuse to approve pending applications or supplements to
applications submitted by us;
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Suspend or impose restrictions on operations, including costly
new manufacturing requirements;
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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;
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Refuse to allow us to enter into supply contracts, including
government contracts;
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Impose civil monetary penalties; or
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Pursue civil or criminal prosecutions and fines against our
company or responsible officers.
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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
commercialize our product candidates and generate revenues.
Even
if we obtain marketing approval for Zelrix or any of our other
product candidates, adverse effects discovered after approval
could limit the commercial profile of any approved
product.
If we obtain marketing approval for Zelrix or any other product
candidate that we develop, we or others may later discover,
after use in a larger number of subjects for longer periods of
time than in clinical trials, that our products could have
adverse effect profiles that limit their usefulness or require
their withdrawal. This discovery could have a number of
potentially significant negative consequences, including:
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Regulatory authorities may withdraw their approval of the
product;
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Regulatory authorities may require the addition of labeling
statements, such as black box or other warnings or
contraindications;
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Regulatory authorities may require us to issue specific
communications to healthcare professionals, such as Dear
Doctor Letters;
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Regulatory authorities may impose additional restrictions on
marketing and distribution of the products;
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Regulatory authorities may issue negative publicity regarding
the product, including safety communications;
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We may be required to change the way the product is
administered, conduct additional clinical studies or restrict
the distribution of the product;
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We could be sued and held liable for harm caused to
subjects; and
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Our reputation may suffer.
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Any of these events could prevent us from maintaining market
acceptance of the affected product candidate and could
substantially increase the costs of commercializing our product
candidates.
We
will need FDA approval of our proposed trade name, Zelrix, and
any failure or delay associated with such approval may delay the
commercialization of Zelrix.
Any trade name we intend to use for our product candidates will
require approval from the FDA regardless of whether we have
secured a formal trademark registration from the
U.S. Patent and Trademark Office, or USPTO. The FDA
typically conducts a rigorous review of proposed trade names,
including an evaluation of potential for confusion with other
trade names and medical error. The FDA may also object to a
trade name if it believes the name inappropriately implies
medical claims. We intend to submit the proposed trade name
Zelrix to the FDA for approval. If the FDA objects to our
proposed trade name, we may be required to adopt an alternative
name for our product candidate. Even after approval, the FDA may
request that we adopt an alternative name for the product if
adverse event reports indicate a potential for confusion with
other trade names and medical error. If we are required to adopt
an alternative name, the commercialization of Zelrix could be
delayed or interrupted, which would limit our ability to
commercialize Zelrix and generate revenues.
If the
FDA does not approve the manufacturing facilities of LTS or any
future third party manufacturers for commercial production, we
may not be able to commercialize Zelrix or any of our other
product candidates.
The facilities used by LTS and any of our future manufacturers
to manufacture Zelrix must be approved by the FDA after we
submit our NDA to the FDA and before approval of Zelrix. We do
not control the manufacturing process of Zelrix and are
completely dependent on third party manufacturers for compliance
with the FDAs requirements for manufacture of Zelrix. If
our manufacturers cannot successfully manufacture material
components and finished products that conform to our
specifications and the FDAs strict regulatory
requirements, they will not be able to secure FDA approval for
their manufacturing facilities. If the FDA does not approve
these facilities for the commercial manufacture of Zelrix, or
the facilities of any of our other product candidates, we may
need to find alternative manufacturing facilities, which would
result in significant delays of up to several years in obtaining
FDA approval for Zelrix, or any of our other product candidates.
We would incur substantial additional costs as a result of any
such delays, including with respect to finding alternative
manufacturing facilities.
Even
if our product candidates receive marketing approval in the
U.S., we may never receive marketing approval or commercialize
our products outside the U.S.
In order to market Zelrix or any other product candidate outside
the U.S., we must obtain separate marketing approvals and comply
with numerous and varying regulatory requirements of other
countries regarding safety and efficacy and governing, among
other things, clinical trials and commercial sales, pricing and
distribution of our product candidates. The time required to
obtain approval in other countries might differ from and be
longer than that required to obtain FDA approval. The marketing
approval process in other countries may include all of the risks
associated with obtaining FDA approval in the U.S., as well as
other risks. For example, legislation analogous to
Section 505(b)(2) of the FDCA in the U.S., which relates to
the ability of an NDA applicant to use published data not
developed by such applicant, does not exist in other countries.
In territories where data is not freely available, we may not
have the ability to commercialize our products without
negotiating rights from third parties to refer to their clinical
data in our regulatory applications, which could require the
expenditure of significant additional funds. Further, we may be
unable to obtain rights to the necessary clinical data and may
be required to develop our own proprietary safety and
23
effectiveness dossiers. In addition, in many countries outside
the U.S., it is required that a product receives pricing and
reimbursement approval before the product can be commercialized.
This can result in substantial delays in such countries.
Marketing approval in one country does not ensure marketing
approval in another, but a failure or delay in obtaining
marketing approval in one country may have a negative effect on
the regulatory process in others. In addition, we may be subject
to fines, suspension or withdrawal of marketing approvals,
product recalls, seizure of products, operating restrictions and
criminal prosecution if we fail to comply with applicable
foreign regulatory requirements. If we fail to comply with
regulatory requirements in international markets or to obtain
and maintain required approvals, our target market will be
reduced and our ability to realize the full market potential of
our product candidates will be harmed.
Our
relationships with customers and payors will be subject to
applicable anti-kickback, fraud and abuse and other healthcare
laws and regulations, which could expose us to criminal
sanctions, civil penalties, contractual damages, reputational
harm and diminished profits and future earnings.
Healthcare providers, physicians and others play a primary role
in the recommendation and prescription of any products for which
we obtain marketing approval. Our future arrangements with third
party payors and customers will 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 our
products for which we obtain marketing approval. Restrictions
under applicable federal and state healthcare laws and
regulations, include the following:
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The federal healthcare anti-kickback statute prohibits, among
other things, persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or
indirectly, in cash or in kind, to induce or reward 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 healthcare programs such as Medicare and
Medicaid;
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The federal False Claims Act imposes criminal and civil
penalties, including 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;
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The federal Health Insurance Portability and Accountability Act
of 1996, as amended by the Health Information Technology for
Economic and Clinical Health Act, imposes criminal and civil
liability for executing a scheme to defraud any healthcare
benefit program and also imposes obligations, including
mandatory contractual terms, with respect to safeguarding the
privacy, security and transmission of individually identifiable
health information;
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The federal false statements statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact
or making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or
services;
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The federal transparency requirements under the Health Care
Reform Law requires manufacturers of drugs, devices, biologics,
and medical supplies to report to the Department of Health and
Human Services information related to physician payments and
other transfers of value and physician ownership and investment
interests; and
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Analogous state laws and regulations, such as state
anti-kickback and false claims laws and transparency laws, may
apply to sales or marketing arrangements and claims involving
healthcare items or services reimbursed by non-governmental
third party payors, including private insurers, and some state
laws require pharmaceutical companies to comply with the
pharmaceutical industrys voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal
government in addition to requiring drug manufacturers to report
information related to payments to physicians and other health
care providers or marketing expenditures and drug pricing.
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Efforts to ensure that our business arrangements with third
parties will comply with applicable healthcare laws and
regulations could be costly. 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, including anticipated
activities conducted by our sales team in the sale of Zelrix,
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, exclusion from government funded healthcare
programs, such as Medicare and Medicaid, and the curtailment or
restructuring of our operations. If any of the physicians or
other providers or entities with whom we expect to do business
are found to be not in compliance with applicable laws, they may
be subject to criminal, civil or administrative sanctions,
including exclusions from government funded healthcare programs.
Recently
enacted and future legislation may increase the difficulty and
cost for us to obtain marketing approval of and commercialize
our product candidates and affect the prices we may
obtain.
In the U.S. and some foreign jurisdictions, there have been
a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or
delay marketing approval of our product candidates, restrict or
regulate post-approval activities and affect our ability to
profitably sell our products for which we obtain marketing
approval.
In the U.S., the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, or Medicare Modernization Act,
changed the way Medicare covers and pays for pharmaceutical
products. The legislation expanded Medicare coverage for drug
purchases by the elderly and introduced a new reimbursement
methodology based on average sales prices for physician
administered drugs. In addition, this legislation provided
authority for limiting the number of drugs that will be covered
in any therapeutic class. Cost reduction initiatives and other
provisions of this legislation could decrease the coverage and
price that we receive for any approved products. While the
Medicare Modernization Act applies only to drug benefits for
Medicare beneficiaries, private payors often follow Medicare
coverage policy and payment limitations in setting their own
reimbursement rates. Therefore, any reduction in reimbursement
that results from the Medicare Modernization Act may result in a
similar reduction in payments from private payors.
More recently, in March 2010, President Obama signed into law
the Health Care Reform Law, a sweeping law 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. Effective
October 1, 2010, the Health Care Reform Law revises the
definition of average manufacturer price for
reporting purposes, which could increase the amount of Medicaid
drug rebates to states once the provision is effective. Further,
beginning in 2011, the new law imposes a significant annual fee
on companies that manufacture or import branded prescription
drug products. Substantial new provisions affecting compliance
have also been enacted, which may require us to modify our
business practices with health care practitioners. We will not
know the full effects of the Health Care Reform Law until
applicable federal and state agencies issue regulations or
guidance under the new law. Although it is too early to
determine the effect of the Health Care Reform Law, the new law
appears likely to continue the pressure on pharmaceutical
pricing, especially under the Medicare program, and may also
increase our regulatory burdens and operating costs.
Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We are not sure whether
additional legislative changes will be enacted, or whether the
FDA regulations, guidance or interpretations will be changed, or
what the impact of such changes on the marketing approvals of
our product candidates, if any, may be. In addition, increased
scrutiny by the United States Congress of the FDAs
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.
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Risks
Related to Intellectual Property
We may
not be able to rely on our intellectual property to protect our
products in the marketplace.
Our success depends, in large part, on our ability to protect
our competitive position through patents, trade secrets,
trademarks and other intellectual property rights. The patent
positions of pharmaceutical and biotechnology companies,
including our company, are uncertain and involve complex
questions of law and fact for which important legal issues
remain unresolved or may change. As a result of recent court
decisions, the requirements for patentability of inventions in
the U.S. have become more stringent, including stricter
requirements that inventions be non-obvious and that patent
applications provide an adequate written description of the
invention. These court decisions may have the effect of
narrowing the types of medical treatments that are patentable.
The patent we have licensed and patents that may be licensed by
or issued to us in the future may not provide us with any
competitive advantage. Our patents may be challenged by third
parties in patent litigation, or in patent reexamination or
opposition proceedings, which are becoming widespread in the
pharmaceutical industry. In particular, it is not uncommon for
potential competitors to challenge the validity of patents
protecting new pharmaceutical products shortly after the
products receive FDA approval. Alternatively, it is possible
that third parties with products that are very similar to ours
will circumvent our issued patents by purposely developing
products or processes that avoid our patent claims. Our patent
protection may be limited because of any of the following:
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Our patents may not be broad or strong enough to prevent
competition from identical or similar products;
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We may be required to disclaim part of the term of some patents;
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There may be prior art of which we are not aware that may affect
the validity or enforceability of a patent claim;
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There may be prior art of which we are aware, which we do not
believe affects the validity or enforceability of a claim, but
which, nonetheless ultimately may be found to affect the
validity or enforceability of a claim;
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If challenged, a court could determine that our issued patents
are not valid or enforceable;
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A court could determine that a competitors technology or
product does not infringe our patents; and
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Our patents and patent applications could irretrievably lapse
due to failure to pay fees or otherwise comply with regulations,
or could be subject to compulsory licensing.
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We do not currently own any issued U.S. or foreign patents
covering any of our product candidates or technology. We have
licensed one issued U.S. patent that relates to an
iontophoresis drug delivery system. We and our licensors have
filed and are actively pursuing applications for patents in the
U.S. and in foreign jurisdictions. However, pending patent
applications may not result in the issuance of patents or the
scope of patent protection that we have requested, and we may
not develop additional proprietary products which are
patentable. Further, if we encounter delays in our development
or clinical trials, the period of time during which we could
market our products under patent protection would be reduced.
Because the composition of matter patent covering the active
pharmaceutical ingredient of Zelrix has expired, competitors
will be able to offer and sell products with the same active
pharmaceutical ingredient as Zelrix so long as these competitors
do not infringe any other patents that may be issued to or
licensed by us, including any product, formulation and method of
use patents, or violate any marketing exclusivity period that
may be granted. Similarly, the composition of matter patents
covering the active ingredients of our NP201 and NP202 product
candidates have expired, and competitors will be able to offer
and sell products with the same active pharmaceutical
ingredients as these product candidates products so long as
these competitors do not infringe any other patents that we hold
or may obtain in the future, including any product, formulation
and method of use patents, or violate any marketing exclusivity
period that may be granted.
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Patents covering new products or formulations incorporating a
generic active pharmaceutical ingredient cannot prevent
competitors from commercializing the original products and
formulations. In addition, method of use patents, in particular,
are more difficult to enforce than composition of matter patents
because of the risk of off label sale or use of the subject
compounds. Physicians are permitted to prescribe an approved
product for uses that are not described in the products
labeling. Although off label prescriptions may infringe our
method of use patents, if issued, the practice is common across
medical specialties and such infringement is difficult to
prevent or prosecute. Off label sales would limit our ability to
generate revenue from the sale of our product candidates, if
approved for commercial sale. In addition, if a third party were
able to design around any issued product, method, formulation or
other patent and create a different product not covered by our
patents, if issued, we would likely be unable to prevent that
third party from manufacturing and marketing its product.
We rely on third parties to protect the intellectual property we
license, including trade secrets, patents, and know-how, and we
may not have any input or control over the filing, prosecution
or enforcement of such intellectual property rights. Any
resulting patents may be invalid or unenforceable. Any
enforcement of intellectual property rights, or defense of any
claims asserting the invalidity thereof, may be subject to the
cooperation of the third parties.
If we
fail to comply with our obligations in our intellectual property
licenses with third parties, we could lose license rights that
are important to our business.
We are a party to a number of license agreements and may enter
into additional licenses in the future. If we fail to comply
with the obligations under a license agreement or otherwise
breach the license agreement, the licensor may have the right to
terminate the license, in which event we might not be able to
market any product that is covered by any previously licensed
patents.
For example, we are party to a license agreement with the
University of Pennsylvania, or Penn, pursuant to which we
license from Penn patent applications and other intellectual
property related to the LAD technology to develop and
commercialize licensed products, including NP201 and NP202, and
a license agreement with SurModics Pharmaceuticals, Inc., or
SurModics, pursuant to which we license from SurModics
intellectual property to make, have made, use, sell, import and
export NP201. We are obligated to pay milestone and royalty
payments under each agreement in addition to other obligations.
The triggering of milestone payments to Penn or SurModics
depends on factors relating to the clinical and regulatory
development and commercialization of NP201 and NP202, many of
which are beyond our control. We may become obligated to make a
milestone payment when we do not have the cash on hand to make
such payment, which could require us to delay our clinical
trials, curtail our operations, scale back our commercialization
and marketing efforts or seek additional capital to meet these
obligations on terms unfavorable to us.
Our failure to comply with the requirements of these license
agreements, including our milestone payment obligations, could
result in the termination of such agreements, in which case we
might not be able to develop or market any product that is
covered by the license. Even if we contest any such termination
and are ultimately successful, our results of operations and
stock price could suffer.
Our
ability to pursue the development and commercialization of
Zelrix is significantly dependent upon obtaining a license of
LTSs intellectual property.
Our development and license agreement with LTS provides that if
we enter into a commercial manufacturing agreement with LTS, LTS
will have the exclusive right to manufacture Zelrix and LTS will
grant us an exclusive, worldwide, royalty-free license under
LTSs intellectual property to use, import, sell, market
and distribute Zelrix. We may not enter into a commercial
manufacturing agreement with LTS on commercially reasonable
terms, if at all. If we do not enter into a commercial
manufacturing agreement with LTS, we may not have access to
LTSs proprietary technology and know-how to manufacturer
Zelrix. In this situation, we would need to develop equivalent
or alternative intellectual property, which will significantly
delay our commercialization of Zelrix and entail significant
additional cost.
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We may
infringe the intellectual property rights of others, which may
prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing
our products.
Our commercial success depends significantly on our ability to
operate without infringing the patents and other intellectual
property rights of third parties. There could be issued patents
of which we are not aware that our products infringe. There also
could be patents that we believe we do not infringe, but that we
may ultimately be found to infringe. Moreover, patent
applications are in some cases maintained in secrecy until
patents are issued. The publication of discoveries in the
scientific or patent literature frequently occurs substantially
later than the date on which the underlying discoveries were
made and patent applications were filed. Because patents can
take many years to issue, there may be currently pending
applications of which we are unaware that may later result in
issued patents that our products infringe. For example, pending
applications may exist that provide support or can be amended to
provide support for a claim that results in an issued patent
that our product infringes.
Third parties may assert that we are employing their proprietary
technology without authorization. If a court held that any third
party patents cover our products, the holders of any such
patents may be able to block our ability to commercialize our
products unless we obtained a license under the applicable
patent or patents, or until such patents expire. We may not be
able to enter into licensing arrangements or make other
arrangements at a reasonable cost or on reasonable terms. Any
inability to secure licenses or alternative technology could
result in delays in the introduction of our products or lead to
prohibition of the manufacture or sale of products by us.
If we
are unable to protect the confidentiality of our proprietary
information and know-how, the value of our technology and
products could be significantly diminished.
In addition to patents, we rely on trade secrets and proprietary
know-how to protect our intellectual property. We generally
require our employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors to
enter into confidentiality agreements. These agreements provide
that all confidential information developed or made known to the
individual during the course of the individuals
relationship with us is to be kept confidential and not
disclosed to third parties except in specific circumstances. In
the case of our employees, the agreements also typically provide
that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived
or completed during employment are our exclusive property to the
extent permitted by law. Where appropriate, agreements we obtain
with our consultants also typically contain similar assignment
of invention provisions.
These agreements may not provide meaningful protection or
adequate remedies in the event of unauthorized use or disclosure
of our proprietary information. Involuntary disclosure or
misappropriation by third parties of our confidential
proprietary information could enable competitors to quickly
duplicate or surpass our technological achievements, thus
eroding our competitive position. In addition, it is possible
that third parties could independently develop proprietary
information and techniques substantially similar to ours or
otherwise gain access to our trade secrets.
Risks
Related to Employee Matters and Managing Growth
If we
are not successful in attracting and retaining highly qualified
personnel, including our current senior executive team, we may
not be able to successfully implement our business
strategy.
Our ability to compete in the highly competitive pharmaceutical
and biotechnology industries depends in large part upon our
ability to attract and retain highly qualified managerial,
scientific and medical personnel. Competition for skilled
personnel in our market is very intense because of the numerous
pharmaceutical and biotechnology companies that seek similar
personnel. These companies may have greater financial and other
resources, offer a greater opportunity for career advancement
and have a longer history in the industry than we do. We also
experience competition for the hiring of our scientific and
clinical personnel from universities and research institutions.
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We are highly dependent on Jane H. Hollingsworth, our Chief
Executive Officer, and Terri B. Sebree, our President. Despite
our efforts to retain valuable employees, members of our
management, scientific and medical teams may terminate their
employment with us on short notice. We have formal employment
agreements with Ms. Hollingsworth and Ms. Sebree that
each include reasonable notice periods for terminations of such
individuals employment. Besides these agreements, all
other employees employment is at-will, which means that
any of these employees could leave our employment at any time.
We maintain key person insurance for each of
Ms. Hollingsworth and Ms. Sebree. The total death
benefit under each policy is $2.0 million and we are the
only named beneficiary and owner of the policies. The policies
have an initial term of ten years and are subject to
renewal annually thereafter. We do not maintain key
person insurance for any of our other employees. The loss
of the services of any of our executive officers or other key
employees could potentially harm our business, operating results
or financial condition.
We
will need to grow our organization, and we may experience
difficulties in managing this growth, which could disrupt our
operations.
As of May 31, 2010, we employed 21 full-time
employees. We expect to expand our employee base for managerial,
operational, sales, marketing, financial and other resources.
Future growth would impose significant added responsibilities on
members of management, including the need to identify, recruit,
maintain, motivate and integrate additional employees. Also, our
management may need to divert a disproportionate amount of its
attention away from our
day-to-day
activities and devote a substantial amount of time to managing
these growth activities. We may not be able to effectively
manage the expansion of our operations which 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. Our expected
growth could require significant capital expenditures and may
divert financial resources from other projects, such as the
anticipated commercialization of Zelrix or development of
additional product candidates. If our management is unable to
effectively manage our expected growth, our expenses may
increase more than expected, our ability to generate or increase
our revenues could be reduced and we may not be able to
implement our business strategy. Our future financial
performance and our ability to commercialize Zelrix and our
other product candidates and compete effectively will depend, in
part, on our ability to effectively manage any future growth.
Risks
Related to this Offering and Ownership of Our Common
Stock
The
market price of our common stock may be highly volatile, and you
may not be able to resell your shares at or above the initial
public offering price.
Prior to this offering, there has not been a public market for
our common stock. If an active trading market for our common
stock does not develop following this offering, you may not be
able to sell your shares quickly or at the market price. The
initial public offering price for the shares will be determined
by negotiations between us and representatives of the
underwriters and may not be indicative of prices that will
prevail in the subsequent trading market.
The trading price of our common stock is likely to be volatile.
Our stock price could be subject to wide fluctuations in
response to a variety of factors, including the following:
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Any delay in submitting our NDA for Zelrix and any adverse
development or perceived adverse development with respect to the
FDAs review of such NDA, including the FDAs refusal
to accept the NDA for substantive review or a request for
additional information;
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The commercial success of Zelrix, if approved by the FDA;
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Results of clinical trials of our product candidates or those of
our competitors;
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Changes or developments in laws or regulations applicable to our
product candidates;
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Introduction of competitive products or technologies;
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Failure to meet or exceed financial projections we provide to
the public;
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29
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Actual or anticipated variations in quarterly operating results;
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Failure to meet or exceed the estimates and projections of the
investment community;
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The perception of the pharmaceutical industry by the public,
legislatures, regulators and the investment community;
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General economic and market conditions and overall fluctuations
in U.S. equity markets;
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Developments concerning our sources of manufacturing supply;
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Disputes or other developments relating to patents or other
proprietary rights;
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Additions or departures of key scientific or management
personnel;
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Issuances of debt, equity or convertible securities;
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Changes in the market valuations of similar companies; and
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The other factors described in this Risk Factors
section.
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In addition, the stock market in general, and the market for
small 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. Broad market and industry
factors may negatively affect the market price of our common
stock, regardless of our actual operating performance.
Our
principal stockholders and management own a significant
percentage of our stock and will be able to exert significant
control over matters subject to stockholder
approval.
Upon closing of this offering, our executive officers, directors
and 5% stockholders and their affiliates will beneficially own
approximately % of our
outstanding voting stock. As a result, these stockholders will
have significant influence and may be able to determine all
matters requiring stockholder approval. For example, these
stockholders may be able to control elections of directors,
amendments of our organizational documents, or approval of any
merger, sale of assets, or other major corporate transaction.
This concentration of ownership could delay or prevent any
acquisition of our company on terms that other stockholders may
desire.
If you
purchase our common stock in this offering, you will incur
immediate and substantial dilution in the book value of your
shares.
The initial public offering price is substantially higher than
the net tangible book value per share of our common stock.
Investors purchasing common stock in this offering will pay a
price per share that substantially exceeds the book value of our
tangible assets after subtracting our liabilities. As a result,
investors purchasing common stock in this offering will incur
immediate dilution of $ per
share, assuming an initial public offering price of
$ per share, the midpoint
of the price range set forth on the cover page of this
prospectus. Further, investors purchasing common stock in this
offering will contribute approximately
% of the total amount
invested by stockholders since our inception, but will own only
approximately % of the
shares of our common stock outstanding.
This dilution is due to the substantially lower price paid by
our investors who purchased shares prior to this offering as
compared to the price offered to the public in this offering,
and the exercise of stock options granted to our employees. In
addition, as of May 31, 2010, options to purchase
7,520,075 shares of our common stock at a weighted average
exercise price of $0.23 per share and warrants exercisable for
up to 1,126,298 shares of our preferred stock at an
exercise price of $0.93 per share were outstanding. The exercise
of any of these options or warrants would result in additional
dilution. As a result of the dilution to investors purchasing
shares in this offering, investors may receive significantly
less than the purchase price paid in this offering, if anything,
in the event of a liquidation or sale of our company.
30
Sales
of a substantial number of shares of our common stock in the
public market by our existing stockholders could cause our stock
price to fall.
Sales of a substantial number of shares of our common stock in
the public market or the perception that these sales might
occur, could depress the market price of our common stock and
could impair our ability to raise adequate capital through the
sale of additional equity securities. We are unable to predict
the effect that sales may have on the prevailing market price of
our common stock.
Substantially all of our existing stockholders are subject to
lock-up
agreements with the underwriters of this offering that restrict
the stockholders ability to transfer shares of our common
stock for at least 180 days from the date of this
prospectus, subject to certain exceptions. The
lock-up
agreements limit the number of shares of common stock that may
be sold immediately following the public offering. Subject to
certain limitations, approximately
shares
will become eligible for sale upon expiration of the
lock-up
period. In addition, shares issued or issuable upon exercise of
options and warrants vested as of the expiration of the
lock-up
period will be eligible for sale at that time. Sales of stock by
these stockholders could have a material adverse effect on the
market price of our common stock.
Certain holders of shares of our common stock are entitled to
rights with respect to the registration of their shares under
the Securities Act of 1933, as amended, or the Securities Act,
subject to the
180-day
lock-up
arrangement described above. Registration of these shares under
the Securities Act would result in the shares becoming freely
tradable without restriction under the Securities Act, except
for shares held by our affiliates as defined in Rule 144
under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the trading
price of our common stock.
Our
management will have broad discretion in the use of the net
proceeds from this offering and may not use them
effectively.
Our management will have broad discretion in the application of
the net proceeds from this offering and our stockholders will
not have the opportunity as part of their investment decision to
assess whether the net proceeds are being used appropriately.
Because of the number and variability of factors that will
determine our use of the net proceeds from this offering, their
ultimate use may vary substantially from their currently
intended use. The failure by our management to apply these funds
effectively could harm our business. Pending their use, we may
invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing instruments and U.S.
government securities. These investments may not yield a
favorable return to our stockholders.
Our
ability to use our net operating loss carryforwards and certain
other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as
amended, or the Code, if a corporation undergoes an
ownership change, generally defined as a greater
than 50% change by value in its equity ownership over a three
year period, the corporations ability to use its
pre-change net operating loss carryforwards and other pre-change
tax attributes, such as research tax credits, to offset its
post-change income may be limited. We believe that, with our
initial public offering, our most recent private placement and
other transactions that have occurred over the past three years,
we may have triggered an ownership change limitation. We may
also experience ownership changes in the future as a result of
subsequent shifts in our stock ownership. As a result, if we
generate taxable income, our ability to use our pre-change net
operating loss carryforwards to offset U.S. federal taxable
income may be subject to limitations, which could result in
increased future tax liability to us.
Because
we do not intend to pay dividends on our common stock, your
returns will be limited to any increase in the value of our
stock.
We have never declared or paid any cash dividends on our capital
stock. We currently intend to retain all available funds and any
future earnings to support our operations and finance the growth
and development of our business and do not anticipate declaring
or paying any cash dividends on our common stock for the
foreseeable future. Any return to stockholders will therefore be
limited to the appreciation of their stock.
31
Some
provisions of our charter documents and Delaware law may have
anti-takeover effects that could discourage an acquisition of us
by others, even if an acquisition would be beneficial to our
stockholders, and may prevent attempts by our stockholders to
replace or remove our current management.
Provisions in our restated certificate of incorporation and our
bylaws that will become effective following the closing of this
offering, as well as provisions of the Delaware General
Corporation Law, or DGCL, could make it more difficult for a
third party to acquire us or increase the cost of acquiring us,
even if doing so would benefit our stockholders, including
transactions in which stockholders might otherwise receive a
premium for their shares. These provisions include:
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Authorizing the issuance of blank check preferred
stock, the terms of which may be established and shares of which
may be issued without stockholder approval;
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Prohibiting stockholder action by written consent, thereby
requiring all stockholder actions to be taken at a meeting of
our stockholders;
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Eliminating the ability of stockholders to call a special
meeting of stockholders; and
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Establishing advance notice requirements for nominations for
election to the board of directors or for proposing matters that
can be acted upon at stockholder meetings.
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These provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of
our board of directors, which is responsible for appointing the
members of our management. In addition, we are subject to
Section 203 of the DGCL, which generally prohibits a
Delaware corporation from engaging in any of a broad range of
business combinations with an interested stockholder for a
period of three years following the date on which the
stockholder became an interested stockholder, unless such
transactions are approved by our board of directors. This
provision could have the effect of delaying or preventing a
change of control, whether or not it is desired by or beneficial
to our stockholders.
32
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, contained in this prospectus,
including statements regarding our strategy, future operations,
future financial position, future revenue, projected costs,
prospects, plans and objectives of management, are
forward-looking statements. The words may,
will, could, would,
should, expect, intend,
plan, anticipate, believe,
estimate, predict, project,
potential, continue, ongoing
and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words.
The forward-looking statements in this prospectus include, among
other things, statements about:
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Our plans to develop and commercialize Zelrix and our other
product candidates;
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The timing of, and our ability to obtain, marketing approval of
Zelrix and our other product candidates;
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Our ongoing and planned preclinical studies and clinical trials;
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The rate and degree of market acceptance of Zelrix and any other
future products;
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The size and growth of the potential markets for Zelrix and our
other product candidates and our ability to serve those markets;
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Our commercialization and marketing capabilities;
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Our ability to obtain and maintain intellectual property
protection;
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Regulatory developments in the U.S. and foreign countries;
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The performance of third party manufacturers;
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Our ability to acquire or license suitable product candidates or
technologies from third parties;
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The accuracy of our estimates regarding expenses and capital
requirements; and
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The loss of key scientific or management personnel.
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We may not actually achieve the plans, intentions or
expectations described in our forward-looking statements and you
should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially
from the plans, intentions and expectations described in the
forward-looking statements we make. We have included important
factors in the cautionary statements included in this
prospectus, particularly in the Risk Factors
section, that we believe could cause actual results or events to
differ materially from those expressed or implied by our
forward-looking statements. Furthermore, if our forward-looking
statements prove to be inaccurate, the inaccuracy may be
material. In light of the significant uncertainties in these
forward-looking statements, you should not regard these
statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any
specified timeframe, or at all.
You should read this prospectus and the documents that we
reference in this prospectus and have filed as exhibits to the
registration statement of which this prospectus is a part
completely and with the understanding that our actual future
results may be materially different from what we expect. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or any sale of our common stock. We do not
assume any obligation to update any forward-looking statements.
33
USE OF
PROCEEDS
We estimate that the net proceeds from our issuance and sale of
shares
of common stock in this offering will be approximately
$ million, assuming an
initial public offering price of
$ per share, the midpoint
of the price range set forth on the cover page of this
prospectus, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us. If
the underwriters exercise their over-allotment option in full,
we estimate that our net proceeds from this offering will be
approximately $ million.
Each $1.00 increase or decrease in the assumed initial public
offering price of $ per
share would increase or decrease the net proceeds to us from
this offering by approximately
$ million, assuming
that the number of shares of common stock offered by us, as set
forth on the cover page of this prospectus, remains the same and
after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
We anticipate using the net proceeds from this offering as
follows:
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Approximately $ million to
complete the clinical development of, seek marketing approval
for, initiate the commercial manufacture of and, if approved,
commercially launch Zelrix in the U.S.;
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Approximately $ million to
continue preclinical and clinical development of NP201 and
NP202; and
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The balance for working capital and other general corporate
purposes, which may include the acquisition or licensing of
other products or technologies or the acquisition of other
businesses in the biotechnology or specialty pharmaceuticals
industry.
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This anticipated use of net proceeds from this offering
represents our intentions based upon our current plans and
business conditions. The amounts and timing of our actual
expenditures may vary significantly depending on numerous
factors, including: the timing of our NDA submission to the FDA
for Zelrix; the extent to which the FDA may require us to
perform additional clinical trials for Zelrix; the costs of our
commercialization activities for Zelrix, if it is approved by
the FDA; the cost, timing and outcome of the development of our
other product candidates; the extent to which we acquire or
invest in products, businesses and technologies; the extent to
which we establish collaboration or other similar agreements;
the cost of preparing and prosecuting patent applications and
enforcing and defending intellectual property claims; and any
unforeseen or underestimated cash needs. As a result, our
management will retain broad discretion over the allocation of
the net proceeds from this offering. In addition, our
anticipated use of proceeds does not reflect the potential
impact of any future acquisitions, mergers, dispositions, joint
ventures or investments that we may make. We have no current
understandings, agreements or commitments for any material
acquisitions or licenses of any products, businesses or
technologies.
Following this offering, we believe that our available funds
will be sufficient to complete the development of Zelrix through
FDA approval and to fund the expected commercial launch of
Zelrix in the U.S. in the first half of 2012. It is
possible that we will not achieve the progress that we expect
with respect to Zelrix because the actual costs and timing of
development and marketing approval are difficult to predict and
are subject to substantial risks and delays. We have no
committed external sources of funds. To the extent that the net
proceeds from this offering and our other capital resources are
insufficient to complete clinical development of, obtain
marketing approval for and, if approved, commercially launch
Zelrix, we will need to finance our cash needs through public or
private equity offerings, debt financings, corporate
collaboration and licensing arrangements or other financing
alternatives.
Pending our use of the net proceeds from this offering, we
intend to invest the net proceeds in a variety of capital
preservation investments, including short-term,
investment-grade, interest-bearing instruments and
U.S. government securities.
34
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our capital
stock. We currently intend to retain all available funds and any
future earnings to support our operations and finance the growth
and development of our business. We do not intend to pay cash
dividends on our common stock for the foreseeable future.
35
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of March 31, 2010:
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On an actual basis;
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On a pro forma basis to give effect to:
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the automatic conversion of all outstanding shares of our
preferred stock, including accrued dividends, into an aggregate
of 62,178,093 shares of common stock upon the closing of
this offering, assuming that the closing occurred on
May 31, 2010;
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the receipt in April 2010 of gross proceeds of $10,062,500 upon
the issuance of the April 2010 Convertible Notes and the
automatic conversion of all principal and accrued interest
outstanding under the April 2010 Convertible Notes into an
aggregate
of shares
of common stock upon the closing this offering, assuming an
initial public offering price of $
per share, the midpoint of the price range set forth on the
cover page of this prospectus, and that the closing occurred on
May 31, 2010;
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the receipt in May 2010 of gross proceeds of $5,000,000 upon
entering into the May 2010 Loan Facility, the issuance of
warrants to purchase 255,376 shares of Series B
preferred stock, with an estimated fair value of $203,255, to
the lenders under such facility and the repayment in full of the
$555,208 outstanding as of March 31, 2010 under a term loan
that we entered into in 2007; and
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the warrants outstanding as of May 31, 2010 to purchase an
aggregate of 1,126,298 shares of our preferred stock
becoming, in accordance with their terms, warrants to purchase
1,126,298 shares of common stock at an exercise price of $0.93
per share of common stock upon the closing of this offering and
the reclassification of the warrant liability with respect to
warrants outstanding as of March 31, 2010 to additional
paid-in capital; and
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On a pro forma as adjusted basis to give further effect to the
issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover page of this
prospectus, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
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The pro forma as adjusted information set forth below is
illustrative only and our capitalization following the closing
of this offering will be adjusted based on the actual initial
public offering price and other terms of this offering
determined at pricing. You should read this table together with
the Managements Discussion and Analysis of Financial
Condition and Results of Operations section of this
prospectus and our financial statements and the related notes
appearing at the end of this prospectus.
36
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As of March 31, 2010
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Pro Forma
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Actual
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Pro Forma
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as Adjusted
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(Unaudited)
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(In thousands, except share data)
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Cash and cash equivalents
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$
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592
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$
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15,100
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$
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Debt outstanding
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$
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564
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|
$
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5,009
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|
$
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Warrant liability
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|
606
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Redeemable convertible preferred stock, $0.001 par value;
71,745,055 shares authorized and 53,096,340 shares
issued and outstanding, actual; none, pro forma and pro forma as
adjusted
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56,572
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Stockholders equity (deficit):
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Common stock, $0.001 par value; 90,830,376 shares
authorized and 3,143,905 shares issued and outstanding,
actual; 90,830,376 shares authorized
and shares
issued and outstanding, pro forma; 90,830,376 shares authorized
and shares
issued and outstanding, pro forma as adjusted
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3
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|
65
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Additional paid-in capital
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67,382
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Deficit accumulated during the development stage
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(59,393
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)
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|
(59,394
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)
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|
|
|
|
|
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|
|
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|
|
|
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Total stockholders equity (deficit)
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(59,390
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)
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8,053
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|
|
|
|
|
|
|
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|
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|
|
|
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Total capitalization
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$
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(1,648
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)
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|
$
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13,062
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|
$
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Each $1.00 increase or decrease in the assumed initial public
offering price of
$
per share would increase or decrease each of cash and cash
equivalents, additional paid-in capital, total
stockholders equity and total capitalization on a pro
forma as adjusted basis by approximately
$ million, assuming that the
number of shares of common stock offered by us, as set forth on
the cover page of this prospectus, remains the same and after
deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
The table above does not include:
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7,534,992 shares of common stock issuable upon the exercise
of options outstanding as of March 31, 2010 at a weighted
average exercise price of $0.23 per share;
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1,126,298 shares of common stock issuable upon the exercise
of warrants outstanding as of May 31, 2010 at a weighted
average exercise price of $0.93 per share; and
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831,103 additional shares of common stock available for future
issuance as of March 31, 2010 under our 2005 Plan.
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37
DILUTION
If you invest in our common stock in this offering, your
ownership interest will be diluted immediately to the extent of
the difference between the public offering price per share of
common stock and the pro forma net tangible book value per share
of common stock after this offering.
Our historical net tangible book value of common stock as of
March 31, 2010 was $(2.8) million, or $(0.90) per
share of common stock. Historical net tangible book value per
share represents the amount of our total tangible assets less
total liabilities, divided by the total number of shares of
common stock outstanding.
After giving effect, upon the closing of this offering, to the
automatic conversion of all outstanding shares of our preferred
stock, including accrued dividends, into an aggregate of
62,178,093 shares of common stock and the automatic
conversion of all principal and accrued interest outstanding
under the April 2010 Convertible Notes into an aggregate
of shares
of common stock, assuming an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover page of this prospectus, and
that the closing occurred on May 31, 2010, our pro forma
net tangible book value as of March 31, 2010 would have
been
$ million,
or $ per share of common stock.
After giving effect to our issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us,
our pro forma as adjusted net tangible book value as of
March 31, 2010 would have been
$ million, or
$ per share of common stock. This
represents an immediate increase in pro forma net tangible book
value of $ per share to our
existing stockholders and an immediate dilution of
$ in
pro forma net tangible book value per share to new investors
purchasing shares of common stock in this offering.
Dilution per share to new investors purchasing shares of common
stock in this offering is determined by subtracting pro forma as
adjusted net tangible book value per share after this offering
from the initial public offering price per share paid by new
investors. The following table illustrates this dilution on a
per share basis:
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Assumed initial public offering price per share of common stock
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$
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Historical net tangible book value per share as of
March 31, 2010
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$
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(0.90
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)
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Decrease in net tangible book value per share attributable to
the conversion of outstanding preferred stock and April 2010
Convertible Notes
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Pro forma net tangible book value per share as of March 31,
2010
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|
|
|
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Increase in net tangible book value per share attributable to
new investors
|
|
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|
|
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Pro forma as adjusted net tangible book value after this offering
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|
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|
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|
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Dilution per share to new investors
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|
|
|
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|
$
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|
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|
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|
|
|
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Each $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease our pro forma as adjusted net
tangible book value by approximately
$ ,
our pro forma as adjusted net tangible book value per share by
$
and dilution per share to new investors purchasing shares of
common stock in this offering by
$ ,
assuming that the number of shares of common stock offered by
us, as set forth on the cover page of this prospectus, remains
the same and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
If the underwriters exercise their over-allotment option in
full, the pro forma as adjusted net tangible book value per
share after giving effect to this offering would be
$ per share and the dilution in
pro forma as adjusted net tangible book value per share to new
investors would be $ per share.
38
The following table summarizes, on a pro forma basis as
described above as of March 31, 2010, the differences
between the number of shares of common stock purchased from us,
the total effective cash consideration paid and the average
price per share paid by our existing stockholders and by new
investors purchasing shares of common stock in this offering at
an assumed initial public offering price of
$
per share, the midpoint of the price range set forth on the
cover page of this prospectus, before deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Price per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease the total consideration paid by new
investors by $ million and
increase or decrease the percentage of total consideration paid
by new investors purchasing shares of common stock in this
offering by approximately %,
assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same.
If the underwriters exercise their over-allotment option in
full, our existing stockholders would
own %
and new investors would own % of
the total number of shares of common stock outstanding after
this offering.
The tables and calculations set forth above are based on the
number of shares of common stock outstanding after the closing
of this offering and assumes no exercise of any outstanding
options or warrants. To the extent that options or warrants are
exercised, there will be further dilution to new investors.
The above information excludes:
|
|
|
|
|
7,534,992 shares of common stock issuable upon the exercise
of options outstanding as of March 31, 2010 at a weighted
average exercise price of $0.23 per share;
|
|
|
|
|
|
1,126,298 shares of common stock issuable upon the exercise
of warrants outstanding as of May 31, 2010 at a weighted
average exercise price of $0.93 per share; and
|
|
|
|
|
|
831,103 additional shares of common stock available for
future issuance as of March 31, 2010 under our 2005 Plan.
|
39
SELECTED
FINANCIAL DATA
You should read the following selected financial data together
with the Capitalization and Managements
Discussion and Analysis of Financial Condition and Results of
Operations sections of this prospectus and our financial
statements and the related notes appearing at the end of this
prospectus. We have derived the statement of operations data for
the years ended December 31, 2007, 2008 and 2009 and the
balance sheet data as of December 31, 2008 and 2009 from
our audited financial statements appearing at the end of this
prospectus. We have derived the statement of operations data for
the period from January 7, 2005 (inception) through
December 31, 2005 and year ended December 31, 2006 and
the balance sheet data as of December 2005, 2006 and 2007 from
our audited financial statements not included in this
prospectus. We have derived the statement of operations data for
the three months ended March 31, 2009 and 2010 and the
balance sheet data as of March 31, 2010 from our unaudited
financial statements appearing at the end of this prospectus.
Our historical results for any prior period are not necessarily
indicative of results to be expected in any future period and
our interim period results are not necessarily indicative of
results for a full year.
See note 3(j) to our financial statements appearing at the
end of this prospectus for information regarding computation of
basic and diluted net loss per common share, unaudited pro forma
basic and diluted net loss per common share and the unaudited
pro forma weighted average basic and diluted common shares
outstanding used in computing pro forma basic and diluted net
loss per common share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 7, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
692
|
|
|
$
|
3,209
|
|
|
$
|
7,761
|
|
|
$
|
8,815
|
|
|
$
|
11,310
|
|
|
$
|
2,996
|
|
|
$
|
3,390
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
364
|
|
|
|
1,363
|
|
|
|
1,884
|
|
|
|
3,075
|
|
|
|
3,142
|
|
|
|
796
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(1,056
|
)
|
|
|
(4,572
|
)
|
|
|
(9,645
|
)
|
|
|
(17,390
|
)
|
|
|
(14,452
|
)
|
|
|
(3,792
|
)
|
|
|
(4,263
|
)
|
Interest income (expense), net
|
|
|
(12
|
)
|
|
|
(644
|
)
|
|
|
(30
|
)
|
|
|
(121
|
)
|
|
|
(1,289
|
)
|
|
|
(37
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax benefit
|
|
|
(1,068
|
)
|
|
|
(5,216
|
)
|
|
|
(9,675
|
)
|
|
|
(17,511
|
)
|
|
|
(15,741
|
)
|
|
|
(3,829
|
)
|
|
|
(4,273
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
151
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,068
|
)
|
|
|
(5,216
|
)
|
|
|
(9,675
|
)
|
|
|
(17,511
|
)
|
|
|
(15,590
|
)
|
|
|
(3,678
|
)
|
|
|
(3,953
|
)
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
(341
|
)
|
|
|
(1,126
|
)
|
|
|
(2,330
|
)
|
|
|
(3,617
|
)
|
|
|
(830
|
)
|
|
|
(1,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(1,068
|
)
|
|
$
|
(5,557
|
)
|
|
$
|
(10,801
|
)
|
|
$
|
(19,841
|
)
|
|
$
|
(19,207
|
)
|
|
$
|
(4,508
|
)
|
|
$
|
(4,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.44
|
)
|
|
$
|
(2.03
|
)
|
|
$
|
(3.67
|
)
|
|
$
|
(6.49
|
)
|
|
$
|
(6.28
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(1.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic and diluted common shares outstanding
|
|
|
2,445,342
|
|
|
|
2,740,927
|
|
|
|
2,947,005
|
|
|
|
3,059,137
|
|
|
|
3,060,000
|
|
|
|
3,060,000
|
|
|
|
3,060,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(15,590
|
)
|
|
|
|
|
|
$
|
(3,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average basic and diluted common
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,003
|
|
|
$
|
5,211
|
|
|
$
|
3,830
|
|
|
$
|
8,368
|
|
|
$
|
3,927
|
|
|
$
|
592
|
|
Working capital
|
|
|
652
|
|
|
|
4,347
|
|
|
|
1,304
|
|
|
|
6,285
|
|
|
|
1,527
|
|
|
|
(2,372
|
)
|
Total assets
|
|
|
1,109
|
|
|
|
5,400
|
|
|
|
4,462
|
|
|
|
9,776
|
|
|
|
5,009
|
|
|
|
1,580
|
|
Long-term debt
|
|
|
1,600
|
|
|
|
|
|
|
|
1,628
|
|
|
|
782
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
10,164
|
|
|
|
16,270
|
|
|
|
41,809
|
|
|
|
55,538
|
|
|
|
56,572
|
|
Total stockholders deficit
|
|
|
(851
|
)
|
|
|
(5,716
|
)
|
|
|
(16,458
|
)
|
|
|
(36,141
|
)
|
|
|
(54,474
|
)
|
|
|
(59,390
|
)
|
41
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and related notes appearing at the end of
prospectus. In addition to historical information, some of the
information contained in this discussion and analysis or set
forth elsewhere in this prospectus, including information with
respect to our plans and strategy for our business and related
financing, contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may
differ materially from those anticipated or implied in these
forward-looking statements as a result of important factors
described in the cautionary statements included in this
prospectus, particularly in the Risk Factors
section.
Overview
We are a specialty pharmaceutical company focused on the
development and commercialization of branded therapeutics for
diseases of the central nervous system, including neurological
and psychiatric disorders. Our most advanced product candidate,
Zelrix, is an active, single-use transdermal sumatriptan patch
that we are developing for the treatment of acute migraine.
Zelrix uses our proprietary SmartRelief technology. We
successfully completed a pivotal Phase III clinical trial
for Zelrix in July 2009 and expect to submit an NDA to the FDA
in the fourth quarter of 2010. Before we submit our NDA, we must
complete two ongoing pharmacokinetic trials in healthy subjects
and obtain interim data from two Phase III safety trials.
Subject to the approval of our NDA, we plan to build our own
specialty sales force in the U.S. to launch Zelrix. We have
two other proprietary product candidates in preclinical
development that address large market opportunities, NP201 for
the continuous symptomatic treatment of Parkinsons disease
and NP202 for the long-term treatment of schizophrenia and
bipolar disorder.
We were incorporated in the State of Delaware in January 2005
and are a development stage company. Since our inception, we
have invested a significant portion of our efforts and financial
resources in the development of Zelrix. Zelrix is the only
product candidate for which we have conducted clinical trials,
and to date we have not marketed, distributed or sold any
products. As a result, we have generated no revenue and have
never been profitable. Our net loss was $4.0 million in the
three months ended March 31, 2010, $15.6 million for
the year ended December 31, 2009 and $17.5 million for
the year ended December 31, 2008. As of March 31,
2010, we had an accumulated deficit of $59.4 million.
We expect to continue to incur substantial additional operating
losses for at least the next several years as we continue to
develop our product candidates and seek marketing approval and,
subject to obtaining such approval, the eventual
commercialization of Zelrix and our other products candidates.
If we obtain marketing approval for Zelrix, we will incur
significant sales, marketing and outsourced manufacturing
expenses. In addition, we expect to incur additional expenses to
add operational, financial and information systems and
personnel, including personnel to support our planned product
commercialization efforts. We also expect to incur significant
costs to comply with corporate governance, internal controls and
similar requirements applicable to us as a public company
following the closing of this offering. Our results may vary
depending on many factors, including the progress and results of
our preclinical studies and clinical trials, our ability to
obtain marketing approval of Zelrix and our other product
candidates and, if approved, our ability to commercialize these
products and achieve market acceptance of these products among
physicians, patients and third party payors.
We have funded our operations to date primarily with the
proceeds of the sale of convertible preferred stock, convertible
notes and borrowings under debt facilities. From inception
through March 31, 2010, we have received net proceeds of
$48.0 million from the sale of convertible preferred stock
and convertible notes. As of March 31, 2010, we had
$0.6 million of debt outstanding under a term loan that we
entered into in 2007.
In April 2010, we received gross proceeds of $10.1 million
from the sale of the April 2010 Convertible Notes. Further, in
May 2010, we entered into the May 2010 Loan Facility under which
$5.0 million was advanced on the closing date. We used a
portion of the proceeds that we received on the closing date of
the
42
May 2010 Loan Facility to repay all outstanding amounts under
the term loan that we entered into in 2007. The April 2010
Convertible Notes and the May 2010 Loan Facility are described
in more detail under Liquidity and Capital
Resources.
Our recurring losses and negative cash flows from operations
raise substantial doubt about our ability to continue as a going
concern. As a result, our independent registered public
accounting firm included an explanatory paragraph regarding this
uncertainty in its report on our financial statements as of and
for the year ended December 31, 2009. We have no current
source of revenues to sustain our present activities, and we do
not expect to generate revenues until, and unless, the FDA or
other regulatory agencies approve Zelrix or any other of our
product candidates and we successfully commercialize any such
product candidates. Accordingly, our ability to continue as a
going concern will require us to obtain additional financing to
fund our operations.
Financial
Overview
Research
and Development Expenses
Our research and development expenses consist of expenses
incurred in developing, testing and seeking marketing approval
of our product candidates, including:
|
|
|
|
|
Expenses associated with regulatory submissions, preclinical
development, clinical trials and manufacturing;
|
|
|
|
Personnel related expenses, such as salaries, benefits, travel
and other related expenses, including stock-based compensation;
|
|
|
|
Payments made to third party investigators who perform research
and development on our behalf;
|
|
|
|
Payments to third party contract research organizations,
contractor laboratories and independent contractors;
|
|
|
|
Expenses incurred to obtain technology licenses if the
technology licensed has not reached technological feasibility
and has no alternative future use; and
|
|
|
|
Facility, maintenance and other related expenses.
|
We expense all research and development costs as incurred.
Preclinical development expenses and clinical trial expenses for
our product candidates are a significant component of our
current research and development expenses. Product candidates in
later stage clinical development, such as Zelrix, generally have
higher research and development expenses than those in earlier
stages of development, primarily due to the increased size and
duration of the clinical trials. We track and record information
regarding external research and development expenses for each
study or trial that we conduct. From time to time, we use third
party contract research organizations, contractor laboratories
and independent contractors in preclinical studies. We recognize
the expenses associated with third parties performing these
services for us in our preclinical studies based on the
percentage of each study completed at the end of each reporting
period. We coordinate clinical trials through a number of
contracted investigational sites and recognize the associated
expense based on a number of factors, including actual and
estimated subject enrollment and visits, direct pass-through
costs and other clinical site fees.
From our inception in January 2005 through March 31, 2010,
we incurred research and development expenses of
$35.2 million, of which $24.9 million related to the
development of Zelrix. We incurred research and development
expenses associated with the development of Zelrix of
$2.5 million in the three months ended March 31, 2010,
$8.2 million in 2009 and $5.6 million in 2008.
Additionally, in 2008 we incurred $5.5 million of acquired
in-process research and development expenses in connection with
our acquisition of a patent application utilized in Zelrix. In
addition, pursuant to this transaction, we obtained a perpetual,
worldwide, exclusive, royalty-free license, with the right to
grant sublicenses, including issued U.S. Patent
No. 6,745,071, as described in more detail under
Business Intellectual Property and
Exclusivity. Salaries and related expenses included in
research and development expenses were $0.7 million in the
three months
43
ended March 31, 2010, $2.4 million in 2009 and
$6.7 million since our inception. We do not allocate
salaries and related expenses to individual projects, trials or
studies or to specific product candidates.
We expect that our research and development expenses in 2010
will be higher than in 2009 as a result of the full enrollment
of the Phase III safety trials for Zelrix and the increased
regulatory work related to the NDA that we expect to submit for
Zelrix during the fourth quarter of 2010. We also expect to
incur additional research and development expenses in 2010 as we
accelerate the development of NP201 and NP202. These
expenditures are subject to numerous uncertainties regarding
timing and cost to completion. Completion of our preclinical
development and clinical trials may take several years or more
and the length of time generally varies according to the type,
complexity, novelty and intended use of a product candidate. The
cost of clinical trials may vary significantly over the life of
a project as a result of differences arising during clinical
development, including, among others:
|
|
|
|
|
The number of sites included in the trials;
|
|
|
|
The length of time required to enroll suitable subjects;
|
|
|
|
The size of subject populations participating in the trials;
|
|
|
|
The duration of subject
follow-ups;
|
|
|
|
The development stage of the product candidates; and
|
|
|
|
The efficacy and safety profile of the product candidates.
|
Neither Zelrix nor any of our other product candidates has
received FDA approval. In order for the FDA to approve a product
candidate, the FDA must conclude that clinical data establishes
the safety and efficacy of such product candidate. We currently
anticipate submitting an NDA for Zelrix in the fourth quarter of
2010. We expect to incur research and development costs of
approximately $11 million to $13 million through the
end of 2011 to complete development of Zelrix. As discussed
above, due to the numerous risks and uncertainties associated
with timing and costs to completion of clinical trials, we
cannot determine these future expenses with certainty and the
actual range may vary significantly from our forecast.
Additionally, we expect to incur costs of approximately
5.4 million, or approximately $6.6 million based
on exchange rates in effect as of May 31, 2010, relating to
the funding of commercial manufacturing equipment for Zelrix, as
described in more detail under Business
License, Development and Commercial Agreements LTS
Lohmann Therapie Systeme AG. We also expect to incur
additional costs relating to post-marketing studies to gather
additional information regarding Zelrixs risks, benefits
and optimal use.
We currently anticipate submitting an IND for NP201 in the first
half of 2011 and NP202 in 2012. Due to their early stages of
development, we are unable to determine the duration and
completion costs of our NP201 and NP202 development projects. As
a result of the difficulties forecasting NP201 and NP202
development costs, as well as the other uncertainties discussed
above, we are unable to determine when and to what extent we
will generate revenues from the commercialization and sale of an
approved product candidate.
General
and Administrative Expenses
General and administrative expenses consist primarily of
salaries, benefits and other related costs, including
stock-based compensation, for personnel serving in our
executive, finance, accounting, legal, market research and human
resource functions. Our general and administrative expenses also
include facility and related costs not included in research and
development expenses, professional fees for legal, including
patent-related expenses, consulting, tax and accounting
services, insurance, depreciation and general corporate
expenses. We expect that our general and administrative expenses
will increase with the continued development and potential
commercialization of our product candidates.
We expect that our general and administrative expenses in 2010
will be higher than in 2009 as a result of greater expenses
relating to our operations as a public company, including
increased costs for the hiring of additional personnel, and for
payment to outside consultants, including lawyers and
accountants, to comply with additional regulations, corporate
governance, internal control and similar requirements applicable
to
44
public companies, as well as increased costs for insurance.
Additionally, we plan to increase spending related to building a
commercial infrastructure for the anticipated launch of Zelrix
in the U.S. in the first half of 2012. However, in an
effort to control our spending related to commercialization
efforts, we currently plan to hire most of our sales and
marketing personnel only if Zelrix is approved by the FDA.
Interest
Income and Interest Expense
Interest income consists of interest earned on our cash and cash
equivalents. Interest expense consists primarily of cash and
non-cash interest costs related to our outstanding debt.
Additionally, in connection with some of our debt financings, we
issued warrants, the fair value of which we recorded as deferred
financing costs. We amortize these deferred financing costs over
the lives of the loans as interest expense in our statement of
operations. Excluding the impact of non-cash interest costs, we
expect interest expense to increase in 2010 compared with 2009
as a result of the April 2010 Convertible Notes and the May 2010
Loan Facility.
Net
Operating Losses and Tax Loss Carryforwards
Our net loss was $4.0 million for the three months ended
March 31, 2010 and $15.6 million for the year ended
December 31, 2009. We have incurred cumulative net losses
of $53.0 million from inception through March 31,
2010. As of December 31, 2009, we had approximately
$43.4 million of federal net operating loss carryforwards
and state research and development credits available to offset
future taxable income. These federal and state net operating
loss carryforwards will begin to expire in 2024. Due to the
uncertainty of our ability to realize the benefit of any net
operating loss carryforwards and credits, the deferred tax asset
related to these carryforwards has been fully offset by a
valuation allowance at December 31, 2009.
The closing of this offering, together with private placements
and other transactions that have occurred since our inception,
may trigger, or may have already triggered, an ownership
change pursuant to Section 382 of the Code. If an
ownership change is triggered, it will limit our ability to use
some of our net operating loss carryforwards. In addition, since
we will need to raise substantial additional funding to finance
our operations, we may undergo further ownership changes in the
future, which could further limit our ability to use net
operating loss carryforwards. As a result, if we generate
taxable income, our ability to use some of our net operating
loss carryforwards to offset U.S. federal taxable income may be
subject to limitations, which could result in increased future
tax liability to us.
Critical
Accounting Policies and Use of Estimates
We have based our managements discussion and analysis of
our financial condition and results of operations on our
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the
U.S. The preparation of these financial statements requires
us to make estimates that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as
the reported expenses during the reporting periods. On an
ongoing basis, we evaluate our estimates and judgments,
including those related to clinical trial expenses and
stock-based compensation. We base our estimates on historical
experience and on various other factors that we believe to be
appropriate under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully
discussed in note 3 to our financial statements appearing
at the end of this prospectus, we believe that the following
accounting policies are critical to the process of making
significant judgments and estimates in the preparation of our
financial statements. We have reviewed these critical accounting
policies and estimates with the audit committee of our board of
directors.
Research
and Development Expenses
Although we manage the conduct of our own clinical trials, we
rely on third parties to conduct our preclinical studies and to
provide services, including data management, statistical
analysis and electronic compilation for our clinical trials, as
well as for the manufacture of our clinical trial supplies. At
the end of each reporting period, we compare the payments made
to each service provider to the estimated progress towards
completion of the related project. Factors that we consider in
preparing these estimates include the number of subjects
enrolled in studies, milestones achieved and other criteria
related to the efforts of our
45
vendors. These estimates are subject to change as additional
information becomes available. Depending on the timing of
payments to vendors and estimated services provided, we record
net prepaid or accrued expenses related to these costs. We
calculate expenses incurred for the manufacture of our clinical
supplies using our estimate of costs and capitalize these
expenses on our balance sheet to the extent we hold clinical
supply materials on hand to be distributed for use in our
clinical trials. We expense these costs as the supplies are
consumed in the trials.
Stock-Based
Compensation
We use the Black-Scholes option-pricing model to value our stock
option awards. The Black-Scholes option-pricing model requires
the input of subjective assumptions, including the expected life
of stock options and stock price volatility. As a private
company, we do not have sufficient history to estimate the
expected life of our options or the volatility of our common
stock price. We use the simplified method, as
allowed under the Securities and Exchange Commissions, or
SEC, accounting guidance, to determine the expected life, which
is the midpoint between an options vesting date and
contractual term. We use comparable public companies as a basis
for our expected volatility to calculate the fair value of our
option grants. We intend to continue to consistently apply this
process using comparable companies until a sufficient amount of
historical information regarding the volatility of our own share
price becomes available. The risk-free interest rate is based on
U.S. Treasury instruments with a remaining term equal to
the expected term of the option. The assumptions used in
calculating the fair value of stock options represent our best
estimate and involve inherent uncertainties and the application
of our judgment. As a result, if factors change and we use
different assumptions, stock-based compensation could be
materially different in the future.
The fair value of our common stock underlying grants of common
stock options and restricted stock was determined by our board
of directors or compensation committee pursuant to authority
delegated by our board of directors and represents the most
important factor in determining the value of our stock-based
compensation. In the absence of a public trading market for our
common stock, our board of directors or compensation committee
was required to estimate the fair value of our common stock at
the grant date of our stock-based awards.
Prior to December 2006, our board of directors or our
compensation committee estimated the fair value of our common
stock considering the following factors:
|
|
|
|
|
The nature and history of our business;
|
|
|
|
The general economic outlook and the outlook for the life
sciences industry;
|
|
|
|
Our financial condition and results of operations, including
important developments in our operations, most significantly
relating to the clinical development of our most advanced
product candidate, Zelrix;
|
|
|
|
Our ability to pay dividends;
|
|
|
|
Whether or not we had goodwill or other intangible value;
|
|
|
|
Our past transactions in common stock and preferred
stock; and
|
|
|
|
The stock prices of other publicly traded companies engaged in
lines of business that are the same or similar to ours.
|
Beginning in December 2006, our compensation committee obtained
independent third party valuations to assist it in estimating
the fair value of our common stock. These valuations took into
account clinical and other notable milestones with respect to
Zelrix. The first independent third party valuation of our
common stock took place following the sale of Series A
preferred stock in August 2006 when we engaged an independent
third party valuation firm to assist our compensation committee
in determining the fair value of our common stock as of
December 31, 2006. In connection with the sale of
Series B preferred stock in July 2008, and in anticipation
of the grant of a significant number of stock options covering
our common stock in the third quarter of 2008, we again engaged
an independent third party valuation firm to assist our
compensation committee in determining the fair value of our
common stock as of July 8, 2008.
46
The following table summarizes the proceeds from the issuance of
our preferred stock through May 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
Issuance
|
|
Date
|
|
of Shares
|
|
|
Net Proceeds
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Series A preferred stock
|
|
August and October 2006
|
|
|
11,546,161
|
|
|
$
|
9.7
|
|
Series A preferred stock
|
|
October 2007
|
|
|
5,376,345
|
|
|
|
5.0
|
|
Series B preferred stock
|
|
April and July 2008
|
|
|
25,282,556
|
|
|
|
23.2
|
|
Series B preferred stock
|
|
August 2009
|
|
|
10,891,278
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,096,340
|
|
|
$
|
48.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Although we sold all of the shares of Series A and
Series B preferred stock at a price of $0.93 per share, our
compensation committee did not believe that the value placed on
these shares of preferred stock provided a direct indication of
the fair value of our common stock because the preferred stock
is entitled to preferences, rights and protections that are not
applicable to our common stock. As of May 31, 2010, because
of these preferences, the holders of the Series A and
Series B preferred stock were entitled to receive a
liquidation preference of $57.8 million and to participate
with the common stockholders on an as-converted basis in the
remaining value of our company.
In order to estimate the fair value of our common stock, we
estimated the aggregate fair value of our common stock and
preferred stock, which we refer to as our aggregate equity
value, and then allocated this value between our preferred stock
and common stock using a Black-Scholes call option method, as
described in more detail below. In addition, we applied an
illiquidity discount to our estimate of the fair value of our
common stock to account for the heightened level of risk of our
shares compared to shares of comparable, publicly traded
companies.
In estimating our aggregate equity value, we used methodologies
and assumptions consistent with the American Institute of
Certified Public Accountants Practice Guide, or the AICPA
Practice Guide, Valuation of Privately-Held-Company Equity
Securities Issued as Compensation. The primary methodologies
that we considered to determine our aggregate equity value were
a market-based approach and an asset-based approach.
|
|
|
|
|
Under the market-based approach, we calculated the valuation
multiples relative to the total assets, equity and
cash-on-hand
for comparable, publicly traded companies. We then applied those
multiples to our assets, equity and
cash-on-hand
as of the valuation date.
|
|
|
|
|
|
We considered comparable companies to be publicly traded
companies that have pharmaceutical and biopharmaceutical product
candidates in the early stages of development or clinical trials
that could be considered comparable to us for valuation
purposes. We primarily considered public companies that had a
limited group of drug or product candidates that were in
comparable stages of clinical development.
|
|
|
|
|
|
For purposes of the December 31, 2006 valuation, we
searched for publicly traded companies that had drug or product
candidates that were in Phase I clinical trials or preclinical
development with up to $15 million in revenues.
Additionally, we reviewed information regarding potential
competitors and researched companies that we historically have
used as benchmarks for financial or operational comparison
purposes. In order to determine the most comparable companies,
we reviewed the business descriptions, product candidates and
financial characteristics of these companies. Some of the
companies had product candidates targeting similar markets as
our product candidates. From this group of companies, we
selected the most comparable entities for valuation purposes.
|
|
|
|
|
|
For purposes of the July 8, 2008 valuation, our search for
comparable publicly traded companies was consistent in the
approach for the December 31, 2006 valuation, except that
we primarily searched for publicly traded companies that had a
drug or product candidates that were in the early stages of a
Phase III clinical trial or that had drug or product
candidates in Phase I or Phase II clinical development with
up to $15 million in revenues.
|
47
|
|
|
|
|
Under the asset-based approach, we calculated the fair value of
our assets based on an estimate of how much it might cost a
third party to replace or replicate our assets. This approach is
based on the concept that a prudent investor would pay no more
for an asset than the amount it would cost the investor to
replace the asset with a new asset. In addition, this method
assumes that a buyer of our company would be willing to pay us
for the cost that the buyer would incur to replicate our
investment in our product candidates. Accordingly, under this
method, we estimated our aggregate equity value as the sum of
the market value of our net tangible assets and the cumulative
research and development cost that we incurred on Zelrix and our
other product candidates through the valuation date.
|
The aggregate equity values for the market and asset-based
approaches were similar. However, we ultimately derived the
aggregate equity value in our December 31, 2006 and
July 8, 2008 valuations from the market-based approach. We
then allocated the aggregate equity value between the common
stock and the preferred stock using a Black-Scholes call option
pricing method. Under this method, we estimated the fair value
of our common stock as the net value of a series of call
options, representing the present value of the expected future
returns to the common stockholders. We considered the rights of
the common stockholders to be equivalent to a call option on our
future value in excess of the aggregate liquidation preferences
payable on Series A and Series B preferred stock, with
adjustments to account for the rights retained by the preferred
stockholders related to any value in excess of the applicable
liquidation preferences. Using this method, we valued the common
stock by estimating the value of a share of common stock in each
of these call option rights.
As discussed above, we then reduced the value of the common
stock using this approach by applying an illiquidity discount to
account for the heightened level of risk associated with our
shares compared to that of comparable, publicly traded companies.
The December 31, 2006 valuation of our common stock was
based on an aggregate equity value of $8.5 million. The
value allocated to the common stock after applying the call
option allocation methodology and a 35% illiquidity discount was
$0.18 per share. Our compensation committee believed the
increase in the estimated fair value of common stock from $0.12
per share prior to December 2006 to $0.18 per share was
appropriate in light of the continued progress of Zelrix in its
preclinical development program as of December 2006, coupled
with the initial sale of Series A preferred stock in August
2006 at $0.93 per share.
The July 8, 2008 valuation of our common stock was based on
an aggregate equity value of $30.2 million. The value
allocated to the common stock after applying the call option
allocation methodology and a 35% illiquidity discount was $0.24
per share. The increase in the aggregate equity value compared
to the December 31, 2006 valuation reflected our sale of
additional Series A preferred stock in October 2007, the
initial sale of Series B preferred stock in July 2008 and
the continued investment in, and advancement of, our product
candidates. In particular, in the first quarter of 2008, we
successfully completed a Phase I proof of concept study for
Zelrix that provided encouraging pharmacokinetic data that was a
predicate for continued development.
On each grant date subsequent to December 31, 2006, our
compensation committee considered the most current independent
valuation that had been completed and the continued validity of
that valuation given the progress, if any, that we had made in
the development of Zelrix and our other product candidates,
external market factors and other conditions, as discussed
above. The following table summarizes our stock-based
48
awards issued since our inception to December 31, 2009. We
have not issued any stock-based awards since December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Fair
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
Fair Value of
|
|
|
Number of Awards
|
|
Issuance Date
|
|
Preferred Stock
|
|
|
Common
Stock(1)
|
|
|
Common Stock
|
|
|
Options(2)
|
|
|
Total
|
|
|
1/1/2005 - 6/30/2005
|
|
|
|
|
|
$
|
0.08
|
|
|
|
110,000
|
|
|
|
|
|
|
|
110,000
|
|
7/1/2005 - 12/31/2005
|
|
|
|
|
|
|
0.10
|
|
|
|
|
|
|
|
277,710
|
|
|
|
277,710
|
|
1/1/2006 - 6/30/2006
|
|
|
|
|
|
|
0.12
|
|
|
|
420,000
|
(3)
|
|
|
130,000
|
|
|
|
550,000
|
|
7/1/2006 - 12/31/2006
|
|
$
|
0.93
|
|
|
|
0.18
|
|
|
|
495,000
|
(3)
|
|
|
375,847
|
|
|
|
870,847
|
|
1/1/2007 - 6/30/2007
|
|
|
0.93
|
|
|
|
0.18
|
|
|
|
|
|
|
|
170,000
|
|
|
|
170,000
|
|
7/1/2007 - 12/31/2007
|
|
|
0.93
|
|
|
|
0.18
|
|
|
|
|
|
|
|
377,500
|
|
|
|
377,500
|
|
1/1/2008 - 6/30/2008
|
|
|
0.93
|
|
|
|
0.18
|
|
|
|
|
|
|
|
115,000
|
|
|
|
115,000
|
|
7/1/2008 - 12/31/2008
|
|
|
0.93
|
|
|
|
0.24
|
|
|
|
|
|
|
|
5,889,569
|
|
|
|
5,889,569
|
|
1/1/2009 - 6/30/2009
|
|
|
0.93
|
|
|
|
0.24
|
|
|
|
|
|
|
|
464,700
|
|
|
|
464,700
|
|
7/1/2009 - 12/31/2009
|
|
|
0.93
|
|
|
|
0.24
|
|
|
|
|
|
|
|
84,000
|
|
|
|
84,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,025,000
|
|
|
|
7,884,326
|
|
|
|
8,909,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The per share estimated fair value of our common stock as
determined by our compensation committee as of the date of the
grant, taking into account various factors and including the
results, if applicable, of independent third party valuations of
our common stock as discussed above. |
|
(2) |
|
All options were granted with an exercise price equal to the
then fair value of our common stock. |
|
(3) |
|
Represents restricted common stock awards subject to vesting
criteria. |
Results
of Operations
Comparison
of Three Months Ended March 31, 2009 and 2010
Research
and Development Expenses
Research and development expenses for the three months ended
March 31, 2009 and 2010 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Increase
|
|
|
|
Ended March 31,
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Clinical development, regulatory and manufacturing expenses
|
|
$
|
1,774
|
|
|
$
|
2,499
|
|
|
$
|
725
|
|
|
|
41
|
%
|
Research and preclinical expenses
|
|
|
503
|
|
|
|
114
|
|
|
|
(389
|
)
|
|
|
(77
|
)
|
Compensation and related expenses
|
|
|
599
|
|
|
|
673
|
|
|
|
74
|
|
|
|
12
|
|
Facilities and related expenses
|
|
|
120
|
|
|
|
104
|
|
|
|
(16
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,996
|
|
|
$
|
3,390
|
|
|
$
|
394
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased by
$0.4 million, or 13%, to $3.4 million in the three
months ended March 31, 2010 from $3.0 million in the
three months ended March 31, 2009. This increase resulted
primarily from a $0.3 million increase in manufacturing
costs related to production of Phase III clinical supplies
of Zelrix and a $0.4 million increase due to our continued
Phase III clinical program for Zelrix, offset by a
$0.4 million decrease in preclinical expenses, reflecting
the completion in 2009 of a substantial portion of our
preclinical studies for Zelrix and our increased focus on our
Phase III clinical program for Zelrix. Research and
development headcount remained consistent for the three months
ended March 31, 2009 as compared to the three months ended
March 31, 2010, with the minimal increase in compensation
and related expenses resulting from annual increases in salary,
bonus and benefit premiums.
49
Research and development expenses by program for the three
months ended March 31, 2009 and 2010 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Increase
|
|
|
|
Ended March 31,
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Zelrix
|
|
$
|
2,206
|
|
|
$
|
2,542
|
|
|
$
|
336
|
|
|
|
15
|
%
|
NP201
|
|
|
70
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
Development expenses general
|
|
|
720
|
|
|
|
778
|
|
|
|
58
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,996
|
|
|
$
|
3,390
|
|
|
$
|
394
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in spending on Zelrix in the three months ended
March 31, 2010 was primarily due to the continuation of our
Phase III clinical program and the related manufacture of
Phase III clinical supplies, offset by lower preclinical
spending due to the completion of many of our preclinical
studies in 2009. Spending on NP201 remained consistent for the
three months ended March 31, 2009 as compared to the three
months ended March 31, 2010. The spending in the first quarter
of 2009 was for NP201 preclinical studies and the spending in
the first quarter of 2010 was for consulting expenses for NP201.
Personnel related expenses, including salaries and benefits, are
included in the table above as general development expenses as
we do not allocate these expenses to specific programs.
General
and Administrative Expenses
General and administrative expenses increased to
$0.9 million in the three months ended March 31, 2010
from $0.8 million for the three months ended March 31,
2009. This increase resulted primarily from a $42,000 increase
in marketing expenses due to higher consulting fees and a
$30,000 increase in compensation expenses due to annual merit
salary increases.
Interest
Income/Expense
Interest income decreased to $1,000 in the three months ended
March 31, 2010 from $19,000 in the three months ended
March 31, 2009 due to lower average cash and cash
equivalent balances.
Interest expense decreased to $11,000 in the three months ended
March 31, 2010 from $56,000 in the three months ended
March 31, 2009 primarily as a result of lower outstanding
amounts due under the term loan we entered into in 2007. In
addition, interest expense decreased by $20,000 due to the
impact of a favorable non-cash adjustment for the
mark-to-market
of outstanding warrant liabilities as of March 31, 2010.
Income
Tax Benefit
We recognized an income tax benefit of $320,000 in the three
months ended March 31, 2010 and $151,000 in the three
months ended March 31, 2009 related to the sale of
Pennsylvania research and development tax credits to a third
party buyer.
50
Comparison
of Years Ended December 31, 2008 and 2009
Research
and Development Expenses
Research and development expenses for the years ended
December 31, 2008 and 2009 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Increase
|
|
|
|
December 31,
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
|
(In thousands)
|
|
|
Clinical development, regulatory and manufacturing expenses
|
|
$
|
4,257
|
|
|
$
|
7,081
|
|
|
$
|
2,824
|
|
|
|
66
|
%
|
Research and preclinical expenses
|
|
|
2,172
|
|
|
|
1,385
|
|
|
|
(787
|
)
|
|
|
(36
|
)
|
Compensation and related expenses
|
|
|
1,950
|
|
|
|
2,388
|
|
|
|
438
|
|
|
|
22
|
|
Facilities and related expenses
|
|
|
436
|
|
|
|
456
|
|
|
|
20
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,815
|
|
|
$
|
11,310
|
|
|
$
|
2,495
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased by
$2.5 million, or 28%, to $11.3 million in 2009 from
$8.8 million in 2008. This increase resulted primarily from
a $3.2 million increase in costs related to our pivotal
Phase III clinical trial and our Phase III safety
trials for Zelrix and a $0.4 million increase in
compensation costs, offset by a $0.6 million decrease in
preclinical expenses, reflecting our focus on our Phase III
clinical program for Zelrix, and a $0.6 million decrease in
manufacturing expenses. The increase in compensation costs in
2009 primarily reflected our addition of research and
development personnel, particularly in the areas of quality
assurance, regulatory and medical, throughout 2008. The costs of
these additional personnel were reflected as a full year of
expense in 2009. The decrease in preclinical expense in 2009
primarily reflected the completion of our preclinical NP201
study in the first half of 2009, which had been ongoing
throughout 2008. The decrease in manufacturing expenses in 2009
primarily reflected prototype development work in 2008 for NP201
that did not recur in 2009.
Research and development expenses by program for the years ended
December 31, 2008 and 2009 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Increase
|
|
|
|
December 31,
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
|
(In thousands)
|
|
|
Zelrix
|
|
$
|
5,590
|
|
|
$
|
8,183
|
|
|
$
|
2,593
|
|
|
|
46
|
%
|
NP201
|
|
|
743
|
|
|
|
244
|
|
|
|
(499
|
)
|
|
|
(67
|
)
|
Development expenses general
|
|
|
2,482
|
|
|
|
2,883
|
|
|
|
401
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,815
|
|
|
$
|
11,310
|
|
|
$
|
2,495
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant increase in spending on Zelrix in 2009 was
primarily due to the continuation of our Phase III clinical
program. As we completed and analyzed the results of our
preclinical trial for NP201, our spending on NP201 declined by
67% in 2009. Personnel related expenses, including salaries and
benefits, are included in the table above as general development
expenses as we do not allocate these costs to specific product
candidates.
Acquired
In-Process Research and Development Expenses
In July 2008, we entered into an asset purchase and license
agreement with Travanti Pharma Inc., or Travanti. Pursuant to
the terms of the Travanti agreement, we paid $5.5 million
to Travanti for the purchase of a patent application, and a
worldwide license in the field of migraine to additional
intellectual property, directed to transdermal delivery of
anti-migraine medications using an active delivery patch. We
recognized the purchase price in our statement of operations for
the year ended December 31, 2008 as acquired in-process
research and development because additional research and
development efforts and marketing approval in the U.S. is
required in order to commercialize Zelrix, which utilizes this
patent application.
51
General
and Administrative Expenses
General and administrative expenses were $3.1 million in
both 2009 and 2008. Although general and administrative
compensation expenses increased by $0.4 million in 2009
due, in part, to the hiring of a chief financial officer in the
fourth quarter of 2008, this increase was offset by decreases of
$0.2 million in legal expenses, $0.1 million in market
research expenses and $0.1 million in other general
expenses.
Interest
Income/Expense
Interest income decreased to $30,000 in 2009 from $158,000 in
2008 due to lower average cash and cash equivalent balances,
consisting primarily of bank deposits and money market mutual
funds invested in short-term corporate and government
obligations, and lower yields on investments.
Interest expense increased to $1.3 million in 2009 from
$0.3 million in 2008 primarily as a result of the non-cash
beneficial conversion feature and the fair value of the warrants
issued in connection with the issuance of convertible debt in
July 2009. This convertible debt converted into shares of
Series B preferred stock in August 2009.
Income
Tax Benefit
In 2009, we recognized an income tax benefit of $151,000 related
to the sale of Pennsylvania research and development tax credits
to a third party buyer.
Comparison
of Years Ended December 31, 2007 and 2008
Research
and Development Expenses
Research and development expenses for the years ended
December 31, 2007 and 2008 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Increase
|
|
|
|
December 31,
|
|
|
(Decrease)
|
|
|
|
2007
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
|
(In thousands)
|
|
|
Clinical development, regulatory and manufacturing expenses
|
|
$
|
5,063
|
|
|
$
|
4,257
|
|
|
$
|
(806
|
)
|
|
|
(16
|
)%
|
Research and preclinical expenses
|
|
|
1,347
|
|
|
|
2,172
|
|
|
|
825
|
|
|
|
61
|
|
Compensation and related expenses
|
|
|
1,098
|
|
|
|
1,950
|
|
|
|
852
|
|
|
|
78
|
|
Facilities and related expenses
|
|
|
253
|
|
|
|
436
|
|
|
|
183
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,761
|
|
|
$
|
8,815
|
|
|
$
|
1,054
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased by
$1.1 million, or 14%, to $8.8 million in 2008 from
$7.8 million in 2007. This increase resulted primarily from
a $0.7 million increase in preclinical expenses related to
toxicology studies for Zelrix and preclinical studies for NP201
that were initiated in 2008, a $0.9 million increase in
compensation costs and a $0.2 million increase in
facilities and related expenses, offset by a $0.6 million
decrease in manufacturing expenses and a $0.2 million
decrease in regulatory costs due to the submission of our IND
for Zelrix in 2007. The increase in compensation costs in 2008
primarily reflected our addition of research and development
personnel, particularly in the areas of quality assurance,
regulatory and medical, throughout 2008. The increase in
facilities and related expenses in 2008 resulted from the
leasing of our new corporate headquarters in Conshohocken,
Pennsylvania in March 2008. The decrease in manufacturing
expenses in 2008 primarily reflected our substantial completion
of the formulation and test method development for Zelrix in
2007.
52
Research and development expenses by program for the years ended
December 31, 2007 and 2008 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Increase
|
|
|
|
December 31,
|
|
|
(Decrease)
|
|
|
|
2007
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
|
(In thousands)
|
|
|
Zelrix
|
|
$
|
5,837
|
|
|
$
|
5,590
|
|
|
$
|
(247
|
)
|
|
|
(4
|
)%
|
NP201
|
|
|
559
|
|
|
|
743
|
|
|
|
184
|
|
|
|
33
|
|
Development expenses general
|
|
|
1,365
|
|
|
|
2,482
|
|
|
|
1,117
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,761
|
|
|
$
|
8,815
|
|
|
$
|
1,054
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in spending on Zelrix in 2008 is described in more
detail above. The increase in spending on NP201 in 2008
specifically related to a preclinical study that we initiated in
2008. As also described above, our increased research and
development headcount in 2008 was the primary reason for the
increase in general research and development expenses in 2008.
General
and Administrative Expenses
General and administrative expenses increased by
$1.2 million, or 63%, to $3.1 million in 2008 from
$1.9 million in 2007. This increase resulted primarily from
a $0.5 million increase in compensation expenses associated
with additional headcount, a $0.2 million increase in
market research expenses, a $0.2 million increase in legal
expenses and a $0.3 million increase in facility related
expenses due to the leasing of our new corporate headquarters in
March 2008.
Interest
Income/Expense
Interest income decreased to $158,000 in 2008 from $223,000 in
2007 due to lower average cash and cash equivalent balances and
lower yields on investments.
Interest expense increased to $278,000 in 2008 from $253,000 in
2007 due to a full year of expense related to a term loan
entered into in March 2007 for $2.5 million.
Liquidity
and Capital Resources
Since our inception in 2005, we have devoted most of our cash
resources to research and development and general and
administrative activities primarily related to the development
of Zelrix. We have financed our operations primarily with the
proceeds of the sale of convertible preferred stock and
convertible notes and borrowings under debt facilities. To date,
we have not generated any revenues from the sale of products,
and we do not anticipate generating any revenues from the sale
of Zelrix until at least 2012. We have incurred losses and
generated negative cash flows from operations since inception.
As of March 31, 2010, our principal sources of liquidity
were our cash and cash equivalents, which totaled
$0.6 million. Our working capital was $(2.4) million
as of March 31, 2010.
Equity
Financings
From inception through March 31, 2010, we have received net
proceeds of $48.0 million from the sale of convertible
preferred stock and convertible notes. The various issuances of
our preferred stock are described in more detail under
Critical Accounting Policies and Use of
Estimates Stock-Based Compensation.
Debt
Facilities
As of March 31, 2010, we had $0.6 million of debt
outstanding under a term loan that we entered into in 2007. In
April 2010, we received gross proceeds of $10.1 million
from the sale of the April 2010 Convertible Notes. These notes
bear interest at 8% per year and are due on December 31,
2010, if not converted prior to such date. The outstanding
principal balance and accrued interest on the April 2010
Convertible Notes will
53
convert into shares of common stock upon the closing of this
offering at a conversion price equal to 80% of the price to the
public in this offering.
In May 2010, we entered into the May 2010 Loan Facility to fund
our working capital requirements. Under the May 2010 Loan
Facility, $5.0 million was advanced on the closing date,
which we refer to as the Term A Loan, and, upon our receipt of
at least $30.0 million in unrestricted net cash proceeds
from the sale of equity securities, including pursuant to this
offering, the private sale of equity or convertible debt
securities, or upfront payments from a joint venture or
partnership, we will have a
12-month
period during which we may request an additional
$6.0 million in funding, which we refer to as the Term B
Loan. We refer to the Term A and Term B Loans together as the
Term Loans. The funding of the Term B Loan is subject to our
compliance with the terms of the May 2010 Loan Facility,
including the continued accuracy of our representations and
warranties contained therein, and is at the lenders sole
discretion. The Term Loans have a scheduled maturity date in
August 2013. The May 2010 Loan Facility is secured by
substantially all of our assets, excluding intellectual
property, which is subject to a negative pledge prohibiting the
granting of liens thereon to any third party.
We used $0.4 million of the proceeds from the Term A Loan
to repay all outstanding amounts owed under the term loan that
we entered into in 2007. Amounts outstanding under the May 2010
Loan Facility bear interest at LIBOR plus 8.75% per year, with a
LIBOR floor of 3%. Until June 2011, the Term Loans only require
monthly payments of interest. Thereafter, the Term Loans will
amortize on a straight line basis, and we will be required to
pay 27 equal monthly installments of principal and interest
through the maturity date.
The May 2010 Loan Facility does not contain any financial
covenants, although it does contain operating covenants,
including covenants restricting our ability to incur additional
indebtedness, pay dividends or other distributions, effect a
sale of any part of our business and merge with or acquire
another company. The May 2010 Loan Facility also includes
customary events of default, including upon the occurrence of a
payment default, a covenant default, a material adverse change
and our insolvency. Further, the May 2010 Loan Facility provides
for a three day cure period for a breach of payment obligations
other than payment of principal and interest, for which no cure
period is provided. A ten day cure period, which may be extended
to up to 30 days in certain circumstances, is also provided
for defaults that do not constitute an event of default under
the May 2010 Loan Facility, breach specified affirmative
covenants or breach a negative covenant.
In connection with the Term A Loan, we issued the lenders
warrants to purchase 255,376 shares of Series B
preferred stock at an exercise price of $0.93 per share.
The number of shares exercisable under the warrant will
automatically increase by up to an additional
306,452 shares of Series B preferred stock if the Term
B Loan is funded in full. The warrants have a ten year exercise
period and include a put option right in favor of the lenders in
connection with certain major corporate events, events of
default and maturity of the May 2010 Loan Facility. Upon the
closing of this offering, in accordance with their terms, the
put option right will terminate and the outstanding warrants
will automatically become exercisable for 255,376 shares of
common stock at an exercise price of $0.93 per share of common
stock.
Future
Capital Requirements
We expect that the net proceeds from this offering and our
existing cash and cash equivalents will be sufficient to fund
our operations and capital requirements, including payment
obligations under our outstanding debt, for at least the next
months. We believe that these available
funds will be sufficient to complete the development of Zelrix
through FDA approval and to fund the expected commercial launch
of Zelrix in the U.S. in the first half of 2012. However,
it is difficult to predict our spending relative to Zelrix and
our other product candidates prior to obtaining FDA approval.
Moreover, changing circumstances may cause us to expend cash
significantly faster than we currently anticipate, and we may
need to spend more cash than currently expected because of
circumstances beyond our control.
Our expectations regarding future cash requirements do not
reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or investments that we
make in the future. We have no current understandings,
agreements or commitments for any material acquisitions or
licenses of any products,
54
businesses or technologies. We may need to raise substantial
additional capital in order to engage in any of these types of
transactions.
We expect to continue to incur substantial additional operating
losses for at least the next several years as we continue to
develop our product candidates and seek marketing approval and,
subject to obtaining such approval, the eventual
commercialization of Zelrix and our other products candidates.
If we obtain marketing approval for Zelrix, we will incur
significant sales, marketing and outsourced manufacturing
expenses. In addition, we expect to incur additional expenses to
add operational, financial and information systems and
personnel, including personnel to support our planned product
commercialization efforts. We also expect to incur significant
costs to comply with corporate governance, internal controls and
similar requirements applicable to us as a public company
following the closing of this offering.
Our future use of operating cash and capital requirements will
depend on many forward-looking factors, including the following:
|
|
|
|
|
The timing of our submission to the FDA, and outcome of the
FDAs review, of the NDA for Zelrix;
|
|
|
|
The extent to which the FDA may require us to perform additional
clinical trials for Zelrix;
|
|
|
|
The timing and success of this offering;
|
|
|
|
The costs of our commercialization activities for Zelrix, if it
is approved by the FDA;
|
|
|
|
The cost of purchasing manufacturing and other capital equipment
for our potential products;
|
|
|
|
The scope, progress, results and costs of development for our
other product candidates;
|
|
|
|
The cost, timing and outcome of regulatory review of our other
product candidates;
|
|
|
|
The extent to which we acquire or invest in products, businesses
and technologies;
|
|
|
|
The extent to which we choose to establish collaboration,
co-promotion, distribution or other similar agreements for
product candidates; and
|
|
|
|
The costs of preparing, submitting and prosecuting patent
applications and maintaining, enforcing and defending
intellectual property claims.
|
To the extent that our capital resources are insufficient to
meet our future operating and capital requirements, we will need
to finance our cash needs through public or private equity
offerings, debt financings, corporate collaboration and
licensing arrangements or other financing alternatives. The
covenants under the May 2010 Loan Facility and the pledge of our
assets as collateral limit our ability to obtain additional debt
financing. We have no committed external sources of funds.
Additional equity or debt financing or corporate collaboration
and licensing arrangements may not be available on acceptable
terms, if at all.
If we raise additional funds by issuing equity securities, our
stockholders will experience dilution. Debt financing, if
available, would result in increased fixed payment obligations
and may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or
declaring dividends. Any debt financing or additional equity
that we raise may contain terms, such as liquidation and other
preferences, that are not favorable to us or our stockholders.
If we raise additional funds through collaboration and licensing
arrangements with third parties, it may be necessary to
relinquish valuable rights to our technologies, future revenue
streams or product candidates or to grant licenses on terms that
may not be favorable to us.
55
Cash
Flows
The following table summarizes our cash flows from operating,
investing and financing activities for the years ended
December 31, 2007, 2008 and 2009 and the three months ended
March 31, 2009 and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(8,629
|
)
|
|
$
|
(12,274
|
)
|
|
$
|
(13,568
|
)
|
|
$
|
(2,844
|
)
|
|
$
|
(3,063
|
)
|
Investing activities
|
|
|
(36
|
)
|
|
|
(5,627
|
)
|
|
|
(29
|
)
|
|
|
(12
|
)
|
|
|
(20
|
)
|
Financing activities
|
|
|
7,284
|
|
|
|
22,439
|
|
|
|
9,155
|
|
|
|
(236
|
)
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(1,381
|
)
|
|
$
|
4,538
|
|
|
$
|
(4,442
|
)
|
|
$
|
(3,092
|
)
|
|
$
|
(3,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash used in operating activities for the three months ended
March 31, 2010 was $3.1 million, an increase of
$0.2 million from the three months ended March 31,
2009. This increase was due to increased spending on our
Phase III clinical program for Zelrix, which was in a more
advanced stage in the three months ended March 31, 2010
than in the three months ended March 31, 2009.
Net cash used in operating activities for the year ended
December 31, 2009 was $13.6 million, an increase of
$1.3 million from the year ended December 31, 2008.
This increase was primarily due to a $3.2 million increase
in research and development expenses for our pivotal
Phase III clinical trial and our Phase III safety
trials for Zelrix, partially offset by a $0.6 million
decrease in manufacturing expenses and a $0.6 million
decrease in preclinical development expenses, as described in
more detail under Results of Operations.
Net cash used in operating activities for the year ended
December 31, 2008 was $12.3 million, an increase of
$3.6 million from the year ended December 31, 2007.
This increase was primarily due to the $2.2 million
increase in operating expenses in 2008, as described in more
detail under Results of Operations, and
$0.7 million for prepaid clinical supplies that we
purchased in 2008 for use in future clinical trials.
We expect cash used in operating activities to increase in 2010
as compared to 2009 due to an expected increase in our operating
losses associated with the Phase III safety trials for
Zelrix and costs associated with the expected submission of an
NDA for Zelrix during the fourth quarter of 2010 and the
expected acceleration of our preclinical development programs.
Investing
Activities
Cash used in investing activities for the purchase of property
and equipment was $12,000 in the three months ended
March 31, 2009 and $20,000 in the three months ended
March 31, 2010.
Cash used in investing activities for the purchase of property
and equipment was $29,000 in 2009, $127,000 in 2008 and $36,000
in 2007. Additionally, in 2008 we expended $5.5 million in
connection with our acquisition of a patent application utilized
in Zelrix and a worldwide license in the field of migraine to
additional intellectual property.
Financing
Activities
Cash used in financing activities was $0.3 million for the
three months ended March 31, 2010 and $0.2 million for
the three months ended March 31, 2009. These amounts
reflect scheduled debt repayments.
56
Cash provided by financing activities for the year ended
December 31, 2009 was $9.2 million, reflecting
$10.1 million of net proceeds from the sale of
Series B preferred stock, partially offset by scheduled
debt repayments of $0.9 million.
Cash provided by financing activities for the year ended
December 31, 2008 was $22.4 million, reflecting
$23.2 million of net proceeds from the sale of
Series B preferred stock, partially offset by scheduled
debt repayments of $0.9 million.
Cash provided by financing activities for the year ended
December 31, 2007 was $7.3 million, reflecting
$5.0 million of net proceeds from the sale of Series B
preferred stock and $2.4 million, net of issuance costs,
from a term loan that we entered into in 2007, partially offset
by scheduled debt repayments of $0.1 million.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements, except for
operating leases, or relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as
structured finance or special purpose entities.
Contractual
Obligations
The following table summarizes our contractual obligations as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
2011 and
|
|
|
2013 and
|
|
|
2015 and
|
|
Contractual
Obligations(1)
|
|
Total
|
|
|
2010
|
|
|
2012
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Debt
obligations(2)
|
|
$
|
818
|
|
|
$
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on debt
|
|
|
42
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License maintenance
fees(3)
|
|
|
330
|
|
|
|
30
|
|
|
$
|
100
|
|
|
$
|
100
|
|
|
$
|
100
|
|
Operating lease obligations
|
|
|
1,143
|
|
|
|
346
|
|
|
|
708
|
|
|
|
89
|
|
|
|
|
|
Development
expenditures(4)
|
|
|
1,750
|
|
|
|
250
|
|
|
|
500
|
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,083
|
|
|
$
|
1,486
|
|
|
$
|
1,308
|
|
|
$
|
689
|
|
|
$
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This table does not include any contingent milestone or royalty
payments that may become payable to third parties under license
agreements because the timing and likelihood of such payments
are not known. |
|
|
|
|
|
Additionally, this table does not include payments due under an
agreement we entered into with LTS as of June 1, 2010,
pursuant to which we agreed to pay to LTS an aggregate of
5.4 million, or approximately $6.6 million based
on exchange rates in effect as of May 31, 2010, in
14 monthly installments beginning in June 2010 for the
purchase of manufacturing equipment for Zelrix. The terms of
this agreement are described in more detail under
Business License, Development and Commercial
Agreements LTS Lohmann Therapie-Systeme AG. |
|
|
|
(2) |
|
This table does not reflect the $10.1 million outstanding
principal balance under the April 2010 Convertible Notes and the
$5.0 million outstanding principal balance under the May
2010 Loan Facility. Outstanding principal and accrued interest
under the April 2010 Convertible Notes automatically convert
into shares of common stock upon the closing of this offering.
The terms of the repayment of the May 2010 Loan Facility are
described in more detail under Liquidity and
Capital Resources Debt Facilities. |
|
|
|
(3) |
|
Under an agreement with Penn, we are required to pay annual
license maintenance fees of up to $50,000 until the first
commercial sale of the first licensed product covered by the
agreement. The agreement currently covers NP201 and NP202. In
2010, the annual fee is $30,000. After 2010, the annual fee is
$50,000. Because we cannot currently estimate when the first
sale of a licensed product will occur, the table reflects
payments only through 2016. |
|
|
|
(4) |
|
Under the agreement with Penn discussed in footnote 3 to this
table, we are required to expend an aggregate of at least
$250,000 annually toward the development and commercialization
of NP201 and NP202, until the first commercial sale of the first
licensed product under the agreement. Because we |
57
|
|
|
|
|
cannot currently estimate when the first sale of a licensed
product will occur, the table reflects payments only through
2016. |
In addition to the contractual commitments reflected in the
table above, we have agreed to pay Penn aggregate milestone
payments of up to $950,000, per licensed product, upon the
achievement of specified development and regulatory milestones
related to each licensed product that contains ropinirole and
other specified active ingredients, including the active
ingredients in NP201 and NP202, and royalties in the low single
digits on worldwide net sales of such licensed products. We and
Penn have agreed to negotiate the milestone payments and
royalties payable for each licensed product that contains an
active ingredient other than those currently specified in the
agreement. We are unable to determine the timing of the
achievement of these milestones or whether and when we will
commercialize and generate any sales for a licensed product.
We have also entered into a license agreement with SurModics
under which we have agreed to pay SurModics milestone payments
of up to an aggregate amount of $4.75 million upon the
first achievement of specified development, regulatory and sales
level milestones related to the first clinical indication
approved by a regulatory authority for NP201, our product
candidate that is covered by the agreement. We must also pay an
additional single milestone payment upon regulatory approval of
each additional clinical indication for NP201 and royalties in
the low single digits on worldwide net sales of commercial
product. We are unable to determine the timing of the
achievement of these milestones or whether and when we will
commercialize and generate any sales for a licensed product.
Recent
Accounting Pronouncements
We have adopted new accounting guidance on fair value
measurements effective January 1, 2008, for financial
assets and liabilities. In addition, effective January 1,
2009, we adopted this guidance as it relates to nonfinancial
assets and liabilities that are not recognized or disclosed at
fair value in the financial statements on at least an annual
basis. This guidance defines fair value as the price that would
be received to sell an asset or paid to transfer a liability,
referred to as the exit price, in an orderly transaction between
market participants at the measurement date. The guidance
outlines a valuation framework and creates a fair value
hierarchy in order to increase the consistency and comparability
of fair value measurements and the related disclosures. The
adoption of this guidance did not have a material impact on our
financial statements.
In June 2008, the Financial Accounting Standards Board, or FASB,
issued new guidance related to assessing whether an
equity-linked financial instrument (or embedded feature) is
indexed to an entitys own stock for the purposes of
determining whether such equity-linked financial instrument (or
embedded feature) is subject to derivative accounting. We
adopted this new guidance effective January 1, 2009. The
adoption of this guidance did not have a material impact on our
financial statements.
In May 2009, the FASB issued a new standard regarding subsequent
events. The standard provides guidance on managements
assessment of subsequent events and incorporates this guidance
in accounting literature. The guidance is effective
prospectively for interim and annual periods ending after
June 15, 2009. We adopted this guidance beginning with the
interim period ended June 30, 2009. The adoption of this
guidance did not have a material impact on our financial
statements.
In April 2009, the FASB issued a staff position requiring fair
value disclosures in both interim and annual financial
statements in order to provide more timely information about the
effects of current market conditions on financial instruments.
The guidance is effective for interim and annual periods ending
after June 15, 2009. We adopted this guidance beginning
with the issuance of our September 30, 2009 financial
statements. The adoption of this guidance did not have a
material impact on our financial statements.
In June 2009, the FASB Accounting Standards Codification, or
ASC, was issued, effective for financial statements issued for
interim and annual periods ending after September 15, 2009.
The ASC supersedes literature of the FASB, Emerging Issues Task
Force and other sources. The ASC did not change
U.S. generally accepted accounting principles. The adoption
of this guidance did not have a material impact on our financial
statements.
58
Quantitative
and Qualitative Disclosures about Market Risk
The primary objective of our investment activities is to
preserve our capital to fund operations. We also seek to
maximize income from our investments without assuming
significant risk. Our exposure to market risk is confined to our
cash and cash equivalents. As of March 31, 2010, we had
cash and cash equivalents of $0.6 million. We do not engage
in any hedging activities against changes in interest rates.
Because of the short-term maturities of our cash and cash
equivalents, we do not believe that an increase in market rates
would have any significant impact on the realized value of our
investments, but may increase the interest expense associated
with our debt.
We have no operations outside the U.S. We have, however,
entered into two agreements with a manufacturer in Germany.
Under one of these agreements, the manufacturer provides
services to us related to the production and assembly of Zelrix.
Under this agreement, we paid $2.1 million in 2008,
$1.2 million in 2009 and $0.2 million in the three
months ended March 31, 2010 to this manufacturer. Under the
other agreement, we have agreed to pay the manufacturer an
aggregate of 5.4 million, or approximately
$6.6 million based on exchange rates in effect as of
May 31, 2010, in 14 monthly installments beginning in June
2010, for the purchase of manufacturing equipment for Zelrix,
which will be installed in the U.S.
Because of these agreements, we are subject to fluctuations in
exchange rates. We are currently in the process of transferring
our existing manufacturing activities with this manufacturer to
the U.S. and anticipate that all of our commercial
manufacturing activities will be located in the
U.S. following this transfer, thereby substantially
eliminating our exposure to fluctuation in the relative values
of the U.S. dollar and the Euro.
59
BUSINESS
Overview
We are a specialty pharmaceutical company focused on the
development and commercialization of branded therapeutics for
diseases of the central nervous system, including neurological
and psychiatric disorders. Our most advanced product candidate,
Zelrix, is an active, single-use transdermal sumatriptan patch
that we are developing for the treatment of acute migraine.
Zelrix uses our proprietary SmartRelief technology. We
successfully completed a pivotal Phase III clinical trial
for Zelrix in July 2009 and expect to submit a New Drug
Application, or NDA, to the United States Food and Drug
Administration, or FDA, in the fourth quarter of 2010. Before we
submit our NDA, we must complete two ongoing pharmacokinetic
trials in healthy subjects and obtain interim data from two
ongoing open label Phase III long-term safety trials, or
our Phase III safety trials. Subject to the approval of our
NDA, we plan to build our own specialty sales force in the
U.S. to launch Zelrix. We have two other proprietary
product candidates in preclinical development that address large
market opportunities, NP201 for the continuous symptomatic
treatment of Parkinsons disease and NP202 for the
long-term treatment of schizophrenia and bipolar disorder.
Migraine affects approximately 28 million people in the
U.S. In 2009, according to IMS Health Inc., or IMS, a
leading provider of pharmaceutical industry market data,
U.S. sales of prescription products for migraine exceeded
$2 billion, over 96% of which were for a class of
medication called triptans.
During a migraine, most migraine patients, or migraineurs,
suffer from one or more significant gastrointestinal problems,
which include nausea, vomiting and a compromised ability to
digest, known as decreased gastric motility. Nausea and vomiting
impede the use of oral medications, while reduced gastric
motility can result in inconsistent efficacy. According to a
survey with over 500 respondents conducted by the National
Headache Foundation in 2008, 90% of migraineurs have experienced
nausea with a migraine and 59% of migraineurs have experienced
vomiting with a migraine. In this survey, 48% of respondents who
ever experienced nausea or vomiting with a migraine reported
that the nausea or vomiting had a moderate to major impact on
when or how they take migraine medications.
The American Academy of Neurology, or AAN, guidelines recommend
a non-oral route of administration for migraineurs who
experience nausea or vomiting as significant migraine symptoms.
Despite this recommendation and the prevalence of nausea and
vomiting, IMS reported that non-oral formulations comprised only
4% of triptan units sold in the U.S. in 2009. According to
U.S. prescribing information, FDA approved non-oral migraine
treatments, limited to nasal spray and injectable formulations,
are associated with frequent adverse events. There is no patch
approved for the treatment of migraine. We believe that Zelrix
will provide an attractive alternative to migraineurs,
especially those experiencing nausea and vomiting, inconsistent
relief from oral treatments or adverse events associated with
triptan use.
In addition to Zelrix, we are developing other product
candidates that target opportunities where we believe improved
medication delivery can address significant central nervous
system medical needs. Based on preclinical testing, we believe
that NP201 and NP202, both of which use our long-acting
delivery, or LAD, technology, will be able to deliver stable
medication levels for multiple months with a single
administration.
60
Our
Product Candidates
The following table summarizes key information about our
existing product candidates. We hold worldwide commercialization
rights to all of our product candidates.
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
Candidate
|
|
Indication(s)
|
|
Description
|
|
Development Status
|
Zelrix
|
|
Acute migraine
|
|
Active, single-use sumatriptan
|
|
|
|
Expected NDA submission during fourth quarter of 2010.
|
|
|
|
|
transdermal patch
|
|
|
|
Pivotal Phase III clinical trial completed.
|
|
|
|
|
|
|
|
|
Two ongoing Phase III safety trials.
|
|
|
|
|
|
|
|
|
Two ongoing pharmacokinetic trials in healthy subjects.
|
|
|
|
|
|
|
|
|
|
NP201
|
|
Parkinsons disease
|
|
Ropinirole two-month implant
|
|
|
|
Expected Investigational New Drug submission during first half
of 2011.
|
|
|
|
|
|
|
|
|
Preclinical proof of concept completed.
|
|
|
|
|
|
|
|
|
|
NP202
|
|
Schizophrenia and bipolar disorder
|
|
Atypical antipsychotic three-month implant
|
|
|
|
Expected Investigational New Drug submission in 2012.
|
|
|
|
|
|
|
Prototype development in progress.
|
|
|
|
|
|
|
|
|
|
Migraine
Market
Overview
Migraine is a debilitating neurological disease that affects
approximately 28 million people in the U.S. Symptoms
of migraine include moderate to severe headache pain, nausea and
vomiting, photophobia, or abnormal sensitivity to light, and
phonophobia, or abnormal sensitivity to sound. Most migraines
last between four and 24 hours, but some last as long as
three days. According to an article by Dr. Richard Lipton
published in 2007 in Neurology, a peer-reviewed medical
journal, 63% of migraineurs experience between one and four
migraines per month, and 31% of migraineurs experience three or
more migraines per month. Migraineurs are limited in their daily
function during a migraine and often seek dark, quiet
surroundings until the migraine has passed.
According to an article, also by Dr. Richard Lipton,
published in 2001 in Headache, a peer-reviewed medical
journal, which we refer to as Lipton, over 18% of women and over
6% of men in the U.S. experience migraines. Lipton further
reported that migraines are most common in the working
population, from 25 to 55 years old, and can be
sufficiently serious to cause migraineurs to miss work or
school. According to an article by Dr. Kevin Hawkins
published in 2008 in Headache, estimated direct medical
expenditures for migraine, including outpatient costs,
pharmaceutical costs, inpatient costs and emergency department
costs, exceed $11.0 billion per year in the U.S.
According to IMS, over 13 million prescriptions for
medications indicated for acute migraine were filled in the
U.S. in 2009. More than 90% of these prescriptions were for
triptans. Triptan sales in the U.S. in 2009 exceeded
$2.0 billion, with approximately 123 million
individual units sold.
Migraine-Associated
Nausea and Vomiting
Symptoms other than headache pain contribute significantly to
the disability caused by acute migraine. In particular, nausea
and vomiting during a migraine can be severe and incapacitating.
According to an article by Dr. Stephen Silberstein
published in 1995 in Headache, 92% of migraineurs have
experienced nausea at least once during a migraine, and 56% of
these migraineurs experience nausea in a majority of migraines.
Silberstein also reported that 68% of migraineurs have
experienced vomiting at least once during a migraine, and 32% of
these migraineurs experience vomiting in a majority of
migraines. Accordingly, these data indicate that 52% of all
migraineurs experience nausea in a majority of migraines and 22%
of all migraineurs experience vomiting in a majority of
migraines.
61
Treatment
of Acute Migraine
The FDA has approved acute migraine prescription medications in
four classes:
|
|
|
|
|
Triptans, including a triptan combination;
|
|
|
|
Ergotamines and dihydroergotamine, or DHE;
|
|
|
|
Analgesic combinations; and
|
|
|
|
A non-steroidal anti-inflammatory drug, or NSAID, which has not
yet commercially launched.
|
Currently, triptans constitute the most prescribed class of
medication for the treatment of acute migraine in the
U.S. Sumatriptan, approved by the FDA in 1992, is the most
widely prescribed triptan, according to IMS.
The following table summarizes U.S. unit and dollar sales
information for 2009, by product class, for prescription
products indicated for the treatment of acute migraine, based on
IMS data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Units
|
|
|
|
|
|
|
Route of
|
|
Sold(1)
|
|
2009 Sales
|
Product Class
|
|
Key Product Brands (Drug)
|
|
Administration
|
|
(% Total)
|
|
(% Total)
|
Triptan
|
|
|
|
Generic sumatriptan and
Imitrex
|
|
Tablet, orally disintegrating
|
|
122.9 million
(69.2%)
|
|
$2.1 billion
(96.8%)
|
|
|
|
|
Maxalt (rizatriptan)
|
|
tablet, nasal
|
|
|
|
|
|
|
|
|
Zomig (zolmitriptan)
|
|
spray, injection
|
|
|
|
|
|
|
|
|
Relpax (eletriptan)
|
|
|
|
|
|
|
|
|
|
|
Treximet (sumatriptan/naproxen)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analgesic Combination
|
|
|
|
Epidrin, Midrin, Migrazone and generics (isometheptene mucate,
dichloralphenazone, acetaminophen)
|
|
Capsule
|
|
48.4 million
(27.2%)
|
|
$15.0 million
(0.7%)
|
|
|
|
|
Prodrin (acetaminophen, caffeine, isometheptene)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ergotamine
|
|
|
|
Migranal
(dihydroergotamine)
|
|
Nasal spray, injection,
|
|
6.4 million
(3.6%)
|
|
$54.4 million
(2.5%)
|
|
|
|
|
DHE-45 and generics
|
|
tablet
|
|
|
|
|
|
|
|
|
(dihydroergotamine)
|
|
suppository
|
|
|
|
|
|
|
|
|
Cafergot and generics (dihydroergotamine, caffeine)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A unit represents a single dose of each medication. |
As of May 31, 2010, there were seven commercially available
triptan medications in the U.S. utilizing a variety of
routes of administration: tablet, orally disintegrating tablet,
nasal spray and injection. According to IMS, oral triptans, in
tablet and orally disintegrating tablet formulations, accounted
for 96% of triptan units sold in the U.S. in 2009, while
non-oral triptans, in nasal spray and injectable formulations,
accounted for only 4% of such triptan units.
Limitations
of Current Treatments for Acute Migraine
We believe that most marketed migraine therapies are subject to
significant limitations, including:
|
|
|
|
|
Administration challenges from nausea and
vomiting. Patients with nausea often delay taking
medication until the nausea subsides, may skip treatment
altogether or, in extreme cases, force themselves to vomit.
According to a survey conducted by the National Headache
Foundation in 2008,
|
62
|
|
|
|
|
48% of respondents who ever experienced nausea or vomiting with
a migraine reported that the nausea or vomiting had a moderate
to major impact on when or how they take migraine medications.
In the same survey, some migraineurs reported they delay taking
migraine medication until nausea subsides, while others reported
they avoid taking their migraine medication altogether because
of nausea or vomiting. This runs contrary to well-accepted
clinical practice, which stresses the importance of treating
migraines without delay.
|
|
|
|
|
|
Poor or inconsistent relief. According to a
2001 article by Dr. Michel Ferrari published in The
Lancet, a peer-reviewed medical journal, clinical trials
have demonstrated that at least 40% of migraineurs fail to
respond consistently to oral triptans. Based on data from
multiple published third party clinical trials, including those
described in a 2005 article by Dr. David Dodick published
in Headache, we believe patients failure to respond
consistently results from a variety of causes, including low and
inconsistent absorption of oral medication because of reduced
gastric motility.
|
|
|
|
|
|
Fear of adverse events. Many patients avoid or
delay treatment because they fear adverse events, including
triptan adverse events. Triptan adverse events include chest
tightness, chest heaviness, numbness of the extremities,
paresthesias, or tingling, and panic. According to U.S.
prescribing information, the incidence of triptan adverse events
is 47% for injection and up to 14% for oral sumatriptan.
According to a 2003 article by Dr. R. Michael Gallagher
published in Headache, 67% of migraine patients who use
prescription migraine medication reported that they had delayed
or avoided taking a prescription migraine medication due to
concerns about adverse events.
|
As a result of these limitations, we believe that many
migraineurs are dissatisfied with currently marketed
medications. According to an article by Dr. Marcelo Bigal
published in 2007 in Headache, over 80% of patients
currently using a triptan have used a different triptan in the
past and over 48% have used two or more different triptans or
different formulations of the same triptan in the past. Bigal
also reported that 79% of migraineurs stated that they would try
a new medication.
Our
Solution: Zelrix
We designed Zelrix specifically to overcome these limitations.
Zelrix is an active, single-use sumatriptan transdermal patch
that is applied during a migraine. Zelrix provides controlled
delivery of sumatriptan through a non-oral route of
administration. This approach is consistent with the AAN
guidelines that recommend non-oral therapies for migraineurs who
experience nausea or vomiting as significant migraine symptoms.
Zelrix
Design
Zelrix utilizes SmartRelief, our proprietary transdermal
delivery technology. SmartRelief consists of a controlled
delivery technology that uses a mild electrical current to
actively deliver medication through the skin in a process called
iontophoresis. To use Zelrix, a patient applies the patch to the
upper arm or thigh and presses a button. A small light on the
patch indicates that the patch is delivering medication. Zelrix
actively delivers sumatriptan for four hours. The patient may
remove the patch whenever convenient after the dosing period.
Potential
Benefits of Zelrix
We believe that Zelrix overcomes the limitations of currently
marketed migraine medications by:
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Circumventing nausea and vomiting. Because
Zelrix is administered transdermally, we believe that it will be
an attractive alternative for migraineurs suffering from nausea
or vomiting who might otherwise delay or avoid taking medication.
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Increasing consistency of response. Zelrix
does not depend on gastrointestinal absorption. As a result, we
believe that Zelrix will provide more consistent relief than
oral triptans.
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Minimizing triptan adverse events. Zelrix
tightly controls the delivery of sumatriptan. As a result and
based on our clinical trial experience, we believe that Zelrix
use will result in a low incidence of triptan adverse events
while effectively treating migraine.
|
63
Patches have been used in the U.S. for decades for the
transdermal delivery of various medications for a wide variety
of indications, including nicotine addiction, birth control and
pain relief. Because of the potential benefits of Zelrix and the
familiarity of physicians and patients with patches, we believe
that this route of administration of medication will be readily
accepted by migraineurs.
Our
Zelrix Development Program
We expect to submit an NDA for Zelrix to the FDA in the fourth
quarter of 2010 under Section 505(b)(2) of the Federal
Food, Drug, and Cosmetic Act, or FDCA. In addition to our Zelrix
data, under Section 505(b)(2), our NDA submission will rely
on existing published data and the FDAs previous finding
of the safety and effectiveness of Imitrex. Before submitting
our NDA, we are required to complete our two ongoing
pharmacokinetic trials in healthy subjects and obtain interim
data from our two Phase III safety trials as described
below.
Our clinical trial program for Zelrix consists of:
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Six completed Phase I clinical trials;
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One completed pivotal Phase III clinical trial;
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Two ongoing pharmacokinetic trials in healthy subjects;
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Two ongoing Phase III safety trials; and
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One skin irritation study.
|
We established the primary and key secondary efficacy endpoints
for our pivotal Phase III clinical trial for Zelrix based
on discussions with the FDA. We believe, also based on our
discussions with the FDA, that we are not required to conduct a
second pivotal Phase III clinical trial for Zelrix.
As part of our NDA submission for Zelrix, the FDA indicated that
it will require that we provide long-term clinical data for
patients treated for six months and patients treated for one
year. We plan to conduct an interim analysis of data from
patients enrolled in our Phase III safety trials in order
to be able to include these required data in our NDA submission.
In addition, because Zelrix will be applied to the skin, the FDA
requested that we conduct a skin sensitization study. We are
collecting skin sensitization data in our two Phase III
safety trials. Because we are collecting these data, we
requested a waiver from the FDA with respect to conducting a
separate skin sensitization study. If the FDA does not grant
this waiver, we will conduct the separate skin sensitization
study prior to submitting our NDA.
The FDA also requested that we provide data in our NDA regarding
an in vitro analytical testing method for Zelrix to
confirm the amount of medication delivered. An in vitro
analytical test is usually conducted on artificial tissue.
To date, we have not successfully developed this test because
Zelrix is designed to operate only on living tissue. We are
working with the FDA to develop acceptable alternatives.
Pivotal
Phase III Clinical Trial
Our pivotal Phase III clinical trial for Zelrix was a
randomized, double-blind, placebo-controlled trial designed to
compare the safety and efficacy of Zelrix to an active
transdermal placebo patch in patients with acute migraine. The
inclusion criteria for the trial required that, in the three
months prior to being randomized into the trial, patients
generally had experienced moderate to severe pain during a
migraine, had experienced migraines for at least one year and
had reported from one to six migraines per month. Patients
remained in the trial until they treated one migraine with a
patch or two months after randomization into the trial,
whichever occurred first.
The primary efficacy endpoint for the trial was the proportion
of patients treated with Zelrix who were headache pain free at
two hours after patch application compared to patients treated
with placebo. Using a standard migraine diary, patients rated
their baseline headache pain severity immediately prior to
applying a
64
patch using a four-point scale, with zero for no pain, one for
mild pain, two for moderate pain and three for severe pain.
Patients applied a patch only if they rated their baseline
headache pain severity as a two (moderate) or three (severe).
Patients also rated the presence or absence of nausea,
photophobia and phonophobia immediately prior to applying a
patch. After patch application, patients recorded headache pain
severity and presence or absence of nausea, photophobia and
phonophobia at 0.5, 1, 2, 3, 4, 6, 12 and 24 hours.
Pivotal trials for all previously FDA approved triptans have
used pain relief, which means reduction from severe or moderate
pain to mild or no pain, as a primary efficacy endpoint. We
believe pain free, which required the patient to record zero
(none) with respect to headache pain severity, is a more
exacting standard than pain relief.
The key secondary endpoints for our pivotal Phase III
clinical trial were:
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The proportion of patients treated with Zelrix who were nausea
free at two hours after patch application compared to patients
treated with placebo;
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The proportion of patients treated with Zelrix who were
photophobia free at two hours after patch application compared
to patients treated with placebo; and
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The proportion of patients treated with Zelrix who were
phonophobia free at two hours after patch application compared
to patients treated with placebo.
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Safety assessments in the trial included:
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Adverse event assessments;
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Investigator skin irritation examination scores; and
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Subject skin irritation self-examination scores.
|
In this trial, we treated 469 patients at 38 investigative
sites in the U.S. The patient demographics of this trial
were similar to those reported in other large scale migraine
clinical trials. The Zelrix patient population included 197
women and 37 men. The placebo patient population included 201
women and 34 men. Each patient population had a mean age of
approximately 41 years.
We completed this trial in July 2009. Zelrix met each of the
primary and key secondary endpoints with statistical
significance. The following table summarizes the analysis of the
primary endpoint, headache pain free at two hours and selected
secondary endpoints:
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Zelrix
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Placebo
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ITT
Analysis(1)
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Patients
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Patients
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Symptom Two Hours After Patch Application
LOCF(2)
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226 Total
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%
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228 Total
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%
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% Difference
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p
value(3)
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Headache pain free
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40
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17.7
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%
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21
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9.2
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%
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8.5
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%
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0.0092
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Headache pain relief
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119
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52.9
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65
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28.6
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24.3
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<0.0001
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Nausea free
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189
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83.6
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144
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63.2
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20.4
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<0.0001
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Photophobia free
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116
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51.3
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83
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36.4
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14.9
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0.0028
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Phonophobia free
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125
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55.3
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89
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39.0
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16.3
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0.0002
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(1) |
|
Intent-to-Treat
Analysis: Patients are analyzed in the groups to which they were
randomized, regardless of whether they received or adhered to
the allocated treatment. ITT analysis provides unbiased
comparisons among the treatment groups and is the primary
statistical analysis used by the FDA. |
|
(2) |
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Last Observation Carried Forward: Last observation carried
forward is a method to address missing data. For each
individual, missing values are replaced by the last observed
value of that variable. |
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(3) |
|
The results of a clinical trial are statistically significant if
they are unlikely to have occurred by chance. We determined the
statistical significance of the trial results based on a widely
used, conventional statistical method that establishes the p
value of the results. The FDA requires a p value of
0.05 or less to demonstrate statistical significance. |
65
In addition to achieving statistically significant results for
the primary and key secondary endpoints, Zelrix also
demonstrated statistically significant results for a number of
other secondary endpoints, including:
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Headache pain relief within one hour. Zelrix
demonstrated statistically significant headache pain relief at
one hour after patch application, with 29% of Zelrix patients
experiencing headache pain relief as compared to 19% of placebo
patients (p = 0.0123). While not statistically
significant, 38% more Zelrix patients than placebo patients
experienced pain relief in 30 minutes, 29 of 226 Zelrix patients
compared to 21 of 228 placebo patients.
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Sustained pain relief. In a retrospective
analysis we conducted, for those patients who experienced pain
relief at two hours, Zelrix demonstrated statistically
significant sustained pain relief at each measurement point from
two hours through 24 hours after patch application, with
34% of Zelrix patients experiencing sustained pain relief as
compared to 21% of placebo patients (p = 0.0015). For
purposes of this analysis, we defined patients with sustained
relief as patients with no pain or mild pain at all measurement
points from two hours through 24 hours after patch
application and who had not taken rescue medication.
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Freedom from nausea within one hour. Zelrix
demonstrated statistically significant freedom from nausea at
one hour after patch application, with 71% of Zelrix patients
being nausea free as compared to 58% of placebo patients (p =
0.0251).
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Freedom from migraine. Zelrix demonstrated
statistically significant freedom from migraine at two hours
after patch application, with 16% of Zelrix patients being
migraine free as compared to 8% of placebo patients (p =
0.0135). Freedom from migraine means the absence of
headache, nausea, photophobia and phonophobia.
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Decreased use of rescue medication. Zelrix
demonstrated a statistically significant difference in the
number of patients that used pain or nausea rescue medication
during the 24 hours after patch application, with 40% of
Zelrix patients using rescue medication as compared to 60% of
placebo patients (p <0.0001). Rescue medications are
any additional medications taken by the patient to relieve
symptoms of migraine after patch application.
|
A total of 117 patients, or 50% of patients, receiving
Zelrix and 103 patients, or 44% of patients, receiving the
placebo patch experienced at least one treatment-emergent
adverse event, which is an event that was not present prior to
patch application or a worsening of either the intensity or
frequency of a symptom following patch application. The most
common adverse events reported in the trial among patients
receiving Zelrix related to the application site and included
application site pain and application site tingling. There were
no deaths or serious adverse events in this trial. Zelrix
demonstrated skin tolerability typical of other transdermal
products, with mild to moderate redness generally present upon
patch removal.
Patients receiving Zelrix exhibited a low incidence of triptan
adverse events, with 1.7% experiencing atypical sensations and
1.7% experiencing pain and other pressure sensations. Patients
described all of these adverse events to be of mild intensity,
except for one adverse event, which a patient described as
cold sensation head of moderate intensity.
Ongoing
Open Label Phase III Long-Term Safety Trials
We are conducting two Phase III safety trials, both of
which we initiated in the first quarter of 2009, to evaluate the
safety of Zelrix in the treatment of acute migraine over
12 months. Patient eligibility requirements in these trials
are similar to the requirements for our completed pivotal
Phase III clinical trial. These two trials are fully
enrolled with a total of 714 patients at 34 investigative
sites in the U.S. As of May 31, 2010, we had treated
over 5,500 migraines with Zelrix in these trials.
As part of our NDA submission for Zelrix, the FDA indicated that
it will require that we provide long-term clinical data for
patients treated for six months and patients treated for one
year. We plan to conduct an interim analysis of data from
patients enrolled in our Phase III safety trials in order
to be able to include these required data in our NDA.
66
Phase
I Clinical Trials
We have completed six Phase I clinical trials of Zelrix. In four
of these Phase I clinical trials, we evaluated Zelrix prototypes
and design characteristics in healthy adult subjects to
establish proof of concept. In the fifth Phase I clinical trial,
we compared the pharmacokinetics of Zelrix to oral Imitrex in
patients with migraine. Pharmacokinetics refers to a drugs
absorption, distribution and metabolism in, and excretion from,
the body and measures, among other things, bioavailability of a
drug, or concentration of drug in the plasma.
In the sixth Phase I clinical trial, we compared the
pharmacokinetics of Zelrix to three routes of administration of
Imitrex in healthy adult subjects: 20 mg nasal spray,
100 mg tablet and 6 mg injection. As intended,
treatment with Zelrix resulted in sumatriptan plasma levels
between the levels of 20 mg Imitrex nasal spray and the
100 mg Imitrex oral tablet. After Zelrix application,
sumatriptan absorption in plasma reached therapeutic levels
within 30 minutes. In addition, in this trial, treatment with
Zelrix resulted in less variability in sumatriptan plasma levels
than either 100 mg oral tablet or 20 mg nasal spray
formulations, supporting our belief that transdermal
administration provides more predictable delivery by bypassing
absorption through the gastrointestinal system.
At the time of patch removal, more than 75% of subjects had no
or minimal skin redness, and within 48 hours following
patch removal, all subjects had no or minimal skin redness. We
also evaluated adverse events by different routes of
administration. The trial categorized adverse events as either
Atypical Sensations or Pain and Pressure
Sensations. The following table sets forth each of these
adverse events by category for each route of administration:
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Summary of Triptan Adverse Events
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Adverse Event
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Number of Subjects Reporting Event (%)
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Nasal
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Injection
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Oral
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Spray
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Zelrix
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Categorization
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Preferred Term
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(23 Subjects)
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(23 Subjects)
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(23 Subjects)
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(17 Subjects)
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Atypical Sensation
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Any adverse events
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14
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(60.9
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%)
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2
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(8.7
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%)
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Burning sensation mucosal
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3
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(13.0
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%)
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Ear discomfort
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1
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(4.3
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%)
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Facial pain
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1
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(4.3
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%)
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Feeling hot
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2
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(8.7
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%)
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Flushing
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6
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(26.1
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%)
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Head discomfort
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|
1
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(4.3
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%)
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|
1
|
(4.3
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%)
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Hot flush
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|
3
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(13.0
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%)
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|
1
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(4.3
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%)
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Sensation of heaviness
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|
1
|
(4.3
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%)
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Sensation of pressure
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|
1
|
(4.3
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%)
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|
Pain and Pressure Sensation
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|
Any adverse events
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|
2
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(8.7
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%)
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4
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(17.4
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%)
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Neck pain
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2
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(8.7
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%)
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|
|
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|
Sensation of heaviness
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|
1
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(4.3
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%)
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|
1
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(4.3
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%)
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|
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|
Sensation of pressure
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|
1
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(4.3
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%)
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|
1
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(4.3
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%)
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In subjects treated with oral and injectable sumatriptan, all of
the triptan adverse events occurred in subjects with sumatriptan
plasma levels exceeding 50 nanograms per milliliter. In this
trial, the maximum sumatriptan plasma level observed for
subjects receiving Zelrix reached therapeutic levels, but did
not exceed 50 nanograms per milliliter. We believe the ability
of Zelrix to control sumatriptan plasma levels within this
dosing range explains why subjects receiving Zelrix in this
trial did not experience triptan adverse events.
67
Ongoing
Pharmacokinetic Trials in Healthy Subjects
We are conducting two additional pharmacokinetic trials in
healthy subjects. One is designed to evaluate the
pharmacokinetics of Zelrix in the young and elderly; the other
is designed to evaluate the bioavailability of Zelrix. Each
clinical trial will enroll approximately 60 subjects and must be
completed prior to submitting our NDA.
Skin
Irritation Study
We plan to initiate a study of Zelrix in July 2010 to evaluate
the skin irritation profile of the Zelrix patch. The study is
designed to enroll 10 to 30 healthy adult subjects at one
investigative site in the U.S. In this study, we will measure
the amount of skin irritation, if any, resulting from repeated
application of Zelrix. We expect to complete this study within
one month of initiation and to include the skin irritation data
as part of our NDA submission for Zelrix.
Commercial
Strategy
If Zelrix is approved by the FDA, we plan to build a commercial
infrastructure to launch Zelrix in the U.S., including a
specialty sales force of approximately 100 people. We
expect to direct our marketing efforts at high potential
prescribers of Zelrix, including neurologists, headache
specialists and select primary care physicians. We believe a
sales force of this size will enable us to address a significant
portion of the commercial opportunity for Zelrix. We may seek to
further penetrate the U.S. market in the future by
expanding our sales force or through collaborations with other
pharmaceutical or biotechnology companies. This would enable us
to target additional physicians who are high prescribers of
migraine medications.
Once we establish our commercial infrastructure, we may acquire
additional products to market and sell or collaborate with
pharmaceutical or biotechnology companies to market and sell
their products using our sales force. We may also seek to
commercialize Zelrix outside the U.S., although we currently
plan to do so only with a collaborator.
Pipeline
Products
In addition to migraine, we also seek to identify other market
opportunities in central nervous system disorders for which
improved medication delivery can address significant medical
needs. Our current research and development pipeline consists of
two preclinical product candidates, one for the treatment of
Parkinsons disease and one for the treatment of
schizophrenia and bipolar disorder.
NP201:
Product candidate for the continuous symptomatic treatment of
Parkinsons disease
Parkinsons disease is a progressive, degenerative disease
characterized by movement symptoms such as tremor or trembling
in the hands, arms, and legs; rigidity of the limbs and trunk;
slowness of movement; and impaired balance and coordination.
According to the Parkinsons Disease Foundation,
Parkinsons disease affects about one million people in the
U.S. and more than four million people worldwide. Although
symptoms of Parkinsons disease can appear at any age, the
average age of onset is 60.
The loss of neurons in the brain that help to control movement
causes Parkinsons disease. These neurons produce dopamine,
a neurotransmitter that transmits signals that control movement.
Currently, no cure exists for Parkinsons disease.
Symptomatic treatments rely on the replacement of dopamine
through either levodopa, which the brain converts to dopamine,
or dopamine agonists, which mimic dopamine. According to IMS,
2009 sales of Parkinsons disease therapies in the U.S.,
European Union and Japan totaled approximately $3.6 billion.
Multiple challenges complicate the treatment of Parkinsons
disease. Intermittent dosing of oral medications leads to
periods of on after dosing and periods of
off as the medication wears off. During
on periods, excessive levels of medication can
produce adverse events, primarily abnormal movements. During
off periods, low levels of medication lead to poor
efficacy. In addition, Parkinsons disease is a progressive
disease, which causes patients to become less responsive to
their medication over time and more sensitive to excessive drug
levels.
68
The majority of Parkinsons disease patients currently use
oral medications that require administration one to three times
per day, exposing the patient to varying medication levels. The
intermittent dosing of oral medications further complicates
treatment, as patients experience periods of on
after dosing and periods of off as the medication
wears off. According to a 2009 article by Dr. Fabrizio
Stocchi published in Parkinsonism and Related Disorders,
a peer-reviewed medical journal, experts believe that
intermittent dosing may result in more frequent and serious
adverse events and may hasten the progression of
Parkinsons disease by causing harm to the remaining
dopamine receptors. As Dr. Stocchi reported, studies
suggest that continuous medication delivery can alleviate the
symptoms of Parkinsons disease without inducing the
abnormal movements caused by too much medication.
Only two Parkinsons disease medications currently provide
for continuous delivery, and neither is approved in the
U.S. Duodopa is a levodopa gel marketed by Solvay S.A. that
requires the surgical insertion of a tube into the
patients small intestine. APO-go is an injectable
apomorphine marketed by Britannia Pharmaceuticals Limited that
requires the patient to wear a pump around his or her waist.
Because both APO-go and Duodopa are difficult to administer,
they are generally reserved for complicated and difficult to
control patients.
We designed NP201 to provide continuous delivery of
Parkinsons disease medication in an easy to administer and
tolerable dose formulation. NP201 consists of our LAD technology
combined with ropinirole, a generic, FDA approved dopamine
agonist also known as Requip. After administration, NP201 is
designed to slowly dissolve while releasing ropinirole.
We have studied NP201 in several animal models. We believe the
data from these studies suggest that NP201 can provide
continuous, stable medication levels for up to two months. In
addition, we completed a proof of concept study in a
well-accepted animal model of Parkinsons disease that we
believe suggests NP201 has the potential to provide continuous
symptomatic relief for up to two months per dose and to
significantly decrease the incidence of adverse events
associated with current treatments.
In March 2010, we met with the FDA to discuss our development
plan for NP201. Based on this meeting, we believe that we can
submit an NDA for NP201 under Section 505(b)(2) of the FDCA
and that the FDA will require only a single successful pivotal
Phase III clinical trial for approval. We plan to initiate
an acute toxicology study for NP201 in the second half of 2010
and to submit an Investigational New Drug Application, or IND,
in the first half of 2011.
NP202:
Product candidate for the long-term treatment of schizophrenia
and bipolar disorder
Schizophrenia is a life-long serious psychiatric illness that
causes people to lose touch with reality and often interferes
with their ability to think clearly, manage emotions, make
decisions and relate to others. Bipolar disorder, or manic
depression, is another life-long psychiatric illness that causes
extreme shifts in mood, energy and functioning. These changes
may be subtle or dramatic and typically vary greatly over the
course of a persons life as well as among individuals.
According the National Alliance on Mental Illness, schizophrenia
affects over two million adults in the U.S., while bipolar
disorder affects over ten million adults in the
U.S. According to an article by Dr. Eric Wu published
in 2005 in The Journal of Clinical Psychiatry, a
peer-reviewed medical journal, as of 2002 the estimated direct
health care costs of schizophrenia in the U.S. were
$22.7 billion, including outpatient care, medications and
long-term care.
Patient compliance with medication has been a long-standing
problem in the treatment of schizophrenia. As reported in an
article by Dr. Jeffrey Lieberman published in 2005 in
The New England Journal of Medicine, a peer-reviewed
medical journal, the Clinical Antipsychotic Trials in
Intervention Effectiveness, or CATIE, study, conducted between
2001 and 2004, indicated that 74% of schizophrenia patients
become non-compliant with their medication within 18 months
of commencing the use of medication. According to an article by
Patricia Thieda published in 2003 in Psychiatric
Services, a peer-reviewed medical journal, schizophrenia
patients with poor compliance are more than twice as likely to
experience relapse than patients with good compliance. We
believe medication compliance represents a significant
opportunity for improved treatments.
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In an attempt to improve patient compliance, physicians
administer antipsychotic drugs through depot injections. Depot
injections release medication over a longer period than
conventional injections or oral medications. Depot injection
products include Risperdal Consta and Invega Sustenna, both
marketed by Johnson & Johnson, and Zyprexa Relprew,
marketed by Eli Lilly & Co. These drugs provide two to
four weeks of therapy per dose.
We believe that NP202 potentially could provide a significant
improvement over existing treatment options for patients
suffering from schizophrenia or bipolar disorder because:
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We are developing NP202 to provide up to three months of
continuous delivery of an atypical antipsychotic with a single
dose. Currently available products provide therapy for only two
to four weeks, resulting in frequent physician visits and
increasing the risk of non-compliance;
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We are designing NP202 to allow a physician to remove the
implant at any time during the dosing period. With currently
available injectable products, physicians and patients cannot
stop therapy, which may discourage some physicians and patients
concerned about adverse events; and
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We are developing NP202 as an easy to administer, pre-loaded
injectable product that can be stored at room temperature.
Risperdal Consta, the leading depot injectable product, must be
prepared and mixed prior to administration.
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We have developed NP202 prototype products, initiated pre-IND
activities and plan to submit an IND to the FDA in 2012.
Our
Proprietary Delivery Technologies
Our current drug development activities use two proprietary
medication delivery technologies: SmartRelief and LAD. Zelrix
incorporates SmartRelief, while NP201 and NP202 both incorporate
LAD. We own exclusive worldwide rights to both technologies.
SmartRelief
Technology
SmartRelief is our proprietary transdermal medication delivery
technology based on iontophoresis, a non-invasive method of
actively transporting molecules, such as sumatriptan, that are
not able to be delivered passively through the skin.
Iontophoresis involves the application of a mild electrical
current to the skin through two reservoirs. One reservoir
contains ionized, or charged, medication. The other reservoir
contains a counter ion, commonly sodium chloride, or salt. When
a current is applied, medication molecules travel out of the
reservoir into the skin, where blood vessels absorb and disburse
them throughout the body.
Unlike passive transdermal technologies, which rely on diffusion
for medication delivery, iontophoresis controls the amount and
rate of medication delivery. Iontophoresis enables transdermal
delivery of a variety of medications that cannot be delivered
passively through the skin. It is possible to deliver a variety
of different medications, including proteins and peptides, using
iontophoresis. The FDA has approved two pharmaceutical products
incorporating iontophoresis, Johnson & Johnsons
IONSYS system and Vyteris, Inc.s LidoSite topical system
for analgesia, and multiple iontophoretic medical devices.
Long-Acting
Delivery Technology
We designed LAD to improve the control, consistency and
convenience of medication delivery. LAD is comprised of a
biodegradable polymer matrix using commonly available medical
polymers and an active drug, combined to form a small implant
for injection just below the skin. We also have designed LAD to
allow a physician to remove it using a minor surgical procedure
if a decision is made to stop therapy.
To date, we have tested several neuropsychiatric compounds
formulated with LAD in multiple animal models. Based on these
studies, we believe LAD has the potential to treat patients for
one to three months with a single dose of a therapy. As a
result, we believe LAD has the potential, depending upon the
indication, to improve one or more of efficacy, medication
compliance and incidence of adverse events. We have not yet
tested LAD in humans.
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Manufacturing
We currently have no manufacturing facilities and limited
personnel with manufacturing experience. We currently use, and
expect to depend on, third party contract manufacturers to
manufacture Zelrix and our other product candidates for our
preclinical and clinical needs and, if we obtain marketing
approval for our product candidates, for commercial supply. We
believe our reliance on contract manufacturing helps us control
our expenses, as the construction, maintenance and insurance of
pharmaceutical manufacturing facilities requires significant
capital.
We have established an internal quality control and quality
assurance program, including a set of standard operating
procedures and specifications consistent with current Good
Manufacturing Practices, or cGMP. The cGMP requirements govern
quality control of the manufacturing process and documentation
policies and procedures. We depend on our third party contract
manufacturers for continued compliance with cGMP requirements.
Multiple pharmaceutical manufacturers produce sumatriptan, the
active ingredient in Zelrix. We currently purchase sumatriptan
from two suppliers and the various components of SmartRelief
from multiple manufacturers, all on a purchase order basis.
Under the terms of a development and license agreement that we
entered into in September 2007, LTS Lohmann
Therapie-Systeme AG, or LTS, manufactures Zelrix, including
the incorporation of SmartRelief. We pay fees to LTS for
manufacturing development, preparation of manufacturing
documentation for our NDA, manufacture of our clinical supplies
and preparation for commercial manufacturing. We expect to enter
into a commercial manufacturing agreement for Zelrix with LTS.
To that end, in June 2010, we entered into an equipment funding
agreement with LTS, under which we agreed to fund the purchase
by LTS of manufacturing equipment for Zelrix. The machinery
that LTS will use to produce the commercial supply of Zelrix, if
we enter into a commercial manufacturing agreement, will be
customized to the particular manufacturing specifications of
Zelrix. LTS will design this machinery and assemble it from
components manufactured by third party suppliers and paid for by
us pursuant to the equipment funding agreement.
We purchase preclinical supplies of NP201, consisting of LAD and
the active ingredient, ropinirole, from SurModics
Pharmaceuticals, Inc., or SurModics. Ropinirole is generic and
available from multiple sources.
Competition
The pharmaceutical and biotechnology industries are intensely
competitive and subject to rapid and significant technological
change. Our major competitors include organizations such as
major multinational pharmaceutical companies, established
biotechnology companies and specialty pharmaceutical and generic
drug companies. Many of our competitors have greater financial
and other resources than we have, such as larger research and
development staffs and more extensive marketing and
manufacturing organizations. As a result, these companies may
obtain marketing approval more rapidly than we are able and may
be more effective in selling and marketing their products.
Smaller or early stage companies may also prove to be
significant competitors, particularly through collaborative
arrangements with large, established companies.
Our competitors may succeed in developing, acquiring or
licensing on an exclusive basis technologies and drug products
that are more effective or less costly than Zelrix or any other
drug candidate that we are currently developing or that we may
develop, which could render our products obsolete and
noncompetitive. We expect any products that we develop and
commercialize to compete on the basis of, among other things,
efficacy, safety, convenience of administration and delivery,
price, the level of generic competition and the availability of
reimbursement from government and other third party payors. We
also expect to face competition in our efforts to identify
appropriate collaborators or partners to help commercialize our
product candidates in our target commercial markets.
We anticipate Zelrix will compete with currently marketed
triptans, including Imitrex (sumatriptan), Maxalt (rizatriptan),
Zomig (zolmitriptan), Relpax (eletriptan), Axert (almotriptan),
Frova (frovatriptan), Amerge (naratriptan), Treximet
(sumatriptan/naproxen) and Sumavel DosePro (sumatriptan). In
addition, we anticipate competition from generic sumatriptan,
the active ingredient in Imitrex, and generic versions of other
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branded triptans that have lost or will lose their patent
exclusivity. For example, we expect Amerge, the branded version
of naratriptan, to lose patent protection in July 2010. In
addition, we expect other triptan patents to expire between 2012
and 2025. Many of these products are manufactured and marketed
by large pharmaceutical companies and are well accepted by
physicians, patients and third party payors. Because of the low
cost, health insurers likely would require or encourage use of,
and consumers likely would use, a generic triptan prior to
trying Zelrix. If approved, Zelrix will also compete with other
currently approved products, including analgesic combinations,
NSAIDs and ergotamines.
If approved, we believe that Zelrixs features, including
its convenient, non-oral route of administration, controlled
delivery of medication and consistent dosing, will differentiate
it from existing migraine treatments, particularly for
migraineurs suffering from nausea or vomiting.
In addition to marketed migraine medications, both large and
small companies have migraine product candidates in various
stages of clinical development. These include Merck &
Co., Inc.s telcagepant, an orally administered calcitonin
gene related peptide antagonist, and Levadex from MAP
Pharmaceuticals, Inc., an inhaled formulation of
dihydroergotamine, both for acute migraine, and Allergan,
Inc.s Botox for chronic migraine. Each of these has either
completed or is in Phase III clinical development.
Our strategy to compete in the migraine market includes:
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Elevating physician awareness of current treatment limitations
and impact on patients;
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Emphasizing differentiating features of Zelrix; and
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Building on physician experience with sumatriptan.
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As with Zelrix, if approved, each of NP201 and NP202 will face
competition from generic and branded products. Specifically,
NP201 will face competition from generic immediate release and
extended release versions of ropinirole and the dopamine agonist
pramiprexole, as well as from two continuous delivery
medications, a levadopa gel and an injectable apomorphine. NP202
will face competition from a variety of branded and generic
versions of antipsychotic medications, in addition to several
other sustained delivery depot formulations of atypical
antipsychotics.
License,
Development and Commercial Agreements
Our material license, development and commercial agreements are
described below.
Travanti
Pharma Inc.
In July 2008, we entered into an asset purchase and license
agreement with Travanti Pharma Inc., or Travanti. In May 2009,
Teikoku Pharma USA, Inc. acquired Travanti. Pursuant to the
terms of the Travanti agreement, we paid $5.5 million to
Travanti for the purchase of a patent application, including all
supporting documentation and priority documents, that is
directed to transdermal delivery of anti-migraine medications
using an active delivery patch. Under the agreement, we granted
Travanti a nonexclusive, royalty-free, perpetual, worldwide
license to use the purchased patent application, and the
invention covered by such patent application, outside the field
of migraine.
In addition, under the Travanti agreement, we obtained a
perpetual, worldwide, exclusive, royalty-free license, with the
right to grant sublicenses, under Travantis patent rights,
including issued U.S. Patent No. 6,745,071, as
described in more detail under Intellectual
Property and Exclusivity, and know-how that relate
generally to specified iontophoresis technology to develop, make
and commercialize migraine products. If we make improvements
that directly relate to such Travanti patents and patent
applications, Travanti will hold a nonexclusive, royalty-free,
perpetual, worldwide license to use such improvements outside
the field of migraine. The Travanti agreement does not contain
any termination provisions under which our license rights would
terminate.
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LTS
Lohmann Therapie-Systeme AG
In September 2007, we entered into a development and license
agreement with LTS, which was amended as of April 2008, February
2009 and May 2010. Under the development and license agreement,
LTS agreed to perform development activities relating to Zelrix
in accordance with an agreed upon development plan. LTS must use
commercially reasonable efforts to provide us with supplies for
our clinical trials and also has provided us with supplies for
our non-clinical use. We agreed to pay LTS for their services on
an hourly basis. As of May 31, 2010, we have incurred fees
of $5.2 million under the development and license agreement
with LTS, $4.9 million of which have been paid.
Pursuant to the terms of the development and license agreement,
each party exclusively owns any inventions related to such
partys existing intellectual property that arise out of
the development program. The parties jointly own any joint
inventions that arise out of the development program not solely
based on one partys existing intellectual property. Each
party grants to the other a non-exclusive, royalty-free license
under its respective intellectual property for the sole purpose
of developing Zelrix. If we execute a commercial manufacturing
agreement for Zelrix with LTS, LTS will have the exclusive right
to manufacture Zelrix and LTS will grant us an exclusive,
worldwide, royalty-free license under LTSs intellectual
property to use, import, sell, market and distribute, or have
imported, sold, marketed or distributed, Zelrix under the
manufacturing agreement between LTS and us. If we do not execute
a commercial manufacturing agreement with LTS, we may not have
access to LTSs proprietary technology and know-how
necessary to develop, manufacture or commercialize Zelrix.
An invention relating solely to our intellectual property arose
in connection with the development and license agreement, and we
filed a patent application covering that invention.
The development and license agreement remains in effect until
the parties execute a commercial manufacturing agreement or
until either party terminates the agreement by its terms. We may
terminate the development and license agreement at any time upon
60 days notice to LTS. In addition, either party may
terminate the agreement if the other party materially breaches
the agreement and fails to cure the breach during a
60-day cure
period. Either party may terminate the agreement if the
development committee established under the agreement determines
that it is not feasible to develop a product as anticipated
under the development plan.
In June 2010, we entered into an equipment funding agreement
with LTS, under which we agreed to fund the purchase by LTS of
manufacturing equipment for Zelrix. We have agreed to make
installment payments to LTS, in the aggregate amount of
5.4 million, or approximately $6.6 million based
on exchange rates in effect as of May 31, 2010, in
14 monthly installments beginning in June 2010,
according to an agreed upon payment schedule.
Under the agreement, LTS will purchase and install the equipment
according to an agreed upon project plan. We expect that the
installation, validation and qualification of all of the
equipment will be completed prior to our anticipated commercial
launch of Zelrix in the first half of 2012.
LTS will own the purchased equipment and will be responsible for
its routine and scheduled maintenance and repair. However,
during the term of the LTS development and license agreement or
any subsequent commercial manufacturing agreement that the
parties may enter into, LTS will be required to use the
purchased equipment solely for fulfilling its obligations to
manufacture Zelrix. In addition, during the term of the
development and license agreement or such commercial
manufacturing agreement, LTS is prohibited from encumbering the
purchased equipment and may not sell or dispose of such
equipment, except that LTS may transfer ownership of it to its
affiliate, LTS Lohmann Therapy Systems Partnership L.P.
Moreover, if we do not enter into a commercial manufacturing
agreement with LTS or if we terminate the equipment funding
agreement due to a breach by LTS, LTS must, at its option,
either transfer ownership of the equipment to us or refund to us
the purchase price of the equipment, less depreciation.
The equipment funding agreement will remain in effect until the
later of the completion by LTS of all installation activities or
the execution of a commercial manufacturing agreement.
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University
of Pennsylvania
We entered into a patent license agreement with the University
of Pennsylvania, or Penn, which became effective in July 2006
and was amended in May 2007. Under the patent license agreement,
Penn granted to us exclusive, worldwide rights under specified
Penn patent applications, and patents issuing therefrom, to
make, use and sell products using LAD. Under the agreement, we
have the right to sublicense, subject to specified conditions,
including the payment of sublicense fees.
The patent license agreement requires that we use commercially
reasonable efforts to develop and commercialize licensed
products. We must submit development plans annually for products
we intend to develop. We must also commit at least $250,000
annually towards the development and commercialization of
licensed products, until the first commercial sale of the first
licensed product.
Under the patent license agreement, we have paid Penn license
initiation, transaction, amendment and maintenance fees totaling
$100,000 in the aggregate and must pay Penn annual license
maintenance fees of up to $50,000 until the first commercial
sale of the first licensed product. The agreement currently
covers NP201 and NP202. In addition, we have agreed to pay Penn
aggregate milestone payments of up to $950,000 upon the
achievement of specified development and regulatory milestones
related to each licensed product that contains ropinirole or
other specified active ingredients, including the active
ingredients in NP201 and NP202, and royalties in the low single
digits on worldwide net sales of such licensed products. We and
Penn have agreed to negotiate the milestone payments and
royalties payable for each licensed product that contains an
active ingredient other than those currently specified in the
agreement. If we grant a sublicense of our rights under the Penn
patent rights to a third party, we must pay Penn a specified
portion of certain income received from such third party
sublicensee.
The patent license agreement, and our obligation to pay
royalties to Penn, will terminate, on a product by product
basis, on the later of the expiration or abandonment of the last
Penn patent, which we expect will occur in April 2027, or ten
years after the first commercial sale of a licensed product if
no patent issues from the patent applications licensed from Penn
under the agreement. We may terminate the agreement at any time
upon 60 days notice to Penn. Penn may terminate the agreement in
connection with our uncured breach, bankruptcy or insolvency.
SurModics
Pharmaceuticals, Inc.
In March 2007, we entered into a feasibility evaluation
agreement with SurModics (formerly known as Brookwood
Pharmaceuticals, Inc.), which was amended in December 2007,
April 2008, July 2008, October 2008, March 2009 and May 2010.
Under the feasibility evaluation agreement, we and SurModics,
from time to time, enter into plans of work whereby SurModics
performs evaluation, development and formulation work for NP201
and provides us with preclinical supplies of NP201.
Pursuant to the feasibility evaluation agreement, each party
owns exclusively any inventions arising out of the development
program if they are based solely on that partys existing
intellectual property. Any inventions under the development
program based on both parties intellectual property are
jointly owned. SurModics has the right to practice aspects of
joint research inventions developed under the feasibility
agreement that do not relate to our product or use our
technology or confidential information. We received an option to
obtain an exclusive, royalty bearing license under
SurModics technology and intellectual property necessary
to make, have made, use and sell NP201. We agreed to pay
SurModics for its services and supplies on a time and materials
basis. The feasibility evaluation agreement will remain
effective until mutually agreed upon by the parties or until
terminated by us upon at least two weeks advanced written
notice to SurModics.
In September 2009, upon our exercise of the option under the
feasibility evaluation agreement, we entered into a license
agreement with SurModics, pursuant to which we received an
exclusive worldwide license, with the right to sublicense, under
SurModics intellectual property, including its interest in
joint inventions developed under the feasibility agreement, to
make, have made, use, sell, import and export products covered
by the license agreement, comprised of a biodegradable,
preformed, macroscopic implant device consisting of ropinirole,
as the sole active pharmaceutical ingredient, incorporated into
the controlled
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delivery system developed or optimized under the feasibility
agreement. The license agreement currently covers NP201. We
granted SurModics an exclusive, perpetual, worldwide,
royalty-free license under our interest in joint inventions for
uses that do not relate to products covered by the agreement or
include any of our existing technology or confidential
information. We also granted SurModics a right of first
negotiation to manufacture clinical supplies of covered
products. If we and SurModics enter into such clinical
manufacturing agreement, SurModics has a right of first
negotiation to manufacture commercial supplies of covered
products.
Under the license agreement, we have agreed to pay SurModics
aggregate milestone payments of up to $4.75 million upon
the first achievement of specified development, regulatory and
sales level milestones related to the first clinical indication
approved by a regulatory authority for covered products. We must
also pay an additional milestone payment upon regulatory
approval of each additional clinical indication for covered
products and royalties in the low single digits on worldwide net
sales of commercial product. In countries where a valid
SurModics patent claim does not cover the product, the
applicable royalty rate decreases. If we do not enter into a
commercial manufacturing agreement with SurModics, the
applicable royalty rate will increase, though it will remain in
the low single digits.
Under the license agreement we are responsible for developing
and obtaining regulatory approval for covered products. We have
agreed to use commercially reasonable efforts to actively
develop and obtain regulatory approvals to market a covered
product, including NP201, in major markets throughout the world.
In addition, we have agreed to comply with specific diligence
milestones to obtain such regulatory approval and to develop and
commercialize a covered product in the U.S.
The license agreement and our obligation to pay SurModics
royalties will terminate on a country by country basis on the
later of the date on which a valid SurModics patent claim no
longer covers the product or an agreed period after the first
commercial sale of the product in such country. Thereafter the
license will become an exclusive, perpetual fully
paid-up
license.
We have the right to terminate the license agreement for any
reason at any time upon ninety days notice to SurModics. Either
party has the right to terminate the agreement in connection
with the other partys uncured material breach, bankruptcy
or insolvency. SurModics may either terminate the license
agreement or make it non-exclusive if we fail to meet the agreed
upon diligence milestones or otherwise fail to use commercially
reasonable efforts to develop and obtain regulatory approval for
a covered product.
Intellectual
Property and Exclusivity
We seek to protect our product candidates and our technology
through a combination of patents, trade secrets, proprietary
know-how, FDA exclusivity and contractual restrictions on
disclosure.
Patents
and Patent Applications
Our policy is to seek to protect the proprietary position of our
product candidates by, among other methods, filing U.S. and
foreign patent applications related to our proprietary
technology, inventions and improvements that are important to
the development of our business. U.S. patents generally
have a term of 20 years from the date of nonprovisional
filing. Because patent protection is not available for the
active pharmaceutical ingredient compounds included in our
current product candidates, we will need to rely primarily on
the protections afforded by device, formulation and method of
use patents.
As of May 31, 2010, we exclusively license one issued
U.S. patent and its foreign counterparts, and own six
U.S. patent applications, as well as corresponding Patent
Cooperation Treaty, or PCT, applications and their foreign
counterparts, which relate to Zelrix.
Our licensed issued U.S. Patent No. 6,745,071, owned
by Travanti, is generally directed towards wearable
iontophoretic devices, including Zelrix, that are prepackaged as
complete self-contained units that include an active
pharmaceutical ingredient to be administered, a provision for
isolating moisture sources from the electrodes and from the
power source during storage to optimize shelf stability, and a
simple, user-friendly mechanism to transfer the active
pharmaceutical ingredient and counter ion reservoirs to the
electrodes. The expiration date for this patent is in 2023.
There are corresponding foreign patent applications pending in
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Australia, Canada, China, Europe, Japan and Korea which will
also expire in 2023 if issued. Under the Travanti asset purchase
and license agreement, we also have a perpetual, worldwide,
exclusive, royalty-free license, in the field of migraine, to
Travanti patents, patent applications and know-how that relate
generally to iontophoresis.
Our six U.S. pending patent applications are generally
directed to:
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Methods and devices for treating migraine using integrated
iontophoretic patches, including Zelrix;
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Active ingredient reservoir formulations, including the Zelrix
formulation; and
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Electronic control systems and methods for use of the same in
delivering an active for an integrated iontophoretic patch,
including Zelrix.
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Four of the U.S. applications currently have pending
international applications. We have corresponding foreign patent
applications in Australia, Brazil, Canada, China, Europe, Japan,
Mexico, New Zealand, South Africa, Asia, India and Israel
for one of these applications. The remaining two
U.S. applications are related provisional applications and
have yet to be foreign filed. If the four non-provisional
U.S. applications and their foreign corresponding
applications issue, we generally expect these patents to expire
between 2027 and 2029. The two U.S. provisional
applications, if pursued in non-provisional and foreign
corresponding applications, and if issued, would generally be
expected to expire in 2030.
Additionally, as of May 31, 2010, we own or exclusively
license one issued U.S. patent and nine U.S. patent
applications, as well as corresponding PCT patent applications
and their foreign counterparts, relating to our LAD pipeline
product candidates. The U.S. patent, and seven
non-provisional U.S. applications and their corresponding
foreign applications, if issued, are generally expected to
expire between 2021 and 2027. The remaining two
U.S. provisional applications, if pursued in
non-provisional and foreign corresponding applications, and if
issued, would generally be expected to expire in 2030. These
patents and patent applications include claims generally
directed to the LAD technology, as well as the use of the LAD
technology in conjunction with various medications in the
treatment of certain neurological and psychiatric diseases,
including Parkinsons disease, schizophrenia and bipolar
disorder.
Under the LTS development and license agreement and the
SurModics license agreement, we have rights to LTSs and
SurModics proprietary processing and manufacturing
technologies related to our product candidates.
FDA
Marketing Exclusivity
The FDA may grant three years of marketing exclusivity in the
U.S. for the approval of new and supplemental NDAs,
including Section 505(b)(2) NDAs, for, among other things,
new indications, dosages or dosage forms of an existing drug, if
new clinical investigations that were conducted or sponsored by
the applicant are essential to the approval of the application.
Additionally, six months of marketing exclusivity in the
U.S. is available under Section 505A of the FDCA if,
in response to a written request from the FDA, a sponsor submits
and the agency accepts requested information relating to the use
of the approved drug in the pediatric population. This six month
pediatric exclusivity period is not a standalone exclusivity
period, but rather is added to any existing patent or non-patent
exclusivity period for which the drug product is eligible. Based
on our clinical trial program for Zelrix, we plan to seek three
years of marketing exclusivity upon receipt of FDA approval for
Zelrix. We may also seek an additional period of six months
exclusivity from the FDA if the FDA requests, and we
successfully complete, pediatric clinical trials for Zelrix.
Trade
Secrets and Proprietary Information
We seek to protect our proprietary information, including our
trade secrets and proprietary know-how, by requiring our
employees, consultants and other advisors to execute
confidentiality agreements upon the commencement of their
employment or engagement. These agreements generally provide
that all confidential information developed or made known during
the course of the relationship with us be kept confidential and
not be disclosed to third parties except in specific
circumstances. In the case of our employees, the agreements
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also typically provide that all inventions resulting from work
performed for us, utilizing our property or relating to our
business and conceived or completed during employment shall be
our exclusive property to the extent permitted by law. Where
appropriate, agreements we obtain with our consultants also
typically contain similar assignment of invention obligations.
Further, we require confidentiality agreements from entities
that receive our confidential data or materials.
Government
Regulation
Federal
Food, Drug and Cosmetic Act
Prescription drug products are subject to extensive pre- and
post-market regulation by the FDA, including regulations that
govern the testing, manufacturing, distribution, safety,
efficacy, approval, labeling, storage, record keeping,
reporting, advertising and promotion of such products under the
FDCA, and its implementing regulations, and by comparable
agencies and laws in foreign countries. Failure to comply with
applicable FDA or other regulatory requirements may result in
civil or criminal penalties, recall or seizure of products,
partial or total suspension of production or withdrawal of the
product from the market. The FDA must approve any new unapproved
drug or dosage form, including a new use of a previously
approved drug, prior to marketing in the U.S. All
applications for FDA approval must contain, among other things,
information relating to safety and efficacy, pharmaceutical
formulation, stability, manufacturing, processing, packaging,
labeling and quality control.
New
Drug Applications
Generally, the FDA must approve any new drug before marketing of
the drug occurs in the U.S. This process generally involves:
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Completion of preclinical laboratory and animal testing in
compliance with the FDAs Good Laboratory Practice, or GLP,
regulations;
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Submission to the FDA of an IND application for human clinical
testing, which must become effective before human clinical
trials may begin in the U.S.;
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Performance of human clinical trials, including adequate and
well-controlled clinical trials, to establish the safety and
efficacy of the proposed drug product for each intended use;
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Satisfactory completion of an FDA pre-approval inspection of the
products manufacturing facility or facilities to assess
compliance with the FDAs cGMP regulations; and
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Submission to, and approval by, the FDA of an NDA application.
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The preclinical and clinical testing and approval process
requires substantial time, effort and financial resources, and
we cannot be certain that the FDA will grant approvals for any
of our product candidates on a timely basis, if at all.
Preclinical tests include laboratory evaluation of product
chemistry, formulation and stability, as well as studies to
evaluate toxicity in animals. The results of preclinical tests,
together with manufacturing information and analytical data,
comprise a part of an IND application submission to the FDA. The
IND automatically becomes effective 30 days after receipt
by the FDA, unless the FDA, within the
30-day time
period, raises concerns or questions about the conduct of the
clinical trial, including concerns regarding exposure of human
research subjects to unreasonable health risks. In such a case,
the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. Our submission of
an IND may not result in FDA authorization to commence a
clinical trial. In addition, the FDA requires a separate
submission to an existing IND for each successive clinical trial
conducted during product development. Further, an independent
institutional review board, or IRB, covering each medical center
proposing to conduct the clinical trial must review and approve
the plan for any clinical trial before it commences at that
center and it must monitor the clinical trial until completed.
The FDA, the IRB or the sponsor may suspend a clinical trial at
any time, or from time to time, on various grounds, including a
finding that the subjects or patients are being exposed to an
unacceptable health risk. As a separate amendment to an IND, a
sponsor may submit a request for a special protocol assessment,
or SPA, from the FDA. Under the SPA procedure, a sponsor may
77
seek the FDAs agreement on the design, conduct and
analyses of, among other things, a clinical trial intended to
form the primary basis of an efficacy claim. If the FDA agrees
in writing, it may not change its agreement after the clinical
trial begins, except in limited circumstances, such as upon
identification of a substantial scientific issue essential to
determining the safety and effectiveness of a product candidate
after commencement of a Phase III clinical trial. If the
clinical trial succeeds, the sponsor can ordinarily rely on it
as the primary basis for approval with respect to effectiveness.
Clinical testing also must satisfy extensive Good Clinical
Practice, or GCP, regulations, including regulations for
informed consent, IRB review and approval and IND submission.
For purposes of an NDA submission and approval, typically, the
conduct of human clinical trials occurs in the following three
pre-market sequential phases, which may overlap:
|
|
|
|
|
Phase I: Sponsors initially conduct clinical
trials in a limited population to test the product candidate for
safety, dose tolerance, absorption, metabolism, distribution and
excretion in healthy humans or, on occasion, in patients, such
as cancer patients.
|
|
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|
Phase II: Sponsors conduct clinical trials
generally in a limited patient population to identify possible
adverse effects and safety risks, to determine the efficacy of
the product for specific targeted indications and to determine
dose tolerance and optimal dosage. Sponsors may conduct multiple
Phase II clinical trials to obtain information prior to
beginning larger and more extensive Phase III clinical
trials.
|
|
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|
Phase III: These include expanded controlled
and uncontrolled trials, including pivotal clinical trials. When
Phase II evaluations suggest the effectiveness of a dose
range of the product and acceptability of such products
safety profile, sponsors undertake Phase III clinical
trials in larger patient populations to obtain additional
information needed to evaluate the overall benefit and risk
balance of the drug and to provide an adequate basis to develop
labeling.
|
In addition, sponsors may conduct Phase IV clinical trials
after the FDA approves a drug. In some cases, the FDA may
condition approval of an NDA for a product candidate on the
sponsors agreement to conduct additional clinical trials
to further assess the drugs safety or effectiveness after
NDA approval. Such post approval trials are typically referred
to as Phase IV clinical trials.
Sponsors submit the results of product development, preclinical
studies and clinical trials to the FDA as part of an NDA. NDAs
must also contain extensive manufacturing information and
proposed labeling. Upon receipt, the FDA initially reviews the
NDA to determine whether it is sufficiently complete to initiate
a substantive review. If the FDA identifies deficiencies that
would preclude substantive review, the FDA will refuse to accept
the NDA and will inform the sponsor of the deficiencies that
must be corrected prior to resubmission. If the FDA accepts the
submission for substantive review, the FDA typically reviews the
NDA in accordance with established time frames. Under the
Prescription Drug User Fee Act, or PDUFA, the FDA agrees to
specific goals for NDA review time through a two-tiered
classification system, Priority Review and Standard Review. For
a Priority Review application, the FDA aims to complete the
initial review cycle in six months. Standard Review applies to
all applications that are not eligible for Priority Review. The
FDA aims to complete Standard Review NDAs within a
ten-month
timeframe. We anticipate that the FDA will grant our product
candidates a Standard Review. Review processes often extend
significantly beyond anticipated completion dates due to FDA
requests for additional information or clarification,
difficulties scheduling an advisory committee meeting or FDA
workload issues. The FDA may refer the application to an
advisory committee for review, evaluation and recommendation as
to the applications approval. The recommendations of an
advisory committee do not bind the FDA, but the FDA generally
follows such recommendations.
If an NDA does not satisfy applicable regulatory criteria, the
FDA may deny approval of an NDA or may require, among other
things, additional clinical data or an additional pivotal
Phase III clinical trial. Even if such data are submitted,
the FDA may ultimately decide that the NDA does not satisfy the
criteria for approval. Data from clinical trials are not always
conclusive and the FDA may interpret data differently than we
do. The FDA could also require a risk evaluation and mitigation
strategy, or REMS, plan to mitigate risks, which could include
medication guides, physician communication plans, or elements to
assure safe use, such as restricted distribution
78
methods, patient registries and other risk minimization tools.
The FDA also may condition approval on, among other things,
changes to proposed labeling, a commitment to conduct one or
more post-market studies or clinical trials and the correction
of identified manufacturing deficiencies, including the
development of adequate controls and specifications.
After approval, the NDA sponsor must comply with comprehensive
requirements governing, among other things, manufacturing,
marketing activities, distribution, annual reporting and adverse
event reporting. If new safety issues are identified following
approval, the FDA can require the NDA sponsor to revise the
approved labeling to reflect the new safety information; conduct
post-market studies or clinical trials to assess the new safety
information; and implement a REMS program to mitigate
newly-identified risks. In addition, if after approval the FDA
determines that the product does not meet applicable regulatory
requirements or poses unacceptable safety risks, the FDA may
take other regulatory actions, including requesting a product
recall or initiating suspension or withdrawal of the NDA
approval.
Drugs may be marketed only for approved indications and in
accordance with the provisions of the approved label. Further,
if we modify a drug, including any changes in indications,
labeling or manufacturing processes or facilities, the FDA may
required us to submit and obtain FDA approval of a new or
supplemental NDA, which may require us to develop additional
data or conduct additional preclinical studies and clinical
trials.
Under PDUFA, NDA applicants must pay significant NDA user fees
upon submission. In addition, manufacturers of approved
prescription drug products must pay annual establishment and
product user fees.
Section 505(b)(2)
New Drug Applications
As an alternate path to FDA approval, particularly for
modifications to drug products previously approved by the FDA,
an applicant may submit an NDA under Section 505(b)(2) of
the FDCA. Section 505(b)(2) was enacted as part of the Drug
Price Competition and Patent Term Restoration Act of 1984, also
known as the Hatch-Waxman Act, and permits the submission of an
NDA where at least some of the information required for approval
comes from clinical trials not conducted by or for the applicant
and for which the applicant has not obtained a right of
reference. The FDA interprets Section 505(b)(2) of the FDCA
to permit the applicant to rely upon the FDAs previous
findings of safety and effectiveness for an approved product.
The FDA may also require companies to perform additional
clinical trials or measurements to support any change from the
previously approved product. The FDA may then approve the new
product candidate for all or some of the label indications for
which the referenced product has been approved, as well as for
any new indication sought by the Section 505(b)(2)
applicant.
To the extent that a Section 505(b)(2) NDA relies on
clinical trials conducted for a previously approved drug product
or the FDAs prior findings of safety and effectiveness for
a previously approved drug product, the 505(b)(2) applicant must
submit patent certifications in its 505(b)(2) application with
respect to any patents listed for the approved product on which
the application relies in the FDAs publication, Approved
Drug Products with Therapeutic Equivalence Evaluations, commonly
referred to as the Orange Book. Specifically, the applicant must
certify for each listed patent that (1) the required patent
information has not been filed; (2) the listed patent has
expired; (3) the listed patent has not expired, but will
expire on a particular date and approval is not sought until
after patent expiration; or (4) the listed patent is
invalid, unenforceable or will not be infringed by the proposed
new product. A certification that the new product will not
infringe the previously approved products listed patent or
that such patent is invalid or unenforceable is known as a
Paragraph IV certification. If the applicant does not
challenge one or more listed patents through a Paragraph IV
certification, the FDA will not approve the
Section 505(b)(2) NDA application until all the
unchallenged listed patents claiming the referenced product have
expired. Further, the FDA will also not accept or approve, as
applicable, a Section 505(b)(2) NDA application until any
non-patent exclusivity, such as exclusivity for obtaining
approval of a New Chemical Entity, listed in the Orange Book for
the referenced product, has expired.
If the 505(b)(2) NDA applicant has provided a Paragraph IV
certification to the FDA, the applicant must also send notice of
the Paragraph IV certification to the owner of the
referenced NDA for the previously approved product and relevant
patent holders within 20 days after the 505(b)(2) NDA has
been accepted for
79
submission by the FDA. The NDA and patent holders may then
initiate a patent infringement suit against the 505(b)(2)
applicant. Under the FDCA, the filing of a patent infringement
lawsuit within 45 days of receipt of the notification
regarding a Paragraph IV certification automatically
prevents the FDA from approving the Section 505(b)(2) NDA
for 30 months, or until a court deems the patent
unenforceable, invalid or not infringed, whichever is earlier.
Moreover, in cases where a 505(b)(2) application containing a
Paragraph IV certification is submitted during a previously
approved drugs five year exclusivity period, the 30-month
period is automatically extended to prevent approval of the
505(b)(2) application until the date that is seven and one-half
years after approval of the previously approved reference
product. The court also has the ability to shorten or lengthen
either the 30 month or the seven and one-half year period
if either party is found not to be reasonably cooperating in
expediting the litigation. Thus, the Section 505(b)(2)
applicant may invest a significant amount of time and expense in
the development of its product only to be subject to significant
delay and patent litigation before its product may be
commercialized. Alternatively, if the NDA applicant or relevant
patent holder does not file a patent infringement lawsuit within
the specified 45 day period, the 30 month stay will
not prevent approval of the 505(b)(2) application.
Notwithstanding the approval of many products by the FDA
pursuant to Section 505(b)(2), over the last few years,
some pharmaceutical companies and others have objected to the
FDAs interpretation of Section 505(b)(2). If the FDA
changes its interpretation of Section 505(b)(2), or if the
FDAs interpretation is successfully challenged in court,
this could delay or even prevent the FDA from approving any
Section 505(b)(2) NDA that we submit.
In the NDA submissions for our product candidates, we intend to
follow the development and approval pathway permitted under the
FDCA that we believe will maximize the commercial opportunities
for these product candidates.
International
Regulation
In addition to regulations in the U.S., we will be subject to a
variety of foreign regulations governing clinical trials and
commercial sales and distribution of any future products.
Whether or not we obtain FDA approval for a product, we must
obtain approval by the comparable regulatory authorities of
foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval
process varies from country to country, and the time may be
longer or shorter than that required for FDA approval. The
requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country
to country.
For example, under European Union, or EU, regulatory systems,
sponsors may submit marketing authorizations either under a
centralized or mutual recognition procedure. Under the
centralized procedure, a single application to the European
Medicines Agency, or the EMEA, leads to an approval granted by
the European Commission which permits the marketing of a product
throughout the EU. The centralized procedure is mandatory for
certain classes of medicinal products, but optional for others.
For example, all medicinal products developed by certain
biotechnological means, and those developed for cancer and other
specified diseases and disorders including neurodegenerative
disorders, must be authorized via the centralized procedure. The
national procedure is used for products that are not required to
be authorized by the centralized procedure. Under the national
procedure, an application for a marketing authorization is
submitted to the competent authority of one member state of the
EU. The holders of a national marketing authorization may submit
further applications to the competent authorities of the
remaining member states via either the decentralized or mutual
recognition procedure. The decentralized procedure enables
applicants to submit an identical application to the competent
authorities of all member states where approval is sought at the
same time as the first application, while under the mutual
recognition procedure, products are authorized initially in one
member state, and other member states where approval is sought
are then requested to recognize the original authorization based
upon an assessment report prepared by the original authorizing
competent authority. Both the decentralized and mutual
recognition procedures should take no longer than 90 days,
but if one member state makes an objection, which under the
legislation can only be based on a possible risk to human
health, the application will be automatically referred to the
Committee for Medicinal Products for Human Use, or the CHMP, of
the EMEA. If a referral for arbitration is made, the procedure
is suspended.
80
However, member states that have already approved the
application may, at the request of the applicant, authorize the
product in question without waiting for the result of the
arbitration. Such authorizations will be without prejudice to
the outcome of the arbitration. For all other concerned member
states, the opinion of the CHMP, which is binding, could support
or reject the objection or alternatively could reach a
compromise position acceptable to all EU countries concerned.
The arbitration procedure may take an additional year before a
final decision is reached and may require the delivery of
additional data.
As with FDA approval we may not be able to secure regulatory
approvals in Europe in a timely manner, if at all. Additionally,
as in the U.S., post-approval regulatory requirements, such as
those regarding product manufacture, marketing, or distribution,
would apply to any product that is approved in Europe, and
failure to comply with such obligations could have a material
adverse effect on our ability to successfully commercialize any
product.
The conduct of clinical trials in the EU is governed by the
European Clinical Trials Directive (2001/20/EC), which was
implemented in May 2004. This directive governs how regulatory
bodies in member states control clinical trials. No clinical
trial may be started without a clinical trial authorization
granted by the national competent authority and favorable ethics
approval. Accordingly, there is a marked degree of change and
uncertainty both in the regulation of clinical trials and in
respect of marketing authorizations which face us for our
products in Europe.
In addition to regulations in Europe and the U.S., we will be
subject to a variety of foreign regulations governing clinical
trials and commercial distribution of any future products.
Third
Party Payor Coverage and Reimbursement
Although none of our product candidates have been commercialized
for any indication, if the FDA approves these products for
marketing, commercial success of our product candidates will
depend, in part, upon the availability of coverage and
reimbursement from third party payors at the federal, state and
private levels. Government payor programs, including Medicare
and Medicaid, private health care insurance companies and
managed care plans have attempted to control costs by limiting
coverage and the amount of reimbursement for particular
procedures or drug treatments. The United States Congress and
state legislatures from time to time propose and adopt
initiatives aimed at cost containment, which could impact our
ability to sell our products profitably.
For example, in March 2010, President Obama signed into law the
Patient Protection and Affordable Care Act and the associated
reconciliation bill, which we refer to collectively as the
Health Care Reform Law, a sweeping law 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. Effective
October 1, 2010, the Health Care Reform Law revises the
definition of average manufacturer price for
reporting purposes, which could increase the amount of Medicaid
drug rebates to states once the provision is effective. Further,
beginning in 2011, the new law imposes a significant annual fee
on companies that manufacture or import branded prescription
drug products. Substantial new provisions affecting compliance
have also been enacted, which may require us to modify our
business practices with health care practitioners. We will not
know the full effects of the Health Care Reform Law until
applicable federal and state agencies issue regulations or
guidance under the new law. Although it is too early to
determine the effect of the Health Care Reform Law, the new law
appears likely to continue the pressure on pharmaceutical
pricing, especially under the Medicare program, and may also
increase our regulatory burdens and operating costs. Moreover,
in the coming years, additional changes could be made to
governmental healthcare programs that could significantly impact
the success of our products.
The cost of pharmaceuticals continues to generate substantial
governmental and third party payor interest. We expect that the
pharmaceutical industry will experience pricing pressures due to
the trend toward managed health care, the increasing influence
of managed care organizations and additional legislative
proposals. Our results of operations could be adversely affected
by current and future health care reforms.
81
Some third party payors also require pre-approval of coverage
for new or innovative devices or drug therapies before they will
reimburse health care providers that use such therapies. While
we cannot predict whether any proposed cost-containment measures
will be adopted or otherwise implemented in the future, the
announcement or adoption of these proposals could have a
material adverse effect on our ability to obtain adequate prices
for our product candidates and operate profitably.
Manufacturing
Requirements
We and our third party manufacturers must comply with applicable
FDA regulations relating to FDAs cGMP regulations. The
cGMP regulations include requirements relating to organization
of personnel, buildings and facilities, equipment, control of
components and drug product containers and closures, production
and process controls, packaging and labeling controls, holding
and distribution, laboratory controls, records and reports, and
returned or salvaged products. The manufacturing facilities for
our products must meet cGMP requirements to the satisfaction of
the FDA pursuant to a pre-approval inspection before we can use
them to manufacture our products. We and our third party
manufacturers are also subject to periodic inspections of
facilities by the FDA and other authorities, including
procedures and operations used in the testing and manufacture of
our products to assess our compliance with applicable
regulations. Failure to comply with statutory and regulatory
requirements subjects a manufacturer to possible legal or
regulatory action, including warning letters, the seizure or
recall of products, injunctions, consent decrees placing
significant restrictions on or suspending manufacturing
operations and civil and criminal penalties. Adverse experiences
with the product must be reported to the FDA and could result in
the imposition of market restrictions through labeling changes
or in product removal. Product approvals may be withdrawn if
compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur
following approval.
Other
Regulatory Requirements
With respect to post-market product advertising and promotion,
the FDA imposes a number of complex regulations on entities that
advertise and promote pharmaceuticals, which include, among
other things, standards for
direct-to-consumer
advertising, off-label promotion, industry-sponsored scientific
and educational activities and promotional activities involving
the Internet. The FDA has very broad enforcement authority under
the FDCA, and failure to abide by these regulations can result
in penalties, including the issuance of a warning letter
directing entities to correct deviations from FDA standards, a
requirement that future advertising and promotional materials be
pre-cleared by the FDA, civil money penalties and state and
federal civil and criminal investigations and prosecutions.
We are also subject to various laws and regulations regarding
laboratory practices, the experimental use of animals and the
use and disposal of hazardous or potentially hazardous
substances in connection with our research. In each of these
areas, as above, government agencies have broad regulatory and
enforcement powers, including the ability to levy fines and
civil penalties.
In addition, drug manufacturers also are subject to federal and
state requirements and restrictions concerning interactions with
physicians and other health care professionals, internal
compliance programs, and transparency reporting requirements,
including, for example, reporting of physician payments and
other transfers of value, reporting of physician ownership or
investment interests, reporting of marketing expenditures and
clinical trial registration and reporting of clinical trial
results on the publicly available clinical trial databank
maintained by the National Institutes of Health at
www.ClinicalTrials.gov.
Legal
Proceedings
We are not currently a party to any legal proceeding.
Employees
As of May 31, 2010, we employed 21 full-time
employees, of which 14 were engaged in research and development
and clinical trials and seven were engaged in administration,
finance, marketing and business
82
development. None of our employees are represented by a labor
union and we consider our employee relations to be good.
Facilities
Our corporate headquarters are located in Conshohocken,
Pennsylvania, where we occupy approximately 11,075 square
feet of office space. Our lease term expires March 31, 2013.
83
MANAGEMENT
Executive
Officers, Directors and Key Employee
The following table sets forth information regarding our
executive officers, directors and key employee as of
May 31, 2010:
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|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Executive Officers and Directors
|
|
|
|
|
Jane H. Hollingsworth
|
|
52
|
|
Chief Executive Officer and Director
|
Terri B. Sebree
|
|
52
|
|
President
|
Keith A. Goldan
|
|
39
|
|
Vice President and Chief Financial Officer
|
Gerald W. McLaughlin
|
|
42
|
|
Vice President Commercial Operations
|
Ezra H. Felker
|
|
41
|
|
Vice President Business Development
|
Michael
Cola(1)(3)
|
|
51
|
|
Director
|
Jeanne
Cunicelli(2)
|
|
43
|
|
Director
|
Michael C.
Diem, MD(2)
|
|
40
|
|
Director
|
John H.
Dillon, II(2)
|
|
68
|
|
Director
|
Richard S.
Kollender(3)
|
|
40
|
|
Director
|
Gary J.
Kurtzman, MD(3)
|
|
55
|
|
Director
|
Key Employee
|
|
|
|
|
Mark W. Pierce, MD, PhD
|
|
61
|
|
Vice President and Chief Scientific Officer
|
|
|
|
(1) |
|
Chairman of the board of directors. |
|
(2) |
|
Member of the audit committee. |
|
(3) |
|
Member of the compensation committee. |
|
|
|
(4) |
|
Member of the nominating and corporate governance committee. |
Jane H. Hollingsworth is one of our founders and has
served as a director and our Chief Executive Officer since
January 2005. Prior to founding our company,
Ms. Hollingsworth co-founded and served as Executive Vice
President, Secretary and General Counsel of Auxilium
Pharmaceuticals, Inc., or Auxilium, a specialty pharmaceutical
company. Prior to co-founding Auxilium, Ms. Hollingsworth
served as Vice President, Secretary and General Counsel of IBAH,
Inc., or IBAH, a multinational contract research organization.
Earlier in her career, Ms. Hollingsworth practiced law at
the law firm of Montgomery, McCracken, Walker &
Rhoads. Ms. Hollingsworth holds a BA from Gettysburg College and
a JD from the Villanova University School of Law.
Ms. Hollingsworths legal background and widespread
experience in the pharmaceutical industry provide significant
expertise that she uses to advise our board of directors in
evaluating regulatory, financial and other matters, which we
believe makes her a valuable member of our board.
Terri B. Sebree is one of our founders and has served as
our President since February 2005. Prior to founding our
company, Ms. Sebree served as Senior Vice President,
Development of Auxilium. Prior to joining Auxilium,
Ms. Sebree served as Executive Vice President,
U.S. Operations at IBAH. Prior to that, Ms. Sebree served
in a variety of management roles with Abbott Laboratories for
over nine years. Ms. Sebree holds a BS from Texas A&M
University.
Keith A. Goldan, CPA has served as our Vice President and
Chief Financial Officer since November 2008. Previously,
Mr. Goldan served as Chief Financial Officer of PuriCore
plc, a medical technology company listed on the London Stock
Exchange, from October 2004 through October 2008. Mr. Goldan
also served as a member of PuriCores board of directors.
Prior to that, Mr. Goldan served as Vice President and
Chief Financial Officer of Biosyn, Inc., a specialty
pharmaceutical company, and in a variety of roles with
ViroPharma Incorporated, Century Capital Associates, a specialty
consulting firm with a focus on capital strategy for healthcare
clients, and the Healthcare & Life Sciences Practice
of KPMG LLP. Mr. Goldan holds
84
a BA from the Robert H. Smith School of Business at the
University of Maryland and an MBA from The Wharton School at the
University of Pennsylvania.
Gerald W. McLaughlin has served as our Vice President
Commercial Operations since September 2007. Previously,
Mr. McLaughlin served in a variety of roles at Endo
Pharmaceuticals, a specialty pharmaceutical company, including
Senior Director, Strategic Marketing from January 2007 through
August 2007, Regional Sales Director from July 2005 through
December 2006, Group Marketing Director, Pain Products from
November 2002 through June 2005 and Marketing Director. Prior to
that, Mr. McLaughlin served in a variety of marketing and
sales roles at Merck for 11 years. Mr. McLaughlin
holds a BA from Dickinson College and an MBA from Villanova
University.
Ezra H. Felker has served as our Vice President Business
Development since January 2006. Previously, Mr. Felker
served as an Entrepreneur in Residence at BioAdvance, an
initiative of the Commonwealth of Pennsylvania committed to
funding early stage life sciences companies, from June 2005
through December 2005. Prior to that, Mr. Felker served as
Associate Vice President, BTG Ventures at BTG International
Inc., Manager, Business Development at Icagen, Inc. and as a
protein chemist at Hybritech and Biosite Diagnostics.
Mr. Felker holds a BS from the University of California,
San Diego and an MBA from the Weatherhead School of
Management at Case Western Reserve University.
Michael Cola has served as the Chairman of our board of
directors since December 2006. Mr. Cola has served as
President, Specialty Pharmaceuticals at Shire plc, or Shire, a
global specialty pharmaceutical company, since June 2005. Prior
to joining Shire, Mr. Cola served as Group President of
Safeguard Scientifics, Inc., or Safeguard, a holding company for
growth stage technology and life sciences companies, and in a
variety of positions at AstraZeneca and AstraMerck, including
Vice President, Global Clinical Operations. Mr. Cola has also
served on the board of directors of Clarient, Inc., a publicly
traded company. Mr. Cola holds a BA in biology and physics
from Ursinus College and an MS in biomedical science from Drexel
University. Mr. Cola has more than 20 years of
international pharmaceutical industry experience.
Mr. Colas extensive expertise in pharmaceutical
product development, commercialization and marketing, as well as
his involvement in the development of public pharmaceutical
companies, have provided him with a broad perspective on
operations and make him a valuable asset to our board of
directors. Furthermore, Mr. Colas leadership
abilities make him particularly well qualified to be our
Chairman.
Jeanne Cunicelli has served as one of our directors since
August 2006. Ms. Cunicelli has served as an Investment
Partner at Bay City Capital LLC, a venture capital firm with a
focus on the life sciences industry, since January 2004.
Ms. Cunicelli joined Bay City Capital LLC as a Consultant
in 1997. She is a member of the board of trustees, the Chairman
of the investment committee and serves on the finance committee
of the University of San Francisco. Ms. Cunicelli
holds a BS in cognitive psychology from Carnegie Mellon
University and an MBA from the University of San Francisco.
Ms. Cunicellis position with Bay City Capital has
resulted in her gaining valuable experience in evaluating the
financial performance and operations of companies in our
industry, which we believe makes her a valuable member of our
board of directors.
Michael C. Diem, MD has served as one of our directors
since July 2008. Dr. Diem has served as a Partner at SR
One, Limited, or SR One, the venture capital subsidiary of
GlaxoSmithKline, since September 2008. Dr. Diem joined SR
One as an associate in July 2005. Prior to joining SR One,
Dr. Diem was an associate at Frantz Medical Ventures and
practiced as an attending physician. Dr. Diem holds a BA in
biological sciences from Rutgers University, an MD from the
University of Medicine and Dentistry of New Jersey-Robert Wood
Johnson Medical School and an MBA from the Weatherhead School of
Management at Case Western Reserve University, completed his
residency training at Duke University Medical Center and is an
alumnus of the Kauffman Fellows Program. Dr. Diems
scientific, medical and pharmaceutical background, as well as
his investment experience, enable him to advise our board of
directors on a wide range of strategic and other financial
transactions, which makes him a valuable member of our board.
John H. Dillon, II, has served as one of our
directors since March 2006. Mr. Dillon has served as Managing
Director and Chief Executive Officer of BioVerum Partners LLC, a
healthcare consulting firm, since 2006. Before retiring in
August 2004, Mr. Dillon served as Executive Vice President,
Corporate Development and Senior Vice President, Marketing at
Auxilium, where he managed all pre-launch and launch activities
for
85
Auxiliums first commercial product. Prior to joining
Auxilium, Mr. Dillon served for more than 20 years in a
variety of positions at SmithKline Beecham Corporation,
including Vice President and Director of Worldwide Business
Development, where he managed business development and strategic
product planning. He has also served on the board of directors
and as a member of the audit committee for Encysive
Pharmaceuticals Inc., a publicly traded company. Mr. Dillon
holds a BA in history from Lafayette College and an MBA from The
Wharton School at the University of Pennsylvania. His extensive
expertise in marketing and product development, as well as his
background in business and strategic planning, have enabled him
to advise our board of directors on a wide range of strategic,
operations, marketing and development matters, which we believe
makes him an asset to our board.
Richard S. Kollender has served as one of our directors
since December 2007. Mr. Kollender has served as a Partner
at Quaker BioVentures, a venture capital firm with a focus on
the life sciences industry, since October 2005. Mr.
Kollender joined Quaker BioVentures as a Principal in 2003.
Prior to joining Quaker BioVentures, Mr. Kollender served in a
variety of sales, marketing and worldwide business development
positions at GlaxoSmithKline, as an Investment Manager at SR One
and as a Certified Public Accountant with KPMG LLP, with a
significant emphasis on the healthcare and emerging businesses
sectors. Mr. Kollender holds a BA from Franklin and
Marshall College in Accounting and Business Administration and
an MBA from the University of Chicago. Mr. Kollenders
strong accounting background, pharmaceutical commercial
experience and financial experience in the healthcare and
emerging business sectors qualify him to serve as a member of
our board of directors.
Gary J. Kurtzman, MD has served as one of our directors
since August 2006. Dr. Kurtzman has served as a Vice
President at Safeguard since June 2006. Dr. Kurtzman is also a
Managing Director in Safeguards Life Science Group.
Previously, he served in a variety of roles at BioAdvance from
July 2002 until June 2006, with his most recent position being
Managing Director and Chief Operating Officer. Dr. Kurtzman
currently serves on the board of directors of Tengion, Inc., a
publicly traded biotechnology company, and is a lecturer in
health care management at The Wharton School at the University
of Pennsylvania, where he teaches bioentrepreneurship.
Dr. Kurtzman holds a BS from Stanford University, an MD
from Washington University and completed post-doctoral training
at the National Heart, Lung and Blood Institute and Stanford
University. Dr. Kurtzmans strong background of
service on the boards of directors of numerous biotechnology
companies and his position as a managing director in an
organization that provides capital to biotechnology companies
make him a valuable member of our board of directors who will
assist in the development of our growth strategy and business
plans.
Mark W. Pierce, MD, PhD has served as our Vice President
and Chief Scientific Officer since October 2006. Previously,
Dr. Pierce served as a Senior Vice President of
Pfizers Global Research and Development from July 2002
through October 2005. Dr. Pierce holds a BA and a PhD from
Northwestern University and an MD from Northwestern University
Medical School. He received his postgraduate training in
internal medicine at the Peter Bent Brigham Hospital and
Massachusetts General Hospital in Boston. Dr. Pierce was
previously an Instructor in Medicine and Assistant Professor of
Medicine at Harvard Medical School.
Board
Composition and Election of Directors
Our board of directors currently consists of seven directors. In
accordance with our restated certificate of incorporation, to be
in effect upon the closing of this offering, our board of
directors may establish from time to time by resolution the
authorized number of directors. Upon the closing of this
offering, eight directors will be authorized to serve on our
board of directors. All of our directors are elected annually
for a one-year term until the next annual meeting of
stockholders.
Under applicable NASDAQ Marketplace Rules, a director will only
qualify as an independent director if, in the
opinion of our board of directors, that person does not have a
relationship that would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
director.
Our board of directors has determined that each of our
directors, with the exception of Ms. Hollingsworth, is an
independent director as defined under
Rule 5605(a)(2) of The NASDAQ Marketplace Rules. In making
such determination, the board of directors considered the
relationships that each such non-employee director has with our
company and all other facts and circumstances that the board of
directors
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deemed relevant in determining their independence, including the
beneficial ownership of our capital stock by each non-employee
director. In considering the independence of the directors
listed above, our board of directors considered the association
of our directors with the holders of more than five percent of
our common stock. There are no family relationships among any of
our directors or executive officers.
Board
Leadership Structure and Boards Role in Risk
Oversight
The positions of our chairman of the board and chief executive
officer are separated. Separating these positions allows our
chief executive officer to focus on our
day-to-day
business, while allowing the chairman of the board to lead the
board of directors in its fundamental role of providing advice
to and independent oversight of management. Our board of
directors recognizes the time, effort and energy that the chief
executive officer must devote to her position in the current
business environment, as well as the commitment required to
serve as our chairman, particularly as the board of
directors oversight responsibilities continue to grow. Our
board of directors also believes that this structure ensures a
greater role for the independent directors in the oversight of
our company and active participation of the independent
directors in setting agendas and establishing priorities and
procedures for the work of our board of directors. This
leadership structure also is preferred by a significant number
of our stockholders. Our board of directors believes its
administration of its risk oversight function has not affected
its leadership structure.
Although our bylaws that will be in effect upon the closing of
this offering will not require that our chairman and chief
executive officer positions be separate, our board of directors
believes that having separate positions is the appropriate
leadership structure for us at this time and demonstrates our
commitment to good corporate governance.
Risk is inherent with every business, and how well a business
manages risk can ultimately determine its success. We face a
number of risks, including those described under Risk
Factors. Our board of directors is actively involved in
oversight of risks that could affect us. This oversight is
conducted primarily through committees of the board of
directors, as disclosed in the descriptions of each of the
committees below, but the full board of directors has retained
responsibility for general oversight of risks. Our board of
directors satisfies this responsibility through full reports by
each committee chair regarding the committees
considerations and actions, as well as through regular reports
directly from officers responsible for oversight of particular
risks within our company. Our board of directors believes that
full and open communication between management and the board of
directors is essential for effective risk management and
oversight.
Board
Committees
Our board of directors has an audit committee and a compensation
committee and, as of the closing of this offering, will have a
nominating and corporate governance committee. Upon the closing
of this offering, each of these committees will operate under a
charter that has been approved by our board of directors.
Audit
Committee
Our audit committee consists of Ms. Cunicelli,
Mr. Dillon and Dr. Diem. Mr. Dillon serves as the
chair of our audit committee. Upon the closing of this offering,
the responsibilities of the audit committee will include, among
other things:
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Evaluating the performance, independence and qualifications of
our independent auditors and determining whether to retain our
existing independent auditors or engage new independent auditors;
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Reviewing and approving the engagement of our independent
auditors to perform audit services and any permissible non-audit
services;
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Monitoring the rotation of partners of our independent auditors
on our engagement team as required by law;
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Reviewing our annual and quarterly financial statements and
reports and discussing the statements and reports with our
independent auditors and management;
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Reviewing with our independent auditors and management
significant issues that arise regarding accounting principles
and financial statement presentation, and matters concerning the
scope, adequacy and effectiveness of our financial controls;
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Reviewing with management and our auditors any earnings
announcements and other public announcements regarding material
developments;
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Establishing procedures for the receipt, retention and treatment
of complaints received by us regarding financial controls,
accounting or auditing matters and other matters;
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Preparing the audit committee report that the SEC requires in
our annual proxy statement;
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Reviewing the disclosures of the chief executive officer and
chief financial officer during their certification process for
our
Form 10-K
and
Form 10-Q
filings with the SEC;
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Reviewing and providing oversight with respect to any related
party transactions and monitoring compliance with our code of
ethics;
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Reviewing our investment, risk assessment and management and
accounting policies on a periodic basis;
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Reviewing the adequacy of our audit committee charter on a
periodic basis; and
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Reviewing and evaluating the performance of the audit committee,
including compliance of the audit committee with its charter.
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Our board of directors has determined that each of the directors
serving on our audit committee is independent within the meaning
of The NASDAQ Marketplace Rules and Rule
10A-3 under
the Securities Exchange Act of 1934, as amended, or the Exchange
Act. In addition, our board of directors has determined that
qualifies as an audit committee financial expert within the
meaning of SEC regulations and The NASDAQ Marketplace Rules. In
making this determination, our board has considered the formal
education and nature and scope of his/her previous
experience, coupled with past and present service on various
audit committees. Both our independent auditors and management
periodically meet privately with our audit committee.
Compensation
Committee
Our compensation committee consists of Mr. Cola,
Mr. Kollender and Dr. Kurtzman. Mr. Kollender
serves as the chair of our compensation committee. Upon the
closing of this offering, the responsibilities of the
compensation committee will include, among other things:
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Reviewing, approving and, in the case of our chief executive
officer, recommending to our board of directors the compensation
and other terms of employment of our executive officers,
including the terms of any employment agreements, severance
arrangements, change in control protections and any other
compensatory arrangements;
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Reviewing, approving and, in the case of our chief executive
officer, recommending to our board of directors performance
goals and objectives relevant to the compensation of our
executive officers and assessing their performance against these
goals and objectives;
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Evaluating and approving the equity incentive plans,
compensation plans and similar programs advisable for us, as
well as modification or termination of existing plans and
programs;
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Evaluating, approving and, in the case of our chief executive
officer, recommending to our board of directors the type and
amount of compensation to be paid or awarded to board members;
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Administering our equity incentive plans;
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Establishing policies with respect to equity compensation
arrangements;
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Reviewing the competitiveness of our executive compensation
programs and evaluating the effectiveness of our compensation
policy and strategy in achieving expected benefits to us;
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Reviewing with management our disclosures under the
Compensation Discussion and Analysis section of our
annual proxy statement to be filed with the SEC and recommending
to the full board of directors inclusion in our annual proxy
statement to be filed with the SEC;
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Preparing the report that the SEC requires in our annual proxy
statement;
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Reviewing the adequacy of our compensation committee charter on
a periodic basis; and
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Reviewing and evaluating the performance of our compensation
committee.
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Nominating
and Corporate Governance Committee
Upon the closing of this offering, we will establish a
nominating and corporate governance committee on which we expect
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and
will initially serve.
will serve as the chair of our nominating and corporate
governance committee. Upon the closing of this offering, the
responsibilities of the nominating and corporate governance
committee will include, among other things:
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Identifying, reviewing, evaluating, nominating and recommending
candidates to serve on our board of directors and each of its
committees;
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Determining the minimum qualifications for service on our board
of directors;
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Evaluating director performance on the board of directors and
applicable committees of the board;
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Considering nominations by stockholders of candidates for
election to our board of directors;
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Considering and assessing the independence of members of our
board of directors;
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Developing, as appropriate, a set of corporate governance
principles, and reviewing and recommending to our board of
directors any changes to such principles;
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Periodically reviewing our policy statements to determine their
adherence to our code of business conduct and ethics and
considering any request by our directors or executive officers
for a waiver from such code;
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Reviewing the adequacy of its charter on a periodic
basis; and
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Reviewing and evaluating the performance of our nominating and
corporate governance committee.
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Compensation
Committee Interlocks and Insider Participation
No member of our compensation committee has ever been an officer
or employee of ours. None of our officers currently serves, or
has served during the last completed year, on our compensation
committee or the board of directors of any other entity that has
one or more of its officers serving as a member of our board of
directors or compensation committee. Prior to establishing our
compensation committee, our full board of directors made
decisions relating to compensation of our officers.
89
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
In this Compensation Discussion and Analysis, we address the
compensation determinations and the rationale for those
determinations relating to our chief executive officer, our
chief financial officer and our next three most highly
compensated executive officers who were serving as executive
officers as of December 31, 2009. We refer to these
executive officers collectively as our named executive
officers. Our named executive officers for the year ended
December 31, 2009 are:
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Jane H. Hollingsworth, Chief Executive Officer;
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Terri B. Sebree, President;
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Keith A. Goldan, Vice President and Chief Financial Officer;
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Gerald W. McLaughlin, Vice President Commercial
Operations; and
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Ezra H. Felker, Vice President Business Development.
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Objectives
and Philosophy of Executive Compensation
The primary objective of our executive compensation program, as
established by the compensation committee of our board of
directors, is to attract, retain and motivate individuals who
possess knowledge, experience and skills that we believe are
important to the advancement of our business of developing and
commercializing branded therapeutics for diseases of the central
nervous system, including neurological and psychiatric disorders.
Specifically, our compensation programs are designed to:
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Attract and retain individuals with superior ability and
managerial experience;
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Align executive officers incentives with our corporate
strategies, business objectives and the long-term interests of
our stockholders; and
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Increase the incentive to achieve key strategic performance
measures by linking incentive award opportunities to the
achievement of performance objectives in these areas and by
providing a portion of total compensation opportunities for
executive officers in the form of direct ownership in our
company.
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To achieve these objectives, we seek to provide a competitive
compensation package that ties a substantial portion of the
executives overall compensation to both our company
objectives and the executives individual performance. Base
salary increases and annual performance bonuses are tied to our
company and individual performance in relation to competitive
market conditions. Equity awards are primarily used to promote
long-term stockholder value and employee retention through the
use of multi-year vesting schedules that provide an incentive to
the executive to remain in the employ of the company through the
end of the vesting period in order to share in any increase in
the value of our company over time.
Determination
of Executive Compensation
Our compensation committee oversees our compensation and benefit
plans and policies, administers our equity incentive plans and
reviews and approves annually all compensation decisions
relating to all executive officers.
When determining our executive compensation policies, reviewing
the performance of our executive officers and establishing
compensation levels and programs, our compensation committee
considers recommendations from Ms. Hollingsworth, our chief
executive officer, regarding the compensation for executive
officers other than herself. Ms. Hollingsworth does not
participate in determining the amount of her own compensation.
With the exception of our chief executive officer, our
compensation committee has the final authority regarding the
overall compensation structure for our executive officers. In
the case of Ms. Hollingsworth, our compensation committee
evaluates Ms. Hollingsworths performance, with
significant input and recommendations from the chairman of our
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compensation committee, and recommends compensation levels to
the board of directors, which sets her compensation.
Prior to this offering, we have not used a peer group to engage
in benchmarking in determining our total compensation or the
primary components of compensation for our executive officers.
In reviewing compensation levels for 2009 and 2010, our
compensation committee reviewed survey information for private
life sciences companies published in CompStudy, an annual survey
of compensation for executives at more than 700 private life
sciences and technology companies conducted by J. Robert Scott
in partnership with Ernst & Young LLP. As a survey
participant, we had access to survey data, which we used to
provide information to our compensation committee in setting
compensation.
In the future, we expect that our compensation committee will
engage a compensation consultant, establish comprehensive
policies and guidelines for executive compensation and conduct
competitive benchmarking against a peer group of public
companies established in consultation with the compensation
consultant.
Elements
of Executive Compensation
The compensation for our executive officers consists of the
following principal elements:
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Annual performance bonuses;
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Long-term incentives in the form of equity grants; and
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Change in control and severance benefits.
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We do not have a formal or informal policy or target for
allocating compensation between long-term and short-term
compensation, cash and non-cash compensation, or among different
forms of non-cash compensation. Our compensation committee has
balanced our need to preserve cash with the expectations of
those we hope to recruit and retain as executives. In the
future, we may adjust the mix of cash and non-cash compensation
if required by competitive market conditions for attracting and
retaining skilled personnel.
We have set salary levels and the size of annual performance
bonuses based on individual performance and by comparison to
market survey data in CompStudy. Equity grant awards have been
our primary form of long-term incentive and retention benefits,
which have the benefit of not requiring a cash outlay from our
company. We use awards of equity as a significant component of
the initial compensation incentive when we hire executive
officers. We have generally made equity grants to existing
executives at times when we have raised capital from new
investors, and not as a part of annual compensation. Our equity
awards to executive officers generally have vesting schedules
over four years, which we believe results in a retention
incentive for our executives. If an executive voluntarily leaves
our employ before the completion of the vesting period, then
that executive would not receive any benefit from the non-vested
portion of his or her award.
Base
Salary
We generally establish base salaries for our executive officers
based on the scope of their responsibilities and the amount and
type of work experience prior to joining us, taking into account
competitive market compensation paid by other companies for
similar positions. In general, our compensation committee
reviews base salaries annually based on these factors to adjust
salaries to reflect current market levels. We may also adjust
base salaries
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from time to time during the year in connection with promotions
or in light of changes in market conditions. For 2009 and 2010,
the base salaries for our named executive officers are set forth
in the table below:
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2009
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2010
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Named Executive Officer
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Base Salary
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Base Salary
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Jane H. Hollingsworth
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$
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304,756
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$
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320,000
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Terri B. Sebree
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280,000
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293,000
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Keith A. Goldan
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275,000
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280,000
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Gerald W. McLaughlin
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206,876
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216,500
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Ezra H. Felker
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196,833
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216,500
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In setting salary levels for 2009 and 2010, our compensation
committee had a goal of setting target compensation for our
named executive officers at levels the committee believed to be
competitive for companies of similar size and stage of
development operating in the life sciences industry. To
accomplish this, our compensation committee reviewed CompStudy
survey information for private therapeutics companies with 20 to
40 employees, revenue of up to $40 million and between two
to five rounds of outside investor financing. Salary levels for
our named executive officers for 2010 were increased, based on
the position and industry experience of the individual, to
provide them generally with a level of total compensation in the
mid-range
for comparable positions. Salaries for 2009 were increased on
the same basis, from 2008 salaries of $295,880 for
Ms. Hollingsworth, $262,500 for Ms. Sebree, $200,850
for Mr. McLaughlin and $191,100 for Mr. Felker.
Mr. Goldans 2008 salary of $275,000 was negotiated at
the time he was hired in November 2008 and remained at the same
level for 2009.
Annual
Performance Bonus Compensation
We pay annual performance bonuses to reward the performance
achievements of our named executive officers. We generally pay
these bonuses in cash, and an executive must be employed by us
on the pay date to receive a bonus. Each named executive officer
is assigned a targeted maximum payout, expressed as a percentage
of his or her base salary for the year, which varies by their
role with us. Each named executive officers annual
performance bonus is generally determined based on our
achievement of company objectives and the executive
officers individual performance goals. For 2009, our chief
executive officers annual performance bonus was determined
solely based on attainment of company objectives. Our board of
directors and compensation committee determined that this was
appropriate given our chief executive officers
responsibility for the overall direction and success of our
business. Our company objectives generally relate to the
achievement of preestablished performance goals based on
company-wide business objectives. Individual performance goals
are based on either key operational objectives, functional
objectives within the executives area of responsibility,
or a combination of operational and functional objectives. If
our companys or an executive officers performance
does not meet one or more of the objectives established for the
year, then the portion of annual performance bonus attributable
to that objective will not be paid.
The performance objectives are generally objectively
determinable and measurable and their outcomes are uncertain at
the time established. When we set the 2009 objectives, we
considered them to be ambitious, but attainable and designed to
cause annual performance bonus payments to reflect meaningful
performance requirements.
Our compensation committee authorizes annual performance bonuses
to the executive officers, other than the chief executive
officer, in amounts that are commensurate with each executive
officers targeted maximum annual performance bonus and the
result achieved by the end of the year. Prior to this offering,
our compensation committee has authorized our chief executive
officer to establish individual performance goals for each other
executive officer on a basis consistent with compensation
objectives for the year. At the end of the year, our chief
executive officer assesses the achievement of the objectively
determinable individual performance goals of the executive
officers, other than herself, reports her findings to our
compensation committee and submits recommendations for annual
performance bonus payouts for the approval of our compensation
committee. Our compensation committee reviews our chief
executive officers analysis and in its sole discretion may
accept or reject, in whole or in part, the recommendations of
Ms. Hollingsworth.
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For our chief executive officer, our compensation committee
assesses the achievement of the objectively determinable
performance goals and reports its findings and annual
performance bonus recommendations to our board of directors. In
its sole discretion, our board of directors may accept or
reject, in whole or in part, the annual performance bonus
recommendations of our compensation committee. For 2009, our
board of directors reviewed and accepted our compensation
committees annual performance bonus recommendation with
respect to Ms. Hollingsworth.
As discussed above, Ms. Hollingsworths 2009 annual
performance bonus award payout was based 100% on the achievement
of our company objectives. The 2009 annual performance bonuses
for each of the other named executive officers was based 75% on
the achievement of company objectives and 25% on the achievement
of individual performance objectives. Our compensation committee
establishes our company objectives for each fiscal year prior to
the end of the first quarter of the year and determines a
separate weighting for each of our company objectives. For 2009,
our company objectives, including their weightings, are set
forth below:
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Successfully complete our pivotal Phase III clinical trial
for Zelrix (weighted 50%);
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Facilitate a significant transaction involving our company or
Zelrix (weighted 25%); and
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Raise capital in 2009 through new investors (weighted 25%).
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For 2009, we completed our pivotal Phase III clinical trial
for Zelrix but did not achieve the other two company objectives.
As a result, in March 2010, Ms. Hollingsworth was paid 50%
of her 2009 targeted annual performance bonus. All other named
executive officers were allocated 50% of the company objective
portion of their 2009 annual performance bonus award payout.
As discussed above, our chief executive officer established
individual performance objectives for each other executive
officer at approximately the same time as the company objectives
were established. Each component of the individual performance
goals was assigned equal weight for 2009.
Ms. Sebrees 2009 individual performance goals
consisted entirely of operational objectives related to: