sbbp_Current Folio_10K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

FORM 10-K


 

(Mark One)

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission file number: 001-37569


 

Strongbridge Biopharma plc

(Exact name of Registrant as specified in its charter)


 

 

 

Ireland

98-1275166

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

900 Northbrook Drive

Suite 200

Trevose, PA 19053

+1 610‑254‑9200

(Address of principal executive offices)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

    

Name of each exchange on which registered

Ordinary shares, par value $0.01 per share

 

The NASDAQ Global Select Market

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☐   Yes    ☒   No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   ☐  Yes    ☒  No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒   Yes    ☐  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒   Yes    ☐   No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large Accelerated Filer  ☐

Accelerated Filer  ☒

Non-Accelerated Filer  ☐

Smaller reporting company   ☐

 

Emerging growth company  ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  ☐   Yes    ☒   No

 

The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, as of June 30, 2017, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $216,524,867. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors of the Registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any other purposes.

 

45,504,848 ordinary shares were issued and outstanding as of March 1, 2018.

DOCUMENTS INCORPORATED BY REFERENCE:   NONE

 

 

 

 


 

Table of Contents

Strongbridge Biopharma plc

Table of Contents

 

 

 

    

Page

 

 

 

Cautionary Statement Regarding Forward-Looking Statements and Market Data

 

3

Part I. 

 

 

 

Item 1. 

Business

 

4

Item 1A 

Risk Factors

 

38

Item 1B. 

Unresolved Staff Comments

 

73

Item 2. 

Properties

 

73

Item 3. 

Legal Proceedings

 

73

Item 4. 

Mine Safety Disclosures

 

73

Part II.

 

 

 

Item 5. 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

74

Item 6. 

Selected Financial Data

 

76

Item 7. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

77

Item 7A. 

Quantitative and Qualitative Disclosures About Market Risk

 

91

Item 8. 

Financial Statements and Supplementary Data

 

92

Item 9. 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

92

Item 9A. 

Controls and Procedures

 

92

Item 9B. 

Other Information

 

93

Part III.

 

 

 

Item 10. 

Directors, Executive Officers and Corporate Governance

 

93

Item 11. 

Executive Compensation

 

96

Item 12. 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

106

Item 13 

Certain Relationships and Related Transactions, and Director Independence

 

109

Item 14. 

Principal Accountant Fees and Services

 

110

Part IV.

 

 

 

Item 15. 

Exhibits, Financial Statement Schedules

 

111

Item 16. 

Form 10-K Summary

 

113

 

 

 

 

SIGNATURES 

 

114

 

 

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CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS AND MARKET DATA

This Annual Report on Form 10-K (“Annual Report”) contains forward‑looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Annual Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, size of market or patient population, timing and likelihood of success, plans and objectives of management for future operations, and future results of current and anticipated products, are forward‑looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward‑looking statements. The words “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “objective,” “plan,” “potential,” “predict,” “project,” “positioned,” “seek,” “should,” “target,” “will,” “would,” or the negative of these terms or other similar expressions are intended to identify forward‑looking statements, although not all forward‑looking statements contain these identifying words. These forward‑looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions, are not guarantees of future results, performance or developments and involve known and unknown risks, uncertainties and other factors that may cause our actual results or developments to differ materially from the expectations contained in the forward-looking statements. Such risks and uncertainties include those described throughout this Annual Report and particularly in “Risk Factors” in Part I, Item 1A of this Annual Report.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward‑looking statements. Readers are urged to carefully review and consider the various disclosures made in this Annual Report and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. The forward‑looking statements included in this Annual Report do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. In addition, the forward-looking statements in this Annual Report are made as of the date of this filing, and we do not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

Solely for convenience, the trademarks and trade names in this Annual Report are referred to without the ® and ™ symbols, but absence of such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. The trademarks, trade names and service marks appearing in this Annual Report are the property of their respective owners.

Unless the context requires otherwise, references in this Annual Report to “Strongbridge,” “we,” “us” and “our” refer to Strongbridge Biopharma plc.

 

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PART I

ITEM 1.  BUSINESS

Overview

We are a global commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs.

Our first commercial product is Keveyis (dichlorphenamide), the first and only treatment approved by the U.S. Food and Drug Administration (the “FDA”) for hyperkalemic, hypokalemic, and related variants of primary periodic paralysis (“PPP”), a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis.

Our second commercial product, Macrilen (macimorelin) is an oral growth hormone secretagogue receptor agonist, and is the first and only oral drug approved by the FDA for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). We expect to launch Macrilen in the United States in mid-2018.

In addition to our two commercial products, we have two clinical-stage product candidates for rare endocrine diseases, Recorlev and veldoreotide. Recorlev (levoketoconazole) is a cortisol synthesis inhibitor currently being studied for the treatment of endogenous Cushing's syndrome. Veldoreotide is a next-generation somatostatin analog being investigated for the treatment of acromegaly and potential additional applications in other conditions amenable to somatostatin receptor activation. Both Recorlev and veldoreotide have received orphan designation from the FDA and the European Medicines Agency (“EMA”).

Given the well-identified and concentrated prescriber base addressing our target markets, we intend to continue to use a small, focused sales force to market Keveyis, Macrilen and any future products, in the United States, the European Union and other key global markets. We believe that our ability to execute on our strategy is enhanced by the significant commercial and clinical development experience of key members of our management team. 

Since the introduction of our new management team in August 2014, we have been building a rare disease, franchise-based business model focused on expansion through a disciplined in-licensing and acquisition strategy. In pursuit of our growth strategy, we have raised over $275 million in equity and debt financings since December 2014. We will continue to identify and evaluate the acquisition of products and product candidates for licensing or acquisition that would be complementary to our existing rare neuromuscular and endocrine franchises or that would form the basis for new rare disease franchises. We believe this approach will enable us to maximize our commercial potential by further leveraging our existing resources and expertise.

Our Products and Product Candidates

 

·

Keveyis (dichlorphenamide), an oral carbonic anhydrase inhibitor and the only therapy approved in the United States to treat hyperkalemic, hypokalemic and related variants of PPP. PPP is a rare genetic, neuromuscular disorder that can cause extreme muscle weakness and/or paralysis; some forms are also commonly associated with myotonia or muscle stiffness. It often interferes with daily activities and, as patients get older, it can lead to permanent muscle weakness. The two most common forms of this disorder are “hyperkalemic” and “hypokalemic” periodic paralysis.  Keveyis was approved by the FDA in August 2015, and has orphan drug exclusivity status in the United States through August 7, 2022. From May 2016 to December 2016, Taro Pharmaceuticals Industries Ltd. and its affiliates (“Taro”), supplied Keveyis on a non-commercial basis to patients through a single specialty pharmacy in the United States. We acquired the U.S. marketing rights to Keveyis in December 2016 and we launched Keveyis in the United States in April 2017.

·

Macrilen (macimorelin), an oral growth hormone secretagogue receptor agonist, is indicated for the diagnosis of AGHD. Macrilen has been granted orphan-drug designation by the FDA for use in evaluating growth hormone deficiency (“GHD”).  On December 20, 2017, the FDA granted marketing approval for

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Macrilen, an oral growth hormone secretagogue (GHS) receptor agonist, to be used in the diagnosis of patients with AGHD, which affects approximately 60,000 adults in the United States and Canada. We acquired the U.S. and Canadian marketing rights to Macrilen from Aeterna Zentaris GmbH in January 2018 and we intend to launch Macrilen in the United States in mid-2018.

·

Recorlev (levoketoconazole), a cortisol synthesis inhibitor, is in Phase 3 clinical development for the treatment of endogenous Cushing’s syndrome.  Endogenous Cushing’s syndrome is a rare endocrine disorder characterized by sustained elevated cortisol levels that most commonly result from a benign tumor of the pituitary gland. We believe that Recorlev, which is the isolated, “left-handed” mirror image, or enantiomer, of ketoconazole, has the potential to become the new standard of care for the drug therapy of endogenous Cushing’s syndrome. In July 2017, we completed enrollment of 94 patients in SONICS, a pivotal, multinational Phase 3 clinical trial for Recorlev. We anticipate that top-line data for the primary efficacy analysis will be available in mid-2018In addition, we have initiated LOGICS, a second pivotal Phase 3 clinical trial of Recorlev for the treatment of endogenous Cushing's syndrome. The LOGICS study will supplement the long-term efficacy and safety data from the ongoing SONICS trial via a randomized, double-blind, placebo-controlled design that will randomize approximately 35 patients, of which up to approximately one-half will have completed the SONICS study.  Enrollment in the LOGICS study is anticipated to begin in the first quarter of 2018, and top-line data are expected in the first quarter of 2019. 

Upon completion of the clinical development program, we intend to file for marketing authorizations in the United States and elsewhere.  Following consultations with the FDA, we have determined that the 505(b)(2) approval pathway, which permits a New Drug Application (“NDA”) applicant to rely on data from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference, is the appropriate pathway for a Recorlev NDA.  Because NDA approval can rely in part on data already accepted by the FDA or otherwise publicly available, an abbreviated and reduced development program may be possible. We intend to rely on published literature and the FDA’s prior findings concerning the safety and/or effectiveness of ketoconazole in our NDA for Recorlev.  A similar marketing authorization pathway is available in most of the rest of the world, and we anticipate that the studies supporting U.S. approval will likewise support approvals to market Recorlev elsewhere, including in the European Union.    

·

Veldoreotide modified-release, a novel multi-receptor targeted somatostatin analog (SSA) that was previously in Phase 2 development as an immediate release formulation. Based on the differentiated activation pattern of somatostatin receptor subtypes (“SSTRs”) and the preclinical and clinical profile of immediate-release veldoreotide, we believe that modified-release veldoreotide may offer an improved efficacy and safety profile relative to existing drug therapies for acromegaly and other conditions that are modifiable through activation of somatostatin receptors, such as Cushing’s disease and neuroendocrine tumors. Veldoreotide has been granted orphan drug designation by the FDA and the EMA for treatment of acromegaly.  The lead formulation for veldoreotide modified-release is based upon PLGA microspheres. PLGA is a well-known polymer, which has been widely applied in modified-release formulations due to its biocompatibility, biodegradability, and favorable release kinetics.  We expect to initiate a series of pre-clinical studies that seek to determine additional differentiating features of veldoreotide in both endocrine and non-endocrine conditions.

Product Sales

Product sales for Keveyis in 2017 accounted for 100% of our total revenues as it was our only commercial product sold in 2017. We operate in one operating reporting segment. We sell Keveyis to one specialty pharmacy provider, who is the exclusive distributor of Keveyis in the United States. The specialty pharmacy subsequently resells Keveyis to patients, which are covered by payors that may provide for government-mandated or privately negotiated rebates with respect to the purchase of Keveyis (see Note 3 of our consolidated financial statements).

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Our Strategy

Our goal is to transform the lives of patients by building a leading franchise‑based, commercially oriented biopharmaceutical company addressing rare diseases with significant unmet medical needs. We are focused on developing, in‑licensing, acquiring and eventually commercializing products and product candidates that target rare diseases across therapeutic areas.

To achieve our goal, we are pursuing the following strategies:

·

Focus on rare diseases.  We are selling or developing treatments for rare diseases, initially PPP, AGHD and endogenous Cushing’s syndrome. Rare diseases typically have a high unmet need for innovative treatment options. Drug development for the treatment of rare diseases often requires smaller clinical trials than for common diseases. Product candidates focused on rare diseases also often qualify for orphan drug designation, which in the United States provides for seven years of market exclusivity and in the European Union provides for 10 years of market exclusivity after regulatory approval to market has been granted.

·

Independently commercialize Keveyis, Macrilen and other products in the United States and the European Union. We have commercialized Keveyis in the United States and intend to market Macrilen in the United States and Canada.  Our other rare disease product candidates, if approved, may be marketed in the United States, the European Union, and, selectively, in other key global markets. Given the relatively small prescriber bases for Keveyis, Macrilen and our two product candidates, we believe we can use a relatively small, focused sales force to effectively promote our products. We have established sales, marketing, market access and patient service capabilities in the United States to market Keveyis. We believe that some of the activities involved in our commercialization of Keveyis and Macrilen will provide synergies to our commercialization of Recorlev if successful. We believe that our ability to execute on this strategy is enhanced by the significant prior commercial experience of key members of our management team. Prior to joining our company, members of our management team were involved in the launch or commercialization of over 20 pharmaceutical products.

·

Expand our portfolio through a disciplined in‑licensing and acquisition strategy.  We plan to source new product candidates by in‑licensing or acquiring them. Our management team seeks to mitigate the potential risks of this strategy by adhering to our disciplined criteria of focusing on in‑licensing or acquisition of products that are already commercially available or that have human clinical data that we believe suggest a relatively high probability of success for development and an attractive potential return on investment. As a result of our management team’s experience in sourcing, selecting, in‑licensing and acquiring products and product candidates, we were successful in acquiring the U.S. rights to Keveyis and the U.S. and Canadian rights to Macrilen, as well as augmenting our rare endocrine franchise by adding veldoreotide to our product pipeline. 

·

Utilize a franchise model built on rare disease therapeutic areas.  We intend to build our company by in‑licensing and acquiring products and product candidates that target rare diseases in therapeutically aligned franchises with significant commercial opportunity. We believe that complementary products and product candidates will allow us to significantly leverage our expertise as well as our development and commercial infrastructure. For example, Keveyis serves as the basis of our rare neuromuscular franchise, and Macrilen and Recorlev, if approved, will serve as the basis for our rare endocrine franchise.

·

Expand indications of products and product candidates within our franchises.  In addition to identifying products and product candidates that can form the basis of new rare disease franchises, we also intend to leverage opportunities to develop potential products and product candidates for additional indications within their respective therapeutic franchises. We believe that this approach will enable us to maximize our commercial potential by further leveraging our existing resources and expertise.

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Our Product Candidate Pipeline

The following table illustrates our product candidates by stage:

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Our Rare Neuromuscular Franchise

In December 2016, we initiated our rare neuromuscular franchise by acquiring the U.S. marketing rights to Keveyis (dichlorphenamide) from Taro Pharmaceuticals North America, Inc., a subsidiary of Taro Pharmaceutical Industries Ltd. Keveyis is the first and only therapy approved in the United States to treat hyperkalemic, hypokalemic and related variants of PPP, a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis

Overview of PPP and Keveyis

 

PPP is a rare, genetic, neuromuscular disorder related to a defect in muscle ion channels with multiple variants and subtypes. The disease is characterized by episodes of muscle weakness and paralysis. It often interferes with daily activities and, as patients get older, it can lead to permanent muscle weakness. PPP may be localized (“focal”) or more widespread (“generalized”), and it often goes underdiagnosed and/or undertreated.  Types of periodic paralysis are differentiated by criteria including underlying genetic mutations and changes in blood potassium during an episode. The two most common forms of PPP are hypokalemic, when episodes can be induced by low blood levels of potassium, and hyperkalemic, when episodes are associated with elevated levels of blood potassium.  We believe, based on our market research, that there are approximately 4,000 to 5,000 patients in the United States diagnosed with PPP.

Keveyis is an oral carbonic anhydrase inhibitor that was approved by the FDA in the United States in August 2015 to treat hyperkalemic, hypokalemic and related variants of PPP.  The exact mechanism(s) through which oral carbonic anhydrase inhibitors, and Keveyis in particular, decrease the frequency and severity of periodic paralysis attacks is unknown.  However, it is believed that their effects are mediated both locally (i.e. in muscle) and systemically.  It is not known whether their effects are disease-modifying. Keveyis has received orphan drug exclusivity status in the United States through August 7, 2022.   

Following FDA approval in August 2015, Keveyis was marketed by Taro.  In May 2016, Taro announced the cessation of their commercial sales and related promotional activities for Keveyis.  Taro supplied Keveyis to patients on a non-commercial basis through a single specialty pharmacy in the United States from May 2016 until our acquisition of the U.S. marketing rights to Keveyis in December 2016. We continued to supply Keveyis to patients on a non-commercial basis until launching Keveyis in April 2017. After acquiring the U.S. marketing rights for Keveyis, we established sales, marketing, market access and patient service capabilities.

We launched Keveyis using 12 experienced sales representatives, and in the fourth quarter of 2017 expanded

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our sales force to 24 individuals consisting of three regional business directors and 21 sales representatives. Because a large percentage of the people who suffer from PPP remain undiagnosed or inadequately treated, we developed programs to educate the medical community and patients about this illness. In addition, we established a field-based force of medical science liaisons.  We use a single, specialty pharmacy to provide reimbursement, clinical and distribution support for Keveyis and to develop cost-sharing and patient assistance programs to support qualified, commercially insured patients, federal- and state-insured patients, and uninsured or under-insured patients. We also donate money to independent charitable foundations dedicated to this cause. Our ultimate goal is to ensure that no PPP patient is denied access to Keveyis for financial reasons.

Clinical Development of Keveyis

 

The efficacy of KEVEYIS was evaluated in two clinical studies, Study 1 and Study 2.

Study 1

Study 1 was a 9-week, double blind, randomized, placebo-controlled, multi-center study. Study 1 consisted of two substudies: a substudy in patients with hypokalemic periodic paralysis (n=44), and a substudy in patients with hyperkalemic periodic paralysis (n=21). The primary efficacy endpoint in both substudies was the average number of self-reported attacks of muscle weakness per week over the final 8 weeks of the trial. Withdrawal from the study for acute severe worsening was also assessed as an endpoint.

In Study 1, the tested dose of Keveyis was 50 mg b.i.d. for treatment-naïve patients. Patients already receiving dichlorphenamide prior to the study continued on the same dose if randomized to Keveyis during the study. In patients taking acetazolamide prior to the study, the daily dose of Keveyis was set at 20% of the daily acetazolamide dose. Dose reduction for tolerability was permitted.

In the hypokalemic periodic paralysis substudy, median age of patients was 45 years and 73% of patients were male. Patients treated with Keveyis (n=24) had 2.2 fewer attacks per week than patients (n=20) treated with placebo (p=0.02). None of the patients randomized to Keveyis reached the endpoint of acute worsening, vs. five patients randomized to placebo. The mean dose of Keveyis at Week 9 was 94 mg/day.

In the hyperkalemic periodic paralysis substudy, median age of patients was 43 years and 43% of patients were male. During the double-blind treatment period, patients treated with Keveyis (n=12) had 3.9 fewer attacks per week than patients treated with placebo (n=9) (p=0.08). None of the patients randomized to Keveyis reached the endpoint of acute worsening, vs. two patients randomized to placebo. The mean dose of Keveyis at Week 9 was 82 mg/day.

Study 2

Study 2 was a 35-week, double blind, placebo-controlled, randomized, multi-center, two-period crossover study. Study 2 also consisted of two substudies: a substudy in patients with hypokalemic periodic paralysis (n=42), and a substudy in patients with hyperkalemic periodic paralysis (n=31), including patients with Paramyotonia Congenita (together termed potassium-sensitive periodic paralysis or PSPP). The primary endpoint in the hypokalemic periodic paralysis substudy was the incidence of acute intolerable worsening (based on attack frequency or severity) necessitating withdrawal. The primary endpoint in the hyperkalemic periodic paralysis substudy was the average number of self-reported attacks of muscle weakness per week. Dosing was determined similarly to Study 1.

In the hypokalemic periodic paralysis substudy, mean age of patients was 38 years and 79% of patients were male. Acute intolerable worsening was observed in 2 patients on Keveyis vs. 11 patients on placebo (p=0.02). The mean dose of Keveyis at the end of the study was 96 mg/day.

In the hyperkalemic periodic paralysis substudy, mean age of patients was 37 years and 58% of patients were male. Patients treated had 2.3 fewer attacks per week on Keveyis than on placebo (p=0.006). The mean dose of Keveyis at the end of the study was 73 mg/day.

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Our Rare Endocrine Franchise

Our rare endocrine franchise consists of Macrilen, Recorlev and veldoreotide. Macrilen is the first and only oral drug approved by the FDA for the diagnosis of patients with AGHD. Recorlev is being developed for the treatment of endogenous Cushing’s syndrome, and veldoreotide is being developed for the treatment of acromegaly and potential additional applications in other conditions amenable to somatostatin receptor activation.  

Overview of Adult Growth Hormone Deficiency (AGHD) and Macrilen

AGHD is a condition that is associated with premature mortality, as well as cardiovascular, neuromuscular, metabolic, nervous system, and skeletal abnormalities. The clinical features are nonspecific; growth hormone stimulation testing is required to diagnose AGHD. Growth hormone is produced by the pituitary gland and secreted in pulses, so random measurements of growth hormone levels in the blood are not useful for establishing a diagnosis of AGHD. Growth hormone stimulation testing provokes the pituitary gland to release levels of growth hormone above resting levels to determine the growth hormone release potential in a patient suspected of having AGHD.

On December 20, 2017, the FDA granted marketing approval for Macrilen, an orally available, peptidomimetic growth hormone secretagogue receptor agonist (or ghrelin receptor, GHSR-1a, agonist), to be used in the diagnosis of patients with AGHD, which affects approximately 60,000 adults in the U.S. and Canada. We acquired the U.S. and Canadian marketing rights to Macrilen from Aeterna Zentaris GmbH in January 2018 and we intend to launch Macrilen in mid-2018. Macrilen is the first and only oral drug approved by the FDA for the diagnosis of patients with AGHD.

Clinical Development of Macrilen

 

The diagnostic efficacy of the Macrilen test was established in a randomized, open-label, single-dose, cross-over study.  The objective of the study was to compare the level of agreement between Macrilen test results and insulin tolerance test (“ITT”) results in adult patients with different pre-test probabilities of AGHD, including with healthy control subjects.  The four groups of individuals evaluated were:

·

Group A:  Adults with a high likelihood of growth hormone deficiency (GHD)

o

Structural hypothalamic or pituitary lesions and low insulin-like growth factor 1 (IGF-1), and/or

o

Three or more pituitary hormone deficiencies and low IGF-1, or

o

Childhood onset GHD with structural lesions and low IGF-1.

·

Group B:  Adults with an intermediate likelihood of GHD

o

Eligible subjects not qualifying for either high or low likelihood.

·

Group C:  Adults with a low likelihood of GHD

o

One risk factor for GHD only, such as history of distant traumatic brain injury or one pituitary hormone deficiency only with otherwise normal pituitary function, or

o

Isolated idiopathic childhood onset GHD without additional pituitary deficits.

·

Group D:  Healthy adult controls

o

Healthy subjects matching Group A subjects by sex, age ± 5 years, body mass index (BMI ± 2 kg/m2),

and estrogen status (females only).

For both the ITT and the Macrilen test, serum concentrations of growth hormone were measured at 30, 45, 60, and 90 minutes after drug administration.  The test was considered positive (i.e., AGHD diagnosed) if the maximum serum growth hormone level observed anytime after stimulation was less than the pre-specified cut point value of 2.8 ng/mL for the Macrilen test or 5.1 ng/mL for the ITT.

The level of negative and positive agreement between the results of the ITT and the Macrilen test was used to evaluate the performance of the Macrilen test.  In the study, the ITT test results were used as the benchmark (i.e., a negative ITT indicated absence of the disease and a positive ITT indicated presence of the disease).  Negative agreement was the proportion of subjects with a negative ITT (i.e., those who did not have GHD per the ITT) who also had a negative Macrilen 

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test.  The results showed a high level of negative agreement, demonstrating that the Macrilen test will not wrongly diagnose an individual without GHD (per the ITT) as having GHD.  Positive agreement was the proportion of subjects with a positive ITT (i.e., those who had GHD per the ITT) who also had a positive Macrilen test.  The results showed a high level of positive agreement, demonstrating that the Macrilen test will not wrongly diagnose an individual with GHD (per the ITT) as not having GHD.  The agreement measures between the two tests are defined mathematically below (see Table 2). 

Table 2: Definition of Agreement between ITT and Macrilen

 

 

Insulin Tolerance Test

Total

 

 

+

-

 

 

Macrilen

+

a

b

a+b

 

Positive Agreement (%)=100% x a/(a+c)

-

c

d

c+d

 

Negative Agreement (%)=100% x d/(b+d)

Total

a+c

b+d

a+b+c+d

 

Overall Agreement (%)=100% x (a+d)/(a+b+c+d)

 

One hundred and fifty-seven subjects underwent at least one of the two tests in this study, 59% were male, 41% female, and 86% of white origin.  The median age was 41 years (range: 18 – 66 years) and body mass index 27.5 kg/m2 (range: 16 – 40 kg/m2).  The study relied on a cross-over design and each participant was to undergo the two diagnostic tests and serve as his or her own control.  Data on both tests were available for 140 subjects; 38 (27%) in Group A, 37 (26%) in Group B, 40 (29%) in Group C, and 25 (18%) in Group D.  One out of 154 Macrilen tests (0.6%) performed failed due to a technical error and 27 out of 157 ITTs (17.2%) performed failed because induction of severe hypoglycemia (i.e., the stimulus) could not be achieved.

Two-by-two tables presenting the pre-specified primary analysis results for the ITT and Macrilen test are shown below for all subjects (Groups A, B, C, and D combined) and for each group separately (see Table 3).  The estimates for negative and positive agreement between Macrilen and the ITT in the overall study population were 94% and 74% with lower 95% confidence interval bounds 85% and 63%, respectively.  Negative and positive agreement between Macrilen and the ITT in subjects with intermediate or low risk (Groups B and C) were 93% and 61% with lower 95% confidence interval bounds 80% and 43%, respectively. These results are based on peak growth hormone values (maximum growth hormone concentrations across all measurement timepoints).

Table 3: Diagnostic Outcomes for Macrilen and the ITT in all Subjects (Groups A, B, C, and D) and in Each Group Separately

 

All Subjects

Insulin Tolerance Test

Total

 

Agreement Between

+

-

 

ITT and Macrilen

Macrilen

+

55

4

59

 

Positive

74%

-

19

62

81

 

Negative

94%

Total

74

66

140

 

Overall

84%

 

 

 

 

 

 

 

Group A 

High likelihood of AGHD

Insulin Tolerance Test

Total

 

 

+

-

 

 

Macrilen

+

33

0

33

 

Positive

89%

-

4

1

5

 

Negative

100%

Total

37

1

38

 

Overall

89%

 

 

 

 

 

 

 

 

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Group B

Intermediate likelihood of AGHD

Insulin Tolerance Test

Total

 

 

 

+

-

 

 

 

Macrilen

+

20

1

21

 

Positive

67%

-

10

6

16

 

Negative

86%

Total

30

7

37

 

Overall

70%

 

 

 

 

 

 

 

 

Group C

Low likelihood of AGHD

Insulin Tolerance Test

Total

 

 

 

+

-

 

 

 

Macrilen

+

2

2

4

 

Positive

33%

-

4

32

36

 

Negative

94%

Total

6

34

40

 

Overall

85%

 

 

 

 

 

 

 

 

Group D

Healthy control

Insulin Tolerance Test

Total

 

 

 

+

-

 

 

 

Macrilen

+

0

1

1

 

Positive

0%

-

1

23

24

 

Negative

96%

Total

1

24

25

 

Overall

92%

 

Repeatability was tested in a subset of 34 subjects who underwent two Macrilen tests.  Agreement between the result of the first test and the second test was observed in 31 cases (91.2%).

Overview of Endogenous Cushing’s Syndrome and Recorlev

Overview of Endogenous Cushing’s Syndrome

There are two variants of Cushing’s syndrome: exogenous, which is caused by factors outside the body (e.g., corticosteroid or cortisol-like medications) and endogenous, which is caused by factors within the body. The signs and symptoms may be the same in both forms. The more common form is exogenous Cushing’s syndrome, which is often found in people taking cortisol‑like medications for long periods of time or for shorter periods of time using very potent forms. Cortisol‑like medications are often used to treat inflammatory disorders such as asthma and rheumatoid arthritis. Unlike endogenous Cushing’s syndrome, exogenous Cushing’s syndrome may be alleviated by withdrawing the inciting medication.

Endogenous Cushing’s syndrome is a rare endocrine disorder characterized by sustained elevated blood cortisol. Cortisol is a hormone produced in the adrenal gland and is naturally secreted as an end-product of the activity of the hypothalamic‑pituitary‑adrenal axis. Corticotropin‑releasing‑hormone (“CRH”) is secreted from the hypothalamus and stimulates the secretion and release of adrenocorticotropin (“ACTH”) from the pituitary gland, which in turn stimulates cortisol (and other hormone) secretion from the adrenal gland. Cortisol itself exerts negative feedback control on both CRH in the hypothalamus and ACTH in the pituitary gland, thereby reducing CRH and ACTH secretion, keeping cortisol levels in a normal range.

The most common form of endogenous Cushing’s syndrome is called Cushing’s disease, which is typically caused by a benign pituitary tumor that secretes ACTH autonomously. Cushing’s disease represents approximately 70% to 80% of patients with endogenous Cushing’s syndrome. Other causes of endogenous ACTH-dependent Cushing’s syndrome include extrapituitary tumors producing ACTH, known as ectopic ACTH, or less often CRH (ectopic CRH). The source of ectopic ACTH/CRH secretion is most often small‑cell carcinoma of the lung or bronchial carcinoid tumors but neuroendocrine tumors found in many different organs can also be sources. In a smaller number of cases, approximately 20%, endogenous Cushing’s syndrome is ACTH‑independent, meaning that it does not arise through

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tumor secretion of ACTH but rather results from excess secretion of cortisol itself in the adrenal gland by adrenocortical tumors, either benign or malignant, or by non‑malignant enlargement of the adrenal glands called hyperplasia.

In patients with endogenous Cushing’s syndrome, the normal feedback mechanisms of the hypothalamic‑pituitary‑adrenal axis are disrupted as a result of a tumor autonomously secreting ACTH, CRH or cortisol. This causes chronic exposure to high circulating cortisol levels that give rise to the clinical state of Cushing’s syndrome. The most common signs and symptoms of the syndrome include: weight gain, especially in the upper body with a rounded face (“moon face”) and extra fat on the upper back and above the collarbones; high blood sugar or diabetes mellitus; high blood pressure or hypertension; thin bones or osteoporosis; muscle loss or sarcopenia; thin, fragile skin that bruises easily; purple‑red stretch marks called striae, usually over the abdomen and under the arms; depression and difficulty thinking clearly; too much facial hair, or hirsutism, usually noticed only in women; irregular or absent menstrual periods and infertility; reduced sex drive or libido; and in children, poor height growth.

An estimated 25,000 patients in the United States and 40,000 patients in Europe are diagnosed with endogenous Cushing’s syndrome. When first diagnosed, patients are most commonly adults aged 20 to 50 and five times more often women than men. However, endogenous Cushing’s syndrome is believed to be underdiagnosed due to lack of disease recognition, which often leads to a delay in diagnosis of six years on average. Endogenous Cushing’s syndrome patients are believed to have a mortality risk two to three times that of the age-and-gender-matched general population, with cardiovascular disease, venous thrombosis and infections being the primary causes of death.

Overview of Recorlev

Recorlev (levoketoconazole) is a cortisol synthesis inhibitor that we are developing for the treatment of endogenous Cushing’s syndrome, a rare endocrine disorder characterized by excessive production of the stress hormone cortisol. In endogenous Cushing’s syndrome, elevated circulating cortisol gives rise to a severe disease with variable clinical signs and symptoms, including weight gain, characteristic changes in fat distribution, diabetes mellitus, hypertension, osteoporosis, muscle loss and depression. The active pharmaceutical ingredient in Recorlev, levoketoconazole exerts its therapeutic effect by blocking the synthesis of cortisol in the adrenal glands, leading to the reduction and, ideally, the normalization of blood cortisol. Recorlev has been granted orphan drug designation by the FDA and the EMA and is being developed using a dose regimen of twice daily oral administration.

 

Ketoconazole, used off‑label in the United States, is the most frequently prescribed drug therapy for endogenous Cushing’s syndrome. It is used to reduce blood cortisol and ameliorate comorbidities associated with Cushing’s syndrome. Molecules of ketoconazole form as mirror images, referred to as enantiomers. Manufactured ketoconazole consists of two enantiomers, 2R,4S‑ketoconazole and 2S,4R‑ketoconazole, that are found in equal amounts, and is therefore referred to as a racemate. Recorlev is a pure form of one (2S,4R‑ketoconazole) of the two enantiomers of ketoconazole. Single‑enantiomer drugs, like Recorlev, may offer safety and efficacy advantages over racemates because one of the enantiomers in a racemate can have safety issues or be less effective in the treatment of the disorder or disease.  The more therapeutically favorable enantiomer may be known as the eutomer.  We believe that levoketoconazole is the eutomer of ketoconazole with respect to cortisol synthesis inhibition and treatment of endogenous Cushing’s syndrome.

Recorlev inhibits the cortisol synthesis pathway at several points. In light of the shared mechanism of action with ketoconazole and the data from Phase 2 clinical trials, which were conducted in diabetes patients without Cushing’s syndrome, we believe Recorlev may have a similar beneficial impact on the reduction of significant comorbidities of endogenous Cushing’s syndrome, including those associated with cardiovascular disease risk, such as diabetes, weight gain, hypertension and elevation in LDL-cholesterol. In addition, based on preclinical data and human pharmacokinetics, we believe that Recorlev may offer an improved safety profile relative to existing approved drug therapies for endogenous Cushing’s syndrome. Therefore, we believe that Recorlev has the potential to become a new standard of care for the chronic drug therapy of endogenous Cushing’s syndrome.

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Current Treatment Landscape and Limitations on Current Treatment Options

Treatment of endogenous Cushing’s syndrome varies depending on the cause of the disease. For patients with Cushing’s disease, initial treatment is almost always the attempted surgical removal of the pituitary tumor. In anticipation of surgery and when surgery is not effective or not feasible, drug or radiation therapy, or both, is used to suppress excessive cortisol production and the accompanying clinical symptoms.  

A typical approach to drug therapy is to inhibit cortisol synthesis through the oral administration of an inhibitor of enzymes that regulate adrenal cortisol synthesis. Ketoconazole acts in this way and is the most widely used drug therapy for endogenous Cushing’s syndrome in the United States.  Although approved in the European Union for this indication, ketoconazole is not approved for this indication by the U.S. FDA and is therefore prescribed “off-label”. The percentage of endogenous Cushing’s syndrome patients treated with ketoconazole monotherapy who achieve normalized levels of cortisol, assessed by measuring urinary free cortisol (“UFC”) has been reported from retrospective, uncontrolled studies, with varying definitions of normalization, to be between 33% and 100%. Data from a recent retrospective study of 200 patients in 14 French centers solely treated with ketoconazole for endogenous Cushing’s syndrome between 1995 and 2012 suggested that ketoconazole controlled cortisol in approximately 50% of patients and likewise improved clinical symptoms. Also, beneficial effects of oral ketoconazole on clinical symptoms and signs that drive the morbidity and mortality of endogenous Cushing’s syndrome have been reported including reduction in high blood pressure, improvement of diabetes, and normalization of hypokalemia, or low potassium blood levels. However, some patients treated with ketoconazole experience tolerability issues and, in some cases, liver injury (also known as hepatotoxicity). As a result of the hepatotoxicity risk the FDA has issued a boxed warning to prescribers concerning the use of ketoconazole to treat fungal infections, the only approved indication for ketoconazole in the United States. Although elevations in liver enzymes associated with ketoconazole are generally mild to moderate and reversible upon cessation of drug, in rare cases, severe hepatotoxicity may occur (estimated as one in every 10,000 to 15,000 patients). In extremely rare cases, ketoconazole-related liver injury may be irreversible and result in death or require liver transplantation. In July 2013, the Committee for Medical Products for Human Use (“CHMP”) recommended that ketoconazole be withdrawn for use as an antifungal agent in the European Union. The EMA adopted the CHMP recommendation in August 2013, and the recommendation was subsequently confirmed by the European Commission. In September 2014, HRA Pharma received a recommendation of approval from the EMA for ketoconazole for the treatment of endogenous Cushing’s syndrome, based on the well‑established use of ketoconazole in medical practice as well as documentation from retrospective studies in the literature.

An alternative medical approach to treating Cushing’s syndrome targets pituitary tumors that produce ACTH (i.e. in Cushing’s disease). Among Cushing’s disease patients, the dopamine agonist cabergoline, which is not approved for use to treat Cushing’s disease in the United States, has been shown to achieve normalization of UFC levels, gold-standard evidence of disease control, in about 30% of patients. The SSA pasireotide, which is marketed as Signifor® for the treatment of Cushing’s disease in the United States, has shown normalization of UFC levels with stable dosing in 15% of patients at a dosage of 600 µg twice-daily and in 26% of patients at a dosage of 900 µg twice-daily over a 6-month period. Certain SSAs, including Signifor, are known to have undesirable side effects on glucose metabolism. Forty percent of patients with Cushing’s disease treated with Signifor in its Phase 3 clinical trial reported the occurrence of hyperglycemia‑related adverse events, and in the cohort receiving Signifor 900 µg twice-daily,  glycated hemoglobin (HbA1c) increased from 5.8% at baseline to 7.3% at Month 6.

Another alternative, Korlym, or mifepristone, works by inhibiting the action of cortisol at the cortisol-receptor level but does not lower cortisol levels in the blood, which actually tend to increase during therapy. As a result of this mechanism of action, it is not possible to monitor response to Korlym by measuring UFC or cortisol levels (from blood or saliva), which are the standard ways clinicians monitor disease progression and response to treatment. As a result, Korlym is usually titrated and monitored through use of clinical signs and symptoms improvements, e.g. blood sugar reductions.  Korlym has been approved in the United States to control hyperglycemia secondary to hypercortisolism in patients with endogenous Cushing’s syndrome. Korlym is contraindicated in pregnant women and in women with a history of unexplained vaginal bleeding, as its side effects include termination of pregnancy, endometrial thickening and vaginal bleeding.

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We believe that the efficacy and usage limitations and safety concerns associated with currently available drug therapies for endogenous Cushing’s syndrome are an important reason why a significant unmet medical need exists among endogenous Cushing’s syndrome patients with persistent or recurrent disease post-surgery. In a survey we commissioned in 2014 of 89 U.S. physicians treating patients with Cushing’s syndrome, when asked, “Of your patients on medication to manage cortisol levels, what percentage are well controlled?”, the physicians estimated that only approximately 37% of such patients were well controlled. A recent multicenter study of 230 Cushing’s disease patients followed for up to 27.5 years and treated with any modality (i.e. surgery, radiation or drugs) found that only 49% had documented biochemical control. We believe that our potential addressable market for Recorlev includes diagnosed endogenous Cushing’s syndrome patients that at any time are eligible for drug therapy, a figure that represents patients anticipating surgery, for whom surgery or radiation is not feasible, is contraindicated or has been unsuccessful. This unmet need may also be impacted by what we believe to be the current lack of disease awareness among physicians and patients, resulting in a relatively low rate of diagnosis.

Our Solution—Recorlev

We believe that Recorlev has the potential to become a new standard of care for the drug therapy of endogenous Cushing’s syndrome because it may provide a favorable efficacy, safety and tolerability profile compared to current drug therapies, including ketoconazole, believed to be the most commonly used drug therapy for the treatment of endogenous Cushing’s syndrome in the United States. We believe Recorlev, based on its similar mechanism of action to that of ketoconazole, may reduce UFC and blood pressure, in contrast to Korlym, and may have an anti‑hyperglycemic effect, in contrast to Signifor. In addition, we believe Recorlev may have an improved safety profile compared with that of ketoconazole.

Recorlev, like ketoconazole, is a cortisol synthesis inhibitor that inhibits the cortisol synthesis pathway at multiple points. The following graphic illustrates the cortisol synthesis pathway:

C:\Users\jlindqu\Downloads\Untitled2.jpg

Our preclinical and pharmacokinetic data suggest that Recorlev might have an efficacy profile at least as favorable as ketoconazole and might also confer less risk of liver injury:

·

In in vitro studies, Recorlev was found to have higher potency than ketoconazole and its mirror‑image enantiomer, 2R,4S‑ketoconazole, in inhibiting the key enzymes in cortisol synthesis (CYP11B1, CYP17, and CYP 21). Thus, we believe Recorlev may have the same or improved efficacy compared to ketoconazole at lower dosages, which may in turn reduce relative drug exposure and potentially contribute to improved safety and tolerability.

·

The pharmacokinetics of the enantiomers also suggest a potentially larger therapeutic index of Recorlev relative to ketoconazole. The two enantiomers found within ketoconazole are present in equal amounts, but

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in a Phase 1 clinical study in healthy subjects, it was observed that administration of ketoconazole resulted in integrated blood concentrations (i.e., exposure) of the single enantiomer, 2S,4R‑ketoconazole (i.e., Recorlev) that exceeded those of the other enantiomer, 2R,4S‑ketoconazole, by approximately three times. This observation suggests but does not prove that 2R,4S‑ketoconazole is extracted by the liver to a greater extent than the other single enantiomer, 2S,4R‑ketoconazole (i.e., Recorlev), and may therefore contribute more than Recorlev to the observed liver toxicity of ketoconazole.

·

Compared with ketoconazole, it was observed in in vitro studies that Recorlev is less potent than the other enantiomer (i.e. its antipode, 2R,4S-ketoconazole) in inhibiting the activity of CYP7A. CYP7A is the first and rate‑limiting enzyme for production of bile acids in the liver. While a role of CYP7A in liver injury is not established, this finding suggests a possible differential effect of the ketoconazole enantiomers on metabolic and detoxifying enzymes in the liver contributing to reduced hepatotoxicity potential of Recorlev.

Previously, levoketoconazole (then called DIO-902) was studied clinically for the treatment of type 2 diabetes. DiObex, our licensee from 2004 to 2008, initiated three clinical trials to investigate the use of levoketoconazole for treatment of type 2 diabetes and two clinical studies in healthy volunteers. In the Phase 2a clinical trial of type 2 diabetes patients, levoketoconazole demonstrated a significant dose response to reduce mean blood concentration levels of C‑reactive protein (“CRP”), whereas for ketoconazole, an increase in CRP was observed.  CRP tends to increase in the presence of inflammation. Thus, we believe that Recorlev may be associated with a decrease in inflammatory processes compared to ketoconazole. In the same study, levoketoconazole was also associated with dose-related reductions in cholesterol and body weight.  Recorlev, with the same mechanism of action as ketoconazole to reduce blood cortisol, may also have beneficial effects on cardiovascular risk markers in Cushing’s syndrome including weight loss, reduction in blood sugar, lowering of cholesterol and reduction in blood pressure.  Cardiovascular disease is the leading cause of excess mortality in endogenous Cushing’s syndrome.

Clinical and Preclinical Development of Recorlev

In the United States, Recorlev is considered a new molecular entity.  Upon completion of the clinical development program, we intend to file for marketing authorizations in the United States and elsewhere.  In the United States, an NDA, which is a prerequisite to marketing authorization, can be submitted under one of a number of approval paths defined in the Federal Food, Drug, and Cosmetic Act.  Following consultations with the FDA, we determined that the 505(b)(2) approval pathway, which permits an NDA applicant to rely on data from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference, is the appropriate pathway for a Recorlev NDA.  Because a 505(b)(2) NDA approval can rely in part on data already accepted by the FDA or otherwise publicly available, an abbreviated and reduced development program may be possible.  In the case of Recorlev, we intend to rely in our NDA on published literature and FDA’s prior findings concerning the safety and/or effectiveness of ketoconazole.  A similar marketing authorization path is available in most of the rest of the world, and we anticipate that the studies supporting U.S. approval will likewise support approvals to market Recorlev elsewhere, including in the European Union. The FDA has acknowledged that no additional preclinical investigations will be required for Recorlev prior to an NDA filing. The EMA’s Committee for Medical Products for Human Use (“CHMP”), has requested a study of reproductive toxicity that may be completed prior to filing for marketing authorization in Europe, pending further discussions.

In July 2017, we completed enrollment of 94 patients in SONICS, a pivotal, multinational Phase 3 clinical trial for Recorlev investigating the safety and efficacy of Recorlev in subjects with endogenous Cushing’s syndrome. We anticipate top-line data for the primary efficacy analysis will be available in the mid-2018.    In addition, we have initiated LOGICS, a second pivotal Phase 3 study of Recorlev for the treatment of endogenous Cushing's syndrome. The LOGICS study will supplement the long-term efficacy and safety data from the ongoing SONICS study via a randomized, double-blind, placebo-controlled design that will randomize approximately 35 patients, of which up to approximately ½ will have completed the SONICS study.  Enrollment in the LOGICS study is anticipated to begin in the first quarter of 2018 and top-line data are expected in the first quarter of 2019.

If SONICS can (1) demonstrate consistent and significant clinical benefit by meeting the primary endpoint of the trial, specifically the responder rate measured as normalization of UFC levels at the 6-month time point without need

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for dose increase during the 6-month maintenance phase and (2) show consistent improvement of objectively quantifiable biomarkers of endogenous Cushing’s syndrome comorbidities, such as blood glucose, blood lipids, blood pressure or weight, and improvement of other clinical signs and symptoms of endogenous Cushing’s syndrome, we believe this would be regarded by regulators as adequate proof of efficacy in this rare disease with a high unmet medical need.  Therefore, we consider LOGICS as a mechanism for providing independent evidence of efficacy of Recorlev, rather than serving as sole or primary evidence of efficacy for Recorlev in endogenous Cushing’s syndrome.  Furthermore, if successful, LOGICS has the potential to provide adequate evidence of efficacy durability beyond one year of therapy in the subset of subjects who were previously enrolled in SONICS.  Finally, we believe that the combination of SONICS and LOGICS will provide an adequate demonstration of the long-term safety and tolerability of Recorlev in patients with endogenous Cushing’s syndrome.  In total over 100 unique subjects with this condition will have been treated with Recorlev during SONICS and LOGICS, and some subjects will be treated with a therapeutic dose of Recorlev for at least 1.5 years at the time of first NDA submission. 

In addition to LOGICS, we intend to initiate a long-term open-label extension study with Recorlev to capture even longer-term safety, tolerability and efficacy data from subjects who complete either SONICS or LOGICS and who choose to continue therapy with Recorlev.  The open-label extension, named OPTICS, is planned to begin enrollment in the second half of 2018 and will continue to accrue data indefinitely, at least until the drug is first marketed.  We expect that we might be required by the FDA and the EMA to collect additional safety data post‑approval. 

Phase 3 Clinical Trials

SONICS Phase 3 Clinical Trial

We enrolled 94 patients in our SONICS Phase 3 clinical trial in the United States, Canada, the European Union and the Middle East. This clinical trial is being conducted pursuant to a U.S. IND for Recorlev for the treatment of endogenous Cushing’s syndrome that took effect in May 2013. We plan to collect safety and efficacy data over a treatment period of at least one year for all enrolled patients who complete the trial. If we are able to confirm a favorable safety profile of Recorlev in clinical use, we plan to discuss differentiated safety and tolerability labeling from ketoconazole with regulatory authorities.

Following a screening phase, SONICS has three distinct treatment phases. During the dose titration phase, patients start at 150 mg twice daily dosing (300 mg total daily dose) and titrate in 150 mg increments up to a maximum 600 mg twice daily dosing (1,200 mg total daily dose). Following the dose titration phase, once the therapeutic dose has been reached, patients enter the maintenance phase, during which the dose is fixed and cannot be changed other than for safety reasons, including loss of efficacy. At the end of the six-month maintenance phase, UFC levels are measured and the UFC responder rate, which is the primary endpoint of the clinical trial, is determined. Patients who have completed the maintenance phase may enter the extended evaluation phase, which we expect will provide additional safety and efficacy data. Throughout the entire clinical trial, various measurements for safety and efficacy are taken.

·

The primary endpoint of the clinical trial is the proportion of subjects with UFC response to Recorlev, defined as a reduction in mean 24‑hour UFC levels to levels that are equal to or less than the upper level of normal range following six months of treatment in the maintenance phase without a dose increase (during the maintenance phase).

·

Key secondary endpoints include the number of patients with at least a 50% decrease in UFC levels, as well as changes in blood sugar, blood pressure, cholesterol and weight compared to baseline, and effects on clinical signs and symptoms of endogenous Cushing’s syndrome, quality of life measures obtained from the endogenous Cushing’s syndrome quality of life questionnaire and the severity of depression obtained from the Beck’s Depression Inventory II.

·

The clinical trial is also designed to investigate the pharmacokinetics of Recorlev in patients with endogenous Cushing’s syndrome.

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Below is a diagram of the SONICS clinical trial design:

 

Picture 2

 

Several elements of the SONICS clinical trial design were informed by the clinical development pathway of currently approved drug therapies in the United States and the European Union. Additionally, we incorporated advice from the CHMP and FDA into the design of the clinical trial. The FDA recommended use of a concurrent control group in SONICS. However, SONICS utilizes an open‑label, single‑arm design because use of a placebo control in a parallel-arm monotherapy design was considered unethical or infeasible to enroll, depending on the specific country or clinical trial site under consideration.  Studies lacking a concurrent control group are more likely to be subject to unanticipated variability in study results that can potentially lead to flawed conclusions because they do not allow for discrimination of patient outcomes. As a result, even if we achieve the clinical trial’s endpoints, the FDA or other regulatory authorities could view our study results as potentially biased.  We have attempted to control for bias introduction in SONICS via the use of strict evidence of active disease at baseline based on objective measures, an objectively measured primary endpoint with repeated longitudinal assessments and implementation of a strict data restriction plan that severely limits exposure to efficacy data at the Sponsor.

LOGICS Phase 3 Clinical Trial 

Rather than alter the design of SONICS to facilitate regulatory authority requests for a concurrent control group with which to compare the efficacy and safety of Recorlev, we initiated LOGICS, a second Phase 3 pivotal study.  LOGICS will include a concurrent comparison of Recorlev to matching placebo using a randomized, double-blind withdrawal design that we believe will be both feasible to enroll and ethical to conduct everywhere that SONICS is being conducted.  LOGICS will randomize approximately 35 subjects, of which up to approximately one-half will have previously completed the SONICS study.

Following a screening phase, LOGICS has three distinct treatment phases for patients who did not participate in SONICS and two distinct phases for most of those who did participate in SONICS. The first phase, which is only intended for patients new to levoketoconazole or for those who require re-establishment of a therapeutic dose, is dose titration and maintenance.  During the dose titration and maintenance phase, patients start at 150 mg twice daily dosing (300 mg total daily dose) and titrate in 150 mg increments up to a maximum 600 mg twice daily dosing (1,200 mg total daily dose) and remain at their individualized therapeutic dose.  The total duration of this phase is approximately 14 weeks.  SONICS-completers who are currently receiving a stable therapeutic dose skip dose titration and maintenance and proceed directly to the second phase, where they are joined by those who progressed through the first phase. The second phase is randomized-withdrawal, during which patients are randomly assigned to either continue active treatment with levoketoconazole or be switched to a matching placebo using the same tablet number.  The primary efficacy endpoint comes at the end of the randomized-withdrawal period, which lasts no more than 9.5 weeks for each patient

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(and may end sooner if a “rescue” is needed).  The primary endpoint is the proportion of patients with a loss of established UFC response in the placebo group compared with the proportion in the levoketoconazole group.  The final phase of LOGICS is the restoration phase, during which all patients once again receive active therapy; however, in order to conceal the therapy in the randomized-withdrawal phase, it was necessary to blind the therapy during recovery using twice the number of tablets (one active and one placebo).  Throughout the entire clinical trial, various measurements for safety and efficacy are taken.

Below is a diagram of the LOGICS clinical trial design:

Picture 7

 

Clinical Trials in Type 2 Diabetes

Historically, levoketoconazole (then called DIO-902) was studied as a treatment for type 2 diabetes. An IND was filed in 2005 for investigation of the use of levoketoconazole in diabetes. DiObex, our licensee at the time, initiated three clinical trials to investigate the use of levoketoconazole for type 2 diabetes and two studies in healthy volunteers. A total of 159 subjects received at least one dose of levoketoconazole in these clinical trials, including 41 healthy subjects during Phase 1 clinical trials, and 118 patients with type 2 diabetes during Phase 2 clinical trials. Doses of levoketoconazole were administered over the range of 200 mg to 600 mg once a day, or QD, and 400 mg twice a day, or BID, for a single patient for up to 14 days, and 150 mg to 450 mg QD for up to four months.

The pharmacokinetics of levoketoconazole were studied in patients with type 2 diabetes and in normal volunteers in whom the effects of levoketoconazole on the pharmacokinetics of felodipine, a drug used to treat high blood pressure, and atorvastatin (Lipitor), a drug used to lower cholesterol, were evaluated. These drugs were chosen specifically as probes for interaction, because they were intended to be frequently used concomitantly during treatment of type 2 diabetes. In the completed Phase 2a clinical trial, dose dependent reductions from baseline in cholesterol levels contained in lipoproteins, in the form of low‑density lipoprotein-cholesterol (“LDL-chol”), and cholesterol incorporated into high‑density lipoprotein (“HDL-chol”), as well as total cholesterol were observed, but no differences in measures of glycemic control relative to placebo were detected. A Phase 2b randomized, double-blind, placebo-controlled, study in diabetes (DIO-502) was initiated to test doses of levoketoconazole up to 450 mg daily plus metformin as compared with atorvastatin 10 mg plus metformin in combination or placebo. Additionally, an open-label extension study (DIO-503) was started in parallel.  However, in 2008, in light of negative safety reports for other diabetes treatments such as Avandia, DiObex made the decision to voluntarily terminate the development of levoketoconazole for the treatment of diabetes due to the perceived high regulatory and commercial hurdles for its approval and use in type 2 diabetes and considering the emerging efficacy and safety profile of levoketoconazole in type 2 diabetes (as described below).

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Thereafter, the IND was closed and DiObex terminated the two ongoing Phase 2 clinical trials. DiObex conducted the following five clinical trials with Recorlev in type 2 diabetes pursuant to an IND filed by them in November 2005:

 

 

 

 

 

 

 

 

 

 

 

Clinical Trial Number

    

Clinical Trial Description

    

Subjects
Enrolled

    

Year and
Status

    

Location

    

Dose

DIO‑501

 

Phase 1/2a, Trial of Levoketoconazole or Placebo in Patients with Type 2 Diabetes Mellitus

 

37

 

2006/2007
Completed. Study report issued.

 

United States

 

200‑600 mg QD; 400 mg BID

DIO‑502

 

Phase 2b Trial of Levoketoconazole or Placebo in Addition to Metformin and Atorvastatin or Atorvastatin Placebo for Type 2 Diabetes Mellitus

 

133

 

2007/2008
Terminated early. Study report issued.

 

United States, Australia, New Zealand

 

150‑450 mg QD

DIO‑503

 

Phase 2 Open‑Label Trial and Pharmacodynamic for 24‑Week Study with Levoketoconazole in Combination with Metformin and Atorvastatin in Patients with Type 2 Diabetes Mellitus

 

13

 

2007/2008
Terminated early. Study report issued.

 

United States, Australia, New Zealand

 

150‑450 mg QD

AA34509

 

Phase 1 Pharmacokinetic Drug Interaction Trial of Levoketoconazole with Felodipine in Healthy Adult Volunteers Under Fasting Conditions

 

18

 

2006/2007
Completed. Study report issued.

 

United States

 

400 mg QD

AA34510

 

Phase 1 Pharmacokinetic Drug Interaction Trial of Levoketoconazole and Ketoconazole with Atorvastatin in Healthy Adult Volunteers Under Fasting Conditions

 

24

 

2006/2007
Completed. Study report issued.

 

United States

 

400 mg QD

 

Phase 2 Clinical Trials

DIO‑501 Clinical Trial

The DIO-501 clinical trial was a double‑blind, placebo‑controlled, parallel‑group clinical trial conducted in patients aged 18 to 70 with a diagnosis of type 2 diabetes. A total of 35 patients were treated: 21 with levoketoconazole (10 at 200 mg QD, six at 400 mg QD, four at 600 mg QD and one at 400 mg BID); eight with ketoconazole (400 mg QD); and six with placebo. Trial drugs were administered for 14 days.

In this clinical trial, the mean 12‑hour plasma cortisol area under the concentration‑time curve (“AUC”), levels were modestly reduced in the levoketoconazole treatment groups at day 15 compared to baseline, which is consistent with the known mechanism of action of levoketoconazole. However, counter‑regulation in diabetic patients with a normal hypothalamic pituitary adrenal axis may have limited the observed cortisol suppression. A small, nonsignificant effect on glycated hemoglobin (HbA1c), and fasting glucose levels was observed. Consistent with the known inhibitory effect of ketoconazole on cholesterol synthesis, total cholesterol, LDL-chol, and to a lesser extent HDL-chol levels, but not triglycerides, were significantly decreased in a dose‑dependent manner by levoketoconazole. The mean change from baseline in total cholesterol, LDL-chol and HDL-chol at a dose of 400 mg QD was similar to those observed in 400 mg QD ketoconazole and higher in the 600 mg QD levoketoconazole group. Also, for the levoketoconazole treatment groups, there was a statistically significant dose response in the reduction in mean levels of CRP on day 15 compared with baseline, with a p-value of 0.027. In contrast, mean levels of CRP increased in the ketoconazole‑treated group and less so in the placebo group. CRP is an indicator of systemic inflammation, including vascular inflammation. The reduction in cholesterol and CRP observed in patients with type 2 diabetes may indicate a potential beneficial effect of levoketoconazole on cardiovascular risk factors. Notably, patients with endogenous Cushing’s syndrome tend to have elevated circulating CRP.

Plasma AUC and maximum concentration in blood (“Cmax”), increased in a non‑proportional manner over the dose range of 200 mg to 400 mg on days one and 14. Clearance values were similar for the 200 mg and 400 mg doses of levoketoconazole, but significantly decreased at the 600 mg levoketoconazole dose, on days one and 14.

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Levoketoconazole was generally well‑tolerated. Headache and nausea were the most frequently reported adverse events, some of which were considered drug‑related. There were no serious adverse events, and no clinically meaningful changes in hematology, blood chemistry and urinalysis were noted in any treatment group. No treatment‑related changes in liver function tests (“LFTs”), were detected.

DIO‑502 and DIO‑503 Clinical Trials

The DIO-502 clinical trial was a four‑month, double‑blind, randomized, placebo‑controlled, dose‑ranging study of levoketoconazole with concomitant with metformin and atorvastatin (or atorvastatin placebo) that enrolled 133 of a planned 200 patients with type 2 diabetes, consisting of males and females between the ages of 18 and 70. Enrolled subjects were already receiving metformin treatment with a minimum daily dose of 500 mg and had a glycated hemoglobin (HbA1c) level of 7% to 10%. Additionally, all patients were treated with 10 mg atorvastatin or its placebo to evaluate the effect of levoketoconazole on lipid profiles given cholesterol‑lowering drugs. Thus, patients were randomized into eight separate arms in the clinical trial: placebo or levoketoconazole at 150 mg; 300 mg; and 450 mg with either atorvastatin 10 mg or atorvastatin placebo; all received metformin concomitantly.

The DIO-503 clinical trial was an open‑label, extension to DIO‑502 to evaluate safety, tolerability and pharmacodynamics after 24 weeks of dosing with levoketoconazole in combination with metformin, with and without atorvastatin in subjects with type 2 diabetes.

DiObex terminated these clinical trials prior to their planned completion milestones. At the time of trial termination, a total of 133 patients were enrolled in the DIO‑502 and DIO‑503 trials, and 129 patients in total had been treated with a study drug, of which 97 patients received at least one dose of levoketoconazole. The investigators subsequently elected to defer efficacy and pharmacokinetics inferences based on incomplete datasets. The frequency of adverse events reported was generally similar across treatment arms. Diarrhea was the most frequently reported adverse event overall with administration of levoketoconazole. No serious adverse events were reported in the terminated studies.

A safety signal of elevated liver enzymes sufficiently abnormal to be classified as potentially clinically significant was identified in 10 (7.7%) of the 129 treated patients in the DIO‑502 and DIO‑503 trials combined. With respect to levoketoconazole treatment, in one of the ten, the LFT abnormality was first noted during placebo treatment, whereas in the other nine, the abnormality was first noted during active treatment. No case of Hy’s law (i.e., an increase of liver transaminases at or above three times the upper level of normal values; increase in total bilirubin at or above two times the upper level of the normal value; no or little sign of cholestasis; and absence of other reasons for liver injury, such as viral hepatitis) was observed. An observation of Hy’s Law would have indicated a high risk of potentially serious drug-related hepatotoxicity.  Three of the treated patients were withdrawn from the clinical trials as required in the safety monitoring plan. In these three patients, LFT levels returned to normal after study drug was discontinued. In addition, three other patients had modest elevations in LFT levels. While these levels did not require termination by the trial protocol, the investigators elected to terminate these patients from the clinical trial. LFTs in these patients also returned to normal after the study drug was discontinued. Four additional patients required close monitoring per the protocol, and had resolution of their LFT abnormalities while on the study drug. The first case of elevated liver enzymes occurred in a patient who admitted to excessive alcohol consumption. The remaining cases developed over the following three months. An independent external safety review committee recommended continuation of the studies with no modifications.

Due to the design of these clinical trials, the independent data safety monitoring board for the trials stated that it was impossible to interpret which of the two drugs, levoketoconazole or atorvastatin, was primarily associated with the side effect profile observed (i.e. LFT abnormalities) in these trials. A more detailed analysis of the liver transaminase elevations in this clinical trial by an expert panel showed that there was no correlation between the dose of levoketoconazole and abnormal liver transaminases.

Phase 1 Clinical Trials

AA34509 Clinical Trial

The AA34509 clinical trial was designed primarily to evaluate the effect of levoketoconazole on the pharmacokinetics of concurrently administered felodipine. Healthy volunteers were administered 400 mg of

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levoketoconazole or placebo QD for eight days. On the fifth day of the trial, subjects received a single 5 mg dose of felodipine. Beginning on day five, pharmacokinetics of levoketoconazole were monitored for 24 hours, and pharmacokinetics of felodipine were monitored for 72 hours. The trial was a cross‑over trial involving 18 subjects, 16 of whom completed the trial.

AA34510 Clinical Trial

This clinical trial was designed primarily to evaluate the effect of concomitant administration of levoketoconazole or ketoconazole on the pharmacokinetics of atorvastatin. Healthy volunteers were administered 400 mg of levoketoconazole, 400 mg of ketoconazole or placebo daily for seven days. On day five, all subjects received a single 80 mg dose of atorvastatin. After administration of the racemate, ketoconazole, pharmacokinetics of the two single enantiomers 2R,4S‑ketoconazole and 2S,4R‑ketoconazole, were evaluated for 24 hours on day five using a chiral bioanalytical method, to distinguish the enantiomers in plasma (blood). Pharmacokinetics of atorvastatin were evaluated for 60 hours starting at the time of administration on day five. The trial was a cross‑over trial involving 24 subjects, all of whom completed the clinical trial.

Key Findings from the Clinical Trials of Recorlev (levoketoconazole)

Phase 2 Efficacy and Safety Trials in Diabetic Patients:

·

AUC and Cmax values were approximately 50% higher with levoketoconazole in comparison with ketoconazole at the same dose of 400 mg. All pharmacokinetic parameters were highly variable, in the sense that they differed within and among subjects.

·

Following administration of ketoconazole, plasma levels (AUC or Cmax) of levoketoconazole (2S,4R-ketoconazole) were approximately three times those of the other enantiomer, 2R,4S‑ketoconazole. Possible explanations could be reduced absorption of 2R,4S-ketoconazole or decreased uptake and metabolism of levoketoconazole in the liver compared to the other enantiomer.

·

Levoketoconazole produced a decrease in some lipid measures, or blood fat, including reduced total cholesterol, LDL-chol and HDL-chol.

·

A significant dose‑related effect of levoketoconazole for reduction of CRP was observed.

·

Trends for reductions in serum cortisol, measured as AUC (0-12 hours), were found after 14 days of treatment with levoketoconazole in diabetic patients.

·

In the DIO‑501 clinical trial, headache and nausea were the most frequently reported adverse events. No treatment related changes in LFTs were detected. In the DIO‑502/503 clinical trials, diarrhea was the most frequently reported adverse event.

·

LFTs were elevated in the DIO‑502/503 clinical trials in 10 out of the 129 patients treated with either the combination of levoketoconazole and atorvastatin or levoketoconazole alone, in each case co‑administered with metformin. The independent data safety monitoring board for the trial stated that it was impossible to interpret which of drugs was primarily associated with the side effect profile observed in the trial.

Phase 1 Drug Interaction Clinical Trials in Normal Volunteers:

·

The AUC and the Cmax of felodipine were 10‑fold higher when taken with levoketoconazole compared with felodipine alone.

·

The AUC of atorvastatin was increased by 50% when administered with levoketoconazole compared with atorvastatin alone.

·

A small, but statistically significant decrease of serum cortisol (AUC zero to six hours) was found for levoketoconazole compared with placebo and ketoconazole.

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·

Headache, nausea, dizziness and back pain were reported as the most frequent adverse events across the two studies.

·

In the drug interaction study with atorvastatin, two subjects had elevated LFT values. The subjects had received levoketoconazole plus atorvastatin or ketoconazole plus atorvastatin in the immediately previous study periods in this cross‑over study.

Veldoreotide Modified-Release —a Novel Somatostatin Analogue

Overview

In June 2015, we acquired veldoreotide, a novel multi‑receptor targeted SSA that was previously in Phase 2 development as an immediate-release formulation and has the potential to provide a new and differentiated treatment option for patients with acromegaly and potential additional applications in other conditions amenable to somatostatin receptor activation. We acquired veldoreotide as part of our strategy to build our rare endocrine franchise. At the time of acquisition, veldoreotide was in Phase 2 clinical development as a treatment for acromegaly in its original, immediate-release formulation.  Acromegaly is a rare endocrine disorder that most commonly results from a benign tumor of the pituitary gland, leading to excess production of growth hormone and IGF‑1. The treatment goal is the normalization of growth hormone and IGF‑1, which is the main cause of the detrimental clinical signs and symptoms of acromegaly.

SSAs are peptides that are administered as deep subcutaneous or intramuscular injections, typically as long-acting formulations for monthly injections.  They are the most commonly used drug therapy for the treatment of acromegaly and work by binding to specific subtypes of SSTRs that are expressed by the tumor. Binding of SSAs to these SSTRs leads to the beneficial inhibition of growth hormone secretion but can also result in the unwanted inhibition of secretion of other endocrine hormones such as insulin and glucagon in the pancreas and elsewhere. Like other SSAs, veldoreotide is a peptide that we are developing for subcutaneous injection. In contrast to approved SSAs, veldoreotide activates a different subset of SSTRs. Like pasireotide, it activates SSTR2 and SSTR5. However, in contrast to pasireotide, it possesses a similar affinity for SSTR2 than SSTR5. Veldoreotide is also the only SSA with a high affinity for SSTR4. Veldoreotide does not bind to SSTR3 or the opiate receptor at pharmacological concentrations. Although the functional consequences of the binding of SSAs to the opiate receptor are not fully understood, it has been suggested as a mechanism contributing to inhibition of insulin secretion by SSAs and may also influence their effect on gastrointestinal motility. In vitro data suggest that a higher number of adenomas are a target for growth hormone inhibition by veldoreotide as compared to octreotide, which is referred to as a single receptor targeted SSA that binds and activates predominantly via SSTR2, potentially resulting in an increased responder rate. Preclinical data from animal studies, and clinical data in healthy subjects and patients with acromegaly, showed that insulin secretion was less inhibited, potentially resulting in reduced side effects on blood glucose and an improved safety and tolerability profile. Preclinical data further suggest a reduced effect on gallbladder motility, or flow from the gallbladder.

Based on the differentiated activation pattern of immediate-release veldoreotide upon binding to SSTR subtypes and preclinical and clinical data, we believe that modified-release veldoreotide may offer an improved efficacy and safety profile relative to existing drug therapies for acromegaly and other conditions that are modifiable through activation of somatostatin receptors. In the five clinical studies of immediate-release veldoreotide completed to date outside the United States in healthy subjects and patients with acromegaly, a beneficial reduction of growth hormone was observed, and, when compared with immediate-release subcutaneous octreotide, there was less blunting of insulin in response to a mixed meal or oral glucose load. Veldoreotide has been granted orphan drug designation for the treatment of acromegaly by the FDA and the EMA.

We have completed the screening of potential modified-release technologies for veldoreotide and have selected a formulation based upon PLGA microspheres. PLGA is a well-known polymer, which has been widely applied in modified-release formulations due to its biocompatibility, biodegradability, and favorable release kinetics. We are in the process of securing intellectual property protection for the lead formulation, which could, if granted by the relevant patent authorities, extend the period of marketing exclusivity for the finished drug product. We expect to initiate a series of pre-clinical studies that seek to determine additional differentiating features of veldoreotide in both endocrine and non-endocrine conditions. Therefore, depending on the results of these studies, we may elect to pursue a development

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pathway for veldoreotide modified-release that includes a therapeutic use outside of endocrinology.  Regardless of indication(s) to be pursued, further development will require preclinical safety (toxicology) studies as well as manufacturing scale-up before the newly formulated product can enter clinical testing.  We anticipate that preclinical studies, once begun, will take at least 18 months to complete.

Completed Clinical Trials

Five clinical trials of veldoreotide have been performed to date: three in healthy male volunteers and two in patients with acromegaly, all of which employed an immediate release, short‑acting formulation injected subcutaneously. At the time, the clinical trials described below were conducted, veldoreotide was named DG3173. These trials were conducted by Aspireo Pharmaceuticals Ltd., other than DG3173‑I‑001, which was conducted by Develogen AG.

In four clinical trials with single subcutaneous injections or infusion and in one six‑day clinical trial, all of which were conducted with an immediate release formulation of veldoreotide in healthy subjects or patients with acromegaly, veldoreotide was observed to have a tolerability profile comparable to that of octreotide. However, unlike octreotide, subjects treated with veldoreotide were observed to have less or no reduction in peak insulin secretion after a meal. We believe these preliminary clinical findings corroborate the profile of veldoreotide observed in preclinical studies, which suggested inhibition of growth hormone secretion without detrimental effects on post‑meal insulin or glucose metabolism. These studies were too short to assess the effect on flow from the gallbladder. These preliminary findings contrast favorably with the well‑described insulin and glucose perturbations caused by octreotide, lanreotide and pasireotide, and we intend to conduct additional clinical trials to evaluate the clinical profile of veldoreotide and its differentiation from existing SSAs. With the potentially superior efficacy, safety and tolerability profile suggested by preclinical studies and early clinical trials, we believe veldoreotide has the potential to become the standard‑of‑care SSA, with distinct therapeutic advantages relative to currently approved SSAs as treatment of acromegaly.

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The following table summarizes these trials.

 

 

 

 

 

 

 

 

 

 

 

Clinical Trial
Number

    

Clinical Trial Descriptions

    

Subjects
Enrolled

    

Year and Status

    

Location

    

Dose

DG3173‑II‑02

 

Phase 2 The Effect of Subcutaneous Infusion of Three Doses of Veldoreotide on Growth Hormone Levels in Untreated Acromegaly Patients

 

8

 

2013/2014 Completed. Bioanalytical report issued.

 

Ukraine

 

920‑5520 µg continuous infusion over 23 hours

DG3173‑II‑01

 

Phase 2 Trial of the Effect of Veldoreotide and 300 µg Octreotide on Human Growth Hormone Levels in Untreated Acromegaly Patients

 

20

 

2012 Completed. Study report issued.

 

Ukraine

 

300‑1800 µg QD

DG3173‑I‑003

 

Phase 1 Placebo‑Controlled, Phase 1 Trial to Assess the Pharmacodynamics Effect on Glucose Metabolism of Single Doses Compared to Veldoreotide Octreotide and Placebo in Healthy Male Subjects

 

8

 

2013 Completed. Study report issued.

 

Switzerland

 

300‑1800 µg QD

DG3173‑I‑002

 

Phase 1 Trial to Compare the Safety and Pharmacologic Activity of Repeated Doses of Veldoreotide and Veldoreotide Plus Octreotide with Octreotide and Placebo and Establish Their Pharmacokinetic Interaction in Healthy Male Subjects

 

42

 

2012/2013 Completed. Study report issued.

 

Switzerland

 

100‑1800 µg TID

DG3173‑I‑001

 

Phase 1 Double‑Blind Trial to Investigate Safety, Tolerability and Pharmacokinetics of Single Escalating Dosing of Veldoreotide in Healthy Male Subjects

 

72

 

2008 Completed. Study report issued.

 

Germany

 

10‑2000 µg QD

 

The clinical trials involved 122 healthy subjects in the Phase 1 trials and 28 patients with acromegaly in the Phase 2 clinical trials. No serious adverse events were observed, and mostly mild adverse events typical for SSAs such as injection site reactions and gastrointestinal side effects were reported. There was no evidence that veldoreotide adversely affects the liver, kidneys or other organ systems, including the cardiovascular system. Data from the multiple ascending dose clinical trial in healthy subjects (Study I‑002) showed inhibition of growth hormone comparable to octreotide, but no or less inhibition of insulin secretion and less effect on glucose levels. The single ascending dose trial in patients with acromegaly (Study II‑01) and the continuous infusion study in patients with acromegaly (Study II‑02) confirmed that veldoreotide also suppresses excessively produced growth hormone to a similar maximal extent as octreotide.

Commercialization Strategy

Our existing commercial infrastructure is limited and is focused on Keveyis.  After acquiring the U.S. marketing rights for Keveyis in December 2016, we established sales, marketing, market access and patient service

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capabilities. We believe, based on our market research, that there are approximately 4,000 to 5,000 patients in the United States diagnosed with PPP and we believe that we can address the market by targeting physicians who are managing patients with PPP, including neuromuscular specialists, general neurologists and primary care physicians.

With the recent acquisition of Macrilen in January 2018, we are in the process of expanding our commercial infrastructure to support the planned product launch in mid-2018.  We plan to build-out a separate and dedicated sales and marketing team to support the launch and ongoing commercialization of Macrilen.  Further, we plan to leverage our current commercial operations infrastructure to support Macrilen.  Based on our current market research, we believe there are approximately 50,000 adult growth hormone deficiency tests conducted per year. We plan to focus our launch activity on targeted pituitary centers and select community-based endocrinologists. 

Given the current stage of product development of our product candidates, we do not have a commercialization infrastructure for those product candidates, although we do plan to leverage our current commercial infrastructure when possible. As with Keveyis and Macrilen, we intend to independently commercialize our rare disease‑focused product candidates, if approved, in the United States, the European Union and other key global markets. We believe that we can address the markets of our current product candidates by targeting endocrinologists that are focused on the diagnosis and treatment of rare pituitary disorders primarily stemming from benign tumors. Given the relatively concentrated specialty prescriber base, we plan to create a sales force of approximately 30 representatives in the United States as well in the European Union to market our endocrine product candidates, if approved. In building our sales force, we intend to recruit representatives with experience calling on endocrinologists and marketing orphan drug designated products.

Our commercial strategy for our product candidates, if approved, will encompass promoting their unique benefits, as well as a concerted effort to raise awareness about the underlying disease among the physician/patient community with the goal of increasing the rate of diagnosis when the symptoms may otherwise be overlooked. We believe the combination of our commercial efforts and our product candidate profiles will facilitate our ability to successfully penetrate our target markets.

Manufacturing

We do not have internal manufacturing capabilities and intend to continue to rely on third parties to produce Keveyis, Macrilen and our product candidates.

We have a supply agreement with Taro to produce Keveyis. We are obligated to purchase certain annual minimum amounts of product totaling approximately $29 million over a six-year period from Taro. The supply agreement may extend beyond the orphan exclusivity period unless terminated by either party pursuant to the terms of the agreement. If terminated by Taro at the conclusion of the orphan exclusivity period, we have the right to manufacture the product on our own or have the product manufactured by a third party on our behalf.

We have an interim supply agreement with Aeterna Zentaris GmbH to purchase Macrilen materials (including drug substance, drug product, and finished goods) until such time that we can negotiate supply agreements directly with the third parties that manufacture these materials.  We are obligated to purchase certain amounts of these Macrilen materials totaling approximately $1.26 million over a nine-month period from Aeterna Zentaris GmbH.

The manufacturing, packaging and distribution of Recorlev drug product for clinical trials following Good Manufacturing Practices (“GMPs”), is currently outsourced under contracts to experienced contract manufacturers. We expect to enter into similar arrangements for veldoreotide.

Intellectual Property of our Products and Product Candidates in Development

We actively seek to protect the intellectual property and proprietary technology that we believe is important to our business, including seeking, maintaining, enforcing and defending patent rights for our product candidates and methods of treatment, whether developed internally or licensed from third parties. Our success will depend on our ability to obtain and maintain patent and other protection including data or market exclusivity for our product candidates and methods of treatment, preserve the confidentiality of any know‑how and operate without infringing the valid and enforceable patents and proprietary rights of third parties.

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Our policy is to seek to protect our proprietary position generally by filing patent applications initially at the USPTO. After this initial phase, patent applications claiming priority to the initial application are filed in various countries, including the United States, Europe and Canada. In each case, we determine the strategy and territories required after discussion with our patent professionals with the goal of obtaining relevant coverage in territories that are commercially important to us and our product candidates. We will additionally rely on data exclusivity and patent term extensions when available, including the relevant exclusivity through orphan drug designation. We also rely on trade secrets and know‑how relating to our underlying product technologies. Prior to making any decision on filing any patent application, we consider with our patent professionals whether patent protection is the most sensible strategy for protecting the invention concerned or whether the invention should be maintained as confidential.

We own or license 53 granted patents, of which three are U.S. issued patents, and 7 pending patent applications, of which 6 are U.S. patent applications and one allowed U.S. patent application.

We have ten trademark registrations for Strongbridge Biopharma in the United States, Australia, Brazil, China, Europe, Israel, India, Japan, Mexico, and Turkey and one pending trademark application for Strongbridge Biopharma in Canada.   We have five trademark registrations for Corynthia in Australia, China, Europe, Japan, Turkey and five pending trademark applications for Corynthia in the United States, Brazil, Canada, Israel and India.  We have seven trademark registrations for Corynthia in Australia, China, Europe, India, Japan, Mexico and Turkey and four pending trademark applications for Recorlev in the United States, Brazil, Canada and Israel.  We have one trademark registration for Normocort in Europe.

Keveyis

We acquired U.S. marketing rights to Keveyis in late 2016.  We are not aware of any issued patents or pending patent applications related to Keveyis. Although we intend to rely primarily on orphan exclusivity for Keveyis, we also expect to explore additional life cycle management opportunities.

Macrilen

In January 2018, we acquired the U.S. and Canadian rights to manufacture and commercialize Macrilen. We also obtained a license to three U.S. patents, one Canadian patent and one U.S. patent application, as well as to the Macrilen trademark.  The Canadian patent expires in 2021 and two of the U.S. patents expire in 2022.  The third U.S. patent expires in 2027.      

Recorlev

We own 43 issued patents related to our product candidate, Recorlev. Issued claims in these patents are directed to methods of treatment of various diseases or conditions associated with elevated cortisol levels or activity using Recorlev.  The patents have been granted in major territories including Europe, China and Japan and expire in 2026 and 2027. We have five pending U.S. patent applications and one allowed U.S. patent application directed to methods of treating a disease or condition associated with elevated cortisol levels or activity, including Cushing’s syndrome, with Recorlev. The patent to issue from the allowed U.S. patent application will expire in 2026.  We also have an issued patent in the United States directed to reducing C-reactive protein levels and systemic inflammation through administration of a once-daily dose of Recorlev that expires in 2030.

Veldoreotide

While we own granted patents related to our product candidate veldoreotide in the United States and other major territories, including Europe and Canada, the terms of these patents may not extend beyond the launch date of this product candidate. We have also filed a PCT and U.S. application directed to various methods and formulations of veldoreotide. To the extent we are not able to obtain further patent exclusivity as a result of the PCT application or other future patent filings, we intend to rely on orphan and data/marketing exclusivity for veldoreotide.

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Laws and Regulations Regarding Patent Terms

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non‑provisional application. In the United States, a patent term may be shortened if a patent is terminally disclaimed over another patent or as a result of delays in a patent prosecution by the patentee. A patent’s term may be lengthened by a patent term adjustment, which compensates a patentee for administrative delays by the USPTO in granting a patent. The patent term of a European patent is 20 years from its effective filing date, which, unlike in the United States, is not subject to patent term adjustments in the same way as U.S. patents.

The term of a patent that covers a FDA‑approved drug or biologic may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch‑Waxman Act”) permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug or biologic is under regulatory review. Patent extensions cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug, for example Supplementary Protection Certificates. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We anticipate that some of our issued patents may be eligible for patent term extensions but such extensions may not be available and therefore our commercial monopoly may be restricted.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our scientific knowledge, technology, and development experience provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing products and new products that may become available in the future. Many of our competitors, alone or with their strategic partners, have greater experience than we do in conducting preclinical studies and clinical trials, and obtaining FDA, EMA and other regulatory approvals, and have substantially greater financial, technical and other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations. As a result, these companies may obtain regulatory approval for competing products more rapidly than we are able and may be more effective in selling and marketing their products. Companies that complete clinical trials, obtain required regulatory authority approvals and commence commercial sale of their drugs before their competitors may achieve a significant competitive advantage, and our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Drugs resulting from our research and development efforts or from our joint efforts with collaboration partners therefore may not be commercially competitive with our competitors’ existing products or products under development.

We are aware of several companies focused on developing or marketing therapies for rare neuromuscular and endocrine disorders. For our product candidates, the main competitors include:

·

Keveyis: Acetazolamide, another oral carbonic anhydrase inhibitor, is used frequently off-label for the prophylactic and sometimes acute treatment of PPP.    Potassium supplements, are indicated for use in hypokalemic periodic paralysis in the United States and are frequently used either chronically or for emergency treatment of episodes in that form of PPP. Several other types of drugs have been reported to have benefits for chronic or acute use in one or more than one PPP variant, including potassium-sparing diuretics, beta receptor agonists, mexelitine and other sodium channel blockers, and others.  We are not aware of drugs currently in development for prophylactic chronic treatment of PPP. A Phase 2 clinical study of bumetanide, a loop diuretic, is underway in England for acute treatment of paralytic attacks.

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·

Macrilen: Measurement of blood levels of IGF-1, which is typically used as the first test when GHD is suspected. However, this test is not used to definitively diagnose GHD because many GHD patients show normal IGF-1 levels.

 

From a diagnostic performance perspective, the Insulin Tolerance Test (ITT) has historically been considered the reference standard for the evaluation of AGHD because of its high sensitivity and specificity. However, the ITT is inconvenient to both patients and physicians, administered intravenously (IV), and contra-indicated in certain patients, such as patients with coronary heart disease or seizure disorder, because it requires the patient to experience hypoglycemia to obtain a result. Some physicians will not induce full hypoglycemia, intentionally compromising accuracy to increase safety and comfort for the patient. Furthermore, administration of the ITT includes additional costs associated with the patient being closely monitored by a physician for the two- to four-hour duration of the test, and the test must be administered in a setting where emergency equipment is available and where the patient may be quickly hospitalized. The ITT is not used for patients with co-morbidities, such as cardiovascular disease, seizure disorder or a history of brain cancer or for patients who are elderly and frail, due to safety concerns.

The Glucagon Stimulation Test (“GST”) is considered relatively safe by endocrinologists. The mechanism of action for this test is unclear. Like the ITT, this test takes at least three and up to four hours to complete and requires parenteral drug administration, typically intramuscular. It produces side effects in up to one-third of the patients with the most common being nausea during and after the test; delayed hypoglycemia also occurs uncommonly. The GST must be used in caution in the elderly as serious cardiovascular adverse effects have been reported.  Interpretation of the GST is complicated by variability of the peak growth hormone response, which is strongly influenced by the patient’s body mass and glucose status (i.e. prediabetes, diabetes).

The GHRH + ARG test (growth hormone releasing hormone-arginine stimulation) is an easier test to perform in an office setting and has a good safety profile. The drug components are typically more expensive than insulin or glucagon. GHRH + ARG is used in the EU and has been proposed to be the best alternative to ITT, but GHRH in the form of GEREF, a GHRH analog, is no longer marketed in the United States. This test is administered intravenously (IV).

 

·

Recorlev: A number of therapies are currently approved and in various stages of development for endogenous Cushing’s syndrome. Currently, there are no therapies broadly marketed for the treatment of endogenous Cushing’s syndrome patients in the United States. Two therapies have limited indications in Cushing’s syndrome.  Korlym (mifepristone) is a cortisol receptor blocker indicated to control hyperglycemia secondary to hypercortisolism in adult patients with endogenous Cushing’s syndrome who have type 2 diabetes mellitus or glucose intolerance and have failed surgery or are not candidates for surgery. Signifor (pasireotide) marketed by Novartis in the United States is indicated for the treatment of adult patients with Cushing's disease (a subset of Cushing’s syndrome) for whom pituitary surgery is not an option or has not been curative.

Ketoconazole, metyrapone and mitotane are marketed by HRA Pharma in certain European countries. Novartis has submitted a NDA/MAA for Signifor (pasireotide) LAR in Cushing’s disease.  Osilodrostat (LCI699), an 11β-HSD2 inhibitor, is currently in Phase 3 clinical development by Novartis in Cushing’s disease.  Corcept is developing relacorilant (CORT125134), a selective glucocorticoid receptor antagonist, currently in Phase 2 for Cushing’s syndrome.  HRA Pharma is developing metyrapone for the European market. Millendo is developing ATR-101, a selective acyl-CoA:cholesterol acyltransferase 1 (ACAT) inhibitor, currently in Phase 2. The University of Oxford, in collaboration with AstraZeneca is studying the selective 11β-HSD1 inhibitor, AZD4017, now in Phase 2.  Cedars-Sinai is developing R-roscovitine in Phase 2.

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Veldoreotide:  A number of acromegaly therapies are currently approved and in various stages of development.  There are currently three approved SSA therapies for acromegaly in the United States: Sandostatin LAR (octreotide) marketed by Novartis; Signifor LAR (pasireotide) marketed by Novartis; and

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Somatuline Depot (lanreotide) marketed by Ipsen.  There is one growth hormone receptor antagonist, Somavert (pegvisomant), marketed by Pfizer.  Chiasma had filed an NDA in the United States for RG-3806 (Mycapssa®), an oral octreotide formulation in 2015, and received a Complete Response Letter wherein FDA stated that it did not believe the company’s application had provided substantial evidence of efficacy to warrant approval, and advised Chiasma that it would need to conduct another clinical trial in order to overcome this deficiency. Four additional therapies are in Phase 2 clinical development for acromegaly: octreotide long‑acting depot (CAM‑2029) developed by Novartis and Camurus; ITF‑2984 developed by Italfarmaco; BIM-23B065 developed by Ipsen; and ATL-1103 developed by Antisense Therapeutics.

Government Regulation

Product Approval Process

The safety, clinical testing, manufacturing, quality, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are subject to extensive regulation by governmental authorities in the United States and other countries. The FDA under the Federal Food, Drug, and Cosmetic Act regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include:

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the completion of preclinical laboratory tests and animal tests conducted under Good Laboratory Practices, (“GLPs”), and other applicable regulations;

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the submission to the FDA of an IND application for human clinical testing, which must be reviewed by the FDA and become effective before human clinical trials commence;

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the successful performance of adequate and well‑controlled human clinical trials conducted in accordance with cGCP to establish the safety and efficacy of the product candidate for each proposed indication;

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analysis of clinical trial data and preparation of submission to the FDA of an NDA;

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the submission to the FDA of an NDA;

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the FDA’s acceptance of the NDA;

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satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMPs to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

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satisfactory completion of FDA inspections of clinical trial sites and GLP toxicology studies; and

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the FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the United States.

The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain.

Preclinical studies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. The results of the preclinical studies, together with manufacturing information, analytical data and a proposed clinical trial protocol, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the clinical trials as outlined in the IND prior to that time and places the IND on clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. A clinical hold may occur at any time during the life of an IND, due to safety concerns or non‑compliance, and may affect one or more specific studies or all studies conducted under the IND.

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Clinical trials involve the administration of the product candidates to healthy volunteers or patients with the disease to be treated under the supervision of a qualified principal investigator. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent institutional review board (“IRB”), either centrally or individually at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors must also report to the FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.

Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap. These phases generally include the following:

·

Phase 1.     Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics.

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Phase 2.     Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage, and (3) identify possible adverse effects and safety risks.

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Phase 3.     Phase 3 clinical trials are conducted to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical trial sites, and to provide sufficient data for the statistically valid evidence of safety and efficacy.

Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post‑market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.

 

Clinical trials are inherently uncertain and any phase may not be successfully completed. A clinical trial may be suspended or terminated by the FDA, IRB or sponsor at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides ongoing oversight and safety reviews to determine whether or not a clinical trial may move forward at designated check points based on access to certain data from the clinical trial. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

Sponsors have the opportunity to meet with the FDA at certain points during the development of a new drug to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. These meetings may be held prior to the submission of an IND, at the end of Phase 2 and/or before an NDA is submitted. Meetings may be requested at other times as well.

The results of preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information on the manufacture, composition and quality of the product, proposed labeling and other relevant information are submitted to the FDA in the form of an NDA requesting approval to market the product. The NDA must be accompanied by a significant user fee payment. The FDA has substantial discretion in the approval process and may refuse to accept any application, for example if the NDA is not sufficiently complete, or decide that the data is insufficient for approval and require additional preclinical, clinical or other studies.

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In addition, under the Pediatric Research Equity Act (“PREA”), an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan drug designation has been granted. However, if only one indication for a product has orphan drug designation, a pediatric assessment may still be required for any applications to market that same product for the non‑orphan indication(s).

Once the NDA submission has been submitted, the FDA has 60 days after submission of the NDA to conduct an initial review to determine whether it is sufficient to accept for filing. NDAs receive either a standard or priority review. Under the Prescription Drug User Fee Act, the FDA sets a goal date by which it plans to complete its review. For a standard review, this is typically 10 months from the date of submission of the NDA application. The review process is often extended by FDA requests for additional information or clarification. Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facility complies with cGMPs and may also inspect clinical trial sites for integrity of data supporting safety and efficacy. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA is not bound by the recommendations of an advisory committee, but generally follows such recommendations in making its decisions. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post‑marketing testing and surveillance to monitor safety or efficacy of a product.

After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its API will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter generally outlines the deficiencies in the NDA submission and may require substantial additional clinical testing, such as an additional pivotal Phase 3 clinical trial(s), clinical data, and/or other significant, expensive and time consuming requirements related to clinical trials, preclinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval.

The FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy (“REMS”), plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post‑market studies or clinical trials. Such post‑market testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

Orphan Drug Designation

Under the Orphan Drug Act of 1983, the FDA may grant orphan drug designation to a drug or biological product intended to treat an orphan disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting an NDA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as demonstrating clinical superiority to the product with orphan exclusivity. The designation of such drug also entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax advantages and user‑fee waivers. Competitors, however, may receive approval of

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different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same drug or biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug product designated as an orphan product receives regulatory approval for an indication broader than that for which it is designated, it may not be entitled to orphan product exclusivity. Orphan drug status in the European Union has similar but not identical benefits in that jurisdiction.

Post‑Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product distribution, advertising and promotion, and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval and may require additional clinical trials and NDA submissions. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third‑party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained, or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, imposition of post‑market studies or clinical trials to assess new safety risks, or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, but are not limited to:

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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

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fines, warning letters or holds on post‑approval clinical trials;

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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

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product seizure or detention, or refusal to permit the import or export of products; or

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injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off‑label uses, and a company that is found to have improperly promoted off‑label uses may be subject to significant liability.

Moreover, the recently enacted federal Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new federal legislation, manufacturers will be required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product

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identifier, and keep certain records regarding the drug product. Further, under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

Foreign Regulation

In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Other Healthcare Laws

In addition to FDA restrictions on the marketing of pharmaceutical products, federal and state healthcare laws restrict certain business practices in the biopharmaceutical industry. Although we currently do not have any products on the market, we may be subject, and once our product candidates are approved and we begin commercialization, will be subject to additional healthcare laws and regulations enforced by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. These laws include, but are not limited to, anti‑kickback, false claims, data privacy and security, and transparency statutes and regulations.

The federal Anti‑Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, purchasing, leasing, arranging for, ordering or recommending any good, facility, item or service for which payment is made, in whole or in part, under Medicare, Medicaid or any other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. The federal Anti‑Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and our future practices may not in all cases meet all of the criteria for a statutory exception or safe harbor protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable regulatory safe harbor does not make the conduct per se illegal under the federal Anti‑Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case‑by‑case basis based on a cumulative review of all of its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare program covered business, the statute has been violated. Additionally, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “PPACA”), amended the intent requirement under the Anti‑Kickback Statute and criminal healthcare fraud statutes (discussed below) such that a person or entity no longer needs to have actual knowledge of the statute or the specific intent to violate it in order to have committed a violation. In addition, PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti‑Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below). Due to the breadth of these federal and state anti‑kickback laws, and the potential for

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additional legal or regulatory change in this area, it is possible that our current and future sales and marketing practices and/or our future relationships with physicians might be challenged under these laws, which could cause harm to us.

The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The federal false claims laws prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non‑covered, uses.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, including private third‑party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates—independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, and newly empowered state attorneys general with the authority to enforce HIPAA. In January 2013, the Office for Civil Rights of the U.S. Department of Health and Human Services issued the Final Omnibus Rule under HIPAA pursuant to HITECH that makes significant changes to the privacy, security, and breach notification requirements and penalties. The Final Omnibus Rule generally took effect in September 2013 and enhances certain privacy and security protections, and strengthens the government’s ability to enforce HIPAA. The Final Omnibus Rule also enhanced requirements for both covered entities and business associates regarding notification of breaches of unsecured protected health information. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways. These state laws may not have the same effect and often are not preempted by HIPAA, thus complicating compliance efforts.

Additionally, PPACA also included the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. Failure to comply with required reporting requirements could subject applicable manufacturers and others to substantial civil money penalties.

Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Certain states require pharmaceutical companies to implement a comprehensive compliance program that includes a limit or outright ban on

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expenditures for, or payments to, individual medical or health professionals and/or require pharmaceutical companies to track and report gifts and other payments made to physicians and other healthcare providers.

Because we intend to commercialize products that could be reimbursed under federal and other governmental healthcare programs, we plan to develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the rules and healthcare program requirements. Although compliance programs and adherence thereto may mitigate the risk of violation of and subsequent investigation and prosecution for violations of the above laws, the risks cannot be entirely eliminated. If our operations are found to be in violation of any of the health care laws or regulations described above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion of products from reimbursement under government programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and/or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products will be sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post‑marketing requirements, including safety surveillance, fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

Pharmaceutical Coverage, Pricing and Reimbursement

In both domestic and foreign markets, our sales of any future approved products, if and when commercialized, will depend in part on the availability of coverage and adequate reimbursement from third‑party payors. Third‑party payors include government authorities, managed care providers, private health insurers and other organizations. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third‑party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products, if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Sales of our products will therefore depend substantially, both domestically and abroad, on the extent to which the costs of our products will be paid by third‑party payors. These third‑party payors are increasingly focused on containing healthcare costs by challenging the price and examining the cost‑effectiveness of medical products and services.

In addition, significant uncertainty exists as to the coverage and reimbursement status of newly approved healthcare product candidates. The market for our product candidates for which we may receive regulatory approval will depend significantly on access to third‑party payors’ drug formularies, or lists of medications for which third‑party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third‑party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. Furthermore, third‑party payor reimbursement to providers for our product candidates may be subject to a bundled payment that also includes the procedure administering our products. To the extent there is no separate payment for our product candidates, there may be further uncertainty as to the adequacy of reimbursement amounts. Because each third‑party payor individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time consuming, costly and sometimes unpredictable process. We may be required to provide scientific and clinical support for the use of any product to each third‑party payor separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost‑effectiveness and/or medical necessity of our products. This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results. We cannot be certain that our product candidates will be considered cost‑effective or medically necessary. Because coverage and reimbursement determinations are made on a payor‑by‑payor basis, obtaining acceptable coverage and reimbursement from one payor does not guarantee the Company will obtain similar acceptable coverage or reimbursement from another payor. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. If we are unable to obtain coverage of, and adequate reimbursement and payment levels for, our product candidates from third‑party payors, physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our products and impact our profitability, results of operations, financial condition and future success.

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Furthermore, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some non‑U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. We may face competition for our product candidates from lower‑priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products, which could negatively impact our profitability.

Healthcare Reform

In the United States and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future business and operations if and when we begin to directly commercialize our products.

In particular, there have been and continue to be a number of initiatives at the U.S. federal and state level that seek to reduce healthcare costs. Initiatives to reduce the federal deficit and to reform healthcare delivery are increasing cost‑containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and assess alternative controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the healthcare delivery system. Any proposed or actual changes could limit or eliminate our spending on development projects and affect our ultimate profitability.

In March 2010, PPACA was signed into law. PPACA has substantially changed the way healthcare is financed by both governmental and private insurers. PPACA, among other things: established an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs; revised the methodology by which rebates owed by manufacturers for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated; increased the statutory minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected; extended the Medicaid Drug Rebate Program to prescriptions of individuals enrolled in Medicaid managed care organizations; required manufacturers to offer 50% point‑of‑sale discounts on negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. For years the U.S. Congress has been assessing new legislation designed to repeal and replace core sections of the PPACA.  On December 22, 2017, for instance, the President signed into law the Tax Cuts and Jobs Act of 2017, which repealed the “individual mandate” of the PPACA. The repeal of the individual mandate is expected to cause millions fewer Americans to be insured in 2027 and premiums in insurance markets may rise. The Trump Administration has also taken executive actions to undermine or delay implementation of the PPACA. In January 2017, the President signed an Executive Order directing applicable federal agencies to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices.

In the future, there may continue to be additional proposals relating to the reform of the U.S. healthcare system, some of which could further limit the prices we will be able to charge for our product candidates, or the amounts of reimbursement available for our product candidates. If future legislation were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact on our business. Managed care organizations, as well as Medicaid and other government agencies, continue to seek price discounts. Some states have implemented, and other states are considering, measures to reduce costs of the Medicaid program, and some states are considering implementing measures that would apply to broader segments of their populations that are not Medicaid‑eligible. Due to

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the volatility in the current economic and market dynamics, we are unable to predict the impact of any unforeseen or unknown legislative, regulatory, payor or policy actions, which may include cost containment and healthcare reform measures. Such policy actions could have a material adverse impact on our profitability.

Segment and Geographical Information

For the year ended December 31, 2017 revenue from product sales were derived entirely from the United States.  We did not have revenue for the years ended December 31, 2016 or 2015.

We held long-lived assets in Ireland with a carrying value of $35.2 million, $40.2 million, and $0 in 2017, 2016, and 2015, respectively. We held long-lived assets in the United States with a carrying value of $0, $0, and $5.2 million in 2017, 2016, and 2015, respectively. We held long-lived assets in the Cayman Islands with a carrying value of $0, $20.7 million, and $31.3 in 2017, 2016, and 2015, respectively. 

Employees

As of December 31, 2017, we had 66 full‑time employees, each of whom is working in the United States.  Of these full‑time employees, 12 were engaged in research and development, 35 were engaged in commercial activities including sales, marketing and market access, and 19 were engaged in other general and administrative activities. 

Corporate Information

Strongbridge Biopharma plc, an Irish public limited company, was established on May 26, 2015 under the name Cortendo plc. On September 4, 2015, Cortendo plc changed its name to Strongbridge Biopharma plc.

Our principal executive offices are located at 900 Northbrook Drive, Suite 200, Trevose, Pennsylvania, 19053 and our telephone number is +1 610‑254‑9200. For the purposes of Irish law, our registered office is Arthur Cox Building, Ten Earlsfort Terrace, Dublin 2, Ireland.

Our website is www.strongbridgebio.com. The information on, or that can be accessed through, our website is not part of and should not be incorporated by reference into this Annual Report.

Available Information

We file with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Prior to becoming a domestic filer on January 1, 2018, we also filed annual reports on Form 20-F and Reports on Form 6-K. The public may obtain copies of these filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding Strongbridge Biopharma plc and other companies that file materials with the SEC electronically. As soon as practicable after filing with the SEC, we make copies of these reports available to the public, free of charge, through the investor relations tab on our web site, www.strongbridgebio.com. The information found on our website is not part of this or any other report that we file with or furnish to the SEC.

 

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ITEM 1A. RISK FACTORS

Certain factors may have a material adverse effect on our business, financial condition and results of operations.  You should carefully consider the risks and uncertainties described below, in addition to other information contained in this Annual Report, including our consolidated financial statements and related notes.  Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs and, as a result, the market price of our ordinary shares could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may have similar adverse effects on us.

Risks Related to Our Limited Operating History

We have a limited operating history on which to assess our business, have incurred significant losses over the last several years, and anticipate that we will continue to incur losses until achieving sufficient revenues from Keveyis, Macrilen, or one or more of our product candidates, if approved.

Until we acquired the U.S. marketing rights to Keveyis, in December 2016, we were a development-stage biopharmaceutical company. We have a limited operating history and have not yet demonstrated an ability to successfully complete a large-scale, pivotal clinical trial, obtain regulatory approval, or manufacture and commercialize a product candidate. Other than our limited commercial experience with Keveyis, which we launched in April 2017, we have no meaningful prior commercial operations upon which to evaluate our business and predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.

Since inception, we have incurred significant operating losses. We have devoted substantially all of our financial resources to identifying, in-licensing, acquiring and developing our product candidates, conducting clinical trials, commercializing Keveyis, and providing general and administrative support for these operations. In January 2018, we acquired an exclusive license to the intellectual property rights relating to Macrilen in order to carry out the development, manufacturing, registration and commercialization of Macrilen, or any pharmaceutical product containing the active pharmaceutical ingredient in Macrilen, macimorelin acetate, in the United States and Canada, and ownership of all product registrations related to Macrilen in these countries.

To achieve commercial success of Keveyis, Macrilen and any product candidates that are approved, we will have to expand our sales, marketing and supply capabilities or outsource these activities to a third party.

To date, we have financed our operations primarily through private placements of equity securities, the proceeds from our initial public offering of ordinary shares in the United States in October 2015 and follow-on public offerings in October 2017 and January 2018, our at-the-market facility, and debt financings. The amount of our future net losses will depend, in part, on whether we successfully commercialize Keveyis, Macrilen or one of our other product candidates, if approved, and the rate of our future expenditures as well as our ability to obtain funding through strategic collaborations or grants. To become and remain profitable, we must successfully commercialize Keveyis, Macrilen or one or more of our product candidates, if approved.

We have never been, and may never be, profitable.

We have only two products, Keveyis and Macrilen, approved for commercialization, and two product candidates in development. We did not generate any revenue until we launched Keveyis in April 2017. Our ability to generate significant future revenue from product sales and become profitable depends heavily on our success in many areas, including, but not limited to:

·

Integrating Keveyis and Macrilen and any other products or product candidates that we in-license or acquire, as well as completing research, formulation and process development, and preclinical or clinical development, as applicable, of those product candidates, including successfully completing clinical trials of those product candidates;

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·

obtaining regulatory approval of our product candidates;

·

maintaining supply and manufacturing relationships with third parties that can timely provide adequate, in amount and quality, products to support clinical development of our product candidates and the market demand for Keveyis and Macrilen and any other product candidates that are approved;

·

obtaining market acceptance of Keveyis and Macrilen and our product candidates, if approved, and persuading adequate numbers of physicians to prescribe or utilize our products and other product candidates, if approved;

·

addressing any competing technological and market developments;

·

identifying, assessing, in-licensing, acquiring and/or developing new product candidates;

·

negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;

·

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and

·

attracting, hiring and retaining adequate numbers of qualified sales and marketing personnel.

We are currently advancing two product candidates through clinical development, Recorlev (levoketoconazole) and veldoreotide. Development of product candidates is expensive, and we expect our research and development expenses to increase in connection with our ongoing activities, particularly as we continue our ongoing trials and initiate new nonclinical studies and clinical trials of Recorlev, veldoreotide and any other product candidates we may seek to develop.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. It may be several years, if ever, before we receive regulatory approval and have a product candidate, other than Keveyis and Macrilen, approved for commercialization. Our future revenue from Keveyis and Macrilen and from any other product candidates approved for commercialization will depend upon the size of the markets in which our product candidates are marketed, or in which they may receive approval, and our ability to achieve market acceptance and adequate market share for our product candidates in those markets.

Given the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. We expect to continue to incur significant expenses and operating losses until we successfully commercialize Keveyis, Macrilen or one or more of our product candidates. We anticipate that our expenses will increase substantially if and as we:

·

continue to grow our sales, marketing and distribution infrastructure;

·

continue research and nonclinical and clinical development of our product candidates, including advancing our programs from preclinical development into clinical trials and increasing the number and size of our current clinical trials and preclinical studies;

·

make up-front, milestone or other payments under any asset acquisition, supply, or license arrangements;

·

seek to identify, assess, in-license, acquire and develop additional product candidates;

·

change or add manufacturers or suppliers;

·

seek regulatory approvals for our product candidates that successfully complete clinical trials;

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·

seek to maintain, protect and expand our intellectual property portfolio;

·

seek to attract and retain skilled personnel;

·

create additional infrastructure to support our operations as a U.S. listed company and our product development and commercialization efforts; and

·

experience any delays or encounter issues with any of the above, including, but not limited to, failed preclinical studies or clinical trials, complex results, safety issues or other regulatory challenges that may require either longer follow-up of existing preclinical studies or clinical trials or limitation of additional preclinical studies or clinical trials in order to pursue regulatory approval.

Further, the net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. Moreover, if we incur substantial losses, we could be liquidated, and the value of our shares might be significantly reduced or the shares might be of no value.

We have incurred, and anticipate we will continue to incur, significant costs associated with commercializing Keveyis. We will incur additional costs related to our development, manufacturing, registration and commercialization of Macrilen, as well as any of our other product candidates that are approved. Further, our revenue will be dependent, in part, upon the size of the markets in the territories for which we have received regulatory approval, the accepted price for the product, the ability to obtain coverage and adequate reimbursement, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of our product candidates. If we are not able to generate sufficient revenue from the sale of any of our approved products, we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to successfully execute any of the foregoing would decrease the value of our company and could impair our ability to raise capital, expand our business or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.

We expect that we will need substantial additional funding before we can expect to complete the development of our two product candidates.

We are currently advancing two product candidates through clinical development, Recorlev (levoketoconazole) and veldoreotide. Development of product candidates is expensive, and we expect our research and development expenses to increase in connection with our ongoing activities, particularly as we continue our ongoing trials and initiate new nonclinical studies and clinical trials of Recorlev, veldoreotide and any other product candidates we may seek to develop. Although we believe the combination of our existing cash and cash equivalents and additional borrowings under our credit facility is sufficient to fund planned operations at least through the regulatory approval and commercial launch of Recorlev, if successful, we expect that we will require additional capital to obtain regulatory approval for, and to commercialize, both of our product candidates. Our future funding requirements will depend on many factors, including, but not limited to:

·

the amount of revenue that we receive from sales of Keveyis and Macrilen;

·

the cost of expanding our sales, marketing, distribution and administrative capabilities;

·

the scope, rate of progress, results and cost of our clinical trials, nonclinical testing, and other related activities;

·

the cost of formulation, process development, manufacturing of clinical supplies, and establishing commercial supplies of our product candidates and any other product candidates that we may develop, in-license or acquire;

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·

whether we borrow any additional amounts under our credit facility;

 

·

the number and characteristics of product candidates that we pursue, including any additional product candidates we may in-license or acquire;

·

the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

·

the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;

·

the cost, timing and outcomes of regulatory approvals;

·

the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any required milestone and royalty payments thereunder; and

·

the emergence of competing technologies and their achieving commercial success before we do or other adverse market developments.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may compromise our ability to develop and commercialize our product candidates, if approved. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our ordinary shares to decline.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product or product candidates that is approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired.

Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of product revenue, equity offerings, debt financings, grants, and license and development agreements in connection with any collaborations. We have borrowed $85 million under our credit facility. An additional $15 million may be borrowed if we satisfy certain product revenue and market capitalization conditions. We do not have any committed external source of funds. In the event we seek additional funds, we may raise additional capital through the sale of equity or convertible debt securities. In such an event, the ownership interests of our current shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that would adversely affect their rights as shareholders. Debt financing, if available, could result in increased fixed payment obligations and may involve agreements that include restrictive covenants, such as limitations on our ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends, and other operating restrictions that could hurt our ability to conduct our business.

Further, if we raise additional funds through collaborations, strategic alliances, or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property or future revenue streams. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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We are expanding our organization and may experience difficulties in managing this growth, which could disrupt our operations.

As our development, commercialization, in-licensing, and acquisition plans and strategies develop, and as we commercialize Keveyis and Macrilen and advance the clinical and preclinical development of our product candidates, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of managerial, operational, sales, marketing, financial, legal and other resources. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. 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. Due to our limited financial resources, we may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Any such growth could require significant capital expenditures and may divert financial resources from other projects, such as the in-licensing, acquisition and development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to effectively manage any future growth.

In order to increase adoption and sales of Keveyis and Macrilen and other product candidates we may commercialize, we will need to continue developing our commercial organization as well as recruit and retain qualified sales representatives.

Part of our strategy is to continue to build a biopharmaceutical company to successfully execute the commercialization of our products. We may not be able to successfully commercialize our products in the United States or in any other territories where we have commercial rights. Prior to our launch of Keveyis in April 2017, we had no experience commercializing products on our own. In order to successfully commercialize our approved products, we must continue to build our sales, marketing, distribution, managerial and other non-technical capabilities. Although we have established a sales force consisting of approximately 21 orphan disease sales representatives focused on Keveyis, our resources are still limited compared to some of our competitors. For example, we will need to hire additional sales representatives to focus on commercialization of Macrilen. The continued development of our commercial organization to market our products and any additional products we may acquire will be expensive and time-consuming. We also cannot be certain that we will be able to continue to successfully develop this capability.

If we are unable to effectively train and equip our sales force, our ability to successfully commercialize our products will be harmed.

The members of our sales force have limited experience promoting Keveyis and no experience promoting Macrilen, which we only recently acquired. We have expended significant time and resources to train our sales force to be effective in their sales efforts for Keveyis and will need to devote significant additional time and resources to hire new individuals and train them with respect to Macrilen. For example, we must train our sales force to ensure that consistent and appropriate messages about Keveyis and Macrilen are being delivered to our potential customers. Our sales representatives may also experience challenges promoting Keveyis or Macrilen when we call on physicians and their office staff. We are likely to experience turnover of the sales representatives that we have hired or will hire, requiring us to train new sales representatives. If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate physicians about the benefits of our products and their proper administration and label indication, as well as our patient access programs, our efforts to successfully commercialize our products could be put in jeopardy, which could have a material adverse effect on our financial condition, share price and operations.

We may not be successful in executing our research programs or business development efforts.

Research programs and business development efforts to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product

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candidates that ultimately prove to be unsuccessful. Our research programs, business development efforts or licensing attempts may fail to yield additional complementary or successful product candidates for clinical development and commercialization for a number of reasons, including, but not limited to, the following:

·

our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates with a high probability of success for development progression;

·

we may not be able or willing to assemble sufficient resources or expertise to in‑license, acquire or discover additional product candidates;

·

we may not be able to agree to acceptable terms with the licensor or owner of any product candidates we seek to in-license or acquire;

·

our product candidates may not succeed in preclinical studies or clinical trials;

·

we may not succeed in formulation or process development;

·

our product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive regulatory approval;

·

competitors may develop alternatives that render our product candidates obsolete or less attractive;

·

product candidates that we develop may be covered by third parties’ patents or other exclusive rights;

·

product candidates that we develop may not allow us to leverage our expertise and our development and commercial infrastructure as currently expected;

·

the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;

·

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

·

a product candidate may not be accepted as safe and effective by patients, the medical community or third‑party payors.

If any of these events occurs, we may not be successful in executing our growth strategy or our growth strategy may not deliver the anticipated results.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

If we acquire other businesses or in-license or acquire other product candidates and are unable to integrate them successfully, our financial performance could suffer.

If we are presented with appropriate opportunities, we may acquire other businesses or product candidates. We have had limited experience integrating other businesses or product candidates, or in-licensing or acquiring other product candidates. The recent acquisitions of the U.S. and Canadian marketing rights of Macrilen in January 2018 and the U.S.

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marketing rights of Keveyis in December 2016 are still being integrated into our business. The integration process following these or any future transactions may produce unforeseen operating difficulties and expenditures, and may absorb significant management attention that would otherwise be directed to the ongoing development of our business. Also, in any future in-licensing or acquisition transactions, we may issue shares of stock that would result in dilution to existing shareholders, incur debt, assume contingent liabilities or create additional expenses related to amortizing intangible assets, any of which might harm our financial results and cause our stock price to decline. Any financing we might need for future transactions may be available to us only on terms that restrict our business or impose costs that reduce our net income.

We are highly dependent on our key personnel, including our chief executive officer and chief medical officer, as well as our ability to recruit, retain and motivate additional qualified personnel.

We are highly dependent on Matthew Pauls, our President and Chief Executive Officer, and Dr. Fredric Cohen, our Chief Medical Officer. Some members of our management team, including Mr. Pauls, have only been our employees since August 2014. As a result, they have limited experience working for us and working together as a team. Any member of management or employee can terminate his or her relationship with us at any time. Although we have included non-compete provisions in their respective employment or consulting agreements, as the case may be, such arrangements might not be sufficient for the purpose of preventing such key personnel from entering into agreements with any of our competitors. The inability to recruit and retain qualified personnel, or the loss of Mr. Pauls or Dr. Cohen, could result in competitive harm as we could experience delays in reaching our in-licensing, acquisition, development and commercialization objectives.

We also depend substantially on highly qualified managerial, sales and technical personnel who are difficult to hire and retain. There is currently a shortage of skilled personnel in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in preclinical studies or clinical trials may make it more challenging to recruit and retain qualified personnel. Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will be critical to our success.

Our business and operations would suffer in the event of system failures.

Our computer systems, as well as those of our clinical research organizations (“CROs”), and other contractors and consultants, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, including hurricanes, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of preclinical study or clinical trial data from completed, ongoing or planned preclinical studies or clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

Risks Related to Our Business

We depend entirely on the success of Keveyis, Macrilen and our two product candidates, which are still in clinical development. If we do not successfully commercialize Keveyis or Macrilen or obtain regulatory approval for and successfully commercialize one or more of our product candidates or we experience significant delays in doing so, we may never become profitable.

We currently have two products approved for sale, Keveyis and Macrilen, and two product candidates in development. We have invested, and continue to expect to invest, a significant portion of our efforts and financial resources in the development of our two product candidates, which are still in clinical development. Our ability to generate product revenues will depend heavily on our successful commercialization of Keveyis and Macrilen and our eventual commercialization, if approved, of one or more of our product candidates currently in development. We are not

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permitted to market or promote any product candidate before we receive regulatory approval from the FDA, EMA or any comparable foreign regulatory agency, and we may never receive such regulatory approval for our product candidates currently in development. The success of Recorlev and veldoreotide will depend on several additional factors, including, but not limited to, the following:

·

successfully completing clinical trials that demonstrate the efficacy and safety of our product candidates;

·

successfully completing formulation and process development activities;

·

acceptance of our product candidates by patients and the medical community;

·

a continued acceptable safety profile following approval;

·

obtaining and maintaining healthcare coverage and adequate reimbursement; and

·

competing effectively with other therapies, including with respect to the sales and marketing of our product candidates, if approved.

Many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and changes in the competitive landscape. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully complete clinical trials or eventually commercialize our product candidates, if approved.

Clinical trials are very expensive, time consuming and difficult to design and implement, and involve uncertain outcomes. Furthermore, results of earlier preclinical studies and clinical trials may not be predictive of results of future preclinical studies or clinical trials.

To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our products are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and earlier clinical trials may not be predictive of the results of later-stage clinical trials. For example, the results generated to date in preclinical studies or clinical trials for our product candidates do not ensure that later preclinical studies or clinical trials will demonstrate similar results. Further, we have limited clinical data for each of our product candidates and have not completed Phase 3 clinical trials for any of our product candidates. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials.

Companies in the biopharmaceutical industry may suffer setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier clinical trials. For example, levoketoconazole was previously studied for the treatment of type 2 diabetes. In December 2005, prior to the initiation of the first clinical trial by DiObex, our licensee, the FDA placed a clinical hold relating to a safety concern for use of a dosage above 600 mg/day. DiObex modified the clinical trial protocol to limit the highest dose to 600 mg/day, and the clinical hold was lifted by the FDA in February 2006. Furthermore, levoketoconazole did not demonstrate a reduction in blood glucose levels in a small Phase 2 clinical trial in patients with type 2 diabetes mellitus, the original indication for which it was being developed. We may experience delays in our ongoing or future preclinical studies or clinical trials, and we do not know whether future preclinical studies or clinical trials will begin on time, need to be redesigned, enroll an adequate number of subjects or patients on time or be completed on schedule, if at all. Clinical trials may be delayed, suspended or terminated for a variety of reasons, including delay or failure to:

·

obtain authorization from regulators or IRBs to commence a clinical trial at a prospective clinical trial site;

·

reach agreements on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;

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·

recruit and enroll a sufficient number of patients in clinical trials to ensure adequate statistical power to detect statistically significant treatment effects;

·

address any noncompliance with regulatory requirements or safety concerns that arise during the course of a clinical trial;

·

have patients complete clinical trials or return for post‑treatment follow‑up;

·

have CROs or other third parties comply with regulatory requirements, adhere to the trial protocol or meet contractual obligations in a timely manner or at all;

·

identify a sufficient number of clinical trial sites and initiate them within the planned timelines; and

·

manufacture sufficient quantities of the product candidate to complete clinical trials.

Positive or timely results from preclinical or early stage clinical trials do not ensure positive or timely results in late stage clinical trials or regulatory approval by the FDA, EMA or any comparable foreign regulatory agency. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for the product candidates. The FDA, EMA and any comparable foreign regulatory agency have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, EMA or any comparable foreign regulatory agency.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the administration regimen and other clinical trial protocols, and the rate of dropout among clinical trial participants. In the case of our late stage clinical product candidates, results may differ in general on the basis of the larger number of clinical trial sites and additional countries involved in Phase 3 clinical trials. Different countries have different standards of care and different levels of access to care for patients, which in part drives the heterogeneity of the patient populations that enroll in our studies.

In June 2015, we acquired veldoreotide and were not involved in and had no control over the preclinical and clinical development of this product candidate prior to such acquisition. As a result, we are dependent on the prior research and development of veldoreotide having been conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, the accuracy of reported results of all clinical trials conducted prior to our acquisition and the correct interpretation of collected data from these clinical trials. These factors could result in increased costs and delays in the development of veldoreotide, which could hurt our ability to generate future revenues from this product candidate.

The regulatory approval process of the FDA, EMA or any comparable foreign regulatory agency may be lengthy, time consuming and unpredictable.

Our future success is dependent upon our ability to successfully develop, obtain regulatory approval for and then successfully commercialize one or more of our product candidates. Although certain of our employees have prior experience with submitting marketing applications to the FDA, EMA and comparable foreign regulatory agencies, we, as a company, have not submitted such applications for our product candidates. We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Applications for any of our product candidates could fail to receive regulatory approval for many reasons, including, but not limited to, the following:

·

the FDA, EMA or any comparable foreign regulatory agency may disagree with the design or implementation of our clinical trials or our interpretation of data from nonclinical trials or clinical trials;

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·

the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval, including reliance on foreign clinical data;

·

the data collected from clinical trials of our product candidates may not be sufficient to support a finding that has statistical significance or clinical meaningfulness or support the submission of a NDA or other submission, or to obtain regulatory approval in the United States or elsewhere;

·

we may be unable to demonstrate to the FDA, EMA or any comparable foreign regulatory agency that a product candidate’s risk‑benefit ratio for its proposed indication is acceptable;

·

the FDA, EMA or any comparable foreign regulatory agency may fail to approve the manufacturing processes, test procedures and specifications or facilities of third‑party manufacturers with which we contract for clinical and commercial supplies; and

·

the approval policies or regulations of the FDA, EMA or any comparable foreign regulatory agency may significantly change in a manner rendering our clinical data insufficient for approval.

Any of our current or future product candidates could take a significantly longer time to gain regulatory approval than expected or may never gain regulatory approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our product candidates.

Several elements of the SONICS Phase 3 clinical trial design for Recorlev were informed by the clinical development pathway of currently approved drug therapies in the United States and the European Union. Additionally, we incorporated advice from the CHMP and FDA into the design of the clinical trial. In communication we had with the FDA, they recommended use of a concurrent control group in SONICS. However, SONICS utilizes an open-label, single-arm design because use of a placebo control in a parallel-arm monotherapy design was considered unethical or infeasible to enroll, depending on the specific country or clinical trial site under consideration. Studies lacking an active control group are more likely to be subject to unanticipated variability in study results that can potentially lead to flawed conclusions because they do not allow for discrimination of patient outcomes. As a result, even if we achieve the clinical trial's endpoints, the FDA or other regulatory authorities could view our study results as potentially biased.

We intend to seek formal advice and guidance from the FDA and the EMA prior to advancing veldoreotide into further studies and pivotal clinical trials. If the feedback we receive is different from what we currently anticipate, this could delay the development and regulatory approval process for this product candidate.

We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the European Union and other key global markets. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. Failure to obtain marketing authorization for our product candidates will result in our being unable to market and sell such products. If we fail to obtain approval in any jurisdiction, the geographic market for our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

If we or others identify previously unknown, serious side effects of Keveyis or Macrilen, we may be required to perform lengthy additional clinical trials, change their labeling or withdraw them from the market.

If we or others identify previously unknown, serious side effects of Keveyis or Macrilen:

·

regulatory authorities may withdraw their approvals;

·

we may be required to conduct additional clinical trials, make changes in labeling, implement changes to or obtain re-approvals of facilities that manufacture Keveyis or Macrilen;

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·

we may experience a significant drop in the sales of Keveyis or Macrilen;

·

our reputation in the marketplace may suffer; and

·

we may become the target of lawsuits, including class action lawsuits.

Any of these events could harm or prevent sales of Keveyis and Macrilen or could increase the costs and expenses of commercializing and marketing Keveyis and Macrilen.

Physicians may accept Keveyis and/or Macrilen slowly or may never accept them, which would adversely affect our financial results.  

Physicians will prescribe Keveyis only if they determine, based on experience, clinical data, side effect profiles and other factors, that it is preferable to other treatments, even if those products are not approved for PPP. Because PPP is rare, most physicians are inexperienced in the care of patients with the illness and it may be difficult to persuade them to prescribe Keveyis. Other factors that may affect the commercial success of Keveyis include:

·

the preference of some physicians for more familiar, long-standing, off-label treatments for PPP, such as acetazolamide;

·

competition from alternative therapies, such as potassium supplements, diuretics, beta receptor agonists, mexiletine and other sodium channel blockers;

·

the cost-effectiveness of Keveyis and the availability of third-party insurance coverage and reimbursement; and

·

the product labeling required by the FDA.

Physicians will prescribe Macrilen only if they determine, based on experience, clinical data, side effect profiles and other factors, that it is preferable to other diagnostic methods, even if those methods are not approved for diagnosing AGHD. Because AGHD is rare, most physicians are inexperienced in the diagnosis of patients with the illness and it may be difficult to persuade them to prescribe Macrilen.

·

the preference of some physicians to utilize Arginine, an injectable product that is the only other FDA-approved product indicated for use in diagnosing AGHD, or one of several other products that are used off-label to diagnose AGHD, of which the two most frequently prescribed products are the injectables glucagon and insulin;

·

the cost-effectiveness of Macrilen and the availability of third-party insurance coverage and reimbursement; and

·

the product labeling required by the FDA.

The failure of Keveyis and Macrilen to achieve commercial success could prevent us from generating sufficient revenue to fully fund our commercial and development activities.

If serious adverse, undesirable or unacceptable side effects are identified during the development of our product candidates or following regulatory approval, if any, we may need to abandon our development of such product candidates.

If our product candidates are associated with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in preclinical or early stage testing have later been found to cause side effects that restricted their use and prevented further development of the compound for larger indications.

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For example, in our clinical trials of Recorlev to date, adverse events have included headache, nausea, back pain, dizziness, diarrhea and liver enzyme elevations. For veldoreotide, which is given by subcutaneous injections, adverse events have included injection site reaction such as swelling, itching and pain. In addition, headache and gastrointestinal effects such as nausea and diarrhea were observed for veldoreotide. These adverse events can be dose-dependent and may increase in frequency and severity if we increase the dose to increase efficacy. Occurrence of serious treatment-related side effects could impede clinical trial enrollment, require us to halt the clinical trial, and prevent receipt of regulatory approval from the FDA, EMA or any comparable foreign regulatory agency. They could also adversely affect physician or patient acceptance of our product candidates.

Discovery of previously unknown problems, or increased focus on a known problem, with an approved product may result in restrictions on its permissible uses, including withdrawal of the medicine from the market. Currently, ketoconazole is required to include a "black box" warning on its label for use as an antifungal related to liver toxicity in the United States. Manufactured ketoconazole consists of two enantiomers, 2R,4S-ketoconazole and 2S,4R-ketoconazole, that are found in equal amounts, and is therefore referred to as a racemate mixture. Recorlev is a single-enantiomer drug, a pure form of one of the two enantiomers (2S,4R-ketoconazole) of ketoconazole. If Recorlev is required to include a similar "black box" warning on its label, it may limit our ability to commercialize the product, if approved.

Additionally, if one or more of our product candidates receives regulatory approval, and we or others later identify undesirable side effects caused by such product(s), a number of potentially significant negative consequences could result, including, but not limited to:

·

withdrawal by regulatory authorities of approvals of such product;

·

seizure of the product by regulatory authorities;

·

recall of the product;

·

restrictions on the marketing of the product;

·

requirement by regulatory authorities of additional warnings on the label, such as a black box warning;

·

requirement that we create a medication guide outlining the risks of such side effects for distribution to patients;

·

commitment to expensive additional safety studies prior to launch as a prerequisite of approval by regulatory authorities of such product;

·

commitment to expensive post‑marketing studies as a prerequisite of approval by regulatory authorities of such product;

·

initiation of legal action against us claiming to hold us liable for harm caused to patients; and

·

harm to our reputation and resulting harm to physician or patient acceptance of our products.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, financial condition, and results of operations.

We may find it difficult to enroll patients in our clinical trials given the limited number of patients who have the diseases for the treatment of which our product candidates are being studied. Difficulty in enrolling patients in our clinical trials could delay or prevent clinical trials of our product candidates.

Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. Clinical trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. Patient enrollment depends on many factors, including the size and nature of the patient population, eligibility criteria for the clinical trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability of new drugs approved for the indication the clinical trial is

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investigating, and clinicians' and patients' perceptions as to the safety and potential advantages of the product candidate being studied in relation to other available therapies.

Because we are focused on addressing rare diseases, there are limited patient pools from which to draw in order to complete our clinical trials in a timely and cost-effective manner. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process, and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that may lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

We may become exposed to costly and damaging liability claims, either in connection with the sale of Keveyis, Macrilen or other approved products or when testing our product candidates in the clinic, and our product liability insurance may not cover all damages from such claims.

We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing, and use of pharmaceutical products. The current and future use of product candidates by us in clinical trials, and the sale of Keveyis and Macrilen and any approved products, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend, and could compromise the market acceptance of Keveyis and Macrilen, our product candidates or any prospects for commercialization of our product candidates, if approved.

Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If Keveyis, Macrilen or any of our product candidates were to cause adverse side effects during clinical trials or after approval, we may be exposed to substantial liabilities. Physicians and patients may not comply with product instructions or may ignore warnings regarding potential adverse effects and patients who should not use our products.

We have limited product liability insurance that offers coverage we believe to be appropriate for a company marketing a single pharmaceutical product and developing others. We intend to extend our product liability insurance coverage to any product candidate for which we obtain marketing approval. However, this insurance may be prohibitively expensive or may not fully cover our potential liabilities. Our inability to obtain adequate insurance coverage at an acceptable cost could prevent or inhibit the commercialization of Keveyis, Macrilen or other product candidates that are approved, or result in meaningful underinsured or uninsured liability. Defending a lawsuit could be costly and significantly divert management's attention from conducting our business. If we were sued successfully, our liability could exceed our total assets.

We may not be able to build an effective sales and marketing team.

We currently have a very limited sales force and marketing and distribution capabilities. To achieve commercial success of Keveyis, Macrilen and any product candidates that are approved, we will have to continue to develop and expand our sales and marketing capabilities or outsource these activities to a third party.

Factors that may affect our ability to successfully commercialize Keveyis, Macrilen and our product candidates on our own include recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our product candidates and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization requires significant investment and is time consuming. We may not be able to build an effective sales and marketing organization in the United States, the European Union or other key global markets. If we are unable to establish effective sales and marketing capabilities or to find suitable partners for the commercialization of Keveyis, Macrilen and our product candidates, we may not generate revenues from them.

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We operate in a highly competitive and rapidly changing industry, which may result in our competitors discovering, developing or commercializing competing products before or more successfully than we do, or our entering a market in which a competitor has commercialized an established competing product, and we may not be successful in competing with them.

The development and commercialization of new drug products is highly competitive and subject to significant and rapid technological change. Our success is highly dependent upon our ability to in-license, acquire, develop and obtain regulatory approval for new and innovative drug products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated, well-established pharmaceutical companies who already possess a large share of the market, specialty pharmaceutical companies and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in Europe, the United States and other jurisdictions.

Keveyis is an oral carbonic anhydrase inhibitor, that was approved in the United States to treat hyperkalemic, hypokalemic and related variants of PPP. Acetazolamide, another oral carbonic anhydrase inhibitor, is used frequently off-label for the prophylactic and sometimes acute treatment of PPP. Potassium supplements, are indicated for use in hypokalemic periodic paralysis in the United States and are frequently used either chronically or for emergency treatment of episodes in that form of PPP. Several other types of drugs have been reported to have benefits for chronic or acute use in one or more than one PPP variant, including potassium-sparing diuretics, beta receptor agonists, mexelitine and other sodium channel blockers, and others. We are not aware of drugs currently in development for prophylactic chronic treatment of PPP. A Phase 2 clinical study of bumetanide, a loop diuretic, is underway in England for acute treatment of paralytic attacks.

Macrilen is an orally available ghrelin agonist, approved in the United States December 20, 2017 for use in the diagnosis of patients with AGHD. Arginine, an injectable product, is the only other FDA approved product indicated for use in diagnosing AGHD. However, several other products are used off-label for this use also, of which the two most frequently prescribed products are the injectables glucagon and insulin. We are not aware of any drugs currently in development for use in diagnosing AGHD.

We are currently aware of various companies that are marketing existing drugs that may compete with Recorlev such as Corcept Therapeutics and Novartis. The treatment of endogenous Cushing's syndrome patients who fail or are ineligible for surgery in the United States and Europe are: Korlym (mifepristone) marketed by Corcept Therapeutics in the United States; Signifor (pasireotide) marketed by Novartis in the United States and European Union; and ketoconazole, metyrapone and mitotane marketed by HRA in the European Union. Novartis has submitted an NDA/MAA for Signifor (pasireotide) LAR in Cushing's disease. Additionally, LCI-699 (osilodrostat) is currently in Phase 3 clinical development by Novartis in Cushing's disease patients. Corcept is developing CORT125134, a second-generation glucorticoid receptor modulator; currently in Phase 2. HRA Pharma is developing metyrapone for the US market; currently in Phase 2. Millendo is developing ATR-101, a selective acyl-CoA:cholesterol acyltransferase 1 (ACAT) inhibitor, currently in Phase 2. In addition, Ketoconazole is believed to be the most commonly prescribed drug therapy for the treatment of endogenous Cushing's syndrome, even though it is not approved for this use in the United States. Regulatory approval of ketoconazole in the United States for the treatment of endogenous Cushing's syndrome could significantly increase competition for Recorlev due to their similar mechanisms of action.

We are currently aware of various companies that are marketing existing drugs that may compete with veldoreotide such as Novartis, Ipsen and Pfizer. In addition, a number of acromegaly therapies are in various stages of development. There are currently three approved SSA therapies for acromegaly in the United States: Sandostatin LAR (octreotide) marketed by Novartis; Signifor LAR (pasireotide) marketed by Novartis; and Somatuline Depot (lanreotide) marketed by Ipsen. There is one growth hormone receptor antagonist, Somavert (pegvisomant), marketed by Pfizer. Chiasma had filed an NDA in the United States for RG-3806 (Mycapssa®), an oral octreotide formulation in 2015, and received a Complete Response Letter wherein FDA stated that it did not believe the company's application had provided substantial evidence of efficacy to warrant approval, and advised Chiasma that it would need to conduct another clinical trial in order to overcome this deficiency. Four additional therapies are in Phase 2 clinical development for acromegaly: octreotide long-acting depot (CAM-2029) developed by Novartis and Camurus; ITF-2984 developed by Italfarmaco; BIM-23B065 developed by Ipsen; and ATL-1103 developed by Antisense Therapeutics.

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We anticipate this competition to increase in the future as new companies enter the neuromuscular, endocrinology and rare diseases markets. In addition, the health care industry is characterized by rapid technological change, and new product introductions or other technological advancements could make some or all of our products obsolete.

The highly competitive nature of and rapid technological changes in the biotechnology and pharmaceutical industries could render our product candidates or our technology obsolete or non-competitive. Our competitors may, among other things:

·

have similar or better product candidates or technologies;

·

possess greater financial and human resources as well as supporting clinical data;

·

develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;

·

obtain regulatory approval more quickly;

·

establish superior proprietary positions;

·

have access to greater manufacturing capacity;

·

seek patent protection that competes with our product candidates;

·

implement more effective approaches to sales and marketing; or

·

enter into more advantageous collaborative arrangements for research, development, manufacturing and marketing of products.

Additional competitors could enter the market with generic versions of our products, which may result in a decline in sales of affected products.

Under the Hatch-Waxman Act, a pharmaceutical manufacturer may file an abbreviated new drug application (“ANDA”), seeking approval of a generic copy of an approved innovator product. Under the Hatch-Waxman Act, a manufacturer may also submit an NDA under section 505(b)(2) that references the FDA's prior approval of the innovator product. A 505(b)(2) NDA product may be for a new or improved version of the original innovator product. Hatch-Waxman also provides for certain periods of regulatory exclusivity, which preclude FDA approval, or, in some circumstances, FDA filing and reviewing, of an ANDA or 505(b)(2) NDA. These include, subject to certain exceptions, the period during which an FDA-approved drug is subject to orphan drug exclusivity. Although Recorlev is being developed as a new chemical entity (“NCE”), we intend to rely on orphan drug exclusivity rather than NCE exclusivity for nonpatent protection of Recorlev. In addition to the benefits of regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, product formulation or an approved use of the drug, which would be listed with the product in the FDA publication, "Approved Drug Products with Therapeutic Equivalence Evaluations," known as the "Orange Book." If there are patents listed in the Orange Book, a generic or 505(b)(2) applicant that seeks to market its product before expiration of the patents must include in the ANDA what is known as a "Paragraph IV certification," challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.

Accordingly, if Recorlev or any of our other product candidates is approved, competitors could file ANDAs for generic versions of our product candidates, or 505(b)(2) NDAs that reference our product candidates, respectively. If there are patents listed for our product candidates in the Orange Book, those ANDAs and 505(b)(2) NDAs would be required to include a certification as to each listed patent indicating whether the ANDA applicant does or does not intend to challenge the patent. We cannot predict whether any patents issuing from our pending patent applications will be eligible for listing in the Orange Book, how any generic competitor would address such patents, whether we would sue on any such patents or the outcome of any such suit.

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We may not be successful in securing or maintaining proprietary patent protection for products and technologies we develop or license. Moreover, if any patents that are granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected product could immediately face generic competition and its sales would likely decline rapidly and materially. Should sales decline, we may have to write off a portion or all of the intangible assets associated with the affected product and our ability to generate revenue could be compromised.

The successful commercialization of our products and product candidates that are approved will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies.

The successful commercialization of Keveyis, Macrilen and our product candidates, if approved, will depend, in part, on the extent to which coverage and reimbursement for our products will be available from government and health administration authorities, private health insurers and other third-party payors. To manage healthcare costs, many governments and third-party payors increasingly scrutinize the pricing of new therapies and require greater levels of evidence of favorable clinical outcomes and cost-effectiveness before extending coverage and adequate reimbursement to such new technologies. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Medicare Modernization Act”) changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly under a new Part D and introduced a new reimbursement methodology based on average sale 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 reimbursement 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. In light of such challenges to prices and increasing levels of evidence of the benefits and clinical outcomes of new technologies, we cannot be sure that coverage will be available for Keveyis, Macrilen and/or any product candidate that we commercialize, and, if available, that the reimbursement rates will be adequate. If we are unable to obtain adequate levels of coverage and reimbursement for Keveyis, Macrilen and/or our product candidates, our ability to generate revenue will be compromised.

Because each third-party payor individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time consuming, costly and sometimes unpredictable process. We may be required to provide scientific and clinical support, medical necessity or both for the use of Keveyis, Macrilen or any product to each third-party payor separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness, medical necessity or both of our products. This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results.

Third-party payors may deny coverage and reimbursement status altogether of a given drug product, or cover the product, but may also establish prices at levels that are too low to enable us to realize an appropriate return on our investment in product development. Because the rules and regulations regarding coverage and reimbursement change frequently, in some cases on short notice, even when there is favorable coverage and reimbursement, future changes may occur that adversely impact such favorable coverage and reimbursement status. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.

The unavailability or inadequacy of third-party coverage and reimbursement could negatively affect the market acceptance of Keveyis, Macrilen and our product candidates and the future revenues we may expect to receive from these products. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business.

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Our products may not gain market acceptance, in which case we may not be able to generate product revenues.

Even if the FDA, EMA or any comparable foreign regulatory agency approves the marketing of any product candidates that we develop, physicians, healthcare providers, patients or the medical community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits of our products or product candidates may require significant resources and may not be successful. If Keveyis, Macrilen, Recorlev, veldoreotide or any other product candidate that we develop does not achieve an adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The degree of market acceptance of Keveyis, Macrilen,

Recorlev, veldoreotide or any other product candidates that are approved for commercial sale will depend on a variety of factors, including, but not limited to:

·

whether clinicians and potential patients perceive our products or product candidates to have better efficacy, safety and tolerability profile, and ease of use compared with alternative therapies;

·

the timing of market introduction;

·

the number of competing products;

·

our ability to provide acceptable evidence of safety and efficacy;

·

the prevalence and severity of any side effects;

·

relative convenience and ease of administration;

·

cost‑effectiveness;

·

patient diagnostics and screening infrastructure in each market;

·

marketing and distribution support; and

·

availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third‑party payors, both public and private.

In addition, the potential market opportunity for Keveyis, Macrilen, Recorlev, veldoreotide or any other product candidate we may develop is difficult to estimate precisely. Our estimates of the potential market opportunity are predicated on several key assumptions such as industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions may be inaccurate. If any of the assumptions proves to be inaccurate, then the actual market for Keveyis, Macrilen, Recorlev or our other product candidates could be smaller than our estimates of the potential market opportunity. If the actual market for Keveyis, Macrilen, Recorlev or our other product candidates is smaller than we expect, or if the products fail to achieve an adequate level of acceptance by physicians, health care payors and patients, our product revenue may be limited and we may be unable to achieve or maintain profitability. Further, given the limited number of treating physicians, if we are unable to convince a significant number of such physicians of the value of our products or product candidates, we may be unable to achieve a sufficient market share to make our products profitable.

The Orphan Drug designation for Keveyis, Macrilen and our product candidates may not prevent competition from companies that develop other compounds for the treatment of the same condition. These companies may have significantly more resources than we do. Competition from them could limit our revenue from the commercialization of Keveyis, Macrilen and/or our other product candidates.

Although Keveyis, Macrilen and our product candidates have received Orphan Drug designation in the United States, and in the case of Recorlev and veldoreotide in Europe, we cannot be assured that we will realize the potential benefits of the designation. Even after an orphan drug is approved for its orphan indication, the FDA or EMA can subsequently approve a different drug for the same condition if it concludes that the later drug is safer, more effective or makes a major contribution to patient care. Upon expiration of the orphan drug exclusivity period, we may be subject to competition from manufacturers offering a generic form of Keveyis, Macrilen or our other products at a lower price, in

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which case our business could be harmed.

For example, Corcept's Korlym has an Orphan Drug designation in the United States and is approved for the control of hyperglycemia secondary to hypercortisolism in patients with endogenous Cushing's syndrome who have type 2 diabetes or glucose intolerance and have failed surgery or are not candidates for surgery. However, in 2012 Novartis received approval in both the United States and the European Union (EU) to market its somatostatin analogue Signifor for adult patients with Cushing's disease (a subset of Cushing's syndrome that accounts for approximately 70 percent of all Cushing's syndrome patients) for whom pituitary surgery is not an option or has not been curative.

Laboratoire HRA Pharma (HRA) received Orphan Drug designation in the United States and the EU for the use of mifepristone to treat a subtype of Cushing's syndrome. HRA began and terminated a Phase 2 clinical trial in Europe and the United States for this indication. Exelgyn Laboratories, which operates as a subsidiary of Medi Challenge (Pty) Ltd., received Orphan Drug designation for mifepristone to treat Cushing's syndrome in the EU, but it has stated that it has not yet conducted any clinical trials.

The terms of our credit facility place restrictions on our operating and financial flexibility.

Our term loan agreement with CRG includes affirmative and negative covenants applicable to us and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals necessary for us and our subsidiaries to perform our respective businesses and obligations under the term loan agreement, deliver certain financial reports to the lenders, maintain insurance coverage, and comply with certain financial covenants. The negative covenants include, among others, restrictions on our transferring collateral, changing our business, engaging in mergers or acquisitions, incurring additional indebtedness, paying dividends or making other distributions, making investments, creating liens, or entering into transactions with affiliates, in each case subject to certain exceptions.

The term loan agreement also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 4.0% and would provide the lenders holding more than 50% of the aggregate commitments under the credit facility, and CRG, as collateral agent, with the right to exercise remedies against us and the collateral securing the credit facility, including foreclosure against our assets securing the credit facility, including our cash. These events of default include, among others, our failure to pay any amounts due under the term loan agreement, a breach of covenants under the term loan agreement, a material adverse change, our insolvency, the occurrence of a default under any material agreement with a third party, and/or one or more judgments are rendered against us or our subsidiaries in an amount greater than $250,000 individually or in the aggregate.

Our ability to make scheduled payments on or to refinance our indebtedness depends on our future performance and ability to raise additional sources of cash, which is subject to economic, financial, competitive and other factors beyond our control. If we are unable to generate sufficient cash to service our debt, we may be required to adopt one or more alternatives, such as selling assets, restructuring our debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. If we desire to refinance our indebtedness, our ability to do so will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

Risks Related to Our Reliance on Third Parties

We have no manufacturing capabilities and currently depend on one supplier to manufacture Keveyis and a single set of suppliers to manufacture Macrilen. We also depend on a limited number of other suppliers to manufacture our product candidates for use in clinical trials. If these suppliers are unable or unwilling to continue manufacturing for us and we are unable to contract quickly with alternative sources, or if these third-party manufacturers fail to comply with FDA regulations or otherwise fail to meet our requirements, our business will be harmed.  

Taro Pharmaceuticals North America, Inc. produces all of our requirements for Keveyis. We rely on a single set of suppliers to produce all of our requirements for Macrilen. We rely on other third-parties to manufacture our product

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candidates for use in clinical trials. If any of these vendors is unable or unwilling to meet our future requirements, we may not be able to manufacture our products in a timely manner. Our current arrangements with these manufacturers are terminable by such manufacturers, subject to certain notice provisions.

The facilities used by our vendors to manufacture our product and product candidates must be approved by the FDA. We do not control the manufacturing processes of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements known as current good manufacturing practices (cGMPs). If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict requirements of the FDA or others, they will not be able to maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our products or if it withdraws any such approval, we may need to find alternative manufacturing facilities, which would significantly hamper our ability to develop, obtain regulatory approval for or market our products. In addition, sanctions could be imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could harm our business. If our suppliers fail to manufacture Keveyis, Macrilen or our product candidates on a timely basis in the quantities that we require, or fail to maintain manufacturing capabilities that meet FDA standards, we may exhaust our Keveyis and/or Macrilen inventory and not be able to generate revenue, or clinical development programs may be delayed.

We and our collaborators and contract manufacturers are subject to significant regulation with respect to the manufacturing of Keveyis, Macrilen and our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements or may not be able to meet supply demands.

All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our products and product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We, our collaborators or our contract manufacturers must supply all necessary documentation in support of an NDA or foreign equivalent on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. Some of our contract manufacturers have never produced a commercially-approved pharmaceutical product and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.

The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our collaborators and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility.

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If we, our collaborators or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or another applicable regulatory authority could impose regulatory sanctions including, among other things, refusal to approve a pending application our product candidates, withdrawal of an approval or suspension of production.

Additionally, if the supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

We rely on third parties to conduct our nonclinical and clinical trials and if these third parties perform in an unsatisfactory manner, our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-party CROs to conduct and monitor and manage data for our ongoing nonclinical and clinical programs, and may not currently have all of the necessary contractual relationships in place to do so. Once we have established contractual relationships with such third-party CROS, we will have only limited control over their actual performance of these activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory, environmental and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.

We and our CROs and other vendors are required to comply with current Good Manufacturing Practices (“cGMP”), current Good Clinical Practices (“cGCP”), and Good Laboratory Practice (“GLP”), which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Union and any comparable foreign regulatory agency for all of our product candidates in nonclinical and clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, trial sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the data generated in our nonclinical and clinical trials may be deemed unreliable and the FDA, EMA or any comparable foreign regulatory agency may require us to perform additional nonclinical and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that all of our clinical trials comply with cGCP regulations. In addition, our clinical trials must be conducted with products produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

Our business involves the controlled use of hazardous materials, chemicals, biologicals and radioactive compounds. Substantially all such use is outsourced to third-party CRO manufacturers and clinical sites. Although we believe that our third-party CROs safety procedures for handling and disposing of such materials comply with industry standards, there will always be a risk of accidental contamination or injury. By law, radioactive materials may only be disposed of at certain approved facilities. If liable for an accident, or if it suffers an extended facility shutdown, we or our CROs could incur significant costs, damages or penalties.

Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing nonclinical and clinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. Our CROs may also generate higher costs than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.

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If any of our relationships with these third-party CROs terminates, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. If we are able to replace a CRO, switching or adding additional CROs involves additional cost and requires management time and focus and there is a natural transition period when a new CRO commences work. As a result, delays could occur, which could hurt our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees, and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor's discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may harm our business.

Risks Related to Our Intellectual Property

If we or our licensors are unable to obtain and maintain effective patent or license rights for our technologies, product candidates or any future product candidates, or if the scope of the patent or license rights obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

In addition to the exclusivity provided for Keveyis, Macrilen and our product candidates with regulatory orphan drug status, we rely upon a combination of patents, trade secret protection, license rights and confidentiality agreements to protect the intellectual property related to our technologies and product candidates. Our success depends in large part on our and our licensors' ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries, as well as license rights, with respect to our proprietary technology, products and product candidates.

We have sought to protect our proprietary position by filing, where possible, patent applications in the United States and abroad related to our novel technologies and products that are important to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost, in a timely manner or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development and manufacturing processes before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our products or product candidates in the United States or in foreign countries. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions remain confidential for a period of time after filing, and some remain so until issued. Therefore, we cannot be certain that we were the first to file any patent application related to our products or product candidates, or whether we were the first to make the inventions claimed in our owned patents or pending patent applications, nor can we know whether those from whom we license patents were the first to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability

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and commercial value of our patent rights are highly uncertain. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our products or product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, found unenforceable or invalidated, which could allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our products or product candidates, prevent others from designing around our claims or provide us with a competitive advantage. Any of these outcomes could impair our ability to prevent competition from third parties.

We and/or our licensors or partners have filed several patent applications covering various aspects of our products and product candidates. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent, or whether any issued patents will be found invalid and unenforceable or will be challenged by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance, or the loss or other impairment of any license rights relating to our products or product candidates, could deprive us of rights necessary for the successful commercialization of any products or product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product or product candidate under patent protection could be reduced.

We may not have sufficient patent terms to effectively protect our products and business.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is first filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such product candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours or otherwise provide us with a competitive advantage. Even if patents covering our products or product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications.

Although patent term extensions in the United States and under supplementary protection certificates in the European Union may be available to extend the patent exclusivity term for our products or product candidates, we cannot provide any assurances that any such patent term extension will be obtained and, if so, for how long.

Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to invent the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (the “AIA”), enacted on September 16, 2011, the United States has moved to a first inventor to file system. The AIA also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are currently unclear as the United States Patent and Trademark Office (the “USPTO”) is still implementing various regulations, the courts have yet to address many of these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. In general, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. In addition, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by the U.S. Congress, the

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federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Third-party claims of intellectual property infringement may expose us to substantial liability or prevent or delay our development and commercialization efforts.

Our commercial success depends in part on our ability to develop, manufacture, market and sell Keveyis, Macrilen and our product candidates, if approved, and use our proprietary technology without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we will market Keveyis and Macrilen and are developing product candidates. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our products and product candidates may be subject to claims of infringement of the intellectual property rights of third parties.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to compositions, formulations, methods of manufacture or methods of treatment related to the use or manufacture of Keveyis, Macrilen or our product candidates. We cannot be sure that we know of each and every patent and pending application in the United States and abroad that is relevant or necessary to the commercialization of Keveyis, Macrilen or our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents upon which our products or product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our products or product candidates, any compositions formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product or product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product or product candidate unless we obtained a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize Keveyis, Macrilen or one or more of our product candidates, if approved. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

Although we are not currently involved in any litigation, we may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.  

Competitors may infringe upon our patents or the patents of our licensors. Although we are not currently involved in any litigation, if we or one of our licensing partners were to initiate legal proceedings against a third party to enforce a patent covering one of our products or product candidates, the defendant could counterclaim that the patent

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covering our product or product candidate is invalid and/or unenforceable, or request declaratory judgment that there is no infringement. In patent litigation in the United States, defendant counterclaims alleging invalidity, noninfringement and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, nonobviousness or non-lack of enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld material relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, or at all. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs, and distract our management and other employees. In addition, the uncertainties associated with litigation could compromise our ability to successfully market Keveyis and/or Macrilen raise the funds necessary to continue our clinical trials, continue our research programs, and license necessary technology from third parties or enter into development partnerships that would help us bring our product candidates to market, if approved.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could hurt the market price of our ordinary shares.

Failure to secure or maintain adequate protection for our trademarks could adversely affect our business.

We have filed a U.S., Canadian, Brazilian and International (Madrid Protocol) trademark application designating Australia, China, European Community, India, Israel, Japan, Mexico and Turkey for the mark, "Strongbridge Biopharma." If the U.S. or any foreign trademark offices raise any objections, we may be unable to overcome such objections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Oppositions or cancellation proceedings have been filed and may in the future be filed against our trademarks, and our trademarks may not survive such proceedings.

Furthermore, third parties may allege in the future, that a trademark or trade name that we elect to use for our product candidates may cause confusion in the marketplace. We evaluate such potential allegations in the course of our business, and such evaluations may cause us to change our commercialization or branding strategy for our product candidates, which may require us to incur additional costs. Moreover, any name we propose to use with our product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, domain names or copyrights may be ineffective and could result in substantial costs and diversion of resources.

In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks alleging that the use of a corporate name or logo, product names or other signs by which we

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distinguish our products and services are infringing their trademark rights. The outcome of such claims is uncertain and may adversely affect our freedom to use our corporate name or other relevant signs. If litigation arises in this area, it may lead to significant costs and diversion of management and employee attention.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

We may employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, and we are not currently subject to any claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties, we may in the future be subject to such claims. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

Although we are not currently experiencing any claims challenging the inventorship of our patents or ownership of our intellectual property, we may in the future be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our products or product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Further, licensing partners may not prosecute patents in certain jurisdictions in which we may obtain commercial rights, thereby precluding the possibility of later obtaining patent protection in these countries. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.

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Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Risks Related to Government Oversight and Regulation

We will be subject to ongoing obligations and continued regulatory requirements, which may result in significant additional expense.

Keveyis, Macrilen and any of our product candidates that obtain regulatory approval will remain subject to continual regulatory review. Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA, the EMA or any comparable foreign regulatory authority approves any of our product candidates, we will be subject to ongoing regulatory obligations and oversight by regulatory authorities, including with respect to the manufacturing processes, labeling, packing, distribution, adverse event reporting, storage, advertising and marketing restrictions, and recordkeeping and, potentially, other post-marketing obligations, all of which may result in significant expense and limit our ability to commercialize such products. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-regulatory approval. Because our two Phase 3 clinical trials of Recorlev will collect safety data for approximately 125 patients, we currently expect that we would be required by the FDA and the EMA to collect additional safety data post-approval.

In addition, approved products, manufacturers and manufacturers' facilities are subject to continual review and periodic inspections. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

·

restrictions on the marketing or manufacturing of the product;

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withdrawal of the product from the market, or voluntary or mandatory product recalls;

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fines, disgorgement of profits or revenues, warning letters or holds on clinical trials;

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refusal by the FDA to approve pending applications or supplements to approved applications filed by us;

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suspension or revocation of product approvals;

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product seizure or detention, or refusal to permit the import or export of products; and

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injunctions or the imposition of civil or criminal penalties.

If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements. The policies of the FDA, the EMA or any comparable foreign regulatory agency may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained, which would compromise our ability to achieve or sustain profitability.

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Although we have obtained orphan drug designation for Keveyis, Macrilen and our key product candidates from the FDA and EMA, orphan drug designation may not ensure that we will enjoy market exclusivity in a particular market, and if we fail to obtain or maintain orphan drug exclusivity for Keveyis, Macrilen or our product candidates, we may be subject to earlier competition and our potential revenue will be reduced.

Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan drug if it is intended to treat an orphan disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA's Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis, prevention or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition.

In the United States, orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan drug designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation entitles a party to financial incentives such as a reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Keveyis has been granted orphan drug designation for the treatment of hyperkalemic, hypokalemic, and related variants of PPP in the United States. Macrilen has been granted orphan drug designation for the diagnosis of AGHD. Recorlev has been granted orphan drug designation for the treatment of endogenous Cushing's syndrome in the United States and Europe. Veldoreotide has been granted orphan drug designation for the treatment of acromegaly in the United States and in Europe. Even though we have obtained orphan drug designation for our key product candidates, we may not be the first to obtain regulatory approval for any particular orphan indication due to the uncertainties associated with developing biopharmaceutical products. For example, ketoconazole was granted orphan drug exclusivity in Europe and is now being marketed for the treatment of endogenous Cushing's syndrome. Therefore, Recorlev will need to show significant benefit compared to ketoconazole in order to be marketed in Europe prior to the expiration of the ketoconazole orphan drug exclusivity. Further, even though we have obtained orphan drug designation for our key product candidates, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

Enacted and future legislation may increase the difficulty and cost for us to obtain regulatory approval of and commercialize our product candidates, and may affect the prices we may set.

In the United States and the European Union, there have been a number of legislative, regulatory and proposed changes regarding the healthcare system. These changes could prevent or delay regulatory approval of our product candidates, restrict or regulate post-approval activities, and affect our ability to sell profitably any products for which we obtain regulatory approval and begin to commercialize.

As a result of legislative proposals and the trend toward managed health care in the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. In the United States, the Medicare Modernization Act changed the way Medicare covers and pays for

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pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly under a new Part D and introduced a new reimbursement methodology based on average sale 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 reimbursement that we receive for any approved products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow the 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.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, a sweeping law intended, among other things, 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. PPACA, among other things: increased the statutory minimum Medicaid rebates a manufacturer must pay under the Medicaid Drug Rebate Program; addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; and established a new Medicare Part D coverage gap discount program in which manufacturers must provide 50% point-of-sale discounts on negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer's outpatient drugs to be covered under Part D and implemented payment system reforms, including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Further, the PPACA imposed a significant annual nondeductible fee on entities that manufacture or import specified branded prescription drug products and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs. We expect that additional healthcare reform measures will likely be adopted in the future, any of which may increase our regulatory burdens and operating costs and limit the amounts that federal, state and foreign governments will reimburse for healthcare products and services, which could result in reduced demand for our products, if approved, or additional pricing pressures.

Moreover, other legislative changes have also been proposed and adopted in the United States since PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021 was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and will stay in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other health care funding, which could compromise the ability of patients and third-party payors to purchase our product candidates.

In 2017, the U.S. Congress has been assessing new legislation designed to repeal and replace core sections of the PPACA. We expect the U.S. Congress to continue to review and assess this legislation, referred to as the American Health Care Act (AHCA), along with other alternative health care reform proposals throughout 2017. Recent Congressional efforts such as the AHCA proposal adds to the uncertainty of the legislative changes enacted as part of PPACA. These changes will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services covered by plans that were authorized by the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.

In the European Union, proposed new clinical trial regulations will centralize clinical trial approval, which eliminates redundancy, but in some cases this may extend timelines for clinical trial approvals due to potentially longer wait times. Proposals to require specific consents for use of data in research, among other measures, may increase the

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costs and timelines for our product development efforts. Austerity measures in certain European nations may also affect the prices we are able to seek if our products are approved, as discussed below.

Both in the United States and in the European Union, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, whether the regulations, guidance or interpretations will be changed, or what the impact of such changes on the regulatory approvals of our product candidates, if any, may be.

Pricing for pharmaceutical products has come under increasing scrutiny by governments, legislative bodies and enforcement agencies. These activities may result in actions that have the effect of reducing our revenue or harming our business or reputation.

Pharmaceutical product pricing is subject to enhanced government and public scrutiny and calls for reform. There has recently been intense publicity regarding the pricing of pharmaceutical products generally, including publicity and pressure resulting from the prices charged for new products as well as price increases for older products that the government and public deem excessive. We may experience downward pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which could reduce our revenue and future profitability. Many companies in our industry have received governmental requests for documents and information relating to drug pricing and patient support programs. On December 19, 2017, we received letters from the offices of United States Senators Amy Klobuchar, Susan Collins and Tammy Baldwin, and Senator Claire McCaskill, Ranking member of Homeland Security and Governmental Affairs Committee, that request information relating to the marketing and sales of Keveyis. The letters request information principally relating to the pricing of Keveyis, among other things. We are cooperating with these voluntary requests for information. We could incur significant expense and experience reputational harm as a result of these or other similar future inquiries, as well as reduced market acceptance and demand for our products, which could harm our ability to market our products in the future. These factors could also result in changes in our product pricing and distribution strategies, reduced demand for our products and/or reduced reimbursement of products, including by federal health care programs such as Medicare and Medicaid and state health care programs. In addition, the Trump Administration has indicated an interest in taking measures pertaining to drug pricing, including potential proposals relating to Medicare price negotiations, and importation of drugs from other countries. At this time, it is unclear whether any of these proposals will be pursued and how they would impact our products or our future product candidates.

Our relationships with customers, consultants and payors will be subject to applicable fraud and abuse, privacy and security, transparency and other healthcare laws and regulations, which, if violated, could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we may in the future obtain regulatory approval and commercialize. Our current and future arrangements with third‑party payors, consultants, customers, physicians and others may expose us to broadly applicable fraud and abuse and other healthcare federal and state laws and regulations, including in the United States, that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain regulatory approval. Potentially applicable healthcare laws and regulations include, but are not limited to, the following:

·

the U.S. federal Anti‑Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for, purchasing, leasing, ordering, arranging for, or recommending the purchase, lease, or order of, any good, facility, item or service for which payment may be made under U.S. government healthcare programs such as Medicare and Medicaid;

·

the federal civil and criminal false claims laws and civil monetary penalties laws, including civil whistleblower or qui tam actions, which prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal

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government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the federal government;

·

the Privacy Rule or the Security Rule of HIPAA, as amended by HITECH, and its implementing regulations, which impose various obligations with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

·

the health care fraud provisions of HIPAA, which impose criminal liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third‑party payors, or to obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services;

·

the federal Physician Payments Sunshine Act under PPACA and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies to annually report to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value made by such manufacturers to physicians and teaching hospitals, and ownership and investment interests held by physicians or their immediate family members; and

·

analogous laws and regulations, such as state anti‑kickback and false claims laws, which may apply to sales or marketing arrangements, research, distribution and claims involving healthcare items or services reimbursed by state governmental and non‑governmental third‑party payors, including private insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, and state requirements for manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures and other restrictions on drug manufacturer marketing practices.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute and analogous state laws, it is possible that some of our current and future business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, PPACA, among other things, amends the intent requirement of the U.S. federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them in order to be in violation. Moreover, PPACA provides that the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to, without limitation, significant civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, imprisonment, disgorgement, enhanced government reporting and oversight, contractual damages, reputational harm, diminished profits and future earnings and/or the curtailment or restructuring of our operations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses or divert our management's attention from the operations of our business. 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 similar penalties, including, without limitation, criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs.

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We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors and other partners from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to sell our products abroad once we enter a commercialization phase and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

Risks Related to Our Ordinary Shares

The price of our ordinary shares may be volatile and may fluctuate due to factors beyond our control.

The market price of our ordinary shares may be volatile and subject to wide fluctuations in response to a variety of factors, many of which are beyond our control, including:

·

revenues from sales of Keveyis and Macrilen;

·

positive or negative results of testing and clinical trials by us, strategic partners or competitors;

·

delays in in‑licensing or acquiring additional complementary product candidates;

·

any delay in the commencement, enrollment and the ultimate completion of clinical trials;

·

technological innovations or commercial product introductions by us or competitors;

·

failure to successfully develop and commercialize any of our product candidates, if approved;

·

changes in government regulations;

·

developments concerning proprietary rights, including patents and litigation matters;

·

public concern relating to the commercial value or safety of any of our product candidates;

·

financing or other corporate transactions, or inability to obtain additional funding;

·

failure to meet or exceed expectations of the investment community;

·

announcements of significant licenses, acquisitions, strategic partnerships or joint ventures by us or our competitors;

·

publication of research reports or comments by securities or industry analysts; or

·

general market conditions in the pharmaceutical industry or in the economy as a whole.

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The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may hurt the market price of companies' stock, including ours, regardless of actual operating performance.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our ordinary shares and our trading volume could decline.

The trading market for our ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If too few securities or industry analysts commence or continue coverage of our company, the trading price for our ordinary shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our ordinary shares or publish inaccurate or unfavorable research about our business, the price of our ordinary shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our ordinary shares could decrease, which might cause the price of our ordinary shares and trading volume to decline.

Future sales, or the possibility of future sales, of a substantial number of our ordinary shares could adversely affect the price of our ordinary shares.

Future sales of a substantial number of our ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of our ordinary shares. We currently have 45,504,848 ordinary shares outstanding. We have also filed a Registration Statement on Form S-8, registering ordinary shares that we may issue under our equity compensation plans. These ordinary shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements. If a large number of our ordinary shares or securities convertible into our ordinary shares are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our ordinary shares and impede our ability to raise future capital.

An active market in our ordinary shares may not be liquid enough for investors to resell our ordinary shares.

The listing of our ordinary shares on the Nasdaq Global Select Market does not assure that a meaningful, consistent and liquid trading market exists. In general trading volume in our ordinary shares has been limited and an active trading market for our shares may not be sustained. If an active market for our ordinary shares is not sustained, it may be difficult for investors to sell their shares without depressing the market price for the shares or at all.

We have never paid cash dividends, do not expect to pay dividends in the foreseeable future and our ability to pay dividends, or repurchase or redeem our ordinary shares, is limited by law.

We have not paid any dividends since our inception and do not anticipate paying any dividends on our ordinary shares in the foreseeable future. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. The proposal to pay future dividends to shareholders will in addition effectively be at the sole discretion of our board of directors after taking into account various factors our board of directors deems relevant, including our business prospects, capital requirements, financial performance and new product development. In addition, payment of future dividends is subject to certain limitations under the Irish Companies Act 2014 (the “Irish Companies Act”). The Irish Companies Act, among other requirements, requires Irish companies to have distributable reserves available for distribution equal to or greater than the amount of the proposed dividend. Accordingly, investors cannot rely on dividend income from our ordinary shares and any returns on an investment in our ordinary shares will likely depend entirely upon any future appreciation in the price of our ordinary shares.

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We believe we were classified as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes in past years and we may be classified as a PFIC in future years , which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ordinary shares.

A non-U.S. corporation generally will be classified as a PFIC for U.S. federal income tax purposes for any taxable year if either (1) 75% or more of its gross income for such year consists of certain types of "passive" income or (2) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. For this purpose, "passive income" generally includes, among other items of income, dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income, and a non-U.S. corporation is treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which such non-U.S. corporation owns, directly or indirectly, more than 25% of the value of such other corporation's stock. Based on our income, assets and activities in past years, we believe that we were a PFIC in past years, and we may be classified as a PFIC for the current taxable year and for future years depending on the income, assets, and activities in such taxable years. A U.S. Holder that holds ordinary shares during any taxable year in which we are a PFIC would be subject to substantially increased U.S. federal income tax liability, including upon the receipt of any "excess distributions" from us and upon the sale or other disposition of our ordinary shares. Although certain elections may be available to mitigate the adverse impact of the PFIC rules, such elections may result in a current U.S. federal tax liability prior to any distribution on or disposition of our ordinary shares. Further, there can be no assurances that we will supply U.S. Holders with information that such U.S. Holders are required to report under the rules governing such elections. Accordingly, the acquisition of our ordinary shares may not be an appropriate investment for certain holders that are not tax-exempt organizations. U.S. Holders should consult their tax advisers regarding the application of the PFIC rules to an investment in our ordinary shares.

As of January 1, 2018, we are required to comply with the Exchange Act's domestic reporting regime and Nasdaq's requirements for domestic issuers, which may cause us to incur increased legal, accounting and other expenses.

Prior to January 1, 2018, we were a foreign private issuer and were, therefore, not required to comply with the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. As of the end of our second fiscal quarter in 2017, however, we determined that we no longer satisfied the eligibility requirements of a foreign private issuer. As a result, effective January 1, 2018 we are required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and are no longer eligible for certain exemptions from Nasdaq’s corporate governance requirements. The Exchange Act's disclosure and reporting requirements for domestic issuers are generally more detailed and extensive than the requirements for foreign private issuers. To satisfy these requirements, we may be required to make changes to our corporate governance practices to comply with SEC and stock exchange rules. The costs for us to comply with these regulatory requirements may be significantly higher than the costs we have generally incurred as a foreign private issuer. Further, we are now subject to procedural requirements, including Nasdaq rules requiring shareholder approval for certain types of equity offerings, that may impede our ability to conduct certain types of financings or otherwise delay our ability to take corporate actions. We also expect that complying with the rules and regulations applicable to domestic issuers may make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

Our shareholder’s rights are governed by Irish law and differ from the rights of shareholders under U.S. law.

We are a public limited company incorporated under the laws of Ireland. Therefore, the rights of holders of ordinary shares are governed by Irish law and by our memorandum and articles of association. These rights differ from the typical rights of shareholders in U.S. corporations. In certain cases, facts that, under U.S. law, would entitle a shareholder in a U.S. corporation to claim damages may not give rise to a cause of action under Irish law entitling a shareholder in an Irish company to claim damages. For example, the rights of shareholders to bring proceedings against us or against our directors or officers in relation to public statements are more limited under Irish law than under the civil liability provisions of the U.S. securities laws.

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Our shareholders may have difficulties enforcing, in actions brought in courts in jurisdictions located outside the United States, judgments obtained in the U.S. courts under the U.S. securities laws. In particular, if a shareholder sought to bring proceedings in Ireland based on U.S. securities laws, the Irish court might consider that:

·

it did not have jurisdiction;

·

it was not the appropriate forum for such proceedings;

·

applying Irish conflict of laws rules, U.S. laws (including U.S. securities laws) did not apply to the relationship between you and us or our directors and officers; or

·

the U.S. securities laws were of a penal nature or violated Irish public policy and should not be enforced by the Irish court.

Our shareholders should also be aware that Irish law does not allow for any form of legal proceedings directly equivalent to the class action available in the United States.

Because the PCAOB is not permitted to inspect registered public accounting firms in Ireland, you do not have the benefit of such inspections to the extent our financial statements are audited by a registered public accounting firm in Ireland.

Auditors of U.S. public companies, including our independent registered public accounting firm, are required by the laws of the United States to undergo periodic PCAOB inspections to assess their compliance with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. The laws of certain European Union countries, including Ireland, do not currently permit the PCAOB to conduct inspections of accounting firms established and operating in such European Union countries. Accordingly, to the extent our financial statements will be audited by a registered public accounting firm in Ireland, the PCAOB would be prevented from fully evaluating the effectiveness of our independent registered public accounting firm's audit procedures or quality control procedures. Unlike shareholders or potential shareholders of most U.S. public companies, our shareholders would be deprived of the possible benefits of such PCAOB inspections.

A future transfer of our ordinary shares, other than one effected by means of the transfer of book-entry interests in DTC, may be subject to Irish stamp duty.

The rate of Irish stamp duty, when applicable, on the transfer of shares in an Irish-incorporated company is 1% of the price paid, or the market value of the shares acquired, whichever is greater. Payment of Irish stamp duty is generally a legal obligation of the transferee. We expect that most of our ordinary shares will be traded through the Depositary Trust Company (“DTC”), or through brokers who hold such shares on behalf of customers through DTC. As such, the transfer of ordinary shares should be exempt from Irish stamp duty based on established practice of the Irish Revenue Commissioners. We received written confirmation from the Irish Revenue Commissioners on June 22, 2015 that a transfer of our ordinary shares held through DTC and transferred by means of a book-entry interest would be exempt from Irish stamp duty. However, if you hold your ordinary shares directly of record, rather than beneficially through DTC, or through a broker that holds your ordinary shares through DTC, any transfer of your ordinary shares may be subject to Irish stamp duty. The potential for Irish stamp duty to arise could adversely affect the price and liquidity of our ordinary shares. In addition, the terms of our eligibility agreement with DTC requires us to provide certain indemnities relating to Irish stamp duty to third parties. If liability were to arise as a result of the indemnities provided under the terms of the eligibility agreement, we may face significant unexpected costs.

Anti-takeover provisions in our Articles and under Irish law could make an acquisition of us more difficult, limit attempts by our shareholders to replace or remove our current directors and management team, and limit the market price of our ordinary shares.

Our Articles contain provisions that may delay or prevent a change of control, discourage bids at a premium over the market price of our ordinary shares and adversely affect the market price of our ordinary shares and the voting

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and other rights of the holders of our ordinary shares. These provisions include:

·

dividing our board of directors into three classes, with each class serving a staggered three‑year term;

·

permitting our board of directors to issue preference shares without shareholder approval, with such rights, preferences and privileges as they may designate;

·

provisions which allow our board of directors to adopt a shareholder rights plan upon such terms and conditions as it deems expedient and in our best interests;

·

establishing an advance notice procedure for shareholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; and

·

the ability of our board of directors to fill vacancies on our board in certain circumstances.

These provisions do not make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some shareholders. In addition, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management team by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management.

Irish law differs from the laws in effect in the United States with respect to defending unwanted takeover proposals and may give our board of directors less ability to control negotiations with hostile offerors.

We are subject to the Irish Takeover Rules. Under the Irish Takeover Rules, our board of directors is not permitted to take any action that might frustrate an offer for our ordinary shares once our board of directors has received an approach that may lead to an offer or has reason to believe that such an offer is or may be imminent, subject to certain exceptions. Potentially frustrating actions such as (1) the issue of shares, options, restricted share units or convertible securities, (2) material acquisitions or disposals, (3) entering into contracts other than in the ordinary course of business or (4) any action, other than seeking alternative offers, which may result in frustration of an offer, are prohibited during the course of an offer or at any earlier time during which our board of directors has reason to believe an offer is or may be imminent. These provisions may give our board of directors less ability to control negotiations with hostile offerors than would be the case for a corporation incorporated in the United States.

We are an "emerging growth company," and we cannot be certain if the reduced reporting requirements applicable to "emerging growth companies" will make our ordinary shares less attractive to investors.

We are an "emerging growth company," as defined in the JOBS Act. For as long as we continue to be an "emerging growth company," we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, exemptions from the requirements to provide certain executive compensation disclosures, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation or seeking shareholder approval of any golden parachute payments not previously approved. As an "emerging growth company," in our initial registration statement, we were required to report only two years of financial results and selected financial data compared to three and five years, respectively, for comparable data reported by other public companies. We could be an "emerging growth company" for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an "emerging growth company" as of the following December 31, our fiscal year end. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and the price of our ordinary shares may be more volatile.

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Certain provisions of the warrants issued in our 2016 private placement could impede a sale of the company.

In the event of a sale of the company, the terms of the warrants issued to investors in our December 2016 private placement require us to use our best efforts to ensure the holders of such warrants will have a continuing right to purchase shares of the acquirer and, if our efforts are unsuccessful, to make a payment to such warrant holders based on a Black-Scholes valuation (using variables as specified in the warrant agreements). Such payment must be made in cash in the event that the acquisition results in our shareholders receiving cash from the acquirer at the closing of the transaction, and must be made in shares of the Company (with the value of each ordinary share determined according to the calculation specified in the warrant agreements) in the event that the acquisition results in our shareholders receiving shares in the acquirer or other entity at the closing of the transaction. In the event that our shareholders receive both cash and shares at the closing of the transaction, such payment to the warrant holders shall also be made in both cash and shares in the same proportion as the consideration received by the shareholders.

Notwithstanding the foregoing, in the event that as a result of an acquisition the warrants will be exercisable for anything other than shares or securities that are listed on a regulated market (within the meaning of the Markets in Financial Instruments Directive (2004/39(EC))) or a United States national securities exchange, the warrant holders will be entitled to demand to receive a cash payment in an amount equal to the Black-Scholes Value per warrant (calculated in accordance with the warrants) contemporaneously with or promptly after the consummation of such acquisition.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

For our corporate headquarters, we lease 22,069 square feet of office space at 900 Northbrook Drive, Suite 200 and Suite 250, Trevose, Pennsylvania 19053. We believe that our existing facility is adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms. We also lease 3,173 square feet of office space in Radnor, Pennsylvania, which was subleased in September 2015.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are a party to legal proceedings arising in the ordinary course of business. We are not currently a party to any other legal proceedings that we believe could have a material adverse effect on financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

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ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company's common stock is listed on the Nasdaq Global Select Market under the symbol “SBBP”. The following table sets forth, for the periods indicated, the range of high and low sales prices per ordinary share as reported by Nasdaq:

 

 

 

 

 

 

 

 

 

    

High

    

Low

 

Year ended December 31, 2017

 

 

 

 

 

 

 

    Quarter ended December 31, 2017

 

$

7.60

 

$

5.20

 

    Quarter ended September 30, 2017

 

$

8.85

 

$

5.40

 

    Quarter ended June 30, 2017

 

$

7.90

 

$

3.50

 

    Quarter ended March 31, 2017

 

$

4.75

 

$

2.00

 

Year ended December 31, 2016

 

 

 

 

 

 

 

    Quarter ended December 31, 2016

 

$

5.42

 

$

2.05

 

    Quarter ended September 30, 2016

 

$

6.24

 

$

3.73

 

    Quarter ended June 30, 2016

 

$

6.39

 

$

3.30

 

    Quarter ended March 31, 2016

 

$

7.99

 

$

3.51

 

 

Stockholders

As of December 31, 2017, there were approximately 31 stockholders of record of our ordinary shares. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. As per our loan agreement, we are restricted to pay dividends or other distributions with respect to any shares of our capital stock. We do not intend to pay cash dividends on our common stock for the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

See Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information relating to our equity compensation plans.

Performance Graph

The performance graph below compares the cumulative total stockholder return on our common stock beginning on October 15, 2015, the date our stock began trading on the Nasdaq Global Market, and for each subsequent quarter period end through and including December 31, 2017, with the cumulative return of the Nasdaq Composite Index and Nasdaq Biotechnology Index.

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The performance graph comparison assumes $100 was invested in our common stock and in each of the other indices described above October 15, 2015. The stock performance shown on the graph below is not necessarily indicative of future price performance.

Picture 3

Recent Sale of Unregistered Securities and Use of Proceeds

As a condition to the Loan Agreement, on July 14, 2017, we sold an aggregate of 429,799 ordinary shares to CRG for an aggregate purchase price of $3.0 million. We also issued to CRG a warrant to purchase up to an aggregate of 394,289 ordinary shares, at an exercise price of $7.37 per share.

We believe that the issuance of the ordinary shares and warrants to CRG were exempt from registration under the Securities Act pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.

Purchases of Equity Securities By the Issuer and Affiliated Purchasers

None.

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ITEM 6.  SELECTED FINANCIAL DATA

The following tables set forth a summary of our consolidated financial data. We have derived the consolidated statement of operations data for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 and the balance sheet data as of December 31, 2017, 2016 and 2015 from our consolidated audited financial statements. You should read this data together with the consolidated financial statements and related notes appearing elsewhere in this Annual Report and the section in this filing titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The historical results are not necessarily indicative of the results to be expected for any future periods.  All of our operations are continuing operations and we have not proposed or paid dividends in any of the periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

 

(in thousands)

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

 

$

7,046

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excluding amortization of intangible asset)

 

$

1,483

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Selling, general and administrative

 

 

36,292

 

 

14,875

 

 

22,719

 

 

4,588

 

 

2,658

Research and development

 

 

17,268

 

 

20,023

 

 

20,135

 

 

5,844

 

 

2,534

Amortization of intangible asset

 

 

5,022

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Impairment of intangible assets

 

 

20,723

 

 

15,828

 

 

 —

 

 

 —

 

 

 —

Total cost and expenses

 

 

80,788

 

 

50,726

 

 

42,854

 

 

10,432

 

 

5,192

Operating loss

 

 

(73,742)

 

 

(50,726)

 

 

(42,854)

 

 

(10,432)

 

 

(5,192)

Total other income (expense), net

 

 

(37,970)

 

 

(631)

 

 

(1,229)

 

 

282

 

 

(288)

Loss before income taxes

 

 

(111,712)

 

 

(51,357)

 

 

(44,083)

 

 

(10,150)

 

 

(5,480)

Income tax (expense) benefit

 

 

(1,771)

 

 

2,638

 

 

450

 

 

480

 

 

 —

Net loss

 

 

(113,483)

 

 

(48,719)

 

 

(43,633)

 

 

(9,670)

 

 

(5,480)