UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 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 001-36668
DERMIRA, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
27-3267680 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification Number) |
275 Middlefield Road, Suite 150
Menlo Park, CA 94025
(Address of principal executive offices) (Zip Code)
(650) 421-7200
(Registrant’s telephone number, including area code)
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an 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. (Check one):
Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
(do not check if a smaller reporting company) |
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 ☒
As of November 1, 2017, the registrant had 41,674,138 shares of common stock outstanding.
Quarterly Report on Form 10-Q
Index
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Page No. |
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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ITEM 3 : |
25 |
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26 |
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27 |
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ITEM 1A : |
27 |
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ITEM 2 : |
64 |
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64 |
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64 |
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64 |
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65 |
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67 |
2
PART I. FINANCI AL INFORMATION
DERMIRA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
September 30, |
|
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December 31, |
|
||
|
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2017 |
|
|
2016 |
|
||
|
|
(unaudited) |
|
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|
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|
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Assets |
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|
|
|
|
|
|
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Current assets: |
|
|
|
|
|
|
|
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Cash and cash equivalents |
|
$ |
393,631 |
|
|
$ |
41,793 |
|
Short-term investments |
|
|
269,252 |
|
|
|
210,149 |
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Collaboration receivables from a related party |
|
|
— |
|
|
|
21,400 |
|
Prepaid expenses and other current assets |
|
|
7,768 |
|
|
|
10,649 |
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Total current assets |
|
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670,651 |
|
|
|
283,991 |
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Property and equipment, net |
|
|
929 |
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|
|
1,127 |
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Long-term investments |
|
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— |
|
|
|
24,551 |
|
Intangible assets |
|
|
1,126 |
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|
|
1,126 |
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Goodwill |
|
|
771 |
|
|
|
771 |
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Other assets |
|
|
972 |
|
|
|
1,035 |
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Total assets |
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$ |
674,449 |
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|
$ |
312,601 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
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|
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Current liabilities: |
|
|
|
|
|
|
|
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Accounts payable |
|
$ |
9,741 |
|
|
$ |
13,500 |
|
Accrued liabilities |
|
|
26,738 |
|
|
|
17,227 |
|
Accrued payments related to acquired in-process research and development, current |
|
|
102,517 |
|
|
|
— |
|
Deferred revenue, current |
|
|
4,265 |
|
|
|
4,265 |
|
Total current liabilities |
|
|
143,261 |
|
|
|
34,992 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Deferred revenue, non-current |
|
|
26,352 |
|
|
|
29,550 |
|
Convertible notes, net |
|
|
278,938 |
|
|
|
— |
|
Deferred tax liability |
|
|
194 |
|
|
|
194 |
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Accrued payment related to acquired in-process research and development, non-current |
|
|
26,290 |
|
|
|
— |
|
Other long-term liabilities |
|
|
687 |
|
|
|
495 |
|
Total liabilities |
|
|
475,722 |
|
|
|
65,231 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock |
|
|
— |
|
|
|
— |
|
Common stock |
|
|
42 |
|
|
|
36 |
|
Additional paid-in capital |
|
|
696,152 |
|
|
|
497,718 |
|
Accumulated other comprehensive loss |
|
|
(86 |
) |
|
|
(252 |
) |
Accumulated deficit |
|
|
(497,381 |
) |
|
|
(250,132 |
) |
Total stockholders’ equity |
|
|
198,727 |
|
|
|
247,370 |
|
Total liabilities and stockholders’ equity |
|
$ |
674,449 |
|
|
$ |
312,601 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
|
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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||||
Revenue: |
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|
|
|
|
|
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|
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|
|
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Collaboration and license revenue |
|
$ |
1,066 |
|
|
$ |
119 |
|
|
$ |
3,198 |
|
|
$ |
119 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Research and development |
|
|
30,788 |
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|
|
17,784 |
|
|
|
76,626 |
|
|
|
62,306 |
|
Acquired in-process research and development |
|
|
128,555 |
|
|
|
— |
|
|
|
128,555 |
|
|
|
— |
|
General and administrative |
|
|
19,754 |
|
|
|
8,276 |
|
|
|
44,667 |
|
|
|
20,550 |
|
Total operating expenses |
|
|
179,097 |
|
|
|
26,060 |
|
|
|
249,848 |
|
|
|
82,856 |
|
Loss from operations |
|
|
(178,031 |
) |
|
|
(25,941 |
) |
|
|
(246,650 |
) |
|
|
(82,737 |
) |
Interest and other income, net |
|
|
1,721 |
|
|
|
431 |
|
|
|
3,585 |
|
|
|
1,036 |
|
Interest expense |
|
|
(2,864 |
) |
|
|
— |
|
|
|
(4,184 |
) |
|
|
— |
|
Net loss |
|
$ |
(179,174 |
) |
|
$ |
(25,510 |
) |
|
$ |
(247,249 |
) |
|
$ |
(81,701 |
) |
Net loss per share, basic and diluted |
|
$ |
(4.30 |
) |
|
$ |
(0.72 |
) |
|
$ |
(6.15 |
) |
|
$ |
(2.54 |
) |
Weighted-average common shares used to compute net loss per share, basic and diluted |
|
|
41,625,038 |
|
|
|
35,429,586 |
|
|
|
40,171,691 |
|
|
|
32,178,234 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
|
|
Three Months Ended |
|
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Nine Months Ended |
|
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September 30, |
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September 30, |
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||||||||||
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2017 |
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2016 |
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|
2017 |
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|
2016 |
|
||||
Net loss |
|
$ |
(179,174 |
) |
|
$ |
(25,510 |
) |
|
$ |
(247,249 |
) |
|
$ |
(81,701 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities |
|
|
125 |
|
|
|
(142 |
) |
|
|
166 |
|
|
|
(2 |
) |
Total comprehensive loss |
|
$ |
(179,049 |
) |
|
$ |
(25,652 |
) |
|
$ |
(247,083 |
) |
|
$ |
(81,703 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(247,249 |
) |
|
$ |
(81,701 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
252 |
|
|
|
88 |
|
Stock-based compensation |
|
|
15,220 |
|
|
|
7,920 |
|
Acquired in-process research and development |
|
|
128,555 |
|
|
|
— |
|
Amortization of discount for payments related to acquired in-process research and development |
|
|
252 |
|
|
|
— |
|
Net amortization of premiums on available-for-sale securities |
|
|
1,939 |
|
|
|
1,267 |
|
Amortization of convertible note discount and issuance costs |
|
|
686 |
|
|
|
— |
|
Common stock issued in connection with license agreement |
|
|
— |
|
|
|
1,453 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Collaboration receivables from a related party |
|
|
21,400 |
|
|
|
(25,000 |
) |
Prepaid expenses and other current assets |
|
|
3,818 |
|
|
|
(3,154 |
) |
Other assets |
|
|
63 |
|
|
|
164 |
|
Accounts payable |
|
|
(3,759 |
) |
|
|
(3,014 |
) |
Accrued liabilities |
|
|
9,507 |
|
|
|
2,509 |
|
Other long-term liabilities |
|
|
191 |
|
|
|
(211 |
) |
Deferred revenue |
|
|
(3,198 |
) |
|
|
24,881 |
|
Net cash used in operating activities |
|
|
(72,323 |
) |
|
|
(74,798 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities |
|
|
(225,924 |
) |
|
|
(194,710 |
) |
Maturities of available-for-sale securities |
|
|
188,662 |
|
|
|
80,031 |
|
Purchase of property and equipment |
|
|
(49 |
) |
|
|
(105 |
) |
Net cash used in investing activities |
|
|
(37,311 |
) |
|
|
(114,784 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net proceeds from issuances of common stock |
|
|
183,220 |
|
|
|
137,996 |
|
Net proceeds from issuance of convertible notes |
|
|
278,252 |
|
|
|
— |
|
Net cash provided by financing activities |
|
|
461,472 |
|
|
|
137,996 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
351,838 |
|
|
|
(51,586 |
) |
Cash and cash equivalents at beginning of year |
|
|
41,793 |
|
|
|
107,242 |
|
Cash and cash equivalents at end of period |
|
$ |
393,631 |
|
|
$ |
55,656 |
|
Supplemental disclosure of noncash investing activities |
|
|
|
|
|
|
|
|
Acquisition of in-process research and development |
|
$ |
128,555 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization
We are a biopharmaceutical company dedicated to bringing biotech ingenuity to medical dermatology by delivering differentiated, new therapies to the millions of patients living with chronic skin conditions. We are committed to understanding the needs of both patients and physicians and using our insight to identify and develop leading-edge medical dermatology clinical programs. Our pipeline includes three late-stage product candidates that could have a profound impact on the lives of patients: glycopyrronium tosylate (formerly DRM04), for which a New Drug Application is under review by the U.S. Food and Drug Administration (“FDA”) for the treatment of primary axillary hyperhidrosis (excessive underarm sweating beyond what is needed for normal body temperature regulation); olumacostat glasaretil (formerly DRM01), in Phase 3 development for the treatment of acne vulgaris; and lebrikizumab, for which we plan to initiate a Phase 2b dose-ranging study for the treatment of moderate-to-severe atopic dermatitis. We are headquartered in Menlo Park, California.
In March 2017, we sold 5,750,000 shares of our common stock (“2017 Public Offering”) pursuant to an automatic shelf registration statement on Form S-3 and received gross proceeds of $193.8 million and net proceeds of $181.5 million, after deducting underwriting discounts and commissions of $11.6 million and offering expenses of $0.7 million.
In May 2017, we sold $287.5 million aggregate principal amount of 3.00% Convertible Senior Notes due 2022 (“Notes”) in a private placement to qualified institutional buyers and received net proceeds of $278.3 million, after deducting the initial purchasers’ discounts of $8.6 million and issuance costs of $0.6 million.
2. Summary of Significant Accounting Policies
Basis of Presentation
Our condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of our financial information. The results of operations for the three- and nine-month periods ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017 or any other future period. The condensed consolidated balance sheet as of December 31, 2016 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.
The accompanying condensed consolidated financial statements include the accounts of our wholly owned subsidiary, Dermira Canada. All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with our audited consolidated financial statements and the related notes thereto for the year ended December 31, 2016 included in our Annual Report on Form 10-K, filed with the SEC on February 28, 2017.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, acquired in-process research and development, investments, accrued research and development expenses, goodwill, intangible assets, other long-lived assets, stock-based compensation and the valuation of deferred tax assets. We base our estimates on our historical experience and also on assumptions that we believe are reasonable; however, actual results could significantly differ from those estimates.
7
We generate revenue from collaboration and license agreements related to the development and commercialization of our product candidates. We recognize revenue when persuasive evidence of an arrangement exists, services have been performed or products have been delivered, the fee is fixed and determinable and collection is reasonably assured. Collaboration and license agreements may include non-refundable upfront payments or reimbursement of research and development costs, contingent consideration payments based on achievement of defined milestones, and royalties on sales of commercialized products. Our responsibilities under collaboration and license agreements may include the transfer of intellectual property rights, such as licenses, obligations to provide research and development services, product supply and regulatory approval services, and participation on certain development and commercialization committees. For upfront payments that are recorded as deferred revenue and being recognized over the estimated period of performance, we regularly review the estimated periods of performance based on the progress made under each arrangement. The estimated performance period may change over the course of an arrangement’s term. Such a change could have a material impact on the amount of revenue recorded in future periods.
Multiple Element Arrangements
To determine the appropriate revenue recognition for payments to us under our collaboration and license agreements with multiple element arrangements, we evaluate whether the non-contingent deliverables of an arrangement represent separate units of accounting or a single unit of accounting. For non-contingent deliverables of an arrangement to represent separate units of accounting, the delivered elements each must have standalone value to the customer. Factors to determine standalone value include whether the deliverable is proprietary to us, whether the customer can use the license or other deliverables for their intended purpose without the receipt of the remaining elements and whether there are other vendors that can provide the undelivered items. Deliverables that meet these criteria are considered separate units of accounting. Deliverables that do not meet these criteria are combined and accounted for as a single unit of accounting.
Milestones and Other Contingent Payments
We have adopted the milestone method as described in Accounting Standards Codification 605-28, Milestone Method of Revenue Recognition . Under the milestone method, contingent consideration received from the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is defined as an event having all of the following characteristics: (1) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; (2) the event can only be achieved based in whole or in part on either our performance or a specific outcome resulting from our performance; and (3) if achieved, the event would result in additional payments being due to us. Contingent payments that do not meet the definition of a milestone are recognized in the same manner as the consideration for the combined unit of accounting. If we have no remaining performance obligations under the combined unit of accounting, any contingent payments would be recognized as revenue upon the achievement of the triggering event.
We evaluate whether milestones meet all of the following conditions to be considered substantive: (1) the consideration is commensurate with either of (a) our performance to achieve the milestone or (b) the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone; (2) the consideration relates solely to past performance; and (3) the consideration is reasonable relative to all the deliverables and payment terms within the arrangement. Substantive milestones are recognized as revenue upon achievement of the milestone and when collectability is reasonably assured.
Acquired In-Process Research and Development Expenses
We expense in-process research and development projects acquired as part of asset acquisitions that have no alternative future use. The fair value assigned to incomplete research projects that have not reached technological feasibility and are acquired in business combinations are capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the applicable project.
8
Accrued Research and Development Expenses
We record accruals for estimated costs of research, preclinical, non-clinical and clinical studies and manufacturing activities, which are a significant component of research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers, including contract research organizations (“CROs”). Our contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us. We accrue the costs incurred under agreements with these third parties based on our estimate of actual work completed in accordance with the respective agreements. In the event we make advance payments, the payments are recorded as a prepaid expense and recognized as the services are performed. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services. We accrue for costs associated with unused drug supplies that are both probable and estimable.
We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, such estimates for the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Variations in the assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from our estimates, resulting in adjustments to clinical trial expenses in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our condensed consolidated financial condition and results of operations.
Amortization of Debt Discount and Issuance Costs
Debt discount and issuance costs, consisting of legal and other fees directly related to the Notes, are offset against gross proceeds from the issuance of the Notes and are amortized to interest expense over the estimated life of the Notes based on the effective interest method.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for dilutive potential shares of common stock. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive for all periods presented.
The following common stock equivalent shares were not included in the computation of diluted net loss per share for the periods presented because their effect was antidilutive :
|
|
Outstanding as of September 30, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Stock options to purchase common stock |
|
|
5,823,687 |
|
|
|
4,460,024 |
|
Shares subject to outstanding restricted stock units |
|
|
300,538 |
|
|
|
147,634 |
|
Estimated shares issuable under the employee stock purchase plan |
|
|
140,283 |
|
|
|
82,972 |
|
Shares issuable upon conversion of Notes |
|
|
8,109,771 |
|
|
|
— |
|
|
|
|
14,374,279 |
|
|
|
4,690,630 |
|
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides clarification on the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or business combinations. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. We early adopted ASU 2017-01 in the third quarter of 2017. Pursuant to the guidance of ASU 2017-01, we concluded that our acquisition of intellectual property during the three months ended September 30, 2017 was an asset acquisition.
9
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 is aimed at making leasing activities more transparent and comparable, and requires lessees to recognize substantially all leases on their balance sheet as a right-of-use asset and a corresponding lease liability, including leases cu rrently accounted for as operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that the adoption of A SU 2016-02 will have on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration including milestones, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures.
ASU 2014-09 outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and require separate accounting (performance obligations), how variable consideration (which may include change orders and claims) is recognized, whether revenue should be recognized at a point in time or over time and ensuring the time value of money is considered in the transaction price.
The FASB issued supplemental adoption guidance and clarification to ASU 2014-09 in March 2016, April 2016 and May 2016 within ASU 2016-08, Revenue from Contracts with Customers: Principal vs. Agent Considerations , ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing , and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients , respectively. ASU 2014-09 and the related supplemental ASUs are effective for us as of January 1, 2018. We currently anticipate adopting these ASUs using the modified retrospective method. We believe the key changes in the standard that could impact our revenue recognition relate to the determination of distinct performance obligations, material rights, constraints related to the estimation of variable consideration and accounting for licenses of intellectual property and the timing of when those revenues are recognized. We currently anticipate that we will record a cumulative adjustment to decrease accumulated deficit, as of January 1, 2018, to reflect the impact of the adoption of these ASUs. We are in the process of analyzing each of our collaboration agreements to determine the future impact that these ASUs will have on our consolidated financial statements.
3. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance for fair value establishes a three-level hierarchy for disclosure of fair value measurements, as follows:
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted market prices included in Level 1) that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life.
Level 3—Unobservable inputs that are supported by little or no market activity and reflect our best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
10
The following tables set forth the fair value of our financial instruments that were measured on a recurring basis (in thousands):
|
|
As of September 30, 2017 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
199,193 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
199,193 |
|
U.S. Treasury securities |
|
|
23,820 |
|
|
|
— |
|
|
|
— |
|
|
|
23,820 |
|
Corporate debt |
|
|
— |
|
|
|
201,535 |
|
|
|
— |
|
|
|
201,535 |
|
Repurchase agreements |
|
|
— |
|
|
|
135,000 |
|
|
|
— |
|
|
|
135,000 |
|
U.S. Government agency securities |
|
|
— |
|
|
|
19,157 |
|
|
|
— |
|
|
|
19,157 |
|
Commercial paper |
|
|
— |
|
|
|
81,414 |
|
|
|
— |
|
|
|
81,414 |
|
Certificates of deposit |
|
|
— |
|
|
|
900 |
|
|
|
— |
|
|
|
900 |
|
Total financial assets |
|
$ |
223,013 |
|
|
$ |
438,006 |
|
|
$ |
— |
|
|
$ |
661,019 |
|
|
As of December 31, 2016 |
|
||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
5,115 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,115 |
|
U.S. Treasury securities |
|
|
6,112 |
|
|
|
— |
|
|
|
— |
|
|
|
6,112 |
|
Corporate debt |
|
|
— |
|
|
|
168,878 |
|
|
|
— |
|
|
|
168,878 |
|
Repurchase agreements |
|
|
— |
|
|
|
22,550 |
|
|
|
— |
|
|
|
22,550 |
|
U.S. Government agency securities |
|
|
— |
|
|
|
41,366 |
|
|
|
— |
|
|
|
41,366 |
|
Commercial paper |
|
|
— |
|
|
|
30,836 |
|
|
|
— |
|
|
|
30,836 |
|
Certificates of deposit |
|
|
— |
|
|
|
901 |
|
|
|
— |
|
|
|
901 |
|
Total financial assets |
|
$ |
11,227 |
|
|
$ |
264,531 |
|
|
$ |
— |
|
|
$ |
275,758 |
|
The estimated fair value of our Notes was $308.9 million as of September 30, 2017 and was based upon observable, Level 2 inputs, including pricing information from recent trades of the Notes as of September 30, 2017.
See Note 8 for information relating to payments which were measured using unobservable, Level 3 inputs, including a discount rate.
Where quoted prices are available in an active market, securities are classified as Level 1. When quoted market prices are not available for the specific security, then we estimate fair value by using quoted prices for identical or similar instruments in markets that are not active and model‑based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market‑based observable inputs obtained from various third‑party data providers, including but not limited to benchmark yields, reported trades and broker/dealer quotes.
4. Investments
Investments include available-for-sale securities and investment securities classified as cash equivalents. Investment securities consisted of the following (in thousands):
|
|
As of September 30, 2017 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
199,193 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
199,193 |
|
U.S. Treasury securities |
|
|
23,823 |
|
|
|
1 |
|
|
|
(4 |
) |
|
|
23,820 |
|
Corporate debt |
|
|
201,614 |
|
|
|
10 |
|
|
|
(89 |
) |
|
|
201,535 |
|
Repurchase agreements |
|
|
135,000 |
|
|
|
— |
|
|
|
— |
|
|
|
135,000 |
|
U.S. Government agency securities |
|
|
19,161 |
|
|
|
— |
|
|
|
(4 |
) |
|
|
19,157 |
|
Commercial paper |
|
|
81,414 |
|
|
|
— |
|
|
|
— |
|
|
|
81,414 |
|
Certificates of deposit |
|
|
900 |
|
|
|
— |
|
|
|
— |
|
|
|
900 |
|
Total investments |
|
$ |
661,105 |
|
|
$ |
11 |
|
|
$ |
(97 |
) |
|
$ |
661,019 |
|
11
|
As of December 31, 2016 |
|
||||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
5,115 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,115 |
|
U.S. Treasury securities |
|
|
6,112 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
6,112 |
|
Corporate debt |
|
|
169,112 |
|
|
|
6 |
|
|
|
(240 |
) |
|
|
168,878 |
|
Repurchase agreements |
|
|
22,550 |
|
|
|
— |
|
|
|
— |
|
|
|
22,550 |
|
U.S. Government agency securities |
|
|
41,384 |
|
|
|
— |
|
|
|
(18 |
) |
|
|
41,366 |
|
Commercial paper |
|
|
30,836 |
|
|
|
— |
|
|
|
— |
|
|
|
30,836 |
|
Certificates of deposit |
|
|
901 |
|
|
|
— |
|
|
|
— |
|
|
|
901 |
|
Total investments |
|
$ |
276,010 |
|
|
$ |
7 |
|
|
$ |
(259 |
) |
|
$ |
275,758 |
|
As of September 30, 2017, we did not hold any investments with a maturity exceeding one year. We do not intend to sell the securities that are in an unrealized loss position and it is more likely than not that the investments will be held until recovery of the amortized cost bases. We have determined that the gross unrealized losses on our securities as of September 30, 2017 were temporary in nature.
5. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Accrued outside research and development services |
|
$ |
11,874 |
|
|
$ |
10,046 |
|
Accrued compensation |
|
|
7,664 |
|
|
|
5,839 |
|
Accrued professional and consulting services |
|
|
3,453 |
|
|
|
1,042 |
|
Accrued interest |
|
|
3,246 |
|
|
|
— |
|
Other |
|
|
501 |
|
|
|
300 |
|
Total accrued liabilities |
|
$ |
26,738 |
|
|
$ |
17,227 |
|
12
6. Convertible Notes
In May 2017, we sold $287.5 million aggregate principal amount of 3.00% Convertible Senior Notes due 2022 in a private placement. We received net proceeds of $278.3 million, after deducting the initial purchasers’ discounts of $8.6 million and issuance costs of $0.6 million. The Notes were issued pursuant to an Indenture, dated as of May 16, 2017 (the “Indenture”), between us and U.S. Bank National Association, as trustee. The Notes are senior, unsecured obligations and bear interest at a rate of 3.00% per year, payable in cash semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2017. The Notes mature on May 15, 2022, unless earlier converted or repurchased in accordance with their terms.
The Notes are convertible into shares of our common stock, par value $0.001 per share, at an initial conversion rate of 28.2079 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $35.45 per share of common stock. The conversion rate and the corresponding conversion price are subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest. Holders of the Notes who convert their Notes in connection with a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the Notes may require us to repurchase all or a portion of their Notes at a price equal to 100% of the principal amount of Notes, plus any accrued and unpaid interest, including any additional interest to, but excluding, the repurchase date. Holders of the Notes may convert all or a portion of their Notes at their option at any time prior to the close of business on the business day immediately prior to May 15, 2022, in multiples of $1,000 principal amount.
As of September 30, 2017, there were unamortized issuance costs and debt discounts of $8.6 million, which were recorded as a direct deduction from the Notes on the condensed consolidated balance sheets.
7. Commitments
Facility Lease
We lease our corporate headquarters in Menlo Park, California under a non-cancelable operating lease agreement initially entered into in July 2014 and amended in September 2014 (“Initial Lease”). Pursuant to the Initial Lease, we leased 18,651 square feet of space in a multi-suite building (the “Building”). Rent payments under the Initial Lease included base rent of $97,918 per month during the first year of the Initial Lease with an annual increase of three percent, and additional monthly fees to cover our share of certain facility expenses, including utilities, property taxes, insurance and maintenance.
The Initial Lease was amended in December 2015 to provide for our lease of an additional 26,541 square feet of space in the building, commencing December 2016 (“Amended Lease”). Rent payments for the additional space included base rent of $135,426 per month during the first year of the Amended Lease period with an annual increase of three percent, and additional monthly fees to cover our share of certain facility expenses, including utilities, property taxes, insurance and maintenance.
The Amended Lease was further amended in April 2016 to accelerate our lease commencement date for the additional space, subject to certain conditions, from December 2016 to (1) May 2016 with respect to 2,882 square feet of the additional space, and (2) October 2016 with respect to 23,659 square feet of the additional space (as further amended, “Lease”). The Lease will expire on December 31, 2021, subject to our option to renew the Lease for an additional five-year term.
Pursuant to the terms of the Lease, we provided the lessor with a $500,000 letter of credit in August 2014, which is collateralized by a money market account. The letter of credit may be used by or drawn upon by the lessor in the event of our default of certain terms of the Lease. If no such event of default has occurred or then exists, the letter of credit may be reduced to $350,000 after June 1, 2019. The collateralized money market account is restricted cash and recorded in our condensed consolidated balance sheets in other assets.
In September 2017, to accommodate our expected growth, we entered into a sublease agreement (“Sublease”) pursuant to which we will sublease an additional 23,798 square feet of space in the Building. Rent payments for the Sublease include base rent of $139,218 per month during the first year of the Sublease with an annual increase of three percent, and additional monthly fees to cover our share of certain facility expenses, including utilities, property taxes, insurance and maintenance. The Sublease term will commence on the earlier to occur of (1) January 1, 2018, and (2) the date on which we complete our tenant improvements to the Sublease premises, and end on April 30, 2024, unless terminated early pursuant to the terms of the Sublease. We expect to commence making rent payments in March 2018.
13
Pursuant to the terms of the Sublease, in October 2017, we provided the sublessor with a $300,000 irrevocable commercial letter of credit, whi ch is collateralized by a money market account. The letter of credit may be used by or drawn upon by the sublessor in the event of our default of certain terms of the Sublease.
Rent expense was $1.0 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively, and $3.1 million and $1.3 million for the nine months ended September 30, 2017 and 2016, respectively. The terms of the Lease and the Sublease provide for rental payments on a monthly basis on a graduated scale. We recognize rent expense on a straight-line basis over the lease period and have accrued for rent expense incurred but not paid.
As of September 30, 2017, the aggregate total future minimum lease payments under the Lease and Sublease were as follows (in thousands):
Year Ending December 31, |
|
|
|
2017 (remainder) |
$ |
725 |
|
2018 |
|
4,428 |
|
2019 |
|
4,777 |
|
2020 |
|
4,918 |
|
2021 |
|
5,056 |
|
Thereafter |
|
4,480 |
|
Total payments |
$ |
24,384 |
|
The table above excludes approximately $10.4 million of additional rent due over the period of the Lease and Sublease to cover our share of facility expenses, including utilities, property taxes, insurance and maintenance.
8. Technology and Financing Agreements
Maruho Agreements
In March 2013, we entered into a Right of First Negotiation Agreement with Maruho Co., Ltd. (“Maruho Right of First Negotiation Agreement”), pursuant to which we provided Maruho with certain information and the right to negotiate an exclusive license to develop and commercialize certain of our products in specified territories. In connection with the entry into this agreement, Maruho paid us $10.0 million (“Maruho Payment”), which will be credited against certain payments payable by Maruho to us if we enter into a license agreement for any of our products. Maruho’s right of first negotiation expired in December 2016 but the right to credit the Maruho Payment against certain payments under any future license agreement for our products remains. As of September 30, 2017 and December 31, 2016, we recorded the $10.0 million payment related to the Maruho Right of First Negotiation Agreement as deferred revenue, non-current in our consolidated balance sheets. The revenue would be recognized in connection with and pursuant to a future license arrangement, if any, or at the time the parties decide not to enter into such a license, at which point the entire amount would be recognized as revenue.
In September 2016, we entered into an Exclusive License Agreement with Maruho, which grants Maruho an exclusive license to develop and commercialize glycopyrronium tosylate for the treatment of hyperhidrosis in Japan (“Maruho G.T. Agreement”). Pursuant to the terms of the Maruho G.T. Agreement, we received an upfront payment of $25.0 million from Maruho in October 2016 and are eligible to receive additional payments totaling up to $70.0 million, contingent upon the achievement of certain milestones associated with submission and approval of a marketing application in Japan and certain sales thresholds, as well as royalty payments based on a percentage of net product sales in Japan. The Maruho G.T. Agreement further provides that Maruho will be responsible for funding all development and commercial costs for the program in Japan and, until such time, if any, as Maruho elects to establish its own source of supply of drug product, Maruho will purchase product supply from us for development and, if applicable, commercial purposes at cost. The Maruho G.T. Agreement is unrelated to, and the exclusive license of glycopyrronium tosylate in Japan to Maruho was not subject to the terms of, the existing Maruho Right of First Negotiation Agreement.
We identified the following non-contingent deliverables under the Maruho G.T. Agreement: (1) the transfer of intellectual property rights (the “license”) and (2) the supply of drug materials for clinical development purposes. We concluded that the license is not a separate unit of accounting because Maruho cannot obtain benefit from the use of the license rights for their intended purpose without the product supplied by us. Even if Maruho elects to establish its own supply of drug product, it must rely upon us to supply the drug substance necessary for Maruho’s development because Maruho does not have the right to manufacture the drug substance. We determined that neither of the deliverables has standalone value and, therefore, the deliverables are accounted for as one combined unit of accounting, with the upfront payment recognized as revenue on a straight-line basis over the estimated period of performance. We regularly evaluate the reasonableness of the estimated period of performance and revise the amortization of deferred revenue as deemed appropriate on a prospective basis.
14
Milestone payments un der the Maruho G.T. Agreement could total up to $70.0 million. The achievement of any and all milestones is dependent solely upon the results of Maruho’s activities and, therefore, the milestones are not deemed to be substantive. If regulatory approval for glycopyrronium tosylate is achieved and the product is commercialized in Japan, we would recognize any royalty revenue received from Maruho based on Maruho’s net sales of the drug product in Japan.
Unless earlier terminated, the Maruho G.T. Agreement will remain in effect until the later of: (1) expiration or abandonment of the last valid claim of the applicable patent rights in Japan; (2) expiration of any market exclusivity in Japan granted by the applicable regulatory authority; and (3) 15 years following the date of the first commercial sale of the drug product in Japan.
For the three months ended September 30, 2017 and 2016 and nine months ended September 30, 2017 and 2016, we recognized collaboration and license revenue related to the Maruho G.T. Agreement of $1.1 million, $0.1 million, $3.2 million and $0.1 million, respectively, in connection with the $25.0 million upfront payment. In addition, as of September 30, 2017, we have a deferred revenue balance related to the Maruho G.T. Agreement of $20.6 million, of which $4.3 million is recorded in deferred revenue, current on the condensed consolidated balance sheets.
Roche Agreement
In August 2017, we entered into a licensing agreement (“Roche Agreement”) with F. Hoffmann-La Roche Ltd and Genentech, Inc. (together, “Roche”) , pursuant to which we obtained exclusive, worldwide rights to develop and commercialize lebrikizumab, an injectable, humanized antibody targeting interleukin 13, for atopic dermatitis and all other indications, except Roche retains certain rights, including exclusive rights to develop and promote lebrikizumab for interstitial lung diseases, such as idiopathic pulmonary fibrosis (“Retained Field”) and certain rights to use lebrikizumab for internal research purposes and for in vitro diagnostic purposes. The Roche Agreement became effective in September 2017 upon the early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Unless earlier terminated, the Roche Agreement will remain in effect until no royalty or other payment obligations are or may become due.
Under the terms of the Roche Agreement, we made an initial payment of $80.0 million to Roche in October 2017 and will make additional payments to Roche in 2018 totaling $55.0 million. We will also be obligated to make payments upon the achievement of certain milestones, comprising $40.0 million upon the initiation of the first Phase 3 clinical study, up to $210.0 million upon the achievement of regulatory and first commercial sale milestones in certain territories and up to $1.0 billion based on the achievement of certain thresholds for net sales of lebrikizumab for indications other than interstitial lung disease. Upon regulatory approval, if obtained, we will make royalty payments representing percentages of net sales that range from the high single-digits to the high teens. Royalty payments will be made from the first commercial sale date in a country (other than for the Retained Field) in such country and end on the later of the date that is (a) ten years after the date of the first commercial sale of lebrikizumab (other than for the Retained Field) in such country, (b) the expiration of the last to expire valid claim of the applicable licensed compound patent rights, Dermira patent rights or joint patent rights in such country covering the use, manufacturing, import, offering for sale, or sale of lebrikizumab (other than for the Retained Field) in such country, (c) the expiration of the last to expire valid claim of the applicable licensed non-compound patent rights in such country covering the use, import, offering for sale, or sale of the product in such country, or (d) the expiration of the last to expire regulatory exclusivity conferred by the applicable regulatory authority in such country for lebrikizumab (other than for the Retained Field).
We determined that the acquired in-process research and development related to the Roche Agreement had no alternative future use and recorded an expense of $128.6 million during the three and nine months ended September 30, 2017 in the condensed consolidated statements of operations as acquired in-process research and development expense. This expense was comprised of the initial payment of $80.0 million, which was made in October 2017, and the payments due in 2018 totaling $55.0 million. The payments due in 2018 were measured on a non-recurring basis using unobservable, Level 3 inputs, including a discount rate used to value the payments at present value as of the effective date of the Roche Agreement. As of September 30, 2017, on the condensed consolidated balance sheets, we recorded $102.5 million to accrued payments related to acquired in-process research and development, current, for the $80.0 million initial payment and the $25.0 million payment due by September 2018, and $26.3 million to accrued payment related to acquired in-process research and development, non-current, for the $30.0 million payment due by December 2018. The remaining milestone payments will be recognized when the contingency related to the milestone is resolved and the consideration is paid or becomes payable.
15
In 2010, we adopted the 2010 Equity Incentive Plan (the “2010 Plan”), which provided for the granting of stock options to our employees, directors and consultants. In September 2014, our board of directors approved the 2014 Equity Incentive Plan (the “2014 EIP”), which became effective on October 1, 2014. As of the effective date of the 2014 EIP, the 2010 Plan was terminated and no further stock awards will be granted pursuant to the 2010 Plan. Outstanding stock options granted under the 2010 Plan will continue to be governed by the provisions of the 2010 Plan until the earlier of the stock option’s expiration or exercise. In September 2014, our board of directors approved the 2014 Employee Stock Purchase Plan (the “2014 ESPP”), which became effective on October 2, 2014.
The following table reflects a summary of stock option activity and related information for the period from December 31, 2016 through September 30, 2017:
|
|
Shares Subject to Outstanding Stock Options |
|
|
Weighted- Average Exercise Price Per Share |
|
||
Stock options outstanding at December 31, 2016 |
|
|
4,526,079 |
|
|
$ |
13.92 |
|
Stock options granted |
|
|
1,543,270 |
|
|
$ |
31.90 |
|
Stock options exercised |
|
|
(171,171 |
) |
|
$ |
7.45 |
|
Stock options forfeited |
|
|
(74,491 |
) |
|
$ |
31.99 |
|
Stock options outstanding at September 30, 2017 |
|
|
5,823,687 |
|
|
$ |
18.64 |
|
The following table reflects a summary of restricted stock unit (“RSU”) activity under our 2014 EIP and related information for the period from December 31, 2016 through September 30, 2017:
|
|
Shares Subject to Outstanding RSUs |
|
|
Weighted- Average Grant Date Fair Value Per Share |
|
||
RSUs outstanding at December 31, 2016 |
|
|
147,634 |
|
|
$ |
27.21 |
|
RSUs granted |
|
|
221,765 |
|
|
$ |
32.68 |
|
RSUs vested and settled |
|
|
(64,270 |
) |
|
$ |
28.88 |
|
RSUs forfeited |
|
|
(4,591 |
) |
|
$ |
32.38 |
|
RSUs outstanding at September 30, 2017 |
|
|
300,538 |
|
|
$ |
30.81 |
|
Total stock-based compensation expense related to the 2010 Plan, the 2014 EIP and the 2014 ESPP was allocated as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
Research and development |
|
$ |
2,104 |
|
|
$ |
1,020 |
|
|
$ |
5,918 |
|
|
$ |
2,964 |
|
General and administrative |
|
|
3,397 |
|
|
|
1,845 |
|
|
|
9,302 |
|
|
|
4,956 |
|
Total stock-based compensation expense |
|
$ |
5,501 |
|
|
$ |
2,865 |
|
|
$ |
15,220 |
|
|
$ |
7,920 |
|
10. Subsequent Events
In March 2014, we and UCB Pharma S.A., a limited liability corporation incorporated under the laws of Belgium (“UCB”), entered into a Development and Commercialisation Agreement, dated March 21, 2014 (“UCB Agreement”) , which provided that we would (a) develop Cimzia (certolizumab pegol) for the treatment of psoriasis in order for UCB to seek regulatory approval from the FDA, European Medicines Agency and the Canadian federal department for health, and (b) upon the grant of regulatory approval in the United States and Canada, promote sales of Cimzia to dermatologists and conduct related medical affairs activities in the United States and Canada. The UCB Agreement also provided either party with the right to terminate the agreement under certain terms. We expressed our intent to terminate the UCB Agreement in accordance with its terms.
As a result, we and UCB entered into an agreement on November 6, 2017 to effect the termination of the UCB Agreement and an orderly transition of the development and commercialization activities under the UCB Agreement (“Transition Agreement”). The Transition Agreement, among other things, (a) provides that the UCB Agreement will terminate on February 15, 2018, (b) provides for the repurchase by UCB of all product rights, licenses and intellectual property relating to Cimzia, (c) specifies the responsibilities
16
and obligations of us and UCB in connection with the transi tion of certain activities under the UCB Agreement from us to UCB as a result of the termination of the UCB Agreement, (d) terminates UCB’s right to designate a director nominee to our Board of Directors and (e ) provides for the resignation of UCB’s design ee from our Board of Directors.
Pursuant to the UCB Agreement, there are no termination or penalty payments required by either party. In consideration for the repurchase of all product rights, licenses and intellectual property relating to Cimzia, UCB will pay us $11.0 million by November 13, 2017 and, upon approval of Cimzia in psoriasis in the United States, an additional $39.0 million within 30 days of such approval. We are obligated to reimburse UCB for up to $10.0 million of development costs incurred by UCB in connection with the development of Cimzia between January 1, 2018 and June 30, 2018. If the aggregate development costs reimbursed by us to UCB during this six-month period are less than $10.0 million, we will pay to UCB the difference between such aggregate costs and $10.0 million. These terms replace the provisions of the UCB Agreement pursuant to which we would have been eligible to recoup our external development costs incurred related to the Cimzia program, net of milestones received, through a royalty on future net sales of Cimzia.
We incurred expenses related to clinical materials supplied by UCB totaling $0.9 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, and $2.9 million and $5.1 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, we recorded $2.3 million in prepaid expense and other current assets, $0.6 million in accounts payable and $1.1 million in accrued liabilities related to the UCB Agreement. As of December 31, 2016, we recorded $2.8 million in prepaid expense and other current assets and $1.2 million in accounts payable related to UCB.
As of October 31, 2017, entities affiliated with UCB beneficially owned 1,841,234 shares of our outstanding common stock, representing approximately 4% of our outstanding common stock.
The interim financial statements included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016, included as part of our Annual Report on Form 10-K for the year ended December 31, 2016, and our unaudited Condensed Consolidated Financial Statements for the three- and nine-month periods ended September 30, 2017 and other disclosures (including the disclosures under “Part II — Other Information, Item 1A. Risk Factors”) included in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “potential,” “predict,” “project,” “estimate,” or “continue,” and similar expressions or variations. Forward-looking statements 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. Factors that could cause or contribute to these differences include those set forth elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II — Other Information, Item 1A. Risk Factors below, that could cause actual results to differ materially from historical results or anticipated results. Except as may be required by law, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We are a biopharmaceutical company dedicated to bringing biotech ingenuity to medical dermatology by delivering differentiated, new therapies to the millions of patients living with chronic skin conditions. We are committed to understanding the needs of both patients and physicians and using our insight to identify and develop leading-edge medical dermatology clinical programs. Our management team has extensive experience in product development and commercialization, having served in leadership roles at several leading dermatology companies. Our pipeline includes three late-stage product candidates that could have a profound impact on the lives of patients: glycopyrronium tosylate (formerly DRM04), for which a New Drug Application (“NDA”) is under review by the U.S. Food and Drug Administration (“FDA”) for the treatment of primary axillary hyperhidrosis, (excessive underarm sweating beyond what is needed for normal body temperature regulation); olumacostat glasaretil (formerly DRM01), in Phase 3 development for the treatment of acne vulgaris; and lebrikizumab, for which we plan to initiate a Phase 2b dose-ranging study for the treatment of moderate-to-severe atopic dermatitis.
17
Our three late-stage product candidates are:
|
• |
Glycopyrronium tosylate, a small-molecule anticholinergic product for topical application we are developing for the treatment of primary axillary hyperhidrosis (excessive underarm sweating), a medical condition that results in sweating beyond what is needed for normal body temperature regulation. In July 2015, we commenced a Phase 3 clinical program for glycopyrronium tosylate in patients with primary axillary hyperhidrosis that comprised three clinical trials – the ATMOS-1 and ATMOS-2 pivotal trials and the ARIDO open-label safety trial. In February 2016, we completed patient enrollment in ATMOS-1 and ATMOS-2 and in June 2016, we announced positive topline results from these trials. The ATMOS-1 and ATMOS-2 trials enrolled a total of 697 adult and adolescent (ages nine and older) patients with primary axillary hyperhidrosis. In the ATMOS-2 trial, glycopyrronium tosylate demonstrated statistically significant improvements for both co-primary endpoints and both secondary endpoints compared to vehicle. In the ATMOS-1 trial, glycopyrronium tosylate demonstrated statistically significant improvements for one of the co-primary endpoints and both secondary endpoints. Results from both Phase 3 trials were based on the overall dataset from the intent-to-treat population. For the second co-primary endpoint in the ATMOS-1 trial, when extreme outlier data from one analysis center were excluded in accordance with the pre-specified statistical analysis plan submitted to the FDA, glycopyrronium tosylate demonstrated statistically significant results compared to vehicle. Consistent with the results of an earlier Phase 2b trial, glycopyrronium tosylate was well-tolerated with side effects that were primarily mild to moderate in severity. In December 2016, the treatment period for ARIDO, the open-label Phase 3 trial assessing the long-term safety of glycopyrronium tosylate, was completed. The safety and tolerability profile for glycopyrronium tosylate in the ARIDO trial is consistent with what was observed in the ATMOS-1 and ATMOS-2 trials. Based on the results of the glycopyrronium tosylate Phase 3 program and a pre-NDA meeting with the FDA in February 2017, we submitted an NDA for glycopyrronium tosylate for the treatment of primary axillary hyperhidrosis to the FDA. In November 2017, we announced that the FDA had accepted our NDA, and that the formal notification indicated that the FDA had completed its filing review and the NDA was sufficiently complete to permit a substantive review. The Prescription Drug User Fee Act target date for the completion of the FDA’s review of the NDA is June 30, 2018. |
|
• |
Olumacostat glasaretil, a novel, small molecule designed to target sebum production following topical application that we are developing for the treatment of acne. Olumacostat glasaretil inhibits acetyl coenzyme-A carboxylase (“ACC”), the enzyme that plays an important role in the synthesis of up to 85 percent of the lipids that make up sebum. Sebum, an oily substance made up of lipids, is produced by glands in the skin called sebaceous glands. In April 2015, we commenced a Phase 2b dose-ranging clinical trial to evaluate the safety and efficacy of olumacostat glasaretil in adult patients with moderate-to-severe facial acne vulgaris. In January 2016, we completed patient enrollment in this study and in May 2016 we announced positive topline results. In the Phase 2b dose-ranging trial, which enrolled a total of 420 patients, olumacostat glasaretil demonstrated statistically significant improvements in all primary endpoints compared to vehicle at the highest dose and in most primary endpoints at the other doses. Olumacostat glasaretil was well-tolerated with adverse events primarily mild or moderate in severity. Based on these results, in December 2016, we initiated a Phase 3 program to evaluate the safety and efficacy of olumacostat glasaretil as a potential treatment for acne to support a potential NDA submission to the FDA. The Phase 3 program comprises three clinical trials – the CLAREOS-1 and CLAREOS-2 pivotal trials and the CLARITUDE open-label safety trial. In October 2017, we announced the completion of patient enrollment in CLAREOS-1 and CLAREOS-2 with a total of 1,503 adult and adolescent (ages nine and older) patients with moderate-to-severe acne. We expect to announce topline results from the CLAREOS-1 and CLAREOS-2 trials in the first quarter of 2018. |
|
• |
Lebrikizumab, an injectable, humanized antibody targeting interleukin 13 that we are developing for the treatment of atopic dermatitis. In August 2017, we entered into a license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (together, “Roche”) pursuant to which we obtained exclusive, worldwide rights to develop and commercialize lebrikizumab for atopic dermatitis and all other indications, except Roche retains exclusive rights to develop and promote lebrikizumab for interstitial lung disease (“Retained Field”) and certain rights to use lebrikizumab for internal research purposes and for in vitro diagnostic purposes (“Roche Agreement”). We plan to initiate a Phase 2b dose-ranging study assessing lebrikizumab in adult patients with moderate-to-severe atopic dermatitis in the first quarter of 2018. The objective of the Phase 2b dose-ranging study will be to optimize the dose of lebrikizumab for the design of a Phase 3 program. |
18
Below is a summary of selected key developments affecting our business that have occurred since December 31, 2016:
Glycopyrronium Tosylate
|
• |
Announced in November 2017 that the FDA had accepted our NDA for glycopyrronium tosylate, and that the formal notification indicated that the FDA had completed its filing review and the NDA was sufficiently complete to permit a substantive review. |
|
• |
Completed a meeting with the FDA in February 2017 to discuss our planned submission of an NDA for glycopyrronium tosylate. |
Olumacostat Glasaretil
|
• |
Announced in October 2017 the completion of patient enrollment in the CLAREOS-1 and CLAREOS-2 pivotal trials investigating the safety and efficacy of olumacostat glasaretil in patients with acne vulgaris. The two pivotal trials enrolled a total of 1,503 patients. |
|
• |
Announced in January 2017 the initiation of a Phase 3 program to evaluate the safety and efficacy of olumacostat glasaretil as a potential treatment for acne to support a potential NDA submission to the FDA. The Phase 3 program comprises three clinical trials – the CLAREOS-1 and CLAREOS-2 pivotal trials and the CLARITUDE open-label safety trial. |
Lebrikizumab
|
• |
Acquired exclusive, worldwide rights to develop and commercialize lebrikizumab for atopic dermatitis and all other indications except the Retained Field pursuant to the Roche Agreement, which became effective in September 2017. |
Non-Program Developments
|
• |
Closed a private placement of 3.00% Convertible Senior Notes due 2022 (“Notes”) in May 2017, which generated net proceeds to us of $278.3 million. |
|
• |
Closed an underwritten public offering in March 2017 (“2017 Public Offering”), which generated net proceeds to us of $181.5 million. |
Other
|
• |
In November 2017, we announced that following our expressed intent to exercise our right to terminate the development and commercialisation agreement between us and UCB Pharma S.A., (“UCB”), dated March 21, 2014 (“UCB Agreement”), which provided for the development and commercialization of Cimzia , an injectable biologic tumor necrosis factor-alpha inhibitor, for the treatment of psoriasis, we and UCB entered into a transition agreement (“Transition Agreement”), which provides for an orderly transition of the development and commercialization activities under the UCB Agreement and termination of the collaboration on February 15, 2018. |
Financial Overview
For the three months ended September 30, 2017, net loss increased 602% to $179.2 million from $25.5 million for the same period in 2016. The increase is primarily due to our recognition of acquired in-process research and development expenses of $128.6 million for the three months ended September 30, 2017 related to the costs to acquire exclusive worldwide rights to develop and commercialize lebrikizumab for atopic dermatitis and all other indications except the Retained Field. Research and development expenses increased 73% to $30.8 million for the three months ended September 30, 2017 compared to the same period in 2016, driven primarily by growth in clinical trial activities for our olumacostat glasaretil product candidate and by headcount growth and associated expenses. General and administrative expenses increased 139% to $19.8 million for the three months ended September 30, 2017 compared to the same period in 2016, driven primarily by headcount growth and associated expenses, as well as expenses related to commercial readiness activities.
For the nine months ended September 30, 2017, net loss increased 203% to $247.2 million from $81.7 million for the same period in 2016. The increase is primarily due to our recognition of acquired in-process research and development expenses of $128.6 million for the nine months ended September 30, 2017 pursuant to the Roche Agreement. Research and development expenses increased 23% to $76.6 million for the nine months ended September 30, 2017 compared to the same period in 2016, driven primarily by growth in clinical trial activities for our olumacostat glasaretil product candidate and by headcount growth and associated expenses, partially offset by a reduction in clinical trial activities for Cimzia and our glycopyrronium tosylate product candidate. General and administrative expenses increased 117% to $44.7 million for the nine months ended September 30, 2017 compared to the same period in 2016, driven primarily by headcount growth and associated expenses, as well as expenses related to commercial readiness activities.
19
As of September 30, 2017 , we had cash and cash equivalents and inv estments of $662.9 million.
Since our inception, we have devoted substantially all of our efforts to developing our product candidates, including conducting preclinical and clinical trials and manufacturing activities, and providing general and administrative support for our operations. We have financed our operations primarily through the sale of equity securities and convertible debt securities. We do not have any approved products and have never generated any revenue from product sales. Other than the revenue we may generate in connection with our agreements with UCB and Maruho, we do not expect to generate any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into other collaboration or license agreements with third parties for the development or license of those product candidates.
We have never been profitable and may never be profitable. As of September 30, 2017, we had an accumulated deficit of $497.4 million. We expect to continue to incur net losses for the foreseeable future as we advance our current and potential additional product candidates through clinical development, seek regulatory approval for them and prepare for and proceed to commercialization. We expect to incur significant commercialization costs in advance of any of our product candidates receiving regulatory approval. As a result, we will need substantial additional funding to support our operating activities. Adequate funding may not be available to us on acceptable terms, or at all. We currently anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration or license agreements. Our failure to obtain sufficient funds on acceptable terms as and when needed could have a material adverse effect on our business, results of operations and financial condition.
Critical Accounting Policies and Significant Estimates
Our management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
While our significant accounting policies are described in the notes to our condensed consolidated financial statements, we believe that the following changes to our critical accounting policies are most important to understanding and evaluating our reported condensed consolidated financial results, as these policies relate to the more significant areas involving management’s judgments and estimates.
Acquired In-Process Research and Development Expenses
We expense in-process research and development projects acquired as part of asset acquisitions that have no alternative future use. The fair value assigned to incomplete research projects that have not reached technological feasibility and are acquired in business combinations are capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the applicable project. We determined that the acquired in-process research and development related to the Roche Agreement had no alternative future use and recorded an expense of $128.6 million during the three and nine months ended September 30, 2017 in the condensed consolidated statements of operations as acquired in-process research and development expense. This expense was comprised of the initial payment of $80.0 million, which was made in October 2017, and the payments due in 2018 totaling $55.0 million that were measured on a non-recurring basis using unobservable, Level 3 inputs, including a discount rate used to value the payments at present value as of the effective date of the Roche Agreement.
Amortization of Debt Discount and Issuance Costs
Debt discount and issuance costs, consisting of legal and other fees directly related to the 3.00% Convertible Senior Notes due 2022 , are offset against gross proceeds from the issuance of the Notes and are amortized to interest expense over the estimated life of the Notes based on the effective interest method. As of September 30, 2017, there were unamortized issuance costs and debt discounts of $8.6 million, which were recorded as a direct deduction from the Notes on the condensed consolidated balance sheets.
Except for the policies described above, there were no other material changes in our critical accounting policies and significant estimates as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2017.
20
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
September 30, |
|
|
Change |
|
|
September 30, |
|
|
Change |
|
||||||||||||||||||||
|
|
2017 |
|
|
2016 |
|
|
$ |
|
|
% |
|
|
2017 |
|
|
2016 |
|
|
$ |
|
|
% |
|
||||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and license revenue |
|
$ |
1,066 |
|
|
$ |
119 |
|
|
$ |
947 |
|
|
|
796 |
% |
|
$ |
3,198 |
|
|
$ |
119 |
|
|
$ |
3,079 |
|
|
* |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
30,788 |
|
|
|
17,784 |
|
|
|
13,004 |
|
|
|
73 |
|
|
|
76,626 |
|
|
|
62,306 |
|
|
|
14,320 |
|
|
|
23 |
% |
Acquired in-process research and development |
|
|
128,555 |
|
|
|
— |
|
|
|
128,555 |
|
|
* |
|
|
|
128,555 |
|
|
|
— |
|
|
|
128,555 |
|
|
* |
|
||
General and administrative |
|
|
19,754 |
|
|
|
8,276 |
|
|
|
11,478 |
|
|
|
139 |
|
|
|
44,667 |
|
|
|
20,550 |
|
|
|
24,117 |
|
|
|
117 |
|
Total operating expenses |
|
|
179,097 |
|
|
|
26,060 |
|
|
|
153,037 |
|
|
|
587 |
|
|
|
249,848 |
|
|
|
82,856 |
|
|
|
166,992 |
|
|
|
202 |
|
Loss from operations |
|
|
(178,031 |
) |
|
|
(25,941 |
) |
|
|
(152,090 |
) |
|
|
586 |
|
|
|
(246,650 |
) |
|
|
(82,737 |
) |
|
|
(163,913 |
) |
|
|
198 |
|
Interest and other income, net |
|
|
1,721 |
|
|
|
431 |
|
|
|
1,290 |
|
|
|
299 |
|
|
|
3,585 |
|
|
|
1,036 |
|
|
|
2,549 |
|
|
|
246 |
|
Interest expense |
|
|
(2,864 |
) |
|
|
— |
|
|
|
(2,864 |
) |
|
* |
|
|
|
(4,184 |
) |
|
|
— |
|
|
|
(4,184 |
) |
|
* |
|
||
Net loss |
|
$ |
(179,174 |
) |
|
$ |
(25,510 |
) |
|
$ |
(153,664 |
) |
|
|
602 |
% |
|
$ |
(247,249 |
) |
|
$ |
(81,701 |
) |
|
$ |
(165,548 |
) |
|
|
203 |
% |
* |
Percentage not meaningful |
Revenue. Our revenue has been comprised of upfront and milestone payments in connection with the UCB Agreement and our exclusive license agreement with Maruho Co., Ltd., which grants Maruho an exclusive license to develop and commercialize glycopyrronium tosylate for the treatment of hyperhidrosis in Japan (“Maruho G.T. Agreement”).
We recognized $1.1 million and $3.2 million in collaboration and license revenue for the three and nine months ended September 30, 2017, respectively, related to the ratable recognition of the $25.0 million upfront payment received pursuant to the Maruho G.T. Agreement. We recognized $0.1 million in collaboration and license revenue for the three and nine months ended September 30, 2016 related to the ratable recognition of the $25.0 million upfront payment received pursuant to the Maruho G.T. Agreement.
Research and Development . Research and development expenses include external costs incurred for the development of our product candidates, including third-party expenses necessary for conducting clinical studies and developing and manufacturing clinical trial supplies, and internal expenses consisting primarily of salaries and related costs, including stock-based compensation expense, for personnel in our research and development functions. We track external research and development costs incurred for each of our product candidates. We do not track our internal research and development costs by product candidate, as these costs are typically spread across multiple product candidates. We expense research and development costs as they are incurred.
The following table summarizes our research and development expenses incurred during the respective periods:
|
|
Phase of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development as of |
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
||||||||||
|
|
September 30, |
|
September 30, |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
||||||||||
|
|
2017 |
|
2017 |
|
|
2016 |
|
|
$ Change |
|
|
2017 |
|
|
2016 |
|
|
$ Change |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||
External costs incurred by product candidate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glycopyrronium tosylate 1 |
|
Phase 3 Complete |
|
$ |
5,337 |
|
|
$ |
3,526 |
|
|
$ |
1,811 |
|
|
$ |
11,211 |
|
|
$ |
15,507 |
|
|
$ |
(4,296 |
) |
Olumacostat glasaretil 2 |
|
Phase 3 |
|
|
10,189 |
|
|
|
1,066 |
|
|
|
9,123 |
|
|
|
25,836 |
|
|
|
5,563 |
|
|
|
20,273 |
|
Lebrikizumab 3 |
|
Phase 2 |
|
|
89 |
|
|
|
— |
|
|
|
89 |
|
|
|
89 |
|
|
|
— |
|
|
|
89 |
|
Cimzia 4 |
|
Phase 3 |
|
|
5,591 |
|
|
|
5,668 |
|
|
|
(77 |
) |
|
|
13,997 |
|
|
|
22,915 |
|
|
|
(8,918 |
) |
Other research and development expenses |
|
|
|
|
689 |
|
|
|
1,464 |
|
|
|
(775 |
) |
|
|
1,341 |
|
|
|
1,548 |
|
|
|
(207 |
) |
Internal costs |
|
|
|
|
8,893 |
|
|
|
6,060 |
|
|
|
2,833 |
|
|
|
24,152 |
|
|
|
16,773 |
|
|
|
7,379 |
|
Total research and development expenses |
|
|
|
$ |
30,788 |
|
|
$ |
17,784 |
|
|
$ |
13,004 |
|
|
$ |
76,626 |
|
|
$ |
62,306 |
|
|
$ |
14,320 |
|
21
1 . |
In June 2016, we announced topline results from the pivotal trials of the glycopyrronium tosylate Phase 3 program. In December 2016, the treatment period for ARIDO, an open-label Phase 3 trial assessing the long-term safety of glycopyrronium tosylate, was completed. We submitted an NDA to the FDA and, in November 2017, we announced that the FDA had accepted our NDA, and that the formal notification indicated that the FDA had completed its filing review and the NDA was sufficiently complete to permit a substantive review. The Prescription Drug User Fee Act target date for the completion of the FDA’s review of the NDA is June 30, 2018. |
2 . |
In May 2016, we announced topline results from the olumacostat glasaretil Phase 2b study. Based on these results, we initiated a Phase 3 program in December 2016, announced completion of enrollment in the two pivotal clinical trials, CLAREOS-1 and CLAREOS-2, in October 2017 and expect to announce topline results from these trials in the first quarter of 2018. |
3 . |
In connection with the Roche Agreement, which became effective in September 2017, we acquired the exclusive, worldwide rights to develop and commercialize lebrikizumab for atopic dermatitis and all other indications except the Retained Field. We plan to initiate a Phase 2b dose-ranging study assessing lebrikizumab in adult patients with moderate-to-severe atopic dermatitis in the first quarter of 2018. The acquired in-process research and development expenses of $128.6 million related to the Roche Agreement are not included in this table. |
4. |
In December 2014, we commenced a Phase 3 clinical program for Cimzia. We announced topline results for the three clinical trials in this Phase 3 program, CIMPASI-2, CIMPASI-1 and CIMPACT, in October 2016, December 2016 and January 2017, respectively. UCB submitted a supplemental Biologics License Application to the FDA and a Type II Variation to the European Medicines Agency in July 2017 to support potential approvals for Cimzia as a treatment option for patients with moderate-to-severe chronic plaque psoriasis. In November 2017, we entered into the Transition Agreement with UCB, which provides for an orderly transition of the development and commercialization activities under the UCB Agreement and termination of the collaboration on February 15, 2018. |
Research and development expenses increased $13.0 million, or 73%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. This increase was due to a $13.9 million increase driven primarily by growth in clinical trial activities for our olumacostat glasaretil product candidate related to our Phase 3 program, which commenced in December 2016 and for which we announced the completion of patient enrollment for the CLAREOS-1 and CLAREOS-2 pivotal trials in October 2017, an increase in internal costs related to headcount growth and associated expenses and growth in regulatory and manufacturing activities for our glycopyrronium tosylate product candidate, partially offset by a $0.8 million decrease in other research and development expenses.
Research and development expenses increased $14.3 million, or 23%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. This increase was due to a $27.7 million increase driven primarily by growth in clinical trial activities for our olumacostat glasaretil product candidate related to our Phase 3 program and an increase in internal costs related to headcount growth and associated expenses, partially offset by a $13.2 million decrease in external costs for Cimzia and our glycopyrronium tosylate product candidate.
We expect our research and development expenses to increase as we continue clinical trials, prepare for regulatory submissions, expand our manufacturing activities, develop new product candidates resulting from our early-stage research programs or business development activities and expand our development organization and capabilities. The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates, related regulatory requirements and manufacturing costs and the timing and cost of potential additions to our portfolio of product candidates.
Acquired in-process research and development . Acquired in-process research and development expenses consist of in-process research and development projects acquired as part of asset acquisitions that have no future alternative use. Ongoing costs incurred for the development of our product candidates acquired in an asset acquisition are classified as research and development expenses.
Acquired in-process research and development expense was $128.6 million for the three and nine months ended September 30, 2017 and related to the initial $80.0 million payment made to Roche in October 2017 and the present value of the two additional payments totaling $55.0 million due to Roche in 2018 pursuant to the terms of the Roche Agreement.
General and Administrative . General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our general and administrative functions, including our sales and marketing functions. Other general and administrative expenses include professional fees for audit, tax, legal, market research and commercial planning services.
General and administrative expenses increased $11.5 million, or 139%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. This increase was due to headcount growth and associated expenses and higher expenses related to commercial readiness activities.
22
General and administrative expenses increased $24.1 million, or 117%, for the nine months ended September 30, 2017 compared to t he nine months ended September 30, 2016 . This increase was due to headcount growth and associated expenses and higher expenses related to commercial readiness activities.
We expect our general and administrative expenses to increase substantially in the future as we expand our operating activities, prepare for the potential commercialization of our product candidates and increase our headcount.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the issuance and sale of equity securities and convertible debt securities .
In November 2015, we filed a shelf registration on Form S-3 with the SEC for the issuance and sale of up to an aggregate offering of $300.0 million of shares of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities. In June 2016, we sold 5,175,000 shares of our common stock in a shelf offering pursuant to the shelf registration statement and received gross proceeds of $144.9 million and net proceeds of $135.6 million, after deducting underwriting discounts and commissions of $8.7 million and offering expenses of $0.6 million. The shelf registration statement also provides that we may issue and sell up to an aggregate offering of $75.0 million of our common stock through an at-the-market sales agreement with Cowen and Company, LLC. As of September 30, 2017, no sales had been made under this at-the-market sales agreement and $75.0 million of common stock remained available to be sold, subject to certain conditions as specified in the sales agreement.
Additionally, in February 2017, we filed an automatic shelf registration statement on Form S-3 for the potential offering, issuance and sale by us of shares of our common stock. In March 2017, we sold 5,750,000 shares of our common stock pursuant to the automatic shelf registration statement and received gross proceeds of $193.8 million and net proceeds of $181.5 million, after deducting underwriting discounts and commissions of $11.6 million and offering expenses of $0.7 million.
In May 2017, we sold $287.5 million aggregate principal amount of 3.00% Convertible Senior Notes due 2022 in a private placement to qualified institutional buyers and received net proceeds of $278.3 million, after deducting the initial purchasers’ discounts of $8.6 million and issuance costs of $0.6 million.
As of September 30, 2017, we had $662.9 million of cash and cash equivalents and investments. Our cash and cash equivalents and investments are held in a variety of interest-bearing instruments, including money market funds, U.S. Treasury securities, corporate debt, repurchase agreements, U.S. Government agency securities, commercial paper and certificates of deposit. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.
Our primary use of cash is to fund our operating expenses, including costs to acquire in-process research and development projects. As of September 30, 2017, we had an accumulated deficit of $497.4 million. We expect to incur additional losses and expend substantial cash resources for the foreseeable future for the clinical development and potential commercialization of our product candidates and development of any other indications and product candidates we may choose to pursue, and to support the administrative and reporting requirements of a public company.
Cash Flows
The following table shows a summary of our cash flows for the nine months ended September 30, 2017 and 2016:
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
|
|
(in thousands) |
|
|||||
Net cash (used in) provided by: |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(72,323 |
) |
|
$ |
(74,798 |
) |
Investing activities |
|
|
(37,311 |
) |
|
|
(114,784 |
) |
Financing activities |
|
|
461,472 |
|
|
|
137,996 |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
351,838 |
|
|
$ |
(51,586 |
) |
23
Operating Activities . Net cash used in operating activities was $72.3 million for the nine months ended September 30, 2017 and consisted of a net loss of $247.2 million , offset by $146.9 million in non-cash charges and a $28.0 million decrease in net operating assets . Non-cash charges included $128.6 million in acquired in-process research and development expense related to the Roche Agreement, $15.2 million of stock-based compensation expense and $1 .9 million of net amortization of premiums on available-for-sale securities. The decrease in net operating assets consisted primarily of a $21.4 million decrease in collaboration receivables from a related party attributable to the receipt of the third and fourth milestone payments from UCB, which were recognized in the fourth quarter of 2016 , a $9.5 million increase in accrued liabilities and a $3.8 million decrease in prepaid expenses and other current assets . These changes were partially offset by a $3.8 million decrease in accounts payable and a $3.2 million decrease in deferred revenue . Net cash used in operating activities was $74.8 million for the nine months ended September 30, 2016 and consisted of a net loss of $81.7 million and a $3.8 million incr ease in net operating assets, partially offset by $10.7 million in non-cash charges. The increase in net operating assets consisted primarily of a $25.0 million increase in collaboration and license receivable pursuant to the Maruho G.T. Agreement, a $3.2 million increase in prepaid expenses and other current assets and a $3.0 million decrease in accounts payable, partially offset by a $24.9 million increase in deferred revenue and a $2.5 million increase in accrued liabilities. Non-cash charges included $7.9 million of stock-based compensation expense, $1.5 million of common stock issued in connection with an agreement with Takeda Pharmaceutical Company Limited (“Takeda”) , pursuant to which we acquired the right to evaluate and conduct re search on Takeda compounds directed to each of three biological targets and an option to license exclusive worldwide rights to selected compounds from each of these three programs , and $1.3 million of amortization of premiums on available-for-sale securiti es .
Investing Activities . Net cash used in investing activities for the nine months ended September 30, 2017 was $37.3 million, which resulted primarily from purchases of investments of $225.9 million, partially offset by proceeds from maturities of investments of $188.7 million. Net cash used in investing activities for the nine months ended September 30, 2016 was $114.8 million, which resulted primarily from purchases of investments of $194.7 million, partially offset by proceeds from maturities of investments of $80.0 million.
Financing Activities . Net cash provided by financing activities for the nine months ended September 30, 2017 was $461.5 million, which resulted primarily from net proceeds of $181.5 million from our 2017 Public Offering and net proceeds of $278.3 million from the sale of the Notes. Net cash provided by financing activities for the nine months ended September 30, 2016 was $138.0 million, which resulted primarily from net proceeds from our underwritten public offering of $135.6 million in June 2016.
Operating and Capital Expenditure Requirements
We have incurred losses since inception and anticipate that we will continue to generate losses for the foreseeable future. We expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and prepare for potential commercialization and commercialize any approved products. We believe that existing cash and cash equivalents and investments on hand as of September 30, 2017 are sufficient to meet our anticipated cash requirements into the first half of 2019 and to: complete and generate topline results from our ongoing Phase 3 pivotal clinical trials for olumacostat glasaretil; commercialize our glycopyrronium tosylate product candidate, assuming that we receive the necessary regulatory approvals; complete registration-enabling activities and submit an NDA to the FDA for potential approval related to olumacostat glasaretil assuming the data from our Phase 3 clinical trials are positive; and continue potential lifecycle management activities related to our product candidates. However, we expect we will need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. We cannot ensure that additional financing will be available to us in the amounts we need or that such financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or other aspects of our business plan or relinquish, license or otherwise dispose of rights to products or product candidates that we would otherwise seek to commercialize or develop ourselves on terms that are less favorable than might otherwise be available, any of which could have a material adverse effect on our business, results of operations and financial condition. Please see “Part II — Other Information, Item 1A, Risk Factors” below for additional risks associated with our substantial capital requirements.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of September 30, 2017:
24
|
Payment Due by Period |
|
||||||||||||||||||
|
|
Total |
|
|
Less than One Year |
|
|
1 – 3 Years |
|
|
3 – 5 Years |
|
|
More than 5 Years |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Operating lease obligations |
|
$ |
24,384 |
|
|
$ |
3,988 |
|
|
$ |
9,625 |
|
|
$ |
7,701 |
|
|
$ |
3,070 |
|
Convertible notes |
|
|
330,625 |
|
|
|
8,625 |
|
|
|
17,250 |
|
|
|
304,750 |
|
|
|
- |
|
Roche license payments |
|
|
135,000 |
|
|
|
105,000 |
|
|
|
30,000 |
|
|
|
- |
|
|
|
- |
|
Total contractual obligations |
|
$ |
490,009 |
|
|
$ |
117,613 |
|
|
$ |
56,875 |
|
|
$ |
312,451 |
|
|
$ |
3,070 |
|
Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the repurchased Notes, plus any accrued and unpaid interest.
Pursuant to the Roche Agreement, we made an initial payment of $80.0 million in October 2017. Additionally, payments of $25.0 million and $30.0 million are due in September 2018 and December 2018, respectively, or upon the earlier achievement of certain development milestones.
Also related to the Roche Agreement, we will be obligated to make additional payments upon the achievement of certain milestones, comprising $40.0 million upon the initiation of the first Phase 3 clinical study, up to $210.0 million upon the achievement of regulatory and first commercial sale milestones in certain territories and up to $1.0 billion based on the achievement of certain thresholds for net sales of lebrikizumab for indications other than interstitial lung disease. Upon regulatory approval, if obtained, we will make royalty payments representing percentages of net sales that range from the high single-digits to the high teens. These amounts are not included in the table above.
In September 2017, we entered into a sublease agreement (“Sublease”) pursuant to which we will sublease an additional 23,798 square feet of space. Rent payments for the Sublease include base rent of $139,218 per month during the first year of the Sublease with an annual increase of three percent, and additional monthly fees to cover our share of certain facility expenses, including utilities, property taxes, insurance and maintenance. The Sublease term will commence on the earlier to occur of (1) January 1, 2018, and (2) the date on which we complete our tenant improvements to the Sublease premises, and will end on April 30, 2024, unless terminated early pursuant to the terms of the Sublease. We expect to commence making rent payments in March 2018.
Other than the events described above, there have been no material changes in our commitments under contractual obligations, as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K promulgated under the Exchange Act, and do not have any holdings in variable interest entities.
We are subject to interest rate sensitivity on our outstanding 3.00% Convertible Senior Notes due 2011 (“Notes”) that were sold in a private placement to qualified institutional buyers. Increases in interest rates would result in a decrease in the fair value of our outstanding debt and decreases in interest rates would result in an increase in the fair value of our outstanding debt. The Notes are senior, unsecured obligations and bear interest at a rate of 3.00% per year, payable in cash semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2017. The Notes mature on May 15, 2022, unless earlier converted or repurchased in accordance with their terms. The Notes are convertible into shares of our common stock, par value $0.001 per share, at an initial conversion rate of 28.2079 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $35.45 per share of common stock.
During the nine months ended September 30, 2017, there have been no other significant changes in market risks as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
25
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow for timely decisions regarding required or necessary disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and we are required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting identified in connection with the evaluation required by Rules 13a‑15(d) and 15d‑15(d) of the Exchange Act that occurred during the fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.
Our operations and financial results are subject to numerous risks and uncertainties, including those described below, which may have a material and adverse effect on our business, results of operations, cash flows, financial conditions, and the trading price of our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. You should consider these risks and uncertainties carefully, together with all of the other information included or incorporated by reference in this Quarterly Report on Form 10-Q. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could decline, and you could lose part or all of your investment.
Risks Related to Development, Regulatory Approval and Commercialization
Our business is dependent on the successful development, regulatory approval and commercialization of our product candidates.
Our pipeline includes three late-stage product candidates that could have a profound impact on the lives of patients: glycopyrronium tosylate (formerly DRM04), for which a New Drug Application (“NDA”) is under review by the U.S. Food and Drug Administration (“FDA”) for the treatment of primary axillary hyperhidrosis (excessive underarm sweating beyond what is needed for normal body temperature regulation); olumacostat glasaretil (formerly DRM01), in Phase 3 development for the treatment of acne vulgaris, or acne; and lebrikizumab, for which we plan to initiate a Phase 2b dose-ranging study for the treatment of moderate-to-severe atopic dermatitis. The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of our late-stage product candidates. In the future, we may also become dependent on other product candidates that we may in-license, acquire or develop. The clinical and commercial success of our product candidates will depend on a number of factors, including the following:
|
• |
the ability to raise additional capital on acceptable terms, or at all; |
|
• |
timely completion of our clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the performance of third-party contractors; |
|
• |
whether we are required by the FDA or similar foreign regulatory agencies to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or any future product candidates; |
|
• |
acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our product candidates by the FDA and similar foreign regulatory authorities; |
|
• |
our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, efficacy and acceptable risk to benefit profile of our product candidates or any future product candidates; |
|
• |
the prevalence, duration and severity of potential side effects experienced with our product candidates or future product candidates or approved products, if any; |
|
• |
the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; |
|
• |
achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual obligations and with all regulatory requirements applicable to our product candidates or any future product candidates or approved products, if any; |
|
• |
the ability of third parties with whom we contract to manufacture clinical trial and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory agencies and develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices (“cGMP”); |
|
• |
a continued acceptable safety profile during clinical development and following approval of our product candidates or any future product candidates; |
27
|
• |
acceptance by physicians, payors and patients of the benefits, safety and efficacy of our product candidates or any future product candidates, if approved, including relative to alternative and competing treatments; |
|
• |
our and our partners’ ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates; |
|
• |
our and our partners’ ability to avoid third-party patent interference or intellectual property infringement claims; and |
|
• |
our ability to in-license or acquire additional product candidates that we believe can be successfully developed and commercialized. |
If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays or an inability to obtain regulatory approvals or commercialize our product candidates. Even if regulatory approvals are obtained, we may never be able to successfully commercialize any of our product candidates. Accordingly, we cannot provide assurances that we will be able to generate sufficient revenue through the sale of our product candidates or any future product candidates to continue our business.
We have had significant and increasing operating expenses and we will require substantial additional financing to achieve our goals, which we may not be able to obtain when needed and on acceptable terms, or at all. We have a history of losses and may not be able to achieve or maintain profitability, which could cause our business and operating results to suffer.
We are a clinical-stage biopharmaceutical company with a limited operating history upon which investors can evaluate our business and prospects. We are not profitable and have incurred losses in each year since we commenced operations in August 2010. We have incurred net losses of $247.2 million and $81.7 million for the nine months ended September 30, 2017 and 2016, respectively, and of $89.1 million and $78.4 million for the fiscal years ended December 31, 2016 and 2015, respectively. As of September 30, 2017, we had an accumulated deficit of $497.4 million.
We have financed our operations primarily through the sale of equity securities and convertible debt securities. Since our inception, most of our resources have been dedicated to the development of our product candidates. The size of our future net losses will depend, in part, on our future expenses and our ability to generate revenue, if any. Revenue from our current and potential future collaborations is uncertain because milestones or other contingent payments under our agreements may not be achieved or received.
As of September 30, 2017, we had capital resources consisting of cash and cash equivalents and investments of $662.9 million. We will continue to expend substantial cash resources for the foreseeable future for the clinical development and potential commercialization of our product candidates and development of any other indications and product candidates we may choose to pursue. These expenditures will include costs associated with any acquisition or in-license of products and product candidates, technologies or businesses, research and development, conducting preclinical studies, non-clinical studies and clinical trials, manufacturing and supply, regulatory submissions, preparing for potential commercial approvals and product launches, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the conduct and results of any clinical trial are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current and any future product candidates.
We believe that existing cash and cash equivalents and investments are sufficient to: complete and generate topline results from our ongoing Phase 3 pivotal clinical trials for olumacostat glasaretil; commercialize our glycopyrronium tosylate product candidate, assuming that we receive the necessary regulatory approvals; complete registration-enabling activities and submit an NDA to the FDA for potential approval related to olumacostat glasaretil assuming the data from our Phase 3 clinical trials are positive; and continue potential lifecycle management activities related to our product candidates. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available capital resources much faster than we currently expect or require more capital to fund our operations than we currently expect. Our currently anticipated expenditures for the development and potential commercialization of all of our current product candidates, glycopyrronium tosylate, olumacostat glasaretil and lebrikizumab, exceed our existing cash and cash equivalents and investments. We will need to raise additional capital to fund our operations and continue to support our planned research and development and commercialization activities.
28
The amount and timing of our future funding requirements will depend on many factors, including:
|
• |
the timing, rate of progress and cost of any preclinical and clinical trials and other product development activities for our current and any future product candidates that we develop, in-license or acquire; |
|
• |
the results of the clinical trials for our product candidates in the United States and any foreign countries; |
|
• |
the timing of, and the costs involved in, FDA approval and any foreign regulatory approval of our product candidates, if at all; |
|
• |
the number and characteristics of any additional future product candidates we develop or acquire; |
|
• |
our ability to establish and maintain strategic collaborations, licensing, co-promotion or other arrangements and the terms and timing of such arrangements; |
|
• |
costs relating to building our infrastructure to prepare for potential commercial launch of our products, which will be incurred even if our product candidates are not ultimately approved for sale; |
|
• |
the cost of commercialization activities if our current or any future product candidates are approved for sale, including manufacturing, marketing, sales and distribution costs; |
|
• |
the degree and rate of market acceptance of any approved products; |
|
• |
costs under our third-party manufacturing and supply arrangements for our current and any future product candidates and any products we commercialize; |
|
• |
costs and timing of completion of any additional outsourced commercial manufacturing or supply arrangements that we may establish; |
|
• |
costs of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights associated with our product candidates, including post-grant challenges or opposition to third-party patent claims; |
|
• |
costs associated with prosecuting or defending any litigation that we may become involved in and any damages payable by us that result from such litigation; |
|
• |
costs associated with any product recall that could occur; |
|
• |
costs of operating as a public company; |
|
• |
the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments; |
|
• |
costs associated with any acquisition or in-license of products and product candidates, technologies or businesses; and |
|
• |
personnel, facilities and equipment requirements. |
We cannot be certain that additional funding will be available on acceptable terms, or at all. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans.
In order to fund the development and potential commercialization of our product candidates, we may also need to enter into collaboration agreements with pharmaceutical and biotechnology companies. Our ability to establish and maintain these collaborations is highly uncertain and subject to a number of variables. Under these arrangements, we may be responsible for substantial costs in connection with the clinical development, regulatory approval or the commercialization of a partnered product candidate. Furthermore, the payments we could receive from our potential collaboration partners may be subject to numerous conditions and may ultimately be insufficient to cover the cost of this development and commercialization.
If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or our commercialization efforts, or other aspects of our business plan. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.
29
Clinical drug development for our product candidates is very expensive, time-consuming and uncertain. Our clinical trials may fail to adequately demonstrate the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.
Clinical drug development for our product candidates is very expensive, time-consuming and difficult to design and implement, and its outcome is inherently uncertain. Before obtaining regulatory approval for the commercial sale of a product candidate, we must demonstrate through clinical trials that a product candidate is both safe and effective for use in the target indication. Most product candidates that commence clinical trials are never approved by regulatory authorities for commercialization. The clinical trials for these product candidates may take significantly longer than expected to complete. In addition, we, any partner with which we currently or may in the future collaborate, the FDA, an institutional review board (“IRB”) or other regulatory authorities, including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to or terminate our clinical trials at any time, for various reasons, including:
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discovery of serious or unexpected toxicities or side effects experienced by study participants or other safety issues; |
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lack of effectiveness of any product candidate during clinical trials or the failure of our product candidates to meet specified endpoints; |
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slower than expected rates of subject recruitment and enrollment rates in clinical trials resulting from numerous factors, including the prevalence of other companies’ clinical trials for their product candidates for the same indication, such as acne; |
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difficulty in retaining subjects who have initiated a clinical trial but may withdraw at any time due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason; |
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difficulty in obtaining IRB approval for studies to be conducted at each site; |
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delays in manufacturing or obtaining, or inability to manufacture or obtain, sufficient quantities of materials for use in clinical trials; |
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inadequacy of or changes in our manufacturing process or the product formulation or method of delivery; |
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changes in applicable laws, regulations and regulatory policies; |
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delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective CROs, clinical trial sites and other third-party contractors; |
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inability to add a sufficient number of clinical trial sites; |
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uncertainty regarding proper dosing; |
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failure of our CROs or other third-party contractors to comply with contractual and regulatory requirements or to perform their services in a timely or acceptable manner; |
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failure by us, our employees, our CROs or their employees or any partner with which we may collaborate or their employees to comply with applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for drug and biologic products; |
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scheduling conflicts with participating clinicians and clinical institutions; |
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failure to design appropriate clinical trial protocols; |
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inability or unwillingness of medical investigators to follow our clinical protocols; |
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difficulty in maintaining contact with subjects during or after treatment, which may result in incomplete data; or |
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insufficient data to support regulatory approval. |
In the case of our topical product candidates, we are seeking to deliver sufficient concentrations of the active pharmaceutical ingredient (“API”) through the skin barrier to the targeted dermal tissue to achieve the intended therapeutic effect. As a result, safety and efficacy can be difficult to establish. The topical route of administration may involve new dosage forms, which can be difficult to develop and manufacture and may raise novel regulatory issues and result in development or review delays. For example, the dosage form for glycopyrronium tosylate is an API-saturated wipe, and we are not aware of previous FDA approvals of prescription drug wipes. In addition, it is possible that the FDA may require more exposure of individuals to glycopyrronium tosylate than we have collected in our safety database. If we are required to expose additional individuals to glycopyrronium tosylate in order to establish a safety database sufficient for approval, approval of glycopyrronium tosylate, if at all, could be delayed and our costs could increase.
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We or any partner with which we may collaborate may suffer significant setbacks in our clinical trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in ea rlier trials. In the event that we or our potential partners abandon or are delayed in the clinical development efforts related to our product candidates, we may not be able to execute on our business plan effectively and our business, financial condition, operating results and prospects would be harmed. For example, if additional clinical trials of glycopyrronium tosylate for the treatment of primary axillary hyperhidrosis are required, and we experience delays in the completion of, or if we terminate, the clinical trials, our business, financial condition, operating results and prospects would be adversely affected.
We may be unable to obtain regulatory approval for any of our product candidates under applicable regulatory requirements. The FDA and foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit or deny approval of product candidates. The delay, limitation or denial of any regulatory approval would adversely impact commercialization, our potential to generate revenue, our business and our operating results.
We currently have no products approved for sale, and we may never obtain regulatory approval to commercialize any of our current or future product candidates. The research, testing, manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution, import, export and reporting of safety and other post-market information related to our product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign countries, and such regulations differ from country to country. We are not permitted to market any of our current product candidates in the United States until we receive approval of an NDA, biologics license application (“BLA”) or other applicable regulatory filing from the FDA. We are also not permitted to market any of our current product candidates in any foreign countries until we receive the requisite approval from the applicable regulatory authorities of such countries.
To gain approval to market a new drug such as glycopyrronium tosylate or olumacostat glasaretil or a biologic product such as lebrikizumab, the FDA and foreign regulatory authorities must receive preclinical, clinical and chemistry, manufacturing and controls data that adequately demonstrate the safety, purity, potency, efficacy and compliant manufacturing of the product for the intended indication applied for in an NDA, BLA or other applicable regulatory filing. The development and approval of new drug products and biologic products involves a long, expensive and uncertain process. A delay or failure can occur at any stage in the process. A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in clinical trials, including in Phase 3 clinical development, even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we or our partners may conduct. For example, in one of the two glycopyrronium tosylate Phase 3 trials, glycopyrronium tosylate demonstrated statistically significant results compared to vehicle for the objective measurement of sweat production only following exclusion of extreme outlier data from one analysis center in accordance with the pre-specified statistical analysis plan submitted to the FDA. The FDA may determine that we did not achieve statistically significant results for this objective measurement in this trial and may require us to conduct an additional Phase 3 study as a result of the extreme outlier data, and approval of glycopyrronium tosylate, if at all, could be delayed and our costs would increase. Further, as one of the primary assessments of efficacy in our glycopyrronium tosylate Phase 3 trials, we used a new patient-reported outcome assessment (“PRO”), the Axillary Sweating Daily Diary, the sweating severity item of which was validated in our Phase 2 clinical program to assess efficacy in a subjective manner. This PRO has not been previously used in an NDA filing to support potential approval of a product.
The FDA and foreign regulatory bodies have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of product candidates for many reasons, including:
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the FDA or the applicable foreign regulatory body may disagree with the design, implementation, choice of dose, analysis plans, or interpretation of the outcome of one or more clinical trials; |
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the FDA or the applicable foreign regulatory body may not deem a product candidate safe and effective for its proposed indication, or may deem a product candidate’s safety or other perceived risks to outweigh its clinical or other benefits; |
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the FDA or the applicable foreign regulatory body may not find the data from preclinical studies and clinical trials, including the number of subjects in the safety database, sufficient to support approval, or the results of clinical trials may not meet the level of statistical or clinical significance required by the FDA or the applicable foreign regulatory body for approval; |
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the FDA or the applicable foreign regulatory body may disagree with our interpretation of data from preclinical studies or clinical trials performed by us or third parties, or with the interpretation of any partner with which we may collaborate; |
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the data collected from clinical trials may not be sufficient to support the submission and approval of an NDA, BLA or other applicable regulatory filing; |
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the FDA or the applicable foreign regulatory body may require additional preclinical studies or clinical trials; |
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the FDA or the applicable foreign regulatory agency may identify deficiencies in the formulation, manufacturing, quality control, labeling or specifications of our current or future product candidates; |
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the FDA or the applicable foreign regulatory agency may require clinical trials in pediatric patients in order to establish pharmacokinetics or safety for this more drug-sensitive population; |
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the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional post-approval clinical trials; |
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the FDA or the applicable foreign regulatory agency may approve our current or any future product candidates for a more limited indication or a narrower patient population than we originally requested; |
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the FDA or applicable foreign regulatory agency may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates; |
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the FDA or the applicable foreign regulatory body may not approve of the manufacturing processes, controls or facilities of third-party manufacturers or testing labs with which we contract; |
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the FDA or the applicable foreign regulatory body may not approve or grant marketing clearance of a device intended to be used in combination with our product candidates, such as an auto-injector with Cimzia; or |
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the FDA or the applicable foreign regulatory body may change its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval. |
Of the large number of drugs, including biologics, in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. For example, the FDA may not agree with our Phase 3 clinical trial protocols for our product candidates. In addition, our product candidates may not be approved by the FDA or applicable foreign regulatory agencies even though they meet specified endpoints in our clinical trials. The FDA or applicable foreign regulatory agencies may ask us to conduct additional costly and time-consuming clinical trials in order to obtain marketing approval or approval to enter into an advanced phase of development, or may change the requirements for approval even after such agency has reviewed and commented on the design for the clinical trials. Any delay in obtaining, or inability to obtain, applicable regulatory approval for any of our product candidates would delay or prevent commercialization of our product candidates and would harm our business, financial condition, operating results and prospects.
We have never prepared a BLA or obtained approval of a BLA or NDA submission or equivalent foreign filing, and we may be unable to successfully do so for any of our product candidates. Failure to successfully prepare or obtain approval of a BLA or NDA submission or equivalent foreign filing in a timely manner for any of our product candidates could have a material adverse impact on our business and financial performance.
Preparing and obtaining approval of a BLA or NDA submission or equivalent foreign filing are complicated processes. Although our employees have prepared BLAs, and obtained approvals of BLAs, NDAs and equivalent foreign filings in the past while employed at other companies, we as a company have not done so. As a result, such activities may require more time and cost more than we anticipate. Failure to complete or obtain, or delays in completing or obtaining, approval of our BLA and NDA submissions for glycopyrronium tosylate, olumacostat glasaretil or lebrikizumab, respectively, would prevent us from or delay us in commercializing our product candidates in the United States. The occurrence of any of the foregoing could have a material adverse impact on our business and financial performance.
Even if our current product candidates or any future product candidates obtain regulatory approval, they may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.
The commercial success of any of our current or future product candidates, if approved, will depend significantly on the broad adoption and use of the resulting product by physicians and patients for approved indications. Our product candidates may not be commercially successful. The degree and rate of physician and patient adoption of our current or future product candidates, if approved, will depend on a number of factors, including:
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the clinical indications for which the product is approved and patient demand for approved products that treat those indications; |
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our ability to successfully compete with existing therapies, some of which are widely known and accepted by physicians and patients, including demonstrating that the relative cost, safety and efficacy of our product provides an attractive alternative to the existing therapies; |
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the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors for any of our product candidates that may be approved; |
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the cost of treatment with our product candidates in relation to alternative treatments and willingness to pay for the product, if approved, on the part of patients; |
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acceptance by physicians, major operators of clinics and patients of the product as a safe and effective treatment; |
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physician and patient willingness to adopt a new therapy over other available therapies to treat approved indications; |
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in the case of hyperhidrosis, patients’ perception of the condition as one for which medical treatment may be appropriate and a prescription therapy may be available; |
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overcoming any biases physicians or patients may have toward particular therapies for the treatment of approved indications; |
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proper training and administration of our product candidates by physicians and medical staff; |
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patient satisfaction with the results and administration of our product candidates and overall treatment experience; |
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the willingness of patients to pay for certain of our product candidates relative to other discretionary items, especially during economically challenging times; |
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the revenue and profitability that our product candidate may offer a physician as compared to alternative therapies; |
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the prevalence and severity of side effects; |
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limitations or warnings contained in the FDA-approved labeling for our product candidates; |
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any FDA requirement to undertake a risk evaluation and mitigation strategy (“REMS”); |
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the effectiveness of our sales, marketing and distribution efforts; |
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adverse publicity about our product candidates or favorable publicity about competitive products; and |
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potential product liability claims. |
If any of our current or future product candidates are approved for use but fail to achieve the broad degree of physician, patient and payor adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.
Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing of healthcare products competitive with those that we are developing. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, clinical trial expertise, intellectual property portfolios, experience in obtaining patents and regulatory approvals for product candidates and other resources than we do. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts. In addition, certain of our product candidates, if approved, may compete with other dermatological products, including over-the-counter (“OTC”) treatments, for a share of some patients’ discretionary budgets and for physicians’ attention within their clinical practices.
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Many pharmaceutical companies currently offer products or are developing alternative product candidates and technologies, for indications similar to those targeted b y our product candidates, including: AbbVie Inc., Akaal Pharma Pty Ltd., Allergan plc, Almirall, S.A., Amgen Inc., AnaptysBio, Inc., Asana BioSciences, LLC, Astellas Pharma US, Inc., Bayer HealthCare AG (formerly Intendis, Inc.), BioPharmX Corporation, Inc ., Boehringer Ingelhei m, Brickell Biotech, Inc., Can-Fite BioPharma Ltd., Cassiopea S.p.A., Celgene International, Dermavant Sciences, Inc., DS Biopharma Limited, Eirion Therapeutics, Inc., Eli Lilly and Company, Foamix Pharmaceuticals Ltd., Galapagos NV, Galderma S.A., GlaxoSmithKline LLC, Glenmark Pharmaceuticals Limited, Janssen Biotech, Inc. (a division of Johnson & Johnson), Johnson & Johnson, LEO Pharma A/S, Maruho Co., Ltd., Medimetriks Pharmaceuticals, Inc., MedImmune, LLC (a wholly-owned subsidiary of AstraZeneca plc), Miramar Labs, Inc., Momenta Pharmaceuticals Inc., Morph o Sys AG, Mylan Inc., Novan, Inc., Novartis International AG, Pfizer Inc., Qurient Co., Ltd., Ralexar Therapeutics, Inc., Ranbaxy Pharmaceuticals Inc., Regeneron Pharmaceuticals, I nc., Sandoz International GmbH , Sanofi S.A., Shire plc, Teva Pharmaceutical Industries Ltd., TheraVida, Inc., Torii Pharmaceutical Co. Ltd. , Ulthera, Inc. and Valeant Pharmaceuticals International .
The markets for dermatological therapies are competitive and are characterized by significant technological development and new product introduction. We anticipate that, if we obtain regulatory approval of our product candidates, we will face significant competition from other approved therapies. If approved, our product candidates may also compete with unregulated, unapproved and off-label treatments. Certain of our product candidates, if approved, would present novel therapeutic approaches for the approved indications and would have to compete with existing therapies, some of which are widely known and accepted by physicians and patients. To compete successfully in this market, we will have to demonstrate that the relative cost, safety and efficacy of our approved products, if any, provide an attractive alternative to existing and other new therapies. The competition we face could lead to reduced market share for our product candidates and contribute to downward pressure on the pricing of our product candidates, which could harm our business, financial condition, operating results and prospects.
Due to less stringent regulatory requirements in certain foreign countries, there are many more dermatological products and procedures available for use in those international markets than are approved for use in the United States. In certain international markets, there are also fewer limitations on the claims that our competitors can make about the effectiveness of their products and the manner in which they can market their products. As a result, we expect to face more competition in these markets than in the United States.
We expect to face generic competition for our product candidates and may face competition from biosimilars, which could adversely affect our business, financial condition, operating results and prospects.
Upon the expiration or loss of any patent protection for any of our product candidates that are approved, or upon the “at-risk” launch, despite pending patent infringement litigation against the generic product, by a generic competitor of a generic version of any of our product candidates that are approved, which may be sold at significantly lower prices than our approved product candidates, we could lose a significant portion of sales of that product in a short period of time, which would adversely affect our business, financial condition, operating results and prospects. In particular, our glycopyrronium tosylate product candidate faces competition from currently marketed generic oral and compounded topical anticholinergic agents. In addition, we may be subject to additional competition from third parties pursuing topical formulations of other anticholinergic agents for hyperhidrosis.
We may also face competition from biosimilars. In the United States, the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) created an abbreviated approval pathway for biological products that are demonstrated to be “highly similar,” or “biosimilar,” to or “interchangeable” with an FDA-approved biological product. This pathway allows competitors to reference the FDA’s prior determinations regarding innovative biological products and to obtain approval of a biosimilar application 12 years after the time of approval of the innovative biological product. The 12-year exclusivity period runs from the initial approval of the innovator product and not from approval of a new indication. In addition, the 12-year exclusivity period does not prevent another company from developing a product that is highly similar to the innovative product, generating all the data necessary for a full BLA and seeking approval. Exclusivity only assures that another company cannot rely on the FDA’s prior determinations in approving a BLA for an innovator’s biological product to support the biosimilar product’s approval. Further, under the FDA’s current interpretation, it is possible that a biosimilar applicant could obtain approval for one or more of the indications approved for the innovator product by extrapolating clinical data from one indication to support approval for the other indications. We cannot predict to what extent the entry of biosimilars or other competing products will impact our business, financial condition, operating results and prospects.
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Any product candidates that we commer cialize, or that any partner with which we may collaborate commercializes, will be subject to ongoing and continued regulatory review. Failure to comply with applicable regulatory requirements could have a material adverse impact on our business.
Even after we or our partners achieve U.S. regulatory approval for a product candidate, if any, we or our partners will be subject to continued regulatory review and compliance obligations. For example, with respect to our product candidates, the FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. A product candidate’s approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials or other REMS, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for our product candidates. These requirements include submissions of safety and other post-marketing information and reports and registration, as well as continued compliance with cGMP requirements and with the FDA’s good clinical practice (“GCP”) requirements and good laboratory practice (“GLP”) requirements, which are regulations and guidelines enforced by the FDA for all of our product candidates in clinical development, and for any clinical trials that we conduct post-approval. To the extent that a product candidate is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.
In addition, manufacturers of drug and biologic products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians, withdrawal of the product from the market or suspension of manufacturing.
If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
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impose restrictions on the marketing or manufacturing of the product, suspend or withdraw product approvals or revoke necessary licenses; |
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mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners; |
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require us or our partners to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; |
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issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available; |
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commence criminal investigations and prosecutions; |
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impose injunctions, suspensions or revocations of necessary approvals or other licenses; |
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impose other civil or criminal penalties; |
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suspend any ongoing clinical trials; |
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delay or refuse to approve pending applications or supplements to approved applications filed by us or our potential partners; |
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refuse to permit drugs or precursor chemicals to be imported or exported to or from the United States; |
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suspend or impose restrictions on operations, including costly new manufacturing requirements; or |
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seize or detain products or require us or our partners to initiate a product recall. |
The regulations, policies or guidance of the FDA and other applicable government agencies may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulations that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
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We have conducted, are conducting and may in the future conduct clinical trials for our product candidates outside the United States and the FDA and applicable foreign regulatory authorities may not accept data from such trials, which wo uld likely result in additional costs to us and delay our business plan.
We have conducted, are conducting and may in the future choose to conduct, one or more of our clinical trials outside the United States, including in Australia, Canada and Europe. For example, our Phase 3 clinical program for olumacostat glasaretil is being conducted in multiple countries. Although the FDA or applicable foreign regulatory authority may accept data from clinical trials conducted outside the United States or the applicable jurisdiction, acceptance of such study data by the FDA or applicable foreign regulatory authority may be subject to certain conditions. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be no assurance the FDA or applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or applicable foreign regulatory authority does not accept such data, it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan.
Our product candidates may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in post-approval regulatory action, any of which may adversely impact our business, financial condition, operating results and prospects.
Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. Undesirable side effects caused by product candidates could cause us, any partners with which we may collaborate or regulatory authorities to interrupt, modify, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of clinical trials could reveal a high and unacceptable severity and prevalence of one or more of these side effects. In such an event, trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us, or our potential partners, to cease further development of or deny approval of product candidates for any or all targeted indications. Any drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition, operating results and prospects.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by our product candidates after obtaining U.S. or foreign regulatory approval or other products with the same or related active ingredients, a number of potentially negative consequences could result, including:
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regulatory authorities may withdraw their approval of the product; |
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regulatory authorities may require a recall of the product or we or our potential partners may voluntarily recall a product; |
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regulatory authorities may require the addition of warnings or contraindications in the product labeling, narrowing of the indication in the product label or field alerts to physicians and pharmacies; |
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients or institute a REMS; |
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we may have limitations on how we promote the product; |
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we may be required to change the way the product is administered or modify the product in some other way; |
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the FDA or applicable foreign regulatory authority may require additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product; |
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sales of the product may decrease significantly; |
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we could be sued and held liable for harm caused to patients; and |
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our brand and reputation may suffer. |
Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us or our potential partners from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.
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We may face product liability exposure, and if successful claims are brought against us , we may incur substantial liability if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, failure to follow instructions, misuse or abuse associated with our product candidates could result in injury to a patient or even death. We cannot offer any assurance that we will not face product liability suits in the future, nor can we provide assurances that our insurance coverage will be sufficient to cover our liability under any such cases.
In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:
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withdrawal of clinical trial participants; |
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decreased enrollment rates of clinical trial participants; |
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termination of clinical trial sites or entire trial programs; |
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the inability to commercialize our product candidates; |
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decreased demand for our product candidates; |
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impairment of our business reputation; |
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product recall or withdrawal from the market or labeling, marketing or promotional restrictions; |
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substantial costs of any related litigation or similar disputes; |
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distraction of management’s attention and other resources from our primary business; |
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substantial monetary awards to patients or other claimants against us that may not be covered by insurance; or |
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loss of revenue. |
Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects. Although we have obtained product liability insurance coverage for clinical trials, our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. We will need to increase our product liability coverage if any of our product candidates receive regulatory approval, which will be costly, and we may be unable to obtain this increased product liability insurance on commercially reasonable terms, or at all. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and could harm our business, financial condition, operating results and prospects.
If any of our product candidates are approved for marketing and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, product liability claims and significant fines, penalties and sanctions, and our brand and reputation could be harmed.
The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug and biologic products. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling and comparative safety or efficacy claims cannot be made without direct comparative clinical data. For example, although our glycopyrronium tosylate product candidate, if approved, may appeal to individuals who have not been diagnosed with hyperhidrosis, we will only be able to promote glycopyrronium tosylate for its approved indication. If we are found to have promoted off-label uses of any of our product candidates, we may receive warning or untitled letters and become subject to significant liability, which would materially harm our business. Both federal and state governments have levied large civil and criminal fines against companies for alleged improper off-label promotion and have enjoined several companies from engaging in off-label promotion.
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If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted from our business operations, significant leg al expenses could be incurred and our brand and reputation could be damaged. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed b y the FDA to have engaged in the promotion of our products for off-label uses, we could be subject to FDA regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalti es. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including criminal, ci vil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations.
We cannot, however, prevent a physician from using our product candidates outside of those indications for use when in the physician’s independent professional medical judgment he or she deems appropriate. Physicians may also misuse our product candidates or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our product candidates are misused or used with improper technique, we may become subject to costly litigation by physicians or their patients. Furthermore, the use of our product candidates for indications other than those approved by the FDA may not effectively treat such conditions, which could harm our reputation among physicians and patients.
We may choose not to continue developing or commercializing any of our product candidates at any time during development or after approval, which would reduce or eliminate our potential return on investment for those product candidates.
At any time, we may decide to discontinue the development of any of our product candidates or not to continue commercializing one or more of our approved product candidates for a variety of reasons, such as the appearance of new technologies that make our product obsolete, competition from a competing product, changes in or failure to comply with applicable regulatory requirements, the discovery of unforeseen side effects after the approved product has been marketed or the occurrence of adverse events at a rate or severity level that is greater than experienced in our clinical trials. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses. See also “—Our product candidates may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in post-approval regulatory action, any of which may adversely impact our business, financial condition, operating results and prospects.”
We or our current and prospective partners may be subject to product recalls in the future that could harm our brand and reputation and could negatively affect our business.
We or our current and prospective partners may be subject to product recalls, withdrawals or seizures if any of our product candidates, if approved for marketing, fail to meet specifications or are believed to cause injury or illness or if we are alleged to have violated governmental regulations including those related to manufacturing, labeling, promotion, sale or distribution. Any recall, withdrawal or seizure in the future could materially and adversely affect consumer confidence in our brand and lead to decreased demand for our approved products. In addition, a recall, withdrawal or seizure of any of our approved products would require significant management attention, would likely result in substantial and unexpected expenditures and would harm our business, financial condition and operating results.
If the FDA concludes that our glycopyrronium tosylate product candidate does not satisfy the requirements under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (“Section 505(b)(2)” pathway), or if the requirements for our glycopyrronium tosylate product candidate under the Section 505(b)(2) pathway are not as we expect, the approval pathway for our glycopyrronium tosylate product candidate will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, any of which may adversely impact our business, financial condition, operating results and prospects.
We are currently developing our glycopyrronium tosylate product candidate and we currently intend to seek FDA approval through the Section 505(b)(2) pathway. Glycopyrronium tosylate is a novel form of an anticholinergic agent that has been approved for systemic administration in other indications. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act. The Section 505(b)(2) pathway permits the submission of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant either does not own or has not obtained a right of reference. Reliance on certain findings made by the FDA in approving the anticholinergic agent we intend to reference in our NDA could expedite the glycopyrronium tosylate development program by potentially decreasing the amount of non-clinical or clinical data that we would need to generate in order to obtain FDA approval.
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Glycopyrronium tosylate differs from the approved product we intend to reference in chemical structure, route of administration, dosage form and indication, and if we are unable to demonstrate an acceptable clinical bridge through comparative pharmacokinetic data between glycopy rronium tosylate and the approved product, the FDA may not permit us to use the Section 505(b)(2) pathway for regulatory approval. If the FDA does not allow us to pursue the Section 505(b)(2) pathway as anticipated or determines that our clinical bridge is not adequate, or if the Section 505(b)(2) pathway fails to significantly decrease the amount of testing we must conduct, we may need to conduct additional non-clinical or clinical trials, provide additional data and information and meet additional standar ds for regulatory approval, which would substantially increase the time and financial resources required to obtain FDA approval for glycopyrronium tosylate and entail significantly greater complications and risks than anticipated. If this were to occur, ou r business, financial condition, operating results and prospects may be adversely impacted.
Moreover, inability to pursue the Section 505(b)(2) pathway could result in new competitive products reaching the market more quickly than our product candidate, which would likely harm our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) pathway, we cannot provide assurances that our product candidate will receive the requisite approvals for commercialization.
Notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its Section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under the Section 505(b)(2) pathway. In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months depending on the outcome of any litigation. In addition, Section 505(b)(2) NDAs are subject to potential data or marketing exclusivity rights that reward certain research performed by the sponsors of previously approved drugs. The exercise of such exclusivity rights can delay FDA approval of a Section 505(b)(2) NDA, or certain proposed product uses, for a period ranging from three to seven years, depending on the type of exclusivity earned. It is not uncommon for a manufacturer of an approved referenced product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) pathway, there is no guarantee this would ultimately lead to faster product development or earlier approval.
If we or any partners with which we may collaborate are unable to achieve and maintain coverage and adequate levels of reimbursement for any of our product candidates for which we receive regulatory approval, or any future products we may seek to commercialize, their commercial success may be severely hindered.
For any of our product candidates that become available only by prescription, successful sales by us or by any partners with which we may collaborate depend on the availability of coverage and adequate reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. If any of our product candidates do not demonstrate attractive efficacy profiles, they may not qualify for coverage and reimbursement. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients may be unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
In addition, the market for our product candidates 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.
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Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, although private third-party payors tend to follow Medicare, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result , the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate r eimbursement will be obtained.
Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects.
Healthcare reform measures could hinder or prevent the commercial success of our products and product candidates.
In the United States, 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 revenue and profitability and the future revenue and profitability of any partner with which we may collaborate. Federal and state lawmakers regularly propose and, at times, enact legislation that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, in March 2010, former President Obama signed one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “Affordable Care Act”). It contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which have impacted and are expected to continue to impact existing government healthcare programs and result in the development of new programs. The Affordable Care Act, among other things, (1) increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to certain individuals enrolled in Medicaid managed care organizations, (2) established annual fees on manufacturers of certain branded prescription drugs and (3) enacted a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
The current presidential administration and certain members of the majority of the U.S. Congress have sought to repeal all or part of the Affordable Care Act and implement a replacement program. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.
We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition.
Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights, among other topics, are and will be applicable to our business. We are subject to regulation by both the federal government and the states in which we or our partners conduct our business. The healthcare laws and regulations that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving or providing any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce either the referral of an individual or in return for the purchase, lease, or order of any good, facility item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as the Medicare and Medicaid programs; |
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federal civil and criminal false claims laws and civil monetary penalty laws, including, for example, the federal civil False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which impose obligations on covered entities, including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
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the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value provided to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and |
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be provided to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
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Our business involves the use of hazardous materials and we and our third-party suppliers and manufacturers must comply with environmental laws and regulations, which can be expensive and restri ct how we do business.
The manufacturing activities of our third-party suppliers and manufacturers involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our suppliers’ or manufacturers’ facilities pending use and disposal. We and our suppliers and manufacturers cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, injury to our service providers and others and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party suppliers and manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste insurance coverage.
Our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our business.
We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, CROs and any partners with which we may collaborate may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional, reckless or negligent conduct or unauthorized activity that violates: laws or regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws and data privacy; or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations, and serious harm to our reputation. In addition, federal procurement laws impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics and conduct. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our operating results.
Risks Related to Our Dependence on Third Parties
We have in the past relied and expect to continue to rely on third-party CROs and other third parties to conduct and oversee our clinical trials, other aspects of our product development and our regulatory submission process. If these third parties do not meet our requirements, conduct the trials as required or otherwise provide services as anticipated, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our product candidates when expected or at all.
We have in the past relied and expect to continue to rely on third-party CROs and other third parties to conduct and oversee our clinical trials, other aspects of our product development and our regulatory submission process. We also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s regulations and GCPs, which are an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security and recordkeeping for drug and biologic products. These CROs and other third parties play a significant role in the conduct of our clinical trials, the subsequent collection and analysis of data from the clinical trials and the preparation for and submission of our filings with the FDA and comparable foreign regulatory authorities. See also “—We rely completely on third parties to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers, we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.”
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We rely heavily on third parties for the execution of our clinical trials and preclinical studies, and control only certain aspects of their activities. We and our CROs and other third-party contractors are required to comply with GCP and GLP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP and GLP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of thes e third parties fail to comply with applicable GCP and GLP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authority may require us to perform additional clinical trials before appro ving our or our partners’ marketing applications. We cannot provide assurances that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical or preclinical trials complies with applicable GCP and GL P requirements. In addition, our clinical trials must generally be conducted with products produced under cGMP regulations. Our failure to comply with these regulations and policies may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be able to enter into arrangements with alternative CROs or clinical trial sites in a timely manner, or do so on commercially reasonable terms or at all. In addition, if our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA and comparable foreign regulatory authorities.
Additionally, the regulatory submission process for our product candidates is complex. We expect to rely on a third-party service provider for the preparation and submission of filings with the FDA and comparable foreign regulatory authorities for approval of our product candidates. If our relationship with such service provider is terminated prior to completion of our regulatory submission process, we may not be able to enter into an arrangement with an alternative service provider in a timely manner, or do so on commercially reasonable terms, and our submission may be substantially delayed.
We rely completely on third parties to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers, we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.
We do not currently have, nor do we plan to acquire, the infrastructure or capability to supply, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products. Our ability to develop our product candidates depends and our ability to commercially supply our products will depend, in part, on our ability to successfully obtain the APIs and other substances and materials used in our product candidates from third parties and to have finished products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates.
We do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. Although we are ultimately responsible for ensuring compliance with regulatory requirements such as cGMPs, we are dependent on our contract suppliers and manufacturers for day-to-day compliance with cGMPs for production of both APIs and finished products. Facilities used by our contract suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. If the safety of any product or product candidate or component is compromised due to a failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, clinical trials or regulatory submissions or approvals of our product candidates, and could entail higher costs or result in our being unable to effectively commercialize our approved products on a timely basis, or at all.
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We also rely and will continue to rely on certain third parties as the sole source of the ma terials they supply or the finished products they manufacture. T he APIs , drug substances and other materials used in our product candidates are currently available only from one domestic or foreign supplier and foreign manufacturer and certain of our finis hed product candidates are manufactured by one or a limited number of contract manufacturers. In the event an existing supplier fails to supply product on a timely basis or in the requested amount, supplies product that fails to meet regulatory requirement s, becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source or if we or our manufacturers are unable to renew current supply agreements when such agreements expire and we do not have a s econd supplier, we likely would incur added costs and delays in identifying or qualifying replacement manufacturers and materials and there can be no assurance that replacements would be available to us on a timely basis, on acceptable terms or at all. W e may be required to obtain regulatory approval to use alternative suppliers, and this process of approval could delay production of our products or development of product candidates indefinitely. For example , we are dependent on our current suppliers of t he nonwoven material and foil in our glycopyrronium tosylate finished product, and any need to find and qualify new suppliers for these materials would adversely affect our business. We and our manufacturers do not currently maintain inventory of these API s , drug substances and other materials. Any interruption in the supply of an API , drug substance or other material or in the manufacture of a finished product could have a material adverse effect on our business, financial condition, operating results and prospects.
In addition, these contract manufacturers are engaged with other companies to supply and manufacture materials or products for such companies, which also exposes our suppliers and manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract supplier’s or manufacturer’s facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of our product candidates, or if it withdraws its approval in the future, we may need to find alternative supply or manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval of or market our product candidates, if approved.
To date, our drug substances and product candidates have been manufactured in relatively small quantities for clinical trials. As we prepare for potential commercialization, we have initiated the scale of production of some of our drug substances and product candidates, which may include transferring production to new third-party suppliers or manufacturers. If any of our product candidates is approved for sale, our contract manufacturers and suppliers will need to produce the resulting drug product and its components in larger quantities, more cost effectively and, in certain cases, at higher yields than they currently achieve. These third-party contractors may not be able to successfully increase the manufacturing capacity for any products in a timely or cost-effective manner or at all. Transferring technology to other sites and significant scale up of manufacturing may require additional processes, technologies and validation studies, which are costly, may not be successful and, in some cases, require review and approval by the FDA and foreign regulatory authorities. In addition, quality issues may arise during those scale-up activities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during the manufacturing and packaging process, or during shipping and storage of the APIs or the finished product.
If our third-party contractors are unable to successfully scale up the manufacture of any of our product candidates in sufficient quality and quantity and at commercially reasonable prices, and we are unable to find one or more replacement suppliers or manufacturers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and we are unable to successfully transfer the processes on a timely basis, the commercial launch for any resulting products may be delayed, or there may be a shortage in supply, either of which could significantly harm our business, financial condition, operating results and prospects.
We expect to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future. Our supply and manufacturing agreements, if any, do not guarantee that a contract supplier or manufacturer will provide services adequate for our needs. We and our contract suppliers and manufacturers continue to improve production processes, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes. While we attempt to build in certain contractual obligations on such third-party suppliers and manufacturers, we may not be able to ensure that such third parties comply with these obligations. Depending on the extent of any difficulties encountered, we could experience an interruption in clinical or commercial supply, with the result that the development, regulatory approval or commercialization of our product candidates may be delayed or interrupted. In addition, third-party suppliers and manufacturers may have the ability to increase the price payable by us for the supply of the APIs and other substances and materials used in our product candidates, in some cases without our consent.
Additionally, any damage to or destruction of our third-party manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to have our product candidates manufactured on a timely basis. Furthermore, if a contract manufacturer or supplier becomes financially distressed or insolvent, or discontinues our relationship beyond the term of any existing agreement for any other reason, this could result in substantial management time and expense to identify, qualify and transfer processes to alternative manufacturers or suppliers, and could lead to an interruption in clinical or commercial supply.
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Our reliance on contract manufacturers and suppliers further exposes us to the possibility that they, or third parties with acce ss to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information.
In addition, the manufacturing facilities of certain of our suppliers are located outside of the United States. This may give rise to difficulties in importing our products or product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency approval requirements, local import requirements such as import duties or inspections, incomplete or inaccurate import documentation or defective packaging.
We are dependent on Roche for the manufacture and supply of lebrikizumab drug substance and product. If Roche elects to transfer its manufacture and supply responsibilities to us, we may not be able to engage a qualified contract manufacturer to manufacture and supply the drug substance and product in a timely manner, if at all. Any interruption in our supply may cause serious delays in the timing of our clinical studies, increase our costs and adversely impact our financial results.
Pursuant to the terms of our license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (together, “Roche”) for the exclusive, worldwide rights to develop and commercialize lebrikizumab for, among other indications, atopic dermatitis (the “Roche Agreement”), Roche is responsible for the manufacture and supply to us of lebrikizumab drug substance and product and we are completely reliant upon Roche to provide us with adequate supply for our use. We may experience an interruption in supply if, among other reasons, we incorrectly forecast our supply requirements, Roche allocates supply to its own development programs, Roche incorrectly plans its manufacturing production or Roche is unable to manufacture drug substance in a timely manner to match our development or commercial needs.
Additionally, the Roche Agreement provides that, subject to certain requirements, Roche has the right to transfer its manufacture and supply responsibilities to us at any time. We do not currently have, nor do we plan to acquire, the infrastructure or capability to supply, manufacture or distribute preclinical, clinical or commercial quantities of lebrikizumab drug substances or products. If Roche elects to transfer its manufacture and supply responsibilities to us, we will incur added costs in qualifying a contract manufacturer to manufacture and supply the drug substance and product and there can be no assurance that a qualified contract manufacturer would be available to us on a timely basis, on acceptable terms or at all.
If we experience any interruption in the supply of lebrikizumab drug substance and product, our ability to timely supply our clinical sites would be adversely impacted, causing potentially serious delays in the timing of our clinical studies and substantially increased costs if studies need to be adjusted or re-performed. See also “—We rely completely on third parties to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers, we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.”
Manufacturing and supply of the APIs and other substances and materials used in our product candidates and finished drug products is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after products have been manufactured and distributed.
Manufacturing and supply of APIs, other substances and materials and finished drug products is technically challenging. Changes beyond our direct control can impact the quality, volume, price and successful delivery of our product candidates and can impede, delay, limit or prevent the successful development and commercialization of our product candidates. Mistakes and mishandling are not uncommon and can affect successful production and supply. Some of these risks include:
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failure of our manufacturers to follow cGMP requirements or mishandling of product while in production or in preparation for transit; |
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inability of our contract suppliers and manufacturers to efficiently and cost-effectively increase and maintain high yields and batch quality, consistency and stability; |
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difficulty in establishing optimal production, storage, packaging and shipment methods and processes; |
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challenges in designing effective drug delivery substances and techniques; |
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transportation and import/export risk, particularly given the global nature of our supply chain; |
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delays in analytical results or failure of analytical techniques that we depend on for quality control and release of product; |
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latent defects that may become apparent after product has been released and which may result in recall and destruction of product. |
Any of these factors could result in delays or higher costs in connection with our clinical trials, regulatory submissions, required approvals or commercialization of our products, which could harm our business, financial condition, operating results and prospects.
If we are not able to establish and maintain collaborations, we may have to alter our development and commercialization plans.
The development and potential commercialization of our product candidates will require substantial additional cash to fund expenses. In order to fund further development of our product candidates, we may collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. We face significant competition in seeking appropriate partners. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the partner’s resources and experience, the terms and conditions of the proposed collaboration and the proposed partner’s evaluation of a number of factors. Those factors may include the design or results of clinical trials; the likelihood of approval by the FDA or other regulatory authorities; the potential market for the subject product candidate; the costs and complexities of manufacturing and delivering such product candidate to patients; the potential of competing products; any uncertainty with respect to our ownership of our intellectual property; and industry and market conditions generally. The partner may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential partners. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future partners.
Collaborations typically impose detailed obligations on each party, such as those required under the Roche Agreement.. If we were to breach our obligations, we may face substantial consequences, including potential termination of the collaboration, and our rights to our partners’ product candidates, in which we have invested substantial time and money, would be lost.
We may not be successful in our efforts to implement collaborations or other alternative arrangements for the development of our product candidates. When we partner with a third party for development and commercialization of a product candidate, we can expect to relinquish to the third party some of the control over the future success of that product candidate. Our collaboration partner may not devote sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing preclinical and initial clinical development of a partnered product candidate or research program, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
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Our plans for the development and commercialization of lebrikizumab for the treatment of moderate-to-severe atopic dermatitis may be adversely impacted by Roche’s decisions and actions regarding product development, regulatory strategy and commercialization of lebrikizumab for interstitial lung disease (the “ R etained Field ”) .
Pursuant to the terms of the Roche Agreement, we obtained the exclusive, worldwide rights to develop and commercialize lebrikizumab for atopic dermatitis and all other indications except Roche retained exclusive rights to develop and promote lebrikizumab in the Retained Field and certain rights to use lebrikizumab for internal research purposes and for in vitro diagnostic purposes. Roche’s rights in the Retained Field will be relinquished to us (the “Roche Reversion”): (a) at Roche’s election at any time following 30 days’ prior written notice to us; or (b) automatically if at any time in a period of 18 consecutive months Roche is not conducting an active clinical study of lebrikizumab or recurring, bona fide activities aimed at receiving regulatory approval for the compound in the Retained Field, provided that such automatic reversion may not occur within three years of the effective date of the Roche Agreement or following regulatory approval for the compound in the Retained Field. Until the occurrence of the Roche Reversion, if at all, Roche has the sole right to develop lebrikizumab in the Retained Field and, if regulatory approval is obtained, will be responsible for promotion, market access, reimbursement, funding and listing activities relating to lebrikizumab in the Retained Field. In exercising its rights in the Retained Field, Roche may make decisions and take actions with respect to the development and promotion of lebrikizumab which may not align with and may adversely impact our efforts for the development and commercialization lebrikizumab for the treatment of moderate-to-severe atopic dermatitis. See also “—If any of our product candidates are approved for marketing and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, product liability claims and significant fines, penalties and sanctions, and our brand and reputation could be harmed.”
Risks Related to Our Business and Financial Operations
We will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in executing our growth strategy and managing any growth.
Our management, personnel, systems and facilities currently in place are not adequate to support our business plan and future growth. We will need to further expand our scientific, medical affairs, sales and marketing, managerial, operational, financial and other resources to support our planned research, development and commercialization activities.
Our need to manage our operations, growth and various projects effectively requires that we:
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continue to improve our operational, financial, management and regulatory compliance controls and reporting systems and procedures; |
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attract and retain sufficient numbers of talented employees; |
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develop a marketing, sales and distribution capability; |
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manage our commercialization activities for our product candidates effectively and in a cost-effective manner; |
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establish and maintain relationships with development and commercialization partners; |
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manage our preclinical and clinical trials effectively; |
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manage our third-party supply and manufacturing operations effectively and in a cost-effective manner, while increasing production capabilities for our current product candidates to commercial levels; and |
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manage our development efforts effectively while carrying out our contractual obligations to partners and other third parties. |
In addition, historically, we have utilized and continue to utilize the services of part-time outside consultants to perform a number of tasks for us, including tasks related to preclinical and clinical testing. Our growth strategy may also entail expanding our use of consultants to implement these and other tasks going forward. We rely on consultants for certain functions of our business and will need to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. There can be no assurance that we will be able to manage our existing consultants or find other competent outside consultants, as needed, on economically reasonable terms, or at all. If we are not able to effectively manage our growth and expand our organization by hiring new employees and expanding our use of consultants, we might be unable to implement successfully the tasks necessary to execute effectively on our planned research, development and commercialization activities and, accordingly, might not achieve our research, development and commercialization goals.
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If we fail to attract and retain management and other key personnel, we may be unable to continue to successfully develop or commercialize our product cand idates or otherwise implement our business plan.
Our ability to compete in the highly competitive pharmaceuticals industry depends upon our ability to attract and retain highly qualified managerial, scientific, medical, sales and marketing and other personnel. We are highly dependent on our management and scientific personnel, including: our Chief Executive Officer and Chairman of the Board, Thomas G. Wiggans; our Chief Medical Officer and a member of our board of directors, Eugene A. Bauer, M.D.; our Chief Operating Officer and Chief Financial Officer, Andrew L. Guggenhime; our Chief Development Officer, Luis C. Peña; our Chief Commercial Officer, Lori Lyons-Williams; and our Senior Vice President, Corporate Development and Strategy, Christopher M. Griffith. The loss of the services of any of these individuals could impede, delay or prevent the successful development of our product pipeline, completion of our planned clinical trials, commercialization of our product candidates or in-licensing or acquisition of new assets and could negatively impact our ability to successfully implement our business plan. If we lose the services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. We employ all of our executive officers and key personnel on an at-will basis and their employment can be terminated by us or them at any time, for any reason and without notice. In order to retain valuable employees at our company, in addition to salary and cash incentives, we provide stock options and restricted stock units that vest over time. The value to employees of stock options and restricted stock units that vest over time will be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract offers from other companies.
We might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Francisco Bay Area where we are headquartered. We could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts. Many of the other pharmaceutical companies with whom we compete for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will harm our ability to implement our business strategy and achieve our business objectives.
In addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.
We currently have limited marketing capabilities and no sales organization. If we are unable to establish sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize our product candidates, if approved, or generate product revenue.
We currently have limited marketing capabilities and no sales organization. Although our employees have experience in the marketing, sale and distribution of pharmaceutical products from prior employment at other companies, we as a company have no prior experience in the marketing, sale and distribution of pharmaceutical products. To successfully commercialize our product candidates, if approved, in the United States, Canada, the European Union and other jurisdictions we seek to enter, we must effectively build our commercial infrastructure, including our marketing, sales, distribution, managerial and other non-technical capabilities, as well as substantially expand our organization cross-functionally to enable us to execute on our commercialization goals. There are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. See also —“We will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in executing our growth strategy and managing any growth.” Any failure or delay in the development of our commercial infrastructure and sales, marketing and distribution capabilities would adversely impact the commercialization of our product candidates.
We may also choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates. The inability to successfully commercialize our product candidates, either on our own or through collaborations with one or more third parties, would harm our business, financial condition, operating results and prospects.
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Ou r failure to successfully in-license, acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.
We intend to in-license, acquire, develop and market additional products and product candidates. Because our internal research and development capabilities are limited, we may be dependent upon pharmaceutical companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including preclinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.
We intend to in-license and acquire product candidates or engage in other strategic transactions, which could impact our liquidity, increase our expenses and present significant distractions to our management.
Our strategy is to in-license and acquire product candidates or engage in other strategic transactions. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions entail numerous potential operational and financial risks, including:
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exposure to unknown liabilities; |
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disruption of our business and diversion of our management’s time and attention in order to develop acquired products, product candidates or technologies; |
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incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions; |
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substantial acquisition and integration costs; |
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write-downs of assets or impairment charges; |
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increased amortization expenses; |
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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; |
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impairment of relationships with key suppliers, partners or customers of any acquired businesses due to changes in management and ownership; and |
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inability to retain our key employees or those of any acquired businesses. |
Accordingly, there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business, financial condition, operating results and prospects. We have no current plan, commitment or obligation to enter into any transaction described above.
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Our operating results may fluctuate significantly, which makes our future operating results difficult to predict a nd could cause our operating results to fall below expectations, adversely impacting our stock price.
Our operations to date have been primarily limited to researching and developing our product candidates and undertaking preclinical studies and clinical trials of our product candidates. We have not yet obtained regulatory approvals for any of our product candidates. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. From time to time, we may enter into collaboration agreements and license agreements with other companies that include development funding and significant upfront and milestone expenditures and payments, and we expect that amounts earned from or paid pursuant to these agreements will be a significant source of our capital expenditures and an important source of our revenue. Accordingly, our revenue and profitability will depend on the achievement of milestones under a license agreement with Maruho Co., Ltd. pursuant to which we granted Maruho an exclusive license to develop and commercialize glycopyrronium tosylate for the treatment of hyperhidrosis in Japan, as well as any potential future collaboration and license agreements and sales of our products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as determined by our board of directors, and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:
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delays in the commencement, patient enrollment and the timing of clinical testing for our product candidates; |
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the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; |
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any delays in regulatory review and approval of product candidates in clinical development; |
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the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time; |
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the cost of manufacturing our product candidates, which may vary depending on FDA guidelines and requirements, and the quantity of production; |
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our ability to obtain additional funding to develop our product candidates; |
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expenditures that we will or may incur to acquire or develop additional product candidates and technologies; |
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the level of demand for our product candidates, should they receive approval, which may vary significantly; |
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potential side effects of our product candidates that could delay or prevent commercialization or cause an approved drug to be taken off the market; |
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the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our product candidates, if approved; |
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our dependency on third-party manufacturers to supply or manufacture our product candidates; |
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our ability to establish an effective sales, marketing and distribution infrastructure in a timely manner; |
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market acceptance of our product candidates, if approved, and our ability to forecast demand for those product candidates; |
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our ability to receive regulatory approval and commercialize our product candidates; |
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our ability to establish and maintain collaborations, licensing or other arrangements; |
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our ability and third parties’ abilities to protect intellectual property rights; |
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costs related to and outcomes of potential litigation or other disputes; |
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our ability to adequately support future growth; |
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our ability to attract and retain key personnel to manage our business effectively; |
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potential liabilities associated with hazardous materials; |
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our ability to maintain adequate insurance policies; and |
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future accounting pronouncements or changes in our accounting policies. |
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Our operating results and liquidity needs could be negatively affected by market fluctuations and eco nomic downturn.
Our operating results and liquidity could be negatively affected by economic conditions generally, both in the United States and elsewhere around the world. The market for discretionary medical products and procedures may be particularly vulnerable to unfavorable economic conditions. Some patients may consider certain of our product candidates to be discretionary, and if full reimbursement for such products is not available, demand for these products may be tied to the discretionary spending levels of our targeted patient populations. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our operating results and liquidity could be adversely affected by those factors in many ways, including weakening demand for certain of our approved products, if any, and making it more difficult for us to raise funds if necessary, and our stock price may decline. Additionally, although we plan to market our products primarily in the United States, our partners have extensive global operations, indirectly exposing us to additional risk.
Our ability to utilize our net operating loss (“NOL”) carryforwards and research and development income tax credit carryforwards may be limited.
As of December 31, 2016, we had NOL carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes. If not utilized, the federal and California NOL carryforwards will begin expiring during the year ending December 31, 2030 and the Canadian NOL carryforwards will begin expiring during the year ending December 31, 2028. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We have experienced at least one ownership change since inception and our utilization of NOL carryforwards will therefore be subject to annual limitation. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
We may be adversely affected by natural disasters and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters are located in Menlo Park, California, near major earthquake and fire zones. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as enterprise financial systems, manufacturing resource planning or enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Our contract manufacturers’ and suppliers’ facilities are located in multiple locations, where other natural disasters or similar events, such as blizzards, tornadoes, fires, explosions or large-scale accidents or power outages, could severely disrupt our operations and have a material adverse effect on our business, financial condition, operating results and prospects. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the businesses of our partners, manufacturers or the economy as a whole. All of the aforementioned risks may be further increased if we do not implement a disaster recovery plan or our partners’ or manufacturers’ disaster recovery plans prove to be inadequate. To the extent that any of the above should result in delays in the regulatory approval, manufacture, distribution or commercialization of our product candidates, our business, financial condition, operating results and prospects would suffer.
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Our business and operations would suffer in the event of failure, invasion, corruption, destruction or interruption of our or our partners’ critical information technology systems or infrastructure.
Despite the implementation of security measures, our information technology systems and infrastructure, and those of our current and any future partners, contractors and consultants, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our systems or in non-encrypted portable media or storage devices. We could also experience a business interruption, intentional theft of confidential information, or reputational damage from espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing activities, development programs and our business operations. For example, the loss of manufacturing records or clinical trial data from completed or future 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 confidential or proprietary information, we could incur liability and the further commercialization and development of our product candidates could be delayed.
Risks Related to Our Intellectual Property
We may not be able to obtain or enforce patent rights or other intellectual property rights that cover our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
Our success with respect to our product candidates and technologies will depend in part on our ability to obtain and maintain patent protection in both the United States and other countries, to preserve our trade secrets and to prevent third parties from infringing upon our proprietary rights. Our ability to protect any of our product candidates from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable patents.
Our patent portfolio includes patents and patent applications in the United States and foreign jurisdictions where we believe there is a market opportunity for our products. The covered technology and the scope of coverage vary from country to country. For those countries where we do not have granted patents, we may not have any ability to prevent the unauthorized use of our technologies. Any patents that we may obtain may be narrow in scope and thus easily circumvented by competitors. Further, in countries where we do not have granted patents, third parties may be able to make, use or sell products identical to or substantially similar to, our product candidates.
The patent application process, also known as patent prosecution, is expensive and time-consuming, and we and our current or future licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our current licensors or licensees, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. If our current licensors or licensees, or any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised and we might not be able to prevent third parties from making, using and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial condition and operating results.
Due to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any existing patents or any patents we might obtain or license may not cover our product candidates, or may not provide us with sufficient protection for our product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies. In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents have issued or will issue, we cannot guarantee that the claims of these patents are or will be held valid or enforceable if challenged in post-grant proceedings or by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us.
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Competitors in the field of dermatologic thera peutics have created a substantial amount of prior art, including scientific publications, patents and patent applications. Our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the p rior art allow our technology to be patentable over the prior art. Although we believe that our technology includes certain inventions that are unique and not duplicative of any prior art, we do not have outstanding issued patents covering all of the recen t developments in our technology and we are unsure of the patent protection that we will be successful in obtaining, if any. Even if the patents do successfully issue, third parties may design around or challenge the validity, enforceability or scope of su ch issued patents or any other issued patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. In particular, due to the extensive prior art relating to anticholinergic agents to control hyperhidrosis a nd because glycopyrronium tosylate is a form of a generic anticholinergic agent, the patent protection available for glycopyrronium tosylate may not prevent competitors from developing and commercializing similar products. If the breadth or strength of pro tection provided by the patents we hold or pursue with respect to our product candidates is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our product candidates.
The laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property in foreign jurisdictions, our business prospects could be substantially harmed.
The degree of future protection of our proprietary rights is uncertain. Patent protection may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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we might not have been the first to invent or the first to file the inventions covered by each of our pending patent applications and issued patents; |
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others may independently develop similar or alternative technologies or duplicate any of our technologies; |
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the patents of others may have an adverse effect on our business; |
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any patents we obtain or our licensors’ issued patents may not encompass commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties; |
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any patents we obtain or our in-licensed issued patents may not be valid or enforceable; and |
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we may not develop additional proprietary technologies that are patentable or provide us with a competitive advantage. |
Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from generic versions of our product candidates. Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can market a product candidate under patent protection, which may particularly affect the profitability of our early-stage product candidates. The issued U.S. patents relating to olumacostat glasaretil, glycopyrronium tosylate and lebrikizumab will expire between 2020 and 2034.
Proprietary trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how by entering into confidentiality agreements with third parties, and intellectual property protection agreements with certain employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. We also have limited control over the protection of trade secrets used by our suppliers, manufacturers and other third parties. There can be no assurance that binding agreements will not be breached, that we would have adequate remedies for any breach or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information.
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Changes in patent laws or the interpretations of patent laws could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or 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 scope and value of patents, once obtained.
For our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act (“AIA”) was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. 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, all of which could have an adverse effect on our business. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the U.S. Patent and Trademark Office (“USPTO”) after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.
Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement on infringing activities is inadequate. 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.
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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countrie s, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents o r marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions 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. In addition, certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opp ortunities. 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 own or license. Finally, our ability to protect and enfo rce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have an adverse effect on our business.
If we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important to our business.
We are a party to certain license agreements that impose various diligence, milestone, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the respective licensors may have the right to terminate the license, in which event we may not be able to develop or market the affected product candidate. The loss of such rights could materially adversely affect our business, financial condition, operating results and prospects. For example, any dispute with Roche relating to compliance with the terms of the Roche Agreement could lead to delays in, or termination of, the development and commercialization of lebrikizumab for the treatment of atopic dermatitis and time consuming and expensive arbitration.
If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in that litigation could have a material adverse effect on our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We cannot provide assurances that marketing and selling such candidates and using such technologies will not infringe existing or future patents. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields relating to our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that our product candidates, technologies or methods of delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents cover various drugs, biologics, drug delivery systems or their methods of use, and which of these patents may be valid and enforceable. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
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In addition, there may be issued patents of third parties that are infringed or are alleged to be infringed by our product candidates or proprietary technologies. Because some patent applic ations in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications i n the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our own and in-licensed issued patents or our pending applications. Our competitors may have file d, and may in the future file, patent applications covering our product candidates or technology similar to ours. Any such patent application may have priority over our own and in-licensed patent applications or patents, which could further require us to o btain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of in-licensed technology, the licensor may have to participate, i n the United States, in an interference proceeding to determine priority of invention.
We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates or proprietary technologies infringe such third parties’ intellectual property rights, including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act. These lawsuits could claim that there are existing patent rights for such drug and this type of litigation can be costly and could adversely affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents or the patents asserted against us are ultimately established as invalid. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party’s patents.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. To date, no litigation asserting infringement claims has ever been brought against us. If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including:
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infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business; |
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substantial damages for infringement, which we may have to pay if a court decides that the product or technology at issue infringes or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees; |
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a court prohibiting us from selling or licensing the product or using the technology at issue unless the third party licenses its intellectual property rights to us, which it is not required to do; |
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if a license is available from a third party, we may have to pay substantial royalties or upfront fees or grant cross-licenses to intellectual property rights for our products or technologies; and |
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redesigning our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time. |
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm our ability to raise additional funds or otherwise adversely affect our business, financial condition, operating results and prospects.
Because we rely on certain third-party licensors, licensees and partners, and will continue to do so in the future, if one of our licensors, licensees or partners is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results and prospects could suffer in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed to indemnify certain third-party licensors, licensees and partners against claims of infringement caused by our proprietary technologies, and we have entered or may enter into cost-sharing agreements with some our licensors, licensees and partners that could require us to pay some of the costs of patent litigation brought against those third parties whether or not the alleged infringement is caused by our proprietary technologies. In certain instances, these cost-sharing agreements could also require us to assume greater responsibility for infringement damages than would be assumed just on the basis of our technology.
The occurrence of any of the foregoing could adversely affect our business, financial condition or operating results.
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We may become involved in lawsuits or other adve rse proceedings to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time-consuming.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied. An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated, interpreted narrowly or amended such that they do not cover our product candidates. Moreover, such adverse determinations could put our patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope to cover our product candidates or to prevent others from marketing similar products.
Interference, derivation or other proceedings such as inter partes review, post-grant review and reexamination brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or potential partners. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or potential partners, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their former employers or their former or current customers.
As is common in the biotechnology and pharmaceutical industries, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our product candidates, many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims. Even if we are successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to our management team, not viewed favorably by investors and other third parties and may potentially result in an unfavorable outcome.
Risks Related to the Securities Markets and Ownership of Our Common Stock
The stock price of our common stock has been, and is likely to continue to be, volatile and may decline and stockholders may not be able to resell their shares at or above the price at which they purchased the shares.
Prior to our initial public offering (“IPO”) in October 2014, there had not been a public market for our common stock. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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the development status of our product candidates, including whether any of our product candidates receive regulatory approval; |
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regulatory or legal developments in the United States and foreign countries; |
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the results of our clinical trials and preclinical studies; |
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the clinical results of our competitors or potential competitors; |
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the success of, and fluctuations in, the commercial sales of products approved for commercialization, if any; |
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the execution of our partnering and manufacturing arrangements; |
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our execution of collaboration, co-promotion, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements; |
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variations in the level of expenses related to our preclinical and clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites; |
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variations in the level of expenses related to our commercialization activities, if any product candidates are approved; |
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the performance of third parties on whom we rely for clinical trials, manufacturing, marketing, sales and distribution, including their ability to comply with regulatory requirements; |
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overall performance of the equity markets; |
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changes in operating performance and stock market valuations of other pharmaceutical companies; |
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market conditions or trends in our industry or the economy as a whole; |
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the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission (“SEC”) and announcements relating to acquisitions, strategic transactions, licenses, joint ventures, capital commitments, intellectual property, litigation or other disputes impacting us or our business; |
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developments with respect to intellectual property rights; |
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our commencement of, or involvement in, litigation; |
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FDA or foreign regulatory actions affecting us or our industry; |
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changes in the structure of healthcare payment systems; |
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changes to laws affecting our industry, including full or partial repeal of the Affordable Care Act; |
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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; |
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changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock; |
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ratings downgrades by any securities analysts who follow our common stock; |
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the development and sustainability of an active trading market for our common stock; |
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the size of our market float; |
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future sales of our common stock by our officers, directors and significant stockholders; |
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future sales and purchases of any shares of our common stock issued upon conversion of the 3.00% Convertible Senior Notes due 2022 (“Notes”); |
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recruitment or departure of key personnel; |
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changes in accounting principles; |
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other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events; and |
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any other factors discussed herein. |
In addition, the stock markets, and in particular The NASDAQ Global Select Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.
During the period between January 1, 2016 and November 3, 2017, the closing sale price of our common stock on The NASDAQ Global Select Market ranged from $18.67 to $38.03 per share. Because our stock price has been volatile, investing in our common stock is risky.
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If a large number of shares of our common stock are sold in the public market, the sales could reduce the trading price of our common stock, impede our ability to raise future capital and holders may have difficulty selling their shares based on current trading volumes of our stock.
Our stock is currently traded on The NASDAQ Global Select Market, but we can provide no assurance that we will be able to maintain an active trading market on The NASDAQ Global Select Market or any other exchange in the future. The trading volume of our stock tends to be low and we have several stockholders who hold a significant number of shares. If there is no active trading market or if the volume of trading is limited, holders of our common stock may have difficulty selling their shares.
As of September 30, 2017, we had 41,668,638 shares of common stock outstanding, and stockholders holding 5% or more of our stock, individually or with affiliated persons or entities, collectively beneficially owned or controlled approximately 44% of such shares. If stockholders holding a significant number of our shares sell, indicate an intention to sell, or if it is perceived that they will sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline and our ability to raise future capital may be adversely affected. If a large number of shares of our common stock into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.
Furthermore, we completed a sale of $287.5 million aggregate principal amount of Notes in May 2017 in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act. The Notes mature on May 15, 2022, unless earlier converted or repurchased in accordance with their terms. Holders of the Notes may convert all or a portion of their Notes at their option at any time prior to the close of business on the business day immediately prior to May 15, 2022, in multiples of $1,000 principal amount. The Notes are convertible into shares of our common stock at an initial conversion rate of 28.2079 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $35.45 per share of common stock. As of September 30, 2017, the Notes were convertible into 8,109,771 shares of our common stock. The conversion rate and the corresponding conversion price will be subject to adjustment upon the occurrence of certain events. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress our stock price.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
The Sarbanes-Oxley Act requires us, among other things, to assess and report on the effectiveness of our internal control over financial reporting annually and disclosure controls and procedures quarterly. In addition, our independent registered public accounting firm is required to audit the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act annually.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. To maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and will continue to expend significant resources, including accounting and professional services fees related costs and in providing diligent management oversight.
Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Moreover, our independent registered public accounting firm could issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Ineffective internal control could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, any future testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements, which could lead to financial statement restatements and require us to incur the expense of remediation.
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Risks associated with use of our company-wide enterprise resource planning (“ERP”) syst em may adversely affect our business and results of operations or the effectiveness of internal control over financial reporting.
We completed implementation of a company-wide ERP system in 2016 to handle the business and financial processes within our operations and corporate functions. To reap the benefits of our ERP system, we were required to change certain business and financial processes. Our business and results of operations may be adversely affected if we experience operating problems with the ERP system, or if the ERP system and the associated process changes do not give rise to the benefits that we expect. If the ERP system does not operate as intended, our business, results of operations and internal controls over financial reporting may be adversely affected.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. Prior to our IPO in October 2014, there had not been a public market for our common stock and we did not have research coverage by securities and industry analysts. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
If we sell or issue additional shares of our common stock or securities convertible into our common stock in the future, the percentage ownership of our stockholders will be diluted.
On November 2, 2015, we filed a shelf registration statement on Form S-3 for the potential offering, issuance and sale by us of up to $300.0 million of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock and debt securities, subscription rights to purchase our common stock, preferred stock and debt securities, and units consisting of all or some of these securities. Our shelf registration statement was declared effective by the SEC on November 24, 2015. In June 2016, we sold 5,175,000 shares of our common stock in an underwritten public offering pursuant to the shelf registration statement for aggregate gross proceeds of $144.9 million. Furthermore, pursuant to a sales agreement between us and Cowen and Company, LLC (‘‘Cowen’’), common stock with an aggregate offering price of up to $75.0 million may be issued and sold pursuant to an ‘‘at-the-market’’ offering for sales of our common stock. Subject to certain limitations in the sales agreement and compliance with applicable law, we have the discretion to deliver a sales notice to Cowen at any time throughout the term of the sales agreement, which has a term equal to the term of the registration statement on Form S-3 unless otherwise terminated earlier by us or Cowen pursuant to the terms of the sales agreement. The number of shares that are sold by Cowen after delivering a sales notice will fluctuate based on the market price of our common stock during the sales period and limits we set with Cowen. Because the price per share of each share sold will fluctuate based on the market price of our common stock during the sales period, it is not possible at this stage to predict the number of shares that will be ultimately issued. As of the date hereof, no shares of our common stock have been sold pursuant to the sales agreement.
In addition, in February 2017, we filed an automatic shelf registration statement on Form S-3, which immediately became effective. In March 2017, we sold 5,750,000 shares of our common stock in an underwritten public offering pursuant to the automatic shelf registration statement for aggregate gross proceeds of $193.8 million. As long as we continue to satisfy the requirements to be deemed a “well-known seasoned issuer” under SEC rules, and subject to certain other requirements, we will be eligible to file automatic shelf registration statements that become immediately effective upon filing and allow us to issue registered shares of common stock and other securities in one or more offerings, in amounts, at prices and on the terms that we will determine at the time of the offering. If we sell additional common stock, preferred stock, convertible securities and other equity securities in future transactions pursuant to our shelf registration statements or otherwise, existing investors may be materially diluted by such subsequent sales and new investors could gain rights superior to our existing stockholders.
Furthermore, we completed a sale of the Notes in May 2017 in a private placement in reliance on Section 4(a)(2) of the Securities Act. The Notes mature on May 15, 2022, unless earlier converted or repurchased in accordance with their terms. Holders of the Notes may convert all or a portion of their Notes at their option at any time prior to the close of business on the business day immediately prior to May 15, 2022, in multiples of $1,000 principal amount. The Notes are convertible into shares of our common stock at an initial conversion rate of 28.2079 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $35.45 per share of common stock. As of September 30, 2017, the Notes were convertible into 8,109,771 shares of our common stock. The conversion rate and the corresponding conversion price will be subject to adjustment upon the occurrence of certain events. The conversion of some or all of the Notes into shares of our common stock will dilute the ownership interests of existing stockholders.
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Our directors and executive officers, together with their affiliates, will be able to exert significant influence over us and could impede a change of corporate control.
As of September 30, 2017, our directors and executive officers beneficially owned (determined in accordance with the rules of the SEC), in the aggregate, approximately 13% of our outstanding common stock. As a result, these stockholders, acting together, would have the ability to exert significant influence on matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, have the ability to significantly influence the management and affairs of our company. Accordingly, this concentration of ownership could harm the market price of our common stock by:
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delaying, deferring or preventing a change of control of us; |
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impeding a merger, consolidation, takeover or other business combination involving us; or |
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discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of us. |
Delaware law and provisions in our restated certificate of incorporation and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.
The anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change of control by prohibiting us from engaging in a business combination with stockholders owning in excess of 15% of our outstanding voting stock for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
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our board of directors is classified into three classes of directors with staggered three-year terms, with directors removable from office only for cause, so that not all members of our board of directors are elected at one time; |
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only our board of directors has the right to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
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only our chairman of our board of directors, our chief executive officer, our president or a majority of our board of directors are authorized to call a special meeting of stockholders; |
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certain litigation against us can only be brought in Delaware; |
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our restated certificate of incorporation authorizes the issuance of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval, and which may include rights superior to the rights of the holders of common stock; |
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all stockholder actions must be taken at meetings of our stockholders, and may not be taken by written consent; |
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our board of directors is expressly authorized to make, alter or repeal our bylaws; and |
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advance notice requirements apply for stockholders to nominate candidates for elections to our board of directors or to bring matters that can be acted upon by stockholders at stockholder meetings. |
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing so as to cause us to take certain corporate actions they desire.
Because management has broad discretion as to the use of the net proceeds from our previous and future sales of securities, stockholders may not agree with how we use them, and such proceeds may not be applied successfully.
Our management will have considerable discretion over the use of proceeds from our previous and future sales of securities and could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our common stock, or with which our stockholders otherwise disagree. The failure of our management to apply these funds effectively could, among other things, result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline. Pending their use, we may invest the net proceeds from our previous and future sales of securities in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.
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We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Risks Related to the Notes
We have indebtedness in the form of convertible senior notes, which could adversely affect our financial health and our ability to respond to changes in our business.
In May 2017, we completed an offering of the Notes in a private placement in reliance on Section 4(a)(2) of the Securities Act (the “Notes Offering”). The Notes mature on May 15, 2022, unless earlier converted or repurchased in accordance with their terms. Holders of the Notes may convert all or a portion of their Notes at their option at any time prior to the close of business on the business day immediately prior to May 15, 2022, in multiples of $1,000 principal amount. The Notes are convertible into shares of our common stock at an initial conversion rate of 28.2079 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $35.45 per share of common stock. As of September 30, 2017, the Notes were convertible into 8,109,771 shares of our common stock. The conversion rate and the corresponding conversion price will be subject to adjustment upon the occurrence of certain events. The conversion of some or all of the Notes into shares of our common stock will dilute the ownership interests of existing stockholders. In addition, the indenture for the Notes provides that we are required to repay amounts due under the indenture in the event that there is an event of default for the Notes that results in the principal, premium, if any, and interest, if any, becoming due prior to maturity date for the Notes. There can be no assurance that we will be able to repay this indebtedness when due, or that we will be able to refinance this indebtedness on acceptable terms or at all.
As a result of our level of increased debt after the completion of the Notes Offering:
|
• |
our vulnerability to adverse general economic conditions and competitive pressures is heightened; |
|
• |
we are required to dedicate a larger portion of our cash flow from operations to interest payments, limiting the availability of cash for other purposes; |
|
• |
our flexibility in planning for, or reacting to, changes in our business and industry may be more limited; and |
|
• |
our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. |
We cannot be sure that our leverage resulting from the level of increased debt due to the Notes Offering will not materially and adversely affect our ability to finance our operations or capital needs or to engage in other business activities. In addition, we cannot be sure that additional financing will be available when required or, if available, will be on terms satisfactory to us. Further, even if we are able to obtain additional financing, we may be required to use such proceeds to repay a portion of our debt.
We may be unable to repurchase the Notes upon a fundamental change when required by the holders or repay prior to maturity any accelerated amounts due under the Notes upon an event of default, and our future debt agreements may contain limitations on our ability to pay cash upon conversion, repurchase or repayment of the Notes.
Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. In addition, the indenture for the Notes provides that we are required to repay amounts due under the indenture in the event that there is an event of default for the Notes that results in the principal, premium, if any, and interest, if any, becoming due prior to the maturity date for the Notes. However, we may not have enough available cash or be able to obtain financing at the time we are required to repurchase Notes surrendered upon a fundamental change or repay prior to maturity any accelerated amounts.
In addition, our ability to purchase the Notes or repay prior to maturity any accelerated amounts under the Notes upon an event of default or redeem the Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture (whether upon a fundamental change or otherwise under the indenture) would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing any of our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness or repurchase the Notes.
62
Servicing debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Notes, depends on our future financial condition and operating performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under the Notes and any future indebtedness we may incur and to make necessary capital expenditures. We cannot assure you that we will have in the future a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our debt, including the Notes.
If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. These alternative measures may not be successful and may not permit us to meet our schedule debt servicing obligations. Further, we may need to refinance all or a portion of our debt on our before maturity, and our ability to refinance the Notes or future indebtedness 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 on commercially reasonable terms or at all, which could result in a default on the Notes or future indebtedness.
We may still incur substantially more debt or take other actions which would intensify the risks discussed above.
We and our subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our future debt instruments. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing debt or taking a number of other actions that are not limited by the terms of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on the Notes when due.
Conversion of the Notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their Notes, or may otherwise depress our stock price.
The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress our stock price.
Our indebtedness could adversely affect our financial health and our ability to respond to changes in our business.
As a result of our level of debt following the completion of our sale of the Notes:
|
• |
our vulnerability to adverse general economic conditions and competitive pressures will be heightened; |
|
• |
we will be required to dedicate a larger portion of our capital resources to interest payments, limiting the availability of cash for other purposes; |
|
• |
our flexibility in planning for, or reacting to, changes in our business and industry may be more limited; and |
|
• |
our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. |
We cannot be sure that our leverage resulting from the level of debt after the completion of our sale of the Notes will not materially and adversely affect our ability to finance our operations or capital needs or to engage in other business activities. In addition, we cannot be sure that additional financing will be available when required or, if available, will be on terms satisfactory to us. Further, even if we are able to obtain additional financing, we may be required to use such proceeds to repay a portion of our debt.
63
The Notes are effectively junior to any secured debt we may incur and structurally subordinated to any liabilities of our subsidiary .
The Notes are our unsecured obligations exclusively and are not guaranteed by our subsidiary. Our subsidiary is a separate and distinct legal entity and has no obligation, contingent or otherwise, to make payments on the Notes or to make any funds available for that purpose. In addition, the indenture for the Notes will not restrict us or our subsidiary from incurring additional debt or other liabilities. Accordingly, the Notes rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; will rank equally in right of payment with any of our unsecured indebtedness that is not so subordinated; will be effectively junior in right of payment to any secured indebtedness we may incur to the extent of the value of the assets securing such indebtedness; and will be structurally junior to any indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure any of our debt will be available to pay obligations on the Notes only after such secured debt we may incur has been repaid in full. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding.
Our right to receive assets from our subsidiary upon its liquidation or reorganization, and the right of holders of the Notes to participate in those assets, is structurally subordinated to claims of the subsidiary’s creditors, including trade creditors. Even if we were a creditor of our subsidiary, our rights as a creditor would be subordinate to any security interest in the assets of the subsidiary and any indebtedness of the subsidiary senior to that held by us. Furthermore, our subsidiary is not under any obligation to make payments to us, and any payments to us would depend on the earnings or financial condition of our subsidiary and various business considerations. Statutory, contractual or other restrictions may also limit our subsidiary’s ability to pay dividends or make distributions, loans or advances to us. For these reasons, we may not have access to any assets or cash flows of our subsidiary to make payments on the Notes.
The fundamental change repurchase feature of the Notes may delay or prevent an otherwise beneficial attempt to take over our company.
The terms of the Notes require us to repurchase the Notes in the event of a fundamental change. Under certain circumstances, a takeover of our company would trigger an option of the holders of the Notes to require us to repurchase the Notes. In addition, if a make-whole fundamental change occurs prior to the maturity date of the Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Furthermore, the indenture for the Notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. These and other provisions of the indenture may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors in the Notes.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
None.
Not applicable.
None.
64
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Incorporated by Reference |
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Number |
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Exhibit Title |
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Form |
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File No. |
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Filing
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Filed
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10.1† |
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License Agreement dated as of August 8, 2017 between Dermira, Inc. and F. Hoffmann-La Roche Ltd and Genentech, Inc. |
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X |
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10.2 |
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Sublease Agreement dated as of September 22, 2017 between Dermira, Inc. and McDermott Will & Emery LLP. |
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X |
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31.1 |
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Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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X |
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31.2 |
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Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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X |
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32.1 |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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X |
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32.2 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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X |
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101.INS |
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XBRL Instance Document. |
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X |
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101.SCH |
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XBRL Taxonomy Extension Schema Document. |
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X |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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X |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document. |
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X |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document. |
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X |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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X |
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† |
Registrant is requesting confidential treatment with respect to portions of this exhibit. |
* |
As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Dermira, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filings. |
65
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Incorporated by Reference |
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Exhibit Title |
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Form |
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File No. |
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Filing
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Filed
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101.INS |
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XBRL Instance Document. |
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X |
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101.SCH |
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XBRL Taxonomy Extension Schema Document. |
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X |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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X |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document. |
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X |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document. |
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X |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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X |
† |
Registrant is requesting confidential treatment with respect to portions of this exhibit. |
* |
As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Dermira, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filings. |
66
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Menlo Park, California, on November 6, 2017.
|
DERMIRA, INC. |
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By: |
/s/ THOMAS G. WIGGANS |
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Thomas G. Wiggans |
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Chief Executive Officer and Chairman of the Board |
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(Principal Executive Officer) |
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By: |
/s/ ANDREW L. GUGGENHIME |
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Andrew L. Guggenhime |
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Chief Operating Officer and Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
67
Exhibit 10.1
CONFIDENTIAL TREATMENT REQUESTED
EXECUTION VERSION
Confidential
License Agreement
This Agreement is entered into with effect as of the Effective Date (as defined below)
by and between
F. Hoffmann-La Roche Ltd
with an office and place of business at Grenzacherstrasse 124, 4070 Basel, Switzerland ("Roche Basel")
and
Genentech, Inc.
with an office and place of business at 1 DNA Way, South San Francisco, CA 94080, USA
("Roche US"; Roche Basel and Roche US together referred to as "Roche")
on the one hand
and
Dermira, Inc.
with an office and place of business at 275 Middlefield Road, Suite 150, Menlo Park, California 94025, USA ("Dermira")
on the other hand.
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
1. |
Definitions7 |
|
1.1 |
Accounting Period7 |
|
1.2 |
Affiliate7 |
|
1.3 |
Agreement8 |
|
1.4 |
Agreement Term8 |
|
1.5 |
Antitrust Laws8 |
|
1.6 |
Applicable Law8 |
|
1.7 |
Biosimilar Product8 |
|
1.8 |
BLA8 |
|
1.9 |
Business Day8 |
|
1.10 |
Calendar Quarter9 |
|
1.11 |
Calendar Year9 |
|
1.12 |
CDx / Companion Diagnostic9 |
|
1.13 |
Change of Control9 |
|
1.14 |
Change of Control Group9 |
|
1.15 |
CMO9 |
|
1.16 |
Combination Product9 |
|
1.17 |
Commercially Reasonable Efforts10 |
|
1.18 |
Compound10 |
|
1.19 |
Confidential Information10 |
|
1.20 |
Continuation Election Notice11 |
|
1.21 |
Control11 |
|
1.22 |
Cover11 |
|
1.23 |
Dermira Know-How11 |
|
1.24 |
Dermira Patent Rights12 |
|
1.25 |
Development Plan12 |
|
1.26 |
Diagnostics Field12 |
|
1.27 |
Distribution12 |
|
1.28 |
Drug Product12 |
|
1.29 |
Drug Substance12 |
|
1.30 |
Effective Date13 |
|
1.31 |
EMA13 |
|
1.32 |
EU13 |
|
1.33 |
Execution Date13 |
|
1.34 |
Expert13 |
|
1.35 |
FDA13 |
|
1.36 |
FDCA13 |
|
1.37 |
Field13 |
|
1.38 |
First Commercial Sale13 |
|
1.39 |
Fully Burdened Manufacturing Costs13 |
|
1.40 |
GAAP14 |
|
1.41 |
Handle14 |
|
1.42 |
HSR14 |
|
1.43 |
HSR Approval14 |
|
1.44 |
Housemark14 |
|
1.45 |
IFRS14 |
|
1.46 |
IND15 |
- i –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
|
1.48 |
Insolvency Event15 |
|
1.49 |
Invention15 |
|
1.50 |
IPF Study15 |
|
1.51 |
Joint Know-How15 |
|
1.52 |
IVD / in vitro diagnostic15 |
|
1.53 |
Joint Patent Rights16 |
|
1.54 |
JSC16 |
|
1.55 |
Know-How16 |
|
1.56 |
Licensed Intellectual Property16 |
|
1.57 |
Licensed Compound Patent Rights16 |
|
1.58 |
Licensed Know-how16 |
|
1.59 |
Manufacture16 |
|
1.60 |
Modified Compound17 |
|
1.61 |
Net Sales17 |
|
1.62 |
Non-Compound Patent Rights18 |
|
1.63 |
Outside Date18 |
|
1.64 |
Partner18 |
|
1.65 |
Partner Agreement18 |
|
1.66 |
Party18 |
|
1.67 |
Patent Rights18 |
|
1.68 |
Pharmacovigilance Agreement18 |
|
1.69 |
Phase II Dose-finding Study18 |
|
1.70 |
Phase III Study19 |
|
1.71 |
Product19 |
|
1.72 |
Regulatory Approval19 |
|
1.73 |
Regulatory Authority19 |
|
1.74 |
Regulatory Exclusivity19 |
|
1.75 |
Roche Know-How19 |
|
1.76 |
Roche Patent Rights20 |
|
1.77 |
Roche Retained Field20 |
|
1.78 |
Royalty Term20 |
|
1.79 |
Specifications20 |
|
1.80 |
Sublicensee20 |
|
1.81 |
Technology Transfer20 |
|
1.82 |
Technology Transfer Project Plan21 |
|
1.83 |
Territory21 |
|
1.84 |
Third Party21 |
|
1.85 |
US21 |
|
1.86 |
US$21 |
|
1.87 |
Valid Claim21 |
|
1.88 |
Additional Definitions21 |
2. |
Grant of License22 |
|
2.1 |
License Grant22 |
|
2.1.1 |
Development and Commercialization Grant22 |
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2.1.2 |
Manufacturing Rights23 |
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2.1.3 |
Licensed Roche Modified Compound23 |
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2.2 |
Right to Sublicense23 |
|
2.3 |
Sub-Contractors24 |
|
2.4 |
Know-How Transfer24 |
- ii –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
|
2.4.2 |
Transfer of INDs25 |
|
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2.4.3 |
Cost26 |
|
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2.5 |
Roche Retained Rights26 |
|
2.5.1 |
Roche Retained Rights for Research Purposes26 |
|
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2.5.2 |
Roche Retained Manufacturing Right26 |
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2.5.3 |
In General27 |
|
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2.6 |
Roche Rights in the Roche Retained Field27 |
|
2.6.1 |
In General27 |
|
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2.6.2 |
License Grant by Dermira27 |
|
|
2.6.3 |
Roche Option to Relinquish Rights in the Roche Retained Field; Expiration27 |
|
3. |
Diligence27 |
4. |
Alliance Management, Reporting and Governance28 |
|
4.1 |
Alliance Management28 |
|
4.2 |
Reporting28 |
|
4.2.1 |
Prior to First Commercial Sale28 |
|
|
4.2.2 |
After First Commercial Sale28 |
|
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4.3 |
Governance29 |
|
4.3.1 |
Joint Steering Committee29 |
|
|
4.3.2 |
Members29 |
|
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4.3.3 |
Responsibilities of the JSC29 |
|
|
4.3.4 |
Meetings; Committees30 |
|
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4.3.5 |
Minutes30 |
|
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4.3.6 |
Decisions30 |
|
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4.3.7 |
Information Exchange31 |
|
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4.3.8 |
Limitations of Authority31 |
|
|
4.3.9 |
Expenses31 |
|
|
4.3.10 |
Lifetime31 |
|
5. |
Development31 |
|
5.1 |
Responsibility31 |
|
5.2 |
Development Plan31 |
|
5.3 |
Development by Roche in the Roche Retained Field32 |
6. |
Manufacture and Supply32 |
|
6.1 |
Manufacture and Supply32 |
|
6.1.1 |
General32 |
|
|
6.1.2 |
Roche’s Supply Obligation Prior to Transfer32 |
|
|
6.1.3 |
Supply of Drug Substance32 |
|
|
6.1.4 |
Supply of Drug Product32 |
|
|
6.1.5 |
Supply Agreement33 |
|
|
6.1.6 |
Terms of Delivery33 |
|
|
6.2 |
Transfer of Manufacture and Supply Responsibility to Dermira33 |
|
6.2.1 |
Drug Substance33 |
|
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6.2.2 |
Drug Product34 |
|
|
6.2.3 |
Responsibility after Transfer Completion Date; Manufacturing and Process Improvements34 |
|
|
6.2.4 |
Restrictions of Use35 |
|
- iii –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
7. |
Regulatory35 |
|
7.1 |
Roche Responsibility35 |
|
7.1.1 |
Roche Responsibilities in Roche Retained Field35 |
|
|
7.1.2 |
Other Roche Responsibilities35 |
|
|
7.2 |
Dermira Responsibility; Additional Studies in Roche Retained Field35 |
|
7.2.1 |
Dermira Responsibility35 |
|
|
7.2.2 |
Database Lock; Roche Retained IND; Additional Studies in the Roche Retained Field36 |
|
|
7.3 |
IND and Other Regulatory Documentation37 |
|
7.4 |
Informed Consent Forms37 |
|
7.5 |
Pharmacovigilance Agreement37 |
8. |
Commercialization38 |
|
8.1 |
Responsibility38 |
|
8.2 |
Updates to Roche38 |
|
8.3 |
Promotion by Roche in the Roche Retained Field38 |
|
8.4 |
Medical Affairs Activities by Roche in Roche Retained Field38 |
9. |
Payment39 |
|
9.1 |
Initial Payment39 |
|
9.2 |
Development Event Payments39 |
|
9.3 |
Sales Based Events40 |
|
9.4 |
Royalty Payments on Net Sales in any indication outside of the Roche Retained Field40 |
|
9.4.1 |
Royalty Term40 |
|
|
9.4.2 |
Royalty Rates for Product outside of the Roche Retained Field40 |
|
|
9.4.3 |
Royalty Adjustments41 |
|
|
9.5 |
Financial consideration to Roche for Dermira-sales in Roche Retained Field42 |
|
9.6 |
Costs43 |
10. |
Accounting and Reporting43 |
|
10.1 |
Payment Terms43 |
|
10.2 |
Other Payments44 |
|
10.3 |
Late Payment44 |
|
10.4 |
Method of Payment44 |
|
10.5 |
Currency Conversion44 |
|
10.6 |
Royalty Reporting44 |
11. |
Taxes45 |
12. |
Auditing45 |
|
12.1 |
Roche Right to Audit45 |
|
12.2 |
Audit Reports46 |
|
12.3 |
Over-or Underpayment46 |
13. |
Intellectual Property46 |
|
13.1 |
Ownership of Inventions and Know-How46 |
|
13.2 |
Trademarks and INN47 |
|
13.2.1 |
In General47 |
|
- iv –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
|
13.3 |
Handling of Roche Patent Rights including Licensed Compound Patent Rights49 |
|
13.4 |
Roche Disclosure of New Compound Patents49 |
|
13.5 |
Handling of Patent Rights Claiming Dermira Inventions and Joint Patent Rights49 |
|
13.6 |
Infringement50 |
|
13.7 |
Defense51 |
|
13.8 |
Common Interest Disclosures52 |
|
13.9 |
Hatch-Waxman52 |
|
13.10 |
Biosimilar or interchangeable biological products52 |
|
13.11 |
Patent Term Extensions52 |
|
13.12 |
No Challenge53 |
14. |
Representations and Warranties53 |
|
14.1 |
Mutual Representations and Warranties53 |
|
14.2 |
Roche Representations, Warranties and Covenants54 |
|
14.3 |
Dermira Representations and Warranties55 |
|
14.4 |
Limitations55 |
|
14.5 |
Disclaimer55 |
15. |
Indemnification55 |
|
15.1 |
Roche Indemnification55 |
|
15.2 |
Dermira Indemnification56 |
|
15.3 |
Control of Defense56 |
16. |
Liability56 |
|
16.1 |
Limitations56 |
|
16.2 |
Dermira Liability Insurance56 |
|
16.2.5 |
Additional Requirements57 |
|
17. |
Obligation Not to Disclose Confidential Information57 |
|
17.1 |
Non-Use and Non-Disclosure57 |
|
17.2 |
Permitted Disclosure57 |
|
17.3 |
Press Releases58 |
|
17.4 |
Publications58 |
|
17.5 |
Commercial Considerations59 |
18. |
Term and Termination59 |
|
18.1 |
Commencement and Term59 |
|
18.2 |
Termination60 |
|
18.2.1 |
Termination for Breach60 |
|
|
18.2.2 |
Termination in case of an Insolvency Event60 |
|
|
18.2.3 |
Termination by Dermira without a Cause60 |
|
|
18.2.4 |
Termination for Failure to Receive HSR Approval60 |
|
|
18.3 |
Consequences of Termination60 |
|
18.3.1 |
Termination by Dermira for Breach by Roche or Roche Insolvency60 |
|
|
18.3.2 |
Termination by Dermira without Cause, Termination by Roche for Breach by Dermira or Dermira Insolvency61 |
|
|
18.3.3 |
Direct License61 |
|
|
18.3.4 |
Other Obligations62 |
|
|
18.4 |
Survival63 |
- v –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
20. |
Bankruptcy64 |
21. |
Miscellaneous64 |
|
21.1 |
Governing Law64 |
|
21.2 |
Disputes64 |
|
21.3 |
Arbitration64 |
|
21.3.1 |
Arbitrators64 |
|
|
21.3.2 |
Decisions; Timing of Decisions65 |
|
|
21.4 |
Assignment66 |
|
21.5 |
Debarment66 |
|
21.6 |
Independent Contractor66 |
|
21.7 |
Unenforceable Provisions and Severability66 |
|
21.8 |
Waiver67 |
|
21.9 |
Appendices67 |
|
21.10 |
Entire Understanding67 |
|
21.11 |
Amendments67 |
|
21.12 |
Invoices67 |
|
21.13 |
Notice67 |
22. |
Covenants regarding HSR and Antitrust Laws68 |
- 6 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
WHEREAS, Roche has conducted certain research and development related to, and possesses certain proprietary intellectual property rights with respect to the bivalent, monospecific, monoclonal, monoepitopic, and humanized IgG4 antibody that binds to interleukin 13 (IL-13), which is known as lebrikizumab covered by the Licensed Intellectual Property; and
WHEREAS, Dermira has resources and expertise in the development and commercialization of pharmaceutical products; and
WHEREAS, Dermira desires to obtain, and Roche is willing to grant to Dermira, subject to certain retained rights, an exclusive, royalty-bearing license under Roche’s Licensed Intellectual Property (as defined below), to research, develop, use, sell, have sold, offer for sale and import the Compounds, Modified Compounds, and Products in the Field in the Territory (terms as defined below), subject to the terms and conditions hereof; and
WHEREAS, Roche is willing to manufacture and supply the Drug Substance and Drug Product for further development and commercialization by Dermira until such manufacturing and supply responsibility will be transferred to Dermira, subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, do hereby agree as follows:
As used in this Agreement, the following terms, whether used in the singular or plural, shall have the following meanings:
The term “Accounting Period” shall mean the Calendar Quarter in which there is an invoiced sale of the Product to a Third Party in any country by Dermira following the receipt of any Regulatory Approval required for such sale of the Product.
The term “Affiliate” shall mean any individual, corporation, association or other business entity that directly or indirectly controls, is controlled by, or is under common control with the Party in question. As used in this definition of “Affiliate,” the term “control” shall mean the direct or indirect ownership of more than fifty percent (>50%) of the stock having the right to vote for directors thereof or the ability to otherwise control the management of the corporation or other business entity whether through the ownership of voting securities, by contract, resolution, regulation or otherwise. Anything to the contrary in this paragraph notwithstanding, Chugai Pharmaceutical Co., Ltd (“ Chugai ”) and its subsidiaries or Foundation Medicine Inc. (“ FMI ”) and its subsidiaries, shall not be deemed Affiliates of Roche unless and until Roche provides written notice to Dermira specifying Chugai, FMI and/or their respective subsidiaries as an Affiliate of Roche.
- 7 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The term “Agreement” shall mean this document including any and all appendices and amendments to it as may be added and/or amended from time to time in accordance with the provisions of this Agreement.
The term “Agreement Term” shall mean the period of time commencing on the Effective Date and, unless this Agreement is terminated sooner as provided in Section 18, expiring on the date when no royalty or other payment obligations under this Agreement are or may become due.
The term “Antitrust Laws” shall mean all antitrust, competition or trade regulation laws or laws that are otherwise designed or intended to prohibit, restrict or regulate actions or transactions having the purpose or effect of monopolization, restraint of trade or harm to competition.
The term “Applicable Law” shall mean any law, statute, ordinance, code, rule or regulation that has been enacted by a government authority (including without limitation, any Regulatory Authority) and is in force as of the Effective Date or comes into force during the term of this Agreement, in each case to the extent that the same are applicable to the performance by the Parties of their respective obligations under this Agreement.
The term “Biosimilar Product” shall mean, with respect to the Product sold by Dermira (or any of its Affiliates or Sublicensees) in a particular country, any product that is (a) approved for sale in such country in reliance on or by reference to the prior marketing approval of the Product as determined by the applicable Regulatory Authority or (b) approved for sale in such country as structurally similar to the Product as determined by the applicable Regulatory Authority. For clarity, a Biosimilar Product includes any biosimilar, follow-on biologic or generic biological product, as those terms are commonly understood under Title VII of the United States Patient Protection and Affordable Care Act (“Biologics Price Competition and Innovation Act” or “BPCIA”), the Hatch-Waxman Act, EU Directive 2004/27/EC and any successor legislation or regulations relating thereto, and all similar foreign legislation with regard to the foregoing.
The term “BLA” shall mean, with respect to the Product, a Biologics License Application (as more fully described in U.S. 21 C.F.R. Part 601.20 or its successor regulation) or similar application for Regulatory Approval to market the Product that is submitted to the FDA or a Regulatory Authority that is the foreign equivalent of the FDA, and all amendments and supplements thereto.
The term “Business Day” shall mean a day other than a Saturday, Sunday or bank or other public or federal holiday in Switzerland or the US.
- 8 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The term “Calendar Quarter” shall mean each period of three (3) consecutive calendar months, ending March 31, June 30, September 30, and December 31.
The term “Calendar Year” shall mean the period of time beginning on January 1 and ending December 31, except for the first year which shall begin on the Effective Date and end on December 31.
The term "CDx" or "Companion Diagnostic" shall mean an IVD that is intended to be commercialized or is commercialized for use in identifying patients who may or may not be suitable for treatment with the Product, and/or is intended to be used otherwise in conjunction with the treatment of patients with the Product.
The term “Change of Control” shall mean, with respect to a Party: (a) the acquisition by any Third Party of beneficial ownership of voting securities representing fifty percent (50%) or more of the combined voting power of the-then outstanding securities entitled to vote of such Party, other than acquisitions by employee benefit plans sponsored or maintained by such Party; (b) the consummation of a business combination involving such Party, unless, following such business combination, the holders of voting securities of such Party immediately prior to such business combination beneficially own directly or indirectly more than fifty percent (50%) of the then outstanding voting securities of the entity resulting from such business combination; or (c) the bona fide sale of all or substantially all the assets and business of a Party and its subsidiaries, taken as a whole, provided, that, such assets include the assets relating to the subject matter of this Agreement.
The term “Change of Control Group” shall mean with respect to a Party, the Third Party, or group of Third Parties, that is the acquirer of, or a successor to, a Party in connection with a Change of Control, together with affiliates of such persons or entities, that are not Affiliates of such Party immediately prior to the closing of such Change of Control transaction of such Party.
The term “CMO” shall mean contract manufacturing organization.
The term “Combination Product” shall mean:
a) |
a single pharmaceutical formulation containing as its active pharmaceutical ingredients [*****] and one or more other [*****] pharmaceutical ingredients; |
b) |
a combination therapy comprised of [*****] and one or more other [*****] products that is (i) priced and sold in a single package containing such multiple products or (ii) packaged separately but sold together for a single price; or |
- 9 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
c) |
a product comprised of [*****] , priced and sold in a single package containing such multiple products or packaged separately but sold together for a single price; |
in each case, including all dosage forms, formulations, presentations, line extensions, and package configurations. All references to Product in this Agreement shall be deemed to include Combination Product.
The term “Commercially Reasonable Efforts” shall mean, with respect to Dermira’s obligations under this Agreement, the level of efforts required to carry out such obligation in a [*****] consistent with the efforts a similarly situated biopharmaceutical company or pharmaceutical company, as the case may be, [*****], taking into consideration [*****].
The term “Compound” shall mean Roche’s proprietary, bivalent, monospecific, monoclonal, monoepitopic, and humanized IgG4 antibody that binds to interleukin 13 (IL-13), which is known as lebrikizumab (RG3637 / RO5490255), defined by an amino acid sequence as specified in Appendix 1.18.
The term “Confidential Information” shall mean any and all information, data or know-how (including Know-How), whether technical or non-technical, oral or written, that is disclosed by one Party or its Affiliates (“Disclosing Party”) to the other Party or its Affiliates (“Receiving Party”) under this Agreement, that particular Non-Disclosure Agreement entered into by the Parties effective February 3, 2017, or that particular Non-Disclosure Agreement entered into by the Parties effective March 20, 2017. Confidential Information shall not include any information, data or know-how that:
a) |
was generally available to the public at the time of disclosure, or information that becomes available to the public after disclosure by the Disclosing Party, through no fault (whether by action or inaction) of the Receiving Party or its Affiliates |
b) |
can be evidenced by written records to have been already known to the Receiving Party or its Affiliates prior to its first receipt from the Disclosing Party, |
c) |
is obtained by the Receiving Party at any time lawfully from a Third Party under circumstances permitting its use or disclosure, |
d) |
is developed independently by the Receiving Party or its Affiliates without the aid, application or use of the Disclosing Party’s Confidential Information as evidenced by the Receiving Party’s written records, |
e) |
is approved in writing by the Disclosing Party for release by the Receiving Party. |
The terms of this Agreement shall be considered Confidential Information of the Parties, subject to Section 17.5.
The term “Continuation Election Notice” shall mean the notice Roche provides to Dermira under Section 18.2 describing (i) Roche’s bona fide intentions to continue ongoing development and
- 10 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
commercialization of Product(s) after the occurrence of the termination events described in Section 18.3.2, and (ii) Roche’s request for Dermira’s continuation of activities described in Section 18.3 during the applicable termination period and/or transfer of the data, material and information relating to the Product(s), each in accordance with Section 18.3.
The term “Control” shall mean (as an adjective or as a verb including conjugations and variations such as “Controls” “Controlled” or “Controlling”) (a) with respect to Patent Rights and/or Know-How or other intellectual property rights, the possession by a Party of the right (whether by ownership or license, other than licenses granted pursuant to this Agreement) to grant to the other Party ownership of, or a license or sublicense under, such Patent Rights and/or Know-How or other intellectual property rights in each case without violating the terms of any agreement or arrangement between such Party and any person or party, (b) with respect to tangible materials, the possession by a Party of the right to provide such tangible materials to the other Party as provided herein without violating the terms of any agreement or arrangement between such Party and any person or party and (c) with respect to information, including clinical data and manufacturing processes, the possession by a Party of the right to disclose such information to the other Party as provided herein without violating the terms of any agreement or arrangement between such Party and any other person or party.
The term “Cover” shall mean (as an adjective or as a verb including conjugations and variations such as “Covered,” “Coverage” or “Covering”) with respect to a Valid Claim in any Patent Rights and a given compound, formulation or product, that the developing, making, using, offering for sale, promoting, selling, exporting or importing of such given compound, formulation or product would infringe a Valid Claim of such Patent Right in the country in which the activity occurred but for ownership of, or a license under, such Patent Rights. The determination of whether a compound, formulation, process or product is Covered by a particular Valid Claim shall be made on a country-by-country basis.
The term “Dermira Know-How” shall mean the Know-How that (i) Dermira or its Affiliates or Sublicensees generate, and/or (ii) is generated on behalf of Dermira or its Affiliates or Sublicensees, for each of (i) and (ii) that arises from the research, Manufacture, development or commercialization of the Compound or Product ([*****]) and that Dermira or its Affiliates Controls (other than pursuant to the license granted to Dermira under this Agreement) during the Agreement Term.
The term “Dermira Patent Rights” shall mean the Patent Rights that Dermira Controls, (other than pursuant to the license granted to Dermira under this Agreement) (i) arising from the research, Manufacture, development or commercialization of the Compound or Product ([*****]) , or (ii) Covering the Compound or Product ([*****]).
The term “Development Plan” shall mean the plan for the development of the Product as set forth in Section 5.2.
- 11 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The term “Diagnostics Field” shall m ean in-vitro testing for exploratory use or as a clinical diagnostic solely for use in-vitro in the diagnosis and/or on-going evaluation of a disease or medical condition, including the prediction and/or monitoring of a response to a therapeutic agent, and also use as an IVD.
The term “Distribution” includes, with respect to the Compound, Dermira Modified Compound, Joint Modified Compound, or Product:
a) |
warehousing; |
b) |
demand estimates, collection of orders, release, selling, invoicing and collection |
c) |
shipping Products to customers |
d) |
customer support for Products, including handling customer complaints |
e) |
collection of funds and payment of any chargebacks or similar sales adjustment payments; |
f) |
management and processing of returns; |
g) |
pharmacovigilance and regulatory services, including filings of PSURs and similar documents. |
The term “Drug Product” shall mean Drug Substance formulated, filled in [*****], labelled and packaged that meets the Specifications.
The term “Drug Substance” shall mean lebrikizumab (RG3637 / RO5490255) in bulk form that meets the Specifications.
The term “Effective Date” shall mean the second Business Day immediately following the date of HSR Approval.
The term “EMA” shall mean the European Medicines Agency or any successor agency with responsibilities comparable to those of the European Medicines Agency.
The term “EU” shall mean the European Union and all its then-current member countries.
- 12 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The term “Execution Date” shall mean the date on which the last of the Parties has executed this Agreement as set forth on the signature page hereto.
The term “Expert” shall mean a person with no less than ten (10) years of pharmaceutical industry experience and expertise having occupied at least one senior position within a large pharmaceutical company but excluding any current or former employee or consultant of either Party. Such person shall be fluent in written and spoken English.
The term “FDA” shall mean the Food and Drug Administration of the United States of America or any successor agency with responsibilities comparable to those of the Food and Drug Administration of the United States of America.
The term “FDCA” shall mean the Food, Drug and Cosmetics Act, as amended.
The term “Field” shall mean all indications and uses of the Product, excluding the Diagnostics Field.
The term “First Commercial Sale” shall mean, on a country-by-country basis, the first invoiced sale of the Product to a Third Party by Dermira following the receipt of any Regulatory Approval required for such sale of such Product outside of the Roche Retained Field (except as expressly stated otherwise in the Agreement), or if no such Regulatory Approval is required in such country, the date of the first invoiced sale of the Product to a Third Party by Dermira in such country.
The term "Fully Burdened Manufacturing Costs" shall mean the sum of
a) |
the costs incurred by the Manufacturing Party (or for the account of the Manufacturing Party) with respect to [*****], including the costs of [*****]; and |
b) |
costs incurred by the Manufacturing Party (or for the account of the Manufacturing Party) which are attributable to [*****]; |
each calculated in accordance with GAAP or IFRS (as applicable) and the Manufacturing Party’s accounting policies and manuals as consistently applied.
The term “GAAP” shall mean Generally Accepted Accounting Principles, as established and administered by the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB), consistently applied.
- 13 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The term “Handle” shall mean with respect to Patent Rights, preparing, filing, prosecuting (including interference and opposition proceedings) and maintaining (including interferences, reissue, re-examination, post-grant reviews, inter-parties reviews, derivation proceedings, applications for patent term extensions and opposition proceedings) on a country-by-country basis, including deciding territorial scope of Patent Rights and all appeals or petitions to any agency, board or court related to any of the foregoing.
The term “HSR” shall mean the Hart Scott Rodino Antitrust Improvement Act.
The term “HSR Approval” shall mean the earliest to occur of: (1) expiration of the waiting period (and any extension thereof); and (2) early termination of the waiting period under HSR.
The term “Housemark” shall mean any logo, trade name, sign, design, or expression that is protectable as an intellectual property right, including trademarks.
The term “IFRS” shall mean International Financial Reporting Standards.
The term “IND” shall mean an investigational new drug application as defined in the FDCA and applicable regulations promulgated by the FDA, including Part 312 of Title 21 of the U.S. Code of Federal Regulations, or the equivalent application defined by the equivalent agency in any other country or group of countries, the filing of which is required by the applicable Regulatory Authority in such country prior to commencing clinical testing of the Product in humans.
The term “Initiation” shall mean the date that the first human is first dosed with the Product or, for blinded trials, also with a placebo, in a Phase III Study approved by the respective Regulatory Authority.
The term “Insolvency Event” shall mean circumstances under which a Party (i) has a receiver or similar officer appointed by a court of competent jurisdiction or governmental authority over all or a material part of its assets or undertaking; (ii) passes a resolution for winding-up (other than a winding-up for the purpose of, or in connection with, any solvent amalgamation or reconstruction) or a court makes an order to that effect or a court makes an order for administration (or any equivalent order in any jurisdiction); or (iii) ceases to carry on business.
The term “Invention” shall mean an invention that is conceived or reduced to practice by or on behalf of one or both of the Parties in connection with any activity carried out in the research,
- 14 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Manufacture, development or commercialization of the Compound, Modified Compound, or Product under this Agreement. Under this definition, an Invention may be made by employees of Dermira or its Affiliates solely or jointly with a Third Party, including a Sublicensee, or solely by a Sublicensee (a “ Dermira Invention ”), by employees of Roche or its Affiliates solely or jointly with a Third Party (a “ Roche Invention ”), or jointly by employees of Dermira and Roche or Affiliates of either with or without a Third Party (a “ Joint Invention ”).
The term “IPF Study” shall mean the clinical study titled “A Phase II, Randomized, Double-Blind, Placebo-Controlled, Study to Assess the Efficacy and Safety of Lebrikizumab in Patients With Idiopathic Pulmonary Fibrosis” (NCT01872689).
The term “Joint Know-How” shall mean Know-How that is made jointly by or on behalf of (a) Dermira or its Affiliates or Sublicensees and (b) Roche or its Affiliates, in connection with any activity carried out in the research, Manufacture, development or commercialization of the Compound, Modified Compound, or Product under this Agreement.
The term “IVD” shall mean: (i) in the US, an in-vitro assay intended for use in the disease prognosis or treatment selection/prediction, including a determination of the state of health, in order to cure, mitigate, treat or prevent disease or sequelae, as more fully defined in 21 C.F.R. § 809 , including companion diagnostics for a pharmaceutical product as defined in FDA’s “Draft Guidance for Industry and Food and Drug Administration Staff - In Vitro Companion Diagnostic Devices”, (ii) in the EU, an in-vitro diagnostic medical device as defined in the European directive 98/79/EC, and (iii) any equivalent definitions set by Regulatory Authorities in countries other than the US and the EU.
The term “Joint Patent Rights” shall mean all Patent Rights that claim or disclose a Joint Invention.
The term “JSC” shall mean the joint steering committee described in Section 4.3.
The term “Know-How” shall mean all data, know-how and information, including materials, samples, chemical and large molecule manufacturing data, toxicological data, pharmacological data, non-clinical and clinical data, assays, platforms, formulations, specifications, quality control testing data, for each that are necessary or useful for the discovery, research, Manufacture, development or commercialization of the Compound, Modified Compound, or Product.
The term “Licensed Intellectual Property” shall mean the Licensed Compound Patent Rights and the Licensed Know-how.
- 15 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The term “Licensed Compound Patent Rights” shall mean Patent Rights under the patents and applications listed in Appendix 1.57, and all Patent Rights that are added to Appendix 1.57 in accordance with Section 13.4.
The term “Licensed Know-how” shall mean the Know-How [*****].
The terms “Manufacture”, “Manufacturing” or “Manufactured” shall mean, with respect to the Compound, Modified Compound, or Product, the receipt, handling and storage of active pharmaceutical ingredients, drug substance or drug product, medical devices and other materials, the manufacturing, processing, packaging and labeling (excluding the development of packaging and labeling components for Regulatory Approval), holding (including storage of goods in manufacturing but excluding Distribution), quality assurance and quality control testing (including release) in all cases in accordance with current good manufacturing practices (as applicable) for such Compound, Modified Compound or Product and shipping of such Compound, Modified Compound or Product. For clarity, “Manufacture” and “Manufacturing” exclude CMC development activities and Distribution.
The term “Modified Compound” shall mean any bivalent, monospecific, monoclonal, and monoepitopic antibody derived from the Compound having [*****].
Under this Section, a Modified Compound may be made by employees of Dermira or its Affiliates solely or jointly with a Third Party, including a Sublicensee, or solely by a Sublicensee (a “ Dermira Modified Compound ”), by employees of Roche or its Affiliates solely or jointly with a Third Party (a “ Roche Modified Compound ”), or jointly by employees of Dermira and Roche or Affiliates of either with or without a Third Party (a “ Joint Modified Compound ”).
The term “Net Sales” shall mean, for the Product in a particular period, the sum of (i) and (ii):
(i) |
the amount stated in Dermira’s “Sales” line of its externally published audited financial statements with respect to such Product for such period (excluding sales to any permitted Sublicensees that are not Affiliates of Dermira). This amount reflects the gross invoice price at which such Product was sold or otherwise disposed of by Dermira and its Affiliates to such Third Parties (excluding sales to any Sublicensees that are not Affiliates of Dermira) recognized in such period reduced by gross-to-net deductions, if not previously deducted from such invoiced amount, in accordance with the then currently used GAAP. |
By way of example, the gross-to-net deductions taken in accordance with GAAP as of the Effective Date include the following:
|
(a) |
credits, reserves or allowances accrued for (i) damaged, outdated, returned, rejected, withdrawn or recalled Product, (ii) wastage replacement and short-shipments; (iii) billing errors and (iv) indigent patient and similar programs ( e.g. , price capitation); |
- 16 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
|
(c) |
chargebacks, including those accrued for wholesalers, buying groups and retailers; |
|
(d) |
customer rebates, including cash sales incentives for prompt payment, cash and volume discounts; and |
|
(e) |
taxes, and any other governmental charges or levies imposed upon or measured by the, use, Manufacture or sale of the Product (excluding income or franchise taxes). |
For purposes of clarity, sales by Dermira and its Affiliates to any permitted Sublicensee shall be excluded from “Sales” unless the Sublicensee is the final end-user.
(ii) |
The amount of sales reported to Dermira and Affiliates by one or more Sublicensees that are not Dermira Affiliates in accordance with this Agreement and GAAP. |
It is the intent of the Parties that Dermira records Net Sales in all indications in the Field (including the Roche Retained Field).
The term “Non-Compound Patent Rights” shall mean Patent Rights under the patents and applications listed in Appendix 1.62.
The term “Outside Date” shall mean the date that is six (6) months after the Execution Date.
The term “Partner” shall mean a Third Party with which Dermira will enter or has entered a Partner Agreement.
The term “Partner Agreement” shall mean any agreement between Dermira and a Third Party granting rights to develop and/or commercialize the Compound and/or the Product (including but not limited to a sublicense agreement with a Third Party), other than a sub-contract pursuant to Section 2.3.
The term “Party” shall mean Dermira or Roche, as the case may be, and “Parties” shall mean Dermira and Roche collectively.
The term “Patent Rights” shall mean all rights under any issued patent or pending patent application, in any country of the Territory, including any patents issuing on such patent application, and further including any substitution, extension or supplementary protection certificate, reissue, reexamination, renewal, revalidation, divisional, continuation or continuation-in-part of any of the foregoing.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The term “Pharmacovigilance Agreement” shall mean an agreement entered into by the Parties in accordance with Section 7.5 to set forth the protocols and procedures for reporting adverse events and complying with reporting requirements set forth by Regulatory Authorities.
The term “Phase II Dose-finding Study” shall mean the human clinical trial, for which the primary endpoints include a determination of dose ranges and/or a preliminary determination of efficacy in patients being studied as described in 21 C.F.R. § 312.21(b) (FDCA), as amended from time to time, and the foreign equivalent thereof, that will be conducted by Dermira as per the Development Plan.
The term “Phase III Study” shall mean a human clinical trial for the Product that is prospectively designed to demonstrate statistically whether the Product is safe and effective for use in humans in a manner sufficient to obtain Regulatory Approval to market the Product in patients having the disease or condition being studied as described in 21 C.F.R. § 312.21(c) (FDCA), as amended from time to time, and the foreign equivalent thereof.
The term “Product” shall mean any product, including without limitation any Combination Product, containing the Compound, Dermira Modified Compound or Joint Modified Compound as pharmaceutically active agent, regardless of their finished forms or formulations or dosages. For clarity, different formulations or finished forms or dosages containing the same Compound, Dermira Modified Compound, or Joint Modified Compound, as the case may be, are considered the same Product.
The term “Regulatory Approval” shall mean any and all licenses, registrations or authorizations by Regulatory Authority necessary for the Manufacture and sale of the Product in the Field in a regulatory jurisdiction in the Territory.
The term “Regulatory Authority” shall mean any national, supranational (e.g., the European Commission, the Council of the European Union, the European Medicines Agency), regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity including the FDA and EMA, in each country involved in the granting of Regulatory Approval for the Product.
The term “Regulatory Exclusivity” means any exclusive marketing rights or data exclusivity rights conferred by any Regulatory Authority under Applicable Law with respect to the Product in a country or jurisdiction in the Territory to prevent Third Parties from selling such Product in such country or jurisdiction which provides the holder of such exclusive rights with the exclusive right to market such Product in such country or jurisdiction, other than a Patent Right, including orphan drug exclusivity, pediatric exclusivity, rights conferred in the U.S. under the FDCA, in the EU under
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Directive 2001/83/EC, or rights similar thereto in other countries or regulatory jurisdictions in the Territory.
The term “Roche Know-How” shall mean all Know-How Controlled by Roche as of the Effective Date. Roche Know-How includes Licensed Know-how.
The term “Roche Patent Rights” shall mean all Patent Rights Controlled by Roche as of the Effective Date, including Licensed Compound Patent Rights and Non-Compound Patent Rights, but excluding the Patent Rights identified in Appendix 1.76 (“ Excluded Patent Rights ”) and excluding Dermira Patent Rights licensed to Roche under Section 2.6.2.
The term “Roche Retained Field” shall mean all uses of the Compound, Modified Compounds, and Product in lung diseases classified as ILD in adults and children (interstitial lung disease), including but not limited to, IPF (idiopathic pulmonary fibrosis) and NSIP (non-specific interstitial pneumonia).
The term “Royalty Term” shall mean, with respect to the Product and for a given country in the Territory, the period of time commencing on the date of the First Commercial Sale of the Product in such country and ending on the later of the date that is (a) ten (10) years after the date of the First Commercial Sale of the Product in such country, or (b) the expiration of the last to expire Valid Claim within the Licensed Compound Patent Rights, Dermira Patent Rights or Joint Patent Rights in such country Covering the use, Manufacturing, import, offering for sale, or sale of the Product in such country, (c) the expiration of the last to expire Valid Claim within the Non-Compound Patent Rights in such country Covering the use, import, offering for sale, or sale of the Product in such country, or (d) expiration of the last to expire Regulatory Exclusivity conferred by the applicable Regulatory Authority in such country for the Product.
The term “Specifications” shall mean the specifications for the Manufacture (including labeling, packaging, holding and release) of the Product as set forth in an applicable regulatory filing and/or CTAs/INDs (e.g., a drug master file (as defined in the Code of Federal Regulations) or Drug Approval Application) or Regulatory Approval as amended from time to time and in accordance with Applicable Law and the terms of this Agreement.
The term “Sublicensee” shall mean a person or entity to which Dermira has licensed rights pursuant to Section 2.2 of this Agreement (including Affiliates and Partners).
The term “Technology Transfer” shall mean the transfer of the technology, information, documentation, equipment, materials, tools, and technical assistance between the Parties in order to transfer the manufacturing process for the Drug Substance or Drug Product, as applicable, to an applicable facility. Technology Transfer also includes such additional assistance Roche may
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
provide to Dermira pursuant to the terms of this Agreement. Technology Transfer will be considered to begin as of the effective date of the Drug Substance Transfer Notice or the Drug Product Transfer Notice and to be complete as of the date of: (a) for Drug Substance, the date on which the FDA approves the BLA or supplemental BLA, as applicable, for commercial supply of Product by such facility, or the date that is [*****] ( [*****] ) years after the Drug Substance Transfer Notice, whichever is earlier; and (b) for Drug Product, the day on which [*****] (the “ Transfer Completion Date ”).
The term “Technology Transfer Project Plan” shall mean a written description of the Technology Transfer prepared by Roche and submitted to Dermira as further described in Section 6.2.1, as the same may be amended from time to time.
The term “Territory” shall mean all countries of the world.
The term “Third Party” shall mean a person or entity other than (i) Dermira or any of its Affiliates or (ii) Roche or any of its Affiliates.
The term “US” shall mean the United States of America and its territories and possessions.
The term “US$” shall mean US dollars.
The term “Valid Claim” shall mean a claim contained in any (i) unexpired and issued Patent Right that has not been disclaimed, revoked or held invalid by a final non-appealable decision of a court of competent jurisdiction or government agency or (ii) pending patent application that is on file with the applicable office and has shown evidence of reasonably consistent activity to advance to issuance of a patent (if such claim has been consistently on file with the applicable patent office for more than ten (10) years from the earliest date to which the patent application claims priority and has not issued, such claim shall cease to constitute a Valid Claim unless and until a patent issues with such claim).
Each of the following definitions is set forth in the Section of this Agreement indicated below:
Definition |
Section |
[*****] Product Plan |
6.2.5 |
[*****] |
6.2.5 |
Additional Study |
7.2.2.1 |
Bankruptcy Code |
20 |
Breaching Party |
18.2.1 |
Decision Period |
13.6 |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Subject to Sections 2.5, 5.3 and 8.3, Roche hereby grants to Dermira:
(i) |
an exclusive license under the Licensed Intellectual Property to research and have researched, develop and have developed, register, have registered, use, have used, import, have imported, export, have exported, market and have marketed, distribute, have distributed, offer for sale, sell and have sold the Compound, Dermira Modified Compounds, Joint Modified Compounds and Products in the Field in the Territory; and |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Parties (including Sublicensees) in the Field in the Territory in accordance with this Agreement, and |
Also subject to Sections 2.5, 5.3 and 8.3, Roche (a) agrees to grant to Dermira, upon Dermira’s receipt of the Drug Substance Transfer Notice in accordance with Section 6.2.1, a co-exclusive license under the Roche Patent Rights and all Roche Know-How that is disclosed by Roche to Dermira under this Agreement to make, have made, and Manufacture the Compound, Dermira Modified Compounds, Joint Modified Compounds or Products as conducted by Dermira in the Field in the Territory in accordance with this Agreement, and (b) hereby grants to Dermira a co-exclusive license under the Roche Patent Rights and all Roche Know-How that is disclosed by Roche to Dermira under this Agreement solely to make, have made, and Manufacture formulated, filled and finished Product (including Drug Product) from Drug Substance that is Manufactured by or on behalf of Roche hereunder, including to develop the [*****] pursuant to Section 6.2.5. Dermira shall not have the right to sublicense such co-exclusive licenses to any Third Party other than as permitted under Section 2.3.
If a Roche Modified Compound becomes a Licensed Roche Modified Compound (defined below), then: (a) any Roche-Controlled patent or patent application the claims of which recite such Licensed Roche Modified Compound and do not recite any drug substance other than the Licensed Roche Modified Compound or Compound shall be added to Appendix 1.57 and the Patent Rights under such patent or patent application, as applicable, shall be deemed Licensed Compound Patent Rights, (b) any Roche-Controlled patent or patent application the claims of which recite such Licensed Roche Modified Compound and also recite a drug substance other than the Licensed Roche Modified Compound or Compound shall be added to Appendix 1.62 and the Patent Rights under such patent or patent application, as applicable, shall be Non-Compound Patent Rights provided that Roche shall make reasonable and good faith efforts to divide the claimed subject matter of such patent or patent application so that a patent application bec omes a Licensed Compound Patent Right and added to Appendix 1.57 in a manner consistent with Section 13.4; (c) the licenses granted to Dermira under Sections 2.1.1 and 2.1.2 shall apply to such Licensed Roche Modified Compound subject to the payment obligations described in Article 9; and (d) all respective Sections of this Agreement shall apply mutatis mutandis .
For purposes of this Section 2.1.3, the term “ Licensed Roche Modified Compound ” shall mean each Roche Modified Compound that is administered to a human subject between the period of time beginning on the Effective Date and ending [*****] ([*****]) years after the occurrence of the First Commercial Sale of the Product.
Dermira shall have the right to grant written sublicenses to its Affiliates and to Third Parties, or to enter into a Partner Agreement, under its rights granted under Section 2.1 solely to the extent necessary to develop, commercialize, use, offer for sale, sell or import (and have others do the same) Compound and/or Product in the Field and/or Companion Diagnostic in the Diagnostics
- 22 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Field, in the Territory; [*****] , Dermira’s rights to sublicense to Third Parties [*****] as described below. [*****] , Dermira intends to begin negotiations for such a sublicense with a Third Party, then [*****] Dermira entering into such a sublicense with such Third Party or its affiliates, [*****] Dermira entering into such a sublicense with such Third Party or its affiliates. Notwithstanding the foregoing in this Section 2.2, [*****] Dermira entering into such a sublicense with the applicable Third Party or its affiliates. [*****] Dermira to enter into such sublicense at any time [*****] hereunder ( [*****] ). Provided, however, [*****] prior to Dermira entering into such sublicense, [*****] . For clarity, [*****] Dermira shall have the right to sublicense on prior written notice to Roche, [*****] . If Dermira grants such a sublicense, Dermira shall (i) inform Roche of the status of its sublicensing activities and (ii) ensure that all of the applicable terms and conditions of this Agreement shall apply to the Affiliate or the Third Party, as applicable, to the same extent as they apply to Dermira for all purposes. Dermira assumes full responsibility for the performance of all obligations and observance of all terms so imposed on such Affiliate or Third Party, as applicable, and shall itself account to Roche for all payments due under this Agreement by reason of such sublicense.
Dermira has the right to sub-contract (on Dermira’s behalf) any of the work to be performed by Dermira under this Agreement. Any sub-contract agreement shall include (i) the right to disclose a copy of the sub-contract agreement and any confidential information generated under such agreement that is necessary or useful for the Manufacture, development or commercialization of the Compound or Product to Roche, (ii) the right to assign the agreement, and all rights thereunder, to Roche, and (iii) the right to transfer ownership of data and information arising therefrom to Roche in a manner consistent with the terms of this Agreement.
Roche will transfer the Licensed Know-how [*****] to Dermira [*****] within [*****] ([*****]) days after the Effective Date. At Dermira’s written request at any time prior to [*****] ([*****]) months after the Effective Date, the Parties shall meet no more than [*****] to discuss the transfer of the Licensed Know-how. Further, Roche will transfer the additional documents or materials listed in Appendix 2.4.1 to Dermira [*****] according to the timeline described therein and the logistical procedures to be agreed to by the Parties. All information specifically directed to the Compound and contained in the documents or materials listed in Appendix 2.4.1 shall be Licensed Know-How except to the extent such information or materials is related to Manufacturing. All other information contained in the documents or materials listed in Appendix 2.4.1 shall remain Roche Know-How.
Roche shall also transfer the documents that are listed in Appendix 2.4.1 that are not in existence as of the Effective Date, which Roche shall use [*****] efforts to complete and transfer within the timelines described therein.
Thereafter, prior to the First Commercial Sale, Roche shall transfer to Dermira Roche Know-How specifically directed to the Compound then in Roche’s Control (a) [*****] any such Roche Know-How that Roche’s Alliance Manager becomes aware of and that he or she reasonably expects to be necessary to develop or Manufacture (to the extent permitted hereunder) Drug Substance or Drug Product, and (b) that is requested by a Regulatory Authority in connection with the Compound or Product, such transfer to be completed by Roche within [*****] ([*****]) Business Days after the request. Any assistance provided pursuant to (b) shall be provided at Roche’s [*****] rate applicable at the time plus a mark-up of [*****] percent ([*****]%).
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Roche shall be responsible for providing [*****] ( [*****] ) [*****] of any documents (which will be provided in electronic format, where they exist) that Roche is obligated or consents to provide to Dermira under this Agreement. Roche shall have no obligation to [*****] , in order to provide them to Dermira. Subject to Section 6.2, Roche shall have no obligation to transfer any Roche Know-How, data, information or materials or to provide technical support other than expressly stated in this Section 2.4.
2.4.2.3 |
At Roche’s option Roche may establish a drug master file suitable for Dermira and its Sublicensees to reference to obtain Regulatory Approvals. If and when such drug master file is established, Dermira shall only disclose to permitted Third Parties (including, without limitation its Sublicensees) CMC information to the extent Regulatory Approval requirements are not satisfied by reference to such drug master file. |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
transfers, charged at Roche’s [*****] rate applicable at the time plus a mark-up of [*****] percent ( [*****] %). |
Dermira will bear the cost of mapping Roche’s clinical trial master file (TMF) structure to the Dermira’s TMF structure. Roche will transfer the ownership of the non-clinical toxicity studies to Dermira and Dermira will bear the cost of the handling of non-clinical archival raw data after ownership transfer.
All rights not expressly granted by Roche to Dermira under this Agreement are reserved by Roche. Subject to the terms and conditions of this Agreement, including Section 17.4, and notwithstanding the license granted to Dermira under Section 2.1, Roche and its Affiliates shall retain the right to research, make, have made, use, have used, import or export the Compound, Modified Compound , and Product and to use the Licensed Intellectual Property solely for any internal research purposes on its own or with Third Parties working with or on behalf of Roche in any field (including diagnostics), and to research and develop other molecules for use with the Compound, Modified Compound, and Product. For the avoidance of doubt, Roche and its Affiliates shall have the right to use all data, results, analyses, conclusions, and other intellectual property arising from such internal research for any and all business purposes that are not specifically directed to the commercialization of the Compound. Notwithstanding the foregoing and subject to Section 5.3, Roche shall not conduct any (i) research in non-human animals using the Compound, or (ii) human clinical trials using the Compound, in each case without prior written consent from Dermira.
Roche also reserves the right to make, have made, use, import or export any Compound, Modified Compound, or Product solely for use as an intermediate or starting material in the manufacture of any product that is not the Compound or Product.
Subject to Section 17.4.2, nothing in this Agreement shall prevent Roche and its Affiliates from using for any purpose any Roche Know-How that is not Confidential Information on the Effective Date (or ceases to be Confidential Information thereafter other than as a result of Roche’s breach under Section 17) and is not covered by a Valid Claim of a Roche Patent Right exclusively licensed to Dermira hereunder.
Roche retains the sole development and promotion rights in the Roche Retained Field as further detailed in Sections 5.3 and 8.3.
Dermira hereby grants to Roche a non-exclusive, sublicensable (solely to Roche Affiliates, Chugai, and Roche subcontractors exercising Roche’s rights under this Section 2.6.2 on Roche’s
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
behalf) royalty-free license under Dermira Patent Rights and Dermira Know-How solely for the purpose of (a) performing Roche’s rights and obligations under this Agreement, and (b) exercising its rights under Sections 2.5, 5.3 and 8.3.
During the Agreement Term, Roche shall have the option, at any time, to relinquish its retained rights under this Agreement in the Roche Retained Field that are described in Sections 5.3 and 8.3 (“ Roche Reversion ”). Roche may exercise such option by providing written notice to Dermira, such relinquishment to take effect thirty (30) days after delivery of such notice. Notwithstanding the foregoing, the Roche Reversion shall be deemed to have occurred if at any time in a period of eighteen (18) consecutive months Roche is not conducting an active clinical study of the Compound or recurring, bona fide act ivities aimed at receiving Regulatory Approval of a BLA for the Compound in the Roche Retained Field, provided that such automatic reversion may not occur within three (3) years of the Effective Date or following Regulatory Approval of a BLA for the Compound in the Roche Retained Field. Upon the occurrence of the Roche Reversion, all of Roche’s rights and all of Dermira’s obligations each with respect to the Roche Retained Field shall automatically expire, and all references to the Roche Retained Field in any Section of this Agreement shall no longer apply (for example, after occurrence of the Roche Reversion, the Development Event Payments under Section 9.2 will be triggered by any indication, the Net Sales of Product in all indications will be subject to royalty payments under Section 9.4 and the payments under Section 9.5 will no longer apply, and the First Commercial Sale shall include all indications in the Field). For clarity, any such Roche Reversion shall not affect Roche’s retained rights in Sections 2.5, nor the license grant by Dermira under Section 2.6.2 with respect to Sections 2.5.
Dermira shall use Commercially Reasonable Efforts to fulfill all its obligations under this Agreement. In particular, Dermira shall use Commercially Reasonable Efforts:
|
(a) |
to develop and commercialize the Compound and/or Product in the Field in the Territory [*****] outside of the Roche Retained Field consistent with the Development Plan; |
|
(b) |
to assess [*****] other value adding indications for the Compound and/or Product; |
|
(c) |
to support Roche in its efforts to develop, to prepare for registration, and, subject to Section 8.3, Promote the Compound and/or Product in the Roche Retained Field; |
|
(d) |
to register, distribute and sell the Compound and/or Product in the Roche Retained Field subject to Roche’s retained rights; |
|
(e) |
to establish sufficiently separate trademarks for the Roche Retained Field versus all other indications in order to allow for the separate tracking of sales. |
Each Party shall designate an “Alliance Manager” within [*****] ([*****]) days after the Effective Date to facilitate technology transfer and communication between the Parties. The Roche Alliance Manager and his/her counterpart at Dermira shall be the primary points of contact between the
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Parties with respect to all matters arising under this Agreement. Each Party may change its Alliance Manager from time to time in its sole discretion. The Alliance Managers shall be members of the JSC.
During the Agreement Term up to First Commercial Sale of the Product, Dermira shall submit detailed annual reports to Roche describing in detail the development progress of the Product, including any revisions proposed to be made to the Development Plan for the then current Calendar Year, pursuant to Section 5.2. Dermira shall send such annual report within [*****] ([*****]) days after the end of December of each Calendar Year. Until [*****], Dermira shall provide [*****] updates to Roche regarding recruitment progress for the Phase II Dose-finding Study.
Following the First Commercial Sale of the Product, Dermira shall provide Roche with a detailed report regarding the commercialization of the Product in the Field in the Territory by Dermira, its Affiliates and Partners (if applicable). Each such annual report shall be provided within [*****] ([*****]) days after the end of December of each Calendar Year after the First Commercial Sale. Each annual report shall include forecasted sales, [*****].
Within [*****] ([*****]) days after the Effective Date of this Agreement, the Parties shall establish a JSC to oversee, coordinate, align and act as the forum to exchange information related to activities of the Parties under this Agreement. The JSC may create subcommittees as appropriate.
The JSC shall be composed of [*****] ([*****]) persons (“ Members ”). Roche and Dermira each shall be entitled to appoint [*****] ([*****]) Members with appropriate seniority and functional expertise. Each Party may replace any of its Members and appoint a person to fill the vacancy arising from each such replacement. A Party that replaces a Member shall notify the other Party at least [*****] ([*****]) days prior to the next scheduled meeting of the JSC. Both Parties shall use [*****] efforts to keep an appropriate level of continuity in representation. Both Parties may invite a [*****] number of additional experts and/or advisors to attend part or the whole JSC meeting with prior notification to the JSC. Members may be represented at any meeting by another person designated by the absent Member. The JSC shall be chaired by a Dermira Member (“ Chairperson ”).
The JSC shall have the responsibility and authority to:
|
(a) |
monitor, coordinate and implement the know-how transfer to Dermira (Section 2.4); |
|
(b) |
oversee development strategies of the Parties and coordinate the activities of the Parties for the development of the Compound and the Product (i.e. issue resolution on development strategy, safety reporting, supply, issue management) (Section 5); |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
|
(c) |
oversee process and coordinate interactions of the Parties as it relates to data access of the Parties for regulatory purposes; |
|
(d) |
monitor and coordinate preparation of filing submission of dossiers for the Roche Retained Field; |
|
(e) |
coordinate matters related to Roche’s Medical Affairs Activities and Promotion activities in the Roche Retained Field (Section 8.3); |
|
(f) |
coordinate efforts to establish sufficiently separate trademarks for the Roche Retained Field versus all other indications (Section 13.2); |
|
(g) |
discuss value considerations of the Product and discuss, but not decide, pricing in the Roche Retained Field (factoring in Dermira’s value considerations outside of the Roche Retained Field); |
|
(h) |
monitor and oversee process and implementation of the method to determine sales portion from Roche Retained Field; and |
|
(i) |
oversee the Manufacture of Drug Substance, Drug Product, and, if applicable, [*****] under this Agreement. |
The JSC shall have no responsibility and authority other than that expressly set forth in this Section.
The Chairperson or his/her delegate will be responsible for sending invitations and agendas for all JSC meetings to all Members at least [*****] ([*****]) days before the next scheduled meeting of the JSC. The venue for the meetings shall be agreed by the JSC. The JSC shall hold meetings at least [*****] per Calendar Year, either in person or by tele-/video-conference, and in any case as frequently as the Members of the JSC may agree shall be necessary, but not more than [*****] times a year.
From time to time, the JSC may establish subcommittees to oversee particular projects or activities, as such committee deems necessary or advisable including a joint working group to coordinate the Parties’ activities under this Agreement. Such members shall be individuals with expertise and responsibilities in the relevant areas in the Field.
The Chairperson will be responsible for designating a Member to record in reasonable detail and circulate draft minutes of JSC meetings to all members of the JSC for comment and review within [*****] ([*****]) days after the relevant meeting. The Members of the JSC shall have [*****] ([*****]) days to provide comments. The Party preparing the minutes shall incorporate timely received comments and distribute finalized minutes to all Members of the JSC within [*****] ([*****]) days of the relevant meeting. The Chairperson approves the final version of the minutes before its distribution.
4.3.6.1 |
Decision Making Authority |
The JSC shall decide matters within its responsibilities set forth in Section 4.3.3.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The Members of the JSC shall act in good faith to cooperate with one another and seek agreement with respect to issues to be decided by the JSC. The Parties shall endeavor to make decisions by consensus.
If the JSC is unable to decide a matter by consensus, then subject to Section 4.3.8, (a) Roche shall have the final decision making authority in the area of (i) development and regulatory matters in the Roche Retained Field, unless Dermira can [*****] demonstrate that a specific clinical study as contemplated by Roche would be [*****] under this Agreement, (ii) Medical Affairs Activities and Promotion in the Roche Retained Field, including the decision regarding the trademark for the Roche Retained Field, and (iii) Manufacturing of Drug Substance and Drug Product under this Agreement during any period of time during which Roche remains responsible for such activity, and (b) Dermira shall have the final decision making authority in all other areas, except that the following decisions shall [*****]: (1) decisions regarding the Know-How Transfer to Dermira (2.4.1), and (2) the implementation and process to determine sales portion from Roche Retained Field. In addition, until the s ubmission of the first BLA, material changes to the Development Plan will require mutual agreement of the Parties unless such change is required by a Regulatory Authority.
Dermira and Roche shall exchange the information in relation to its activities under this Agreement through the JSC and both Parties may ask reasonable questions in relation to the above information and offer advice in relation thereto and shall give due consideration to the other Party’s input. The JSC may determine other routes of information exchange.
The JSC shall have no authority to amend or waive compliance with any terms of this Agreement. The final decision-making authority under Section 4.3.6 shall not authorize a Party to unilaterally modify, amend, or waive its own compliance with any provisions of this Agreement.
Each Party shall be responsible for its own expenses including travel and accommodation costs incurred in connection with the JSC.
The JSC shall exist during the Agreement Term, but it shall end upon the occurrence of the Roche Reversion.
Subject to Section 7.1, Dermira, at its sole cost, shall be solely responsible for the development (including all regulatory interactions, conducting and funding of any clinical trials) of the Compound and/or the Product in the Territory in the Field, but excluding the Roche Retained Field until the occurrence of the Roche Reversion using Commercially Reasonable Efforts.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Dermira will conduct (or have conducted) the development of the Compound and Product in the Field (but excluding the Roche Retained Field until the occurrence of the Roche Reversion) in the Territory in accordance with the written plan as attached as Appendix 5.2 (“ Development Plan ”). Dermira’s obligation under this Section 5.2 shall be subject to Roche meeting its obligation to manufacture and supply Drug Product and Drug Substance (if required) to Dermira for the conduct of the Development Plan. Dermira shall send a then current version of the Development Plan to Roche at the end of January and July of each Calendar Year. Until the submission of the first BLA, any material change to the Development Plan will be mutually agreed upon by the Parties in accordance with Section 4.3.6.
Roche, at its sole cost and discretion, shall have the sole right but not the obligation to conduct the development (including all regulatory interactions, conducting and funding of any clinical trials) of Compounds, Modified Compounds, and/or Product in the Territory in the Roche Retained Field, including the right to use and reference any of the Licensed Know-how necessary to exercise such right.
The Parties anticipate and agree that to the extent possible the Parties’ requirements will be fulfilled from existing inventories of Drug Substance and Drug Product (assembled or unassembled, i.e. without needle safety device, not labelled and not packaged, as the case may be).
Dermira’s first order will be sourced from existing Roche inventories pursuant to Section 6.1.4. Concurrently, at Dermira’s sole cost and as further described in Section 6.2.5, the Parties may collaborate to develop a [*****] for use in the Parties’ further development and commercialization. Depending on the timing and outcome of such effort, the Parties’ future requirements will be fulfilled from existing Roche inventory of Drug Substance and Drug Product to the extent possible and from new production if needed at Dermira’s cost as described in Sections 6.1.3 and 6.1.4.
Until such responsibility is transferred to Dermira according to Section 6.2, Roche or its designees shall (a) Manufacture (if required) and supply to Dermira the Drug Substance and Drug Product in accordance with this Section 6.1, and (b), continue to manage clinical inventory and on-going stability studies to support Drug Substance and Drug Product shelf-life claims.
Until such responsibility is transferred to Dermira according to Section 6.2.1, and subject to the terms of the Supply Agreement, Roche shall supply Dermira’s [*****] forecasted requirements of Drug Substance (if any) to Dermira in accordance with the [*****] Specifications at Roche’s Fully Burdened Manufacturing Costs plus a mark-up of [*****] percent ([*****]%).
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Until such responsibility is transferred to Dermira according to Section 6.2.2, and subject to the terms of the Supply Agreement, Roche shall supply Dermira’s [*****] forecasted requirements of Drug Product to Dermira in accordance with the [*****] Specifications at a price of [*****] per syringe (active and placebo). The first order for such supply is set forth on Appendix 6.1.2. Other than for the first order, Roche may supply Dermira with [*****] in accordance with the [*****] Specifications at a price of [*****] per syringe (active and placebo). Each of the Parties shall execute and deliver any and all papers, documents and other assurances, and shall do any and all acts and things [*****] in connection with the transfer of responsibility from Roche to Dermira for the assembly, labelling and packaging of such [*****] Drug Product by Roche’s subcontractor with minimal disruption.
The Parties shall enter into one (1) or more supply and quality agreement(s) (a “ Supply Agreement ”) for the supply of Drug Substance (if required) and Drug Product (at [*****] discretion either assembled or unassembled, i.e. without needle safety device, not labelled and not packaged) by Roche to Dermira. The initial supply and quality agreement(s) for Drug Product shall be entered into by the Parties within [*****] ([*****]) days of the Effective Date, and it shall also incorporate the first order of Drug Product pursuant to Section 6.1.4.
Supplies of Drug Substance (if required) and Drug Product shall be delivered according to [*****]. Dermira will provide to Roche prior to shipment any import documentation that might be necessary including but not limited to licenses and other permissions.
At any time during the Agreement Term and subject to this Section 6.2.1, Roche will have the right to transfer its Manufacture and supply responsibilities under Section 6.1 to Dermira by providing written notice to Dermira, (“ Drug Substance Transfer Notice ”) such notice to include at least [*****] ([*****]) CMOs to which Roche approves the Technology Transfer of the Manufacture of Drug Substance and a draft of the Technology Transfer Project Plan for review and comment by Dermira. The Technology Transfer Project Plan may be amended from time to time as appropriate. Roche shall remain responsible to supply Dermira with Drug Substance (if required) in accordance with Section 6.1 and the Supply Agreement until the Transfer Completion Date.
As soon as practicable after the delivery of such Drug Substance Transfer Notice, Dermira will establish any necessary legal agreements with Third Parties. Once the Parties have made any necessary adjustments to the Technology Transfer Project Plan, Roche shall commence the Technology Transfer of the Drug Substance to the single CMO selected by Dermira from the CMOs provided by Roche in its Drug Substance Transfer Notice. Each Party shall use [*****] to effect the transfer of the Manufacture of Drug Substance (including the Technology Transfer under the Technology Transfer Project Plan) in accordance with this Section 6.2.1 and to achieve FDA approval of the BLA for commercial supply of Product at the facility or facilities selected by Dermira and approved by Roche as soon as practicable after the delivery of such Drug Substance Transfer Notice, but in no event later than, the date that is [*****] ([*****]) years after the delivery of the Drug Substance Transfer Notice.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
All internal costs and expenses incurred in performing the activities identified in such Technology Transfer Project Plan shall be borne by [*****] , provided that [*****] shall provide assistance in the form of up to [*****] ( [*****] ) working hours [*****] , and any additional assistance shall be paid for by [*****] . [*****] shall bear all external costs incurred by either Party in performing the activities identified in such Technology Transfer Project Plan. Such transfer will be targeted to be completed within [*****] ( [*****] ) months after the provision of the Drug Substance Transfer Notice by Roche, but will only be effective on the Transfer Completion Date.
After the Transfer Completion Date, upon [*****] request of Dermira, further technical support from Roche may be provided [*****] and, if such support is provided by Roche, charged at Roche’s [*****]. Subsequent to the Transfer Completion Date, Dermira will assume all responsibilities and costs for future manufacturing and related activities pursuant to Section 6.
At any time during the Agreement Term and subject to this Section 6.2.2, Roche will have the right to transfer its obligations to supply Drug Product to Dermira under Section 6.1.4 after providing written notice to Dermira (the “ Drug Product Transfer Notice” ) . Within [*****] ([*****]) days thereafter Roche will, (a) to the extent permitted under Third Party agreements, (i) provide to Dermira a copy of all Third Party agreements related solely to the supply of such Drug Product, and (ii) use [*****] efforts to assign to Dermira any such Third Party agreements described in (i) above which relate solely to such Drug Product and facilitate introductions to all Third Parties that are Manufacturing Drug Product on Roche’s behalf, and (b) to the extent Controlled by Roche and not previously provided to Dermira, provide Dermira with the Know-How necessary for the Manufacture of Drug Product, including applicable Drug Product release assays and protocols. Roche’s obligation to supply Drug Product (but not Drug Substance) under this Agreement shall expire [*****] ([*****]) [*****] after the completion of the activities described in the foregoing sentence. All internal costs and expenses incurred by Roche in performing the activities under this Section shall be borne by [*****], and [*****] will be solely responsible for any Third Party costs incurred by either Party. Notwithstanding the foregoing, for as long as Roche has available inventory of Drug Product, Dermira shall have the right to purchase its Drug Product requirements from such inventory.
After (a) the Transfer Completion Date, and (b) the transfer of Roche’s obligations to supply Drug Product to Dermira in accordance with Section 6.2.2, for each of (a) and (b), as between the Parties Dermira shall be solely responsible at its own expense for the Manufacture and supply of clinical and commercial supplies of Drug Substance and Drug Product, as applicable, to fulfil all Dermira’s requirements and Roche’s requirements for Roche’s development or commercial activities in the Roche Retained Field. Any Drug Substance or Drug Product supplied by Dermira to Roche will be Manufactured in accordance with the [*****] Specifications at Dermira’s Fully Burdened Manufacturing Costs plus a mark-up of [*****] percent ([*****]%), such mark-up to be [*****] percent ([*****]%) to the extent that Dermira has outsourced the Manufacturing of either Drug Substance or Drug Product to a CMO.
Notwithstanding any transfer under this Section 6.2, Roche shall retain the right to Manufacture the Compound and Product to exercise its retained rights described in and subject to Sections 2.5, 5.3 and 8.3, including for its own development purposes in the Roche Retained Field; provided that Roche shall not (i) enable or license any Roche Know-How to a Third Party to Manufacture the Compound other than subcontractors performing such Manufacturing for use by Roche or Dermira under this Agreement, (ii) Manufacture a Biosimilar Product for sale or use in any country until, the earlier of four (4) years after the expiration of the Royalty Term in the country
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
of First Commercial Sale or the end of the Agreement Term, or (iii) license any Roche Know-How that is disclosed by Roche to Dermira under this Agreement to a Third Party to Manufacture a Biosimilar Product in any country until, the earlier of five (5) y ears after the expiration of the Royalty Term in the country of First Commercial Sale or the end of the Agreement Term. If Dermira, after Roche has exercised its option to transfer the Manufacturing responsibility to Dermira according to this Section 6.2, wishes to materially improve the Manufacturing process of the Compound or the Product, for example resulting in a change of the cell bank expressing the Compound, then Dermira shall provide written notice to Roche of the nature of such intended work and Roche shall have the right to approve such work, [*****] .
Neither Party shall administer to any patient Product that is supplied by the other Party under this Agreement that has exceeded the shelf life supported by stability data within specification (“Supported Shelf Age”). Supported Shelf Age will be stated in the Supply Agreement entered into by the Parties as further described in Section 6.1.5.
The Parties may collaborate under a separate written agreement to design, develop and produce a [*****] for administration of the Drug Substance in accordance with the Agreement (“[*****] ”), including the procurement of the [*****] and the use of a CMO for [*****] (“[*****] Product Plan ”).
The Parties may separately negotiate an agreement with regard to the development of [*****], and the use by Dermira of the Roche [*****].
Within the Roche Retained Field with respect to the Compound and Product and until the occurrence of the Roche Reversion, Roche will retain at its sole cost all rights to seek authorization to conduct clinical trials, to obtain applicable regulatory designations (including but not limited to orphan drug designation, breakthrough therapy designation, fast-track designation) and seek regulatory advice following reasonable notification and consultation with Dermira. Roche will retain all decision-making rights over non-safety related prescribing information proposals to Regulatory Authorities, and Dermira will make reasonable accommodations with respect to Roche’s registration strategy in the Roche Retained Field. For clarity, as further described in Section 7.2, Dermira shall have the sole right to file all BLAs for the Product including in the Roche Retained Field.
Roche shall maintain, transfer to Dermira, and/or withdraw, as applicable, the INDs in existence as of the Effective Date for the Compound as further described in Section 2.4.2.
Subject to Sections 2.4.2, 7.1 and 7.2.2:
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
|
(b) |
Dermira shall be responsible for pursuing, compiling and submitting all regulatory filing documentation, and for interacting with regulatory agencies, for Compound and Product in the Field in all countries in the Territory; |
|
(c) |
Dermira shall own and file in its discretion (subject to Section 7.2.2.2) all regulatory filings and Regulatory Approvals for the Compound and Product in all countries of the Territory; |
|
(d) |
For so long as Roche is conducting any regulatory activities with respect to the Compound, Modified Compound or Product, (i) each Party shall supply the other Party with a copy of all material communications with Regulatory Authorities within [*****] ([*****]) Business Days of receipt, (ii) if a Party has time-sensitive inquiries regarding a regulatory matter, the other Party shall answer such inquiries within [*****] ([*****]) Business Days, and (iii) each Party shall have the right to participate in the other Party’s preparation for meetings with Regulatory Authorities and to attend such meetings; and |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
of the BLA. All costs incurred by the Parties in preparing, submitting and obtaining Regulatory Approval for such BLA shall be [*****] . |
7.3.1 Each Party grants to the other Party a non-exclusive, non-transferable (except to permitted Third Parties, including Sublicensees, and in connection with a permitted assignment of this Agreement) “right of reference” (as defined in US FDA 21 CFR 314.3(b)), or similar “right of reference” as defined in applicable regulations in the relevant jurisdiction with respect to all information (including raw data) and results generated by such Party related to the Product as necessary for the other Party to exercise its rights under this Agreement. Upon written instruction, each Party shall provide to the other a cross-reference letter or similar communication to the applicable Regulatory Authority to effectuate such right of reference.
7.3.2 Until occurrence of the Roche Reversion, each Party shall submit draft clinical study protocols for the Compound, Modified Compounds or the Product to the other Party for review as long as patients are still being treated in Roche trials sponsored or supported by Roche for the Compound, Modified Compounds or the Product in the Roche Retained Field. Such other Party shall have the right to provide the submitting Party with its comments no later than [*****] ([*****]) Business Days after such protocol is delivered to such other Party, and such other Party shall consider such comments [*****].
Each Party shall use [*****] to include in its Informed Consent forms with patients under any clinical study for the Product conducted by a Party under this Agreement the right to transfer samples, data and information to the other Party and to any entity designated by such other Party to the extent feasible under Applicable Laws and under a clinical site’s internal policies.
[*****] after the Effective Date, Dermira and Roche shall negotiate [*****] and enter into a Pharmacovigilance Agreement in accordance with all Applicable Laws which sets forth, among other things, the responsibilities and obligations of the Parties with respect to the procedures and timeframes for compliance with all Applicable Laws (and each of the Party’s policies) pertaining to safety reporting and their related activities, with respect to activities related to the Product under this Agreement. The transfer of historical safety data together with the responsibility for pharmacovigilance activities will be part of the Pharmacovigilance Agreement.
The Parties agree that they shall execute the Pharmacovigilance Agreement within [*****] after the Effective Date but in any event prior to the date [*****] after the Effective Date.
Subject to Section 8.3, Dermira, at its own expense, shall have sole right and responsibility for the commercialization, including marketing, Medical Affairs Activities, Promotion, sale, and Distribution, of the Product in the Territory. For clarity, Dermira will be responsible for pricing, discounting and contracting (including with payors, wholesalers and distributors and the like) with regard to the Product in the Field, including in the Roche Retained Field.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
In addition to its updates pursuant to Section 4.2, upon request of Roche, Dermira shall update Roche regarding the commercialization of the Product in the Territory in the Field by Dermira, its permitted Affiliates and Sublicensees. If Roche requests an update, Dermira shall provide a detailed update, in writing and/or through a meeting (face to face/tele-presence/videoconference or telephone). Roche shall not request an update more frequently than [*****] per Calendar Year.
Roche shall have the sole right to Promote (as defined below) the Product in the Roche Retained Field in the Territory, by itself or through its Affiliates, sublicensees or subcontractors subject to the occurrence of a Roche Reversion, after which Dermira shall have the sole right to Promote the Product. For purposes of this Agreement, “ Promote ” and “ Promotion ” shall mean with respect to the Product and the Roche Retained Field, market research, detailing, medical provider field support, training for product administration, sales analytics, initiation and facilitation of the distribution of free samples, physician and consumer/patient brochures, marketing materials, advertising, patient assistance programs, vouchers, co-pay cards, and personnel and training for the foregoing.
In addition Roche will be responsible for all market access, reimbursement, funding and listing activities in the Roche Retained Field as needed to generate the required landscaping, value proposition development, payer evidence and support to ensure that patient have access to Product. This includes the following activities: insights generation via payer advisory boards, payer market research, evidence generation to ensure market access (e.g. payer evidence studies, systematic literature reviews, indirect treatment comparison, health economic modelling, publication, and the like) dossier and payer detailing, development of aid and objection handling, and field-based reimbursement support including stakeholder engagement and required market access solutions.
Roche shall have the sole right to perform Medical Affairs Activities for the Product in the Roche Retained Field in the Territory, by itself or through its Affiliates, sublicensees or subcontractors subject to the occurrence of a Roche Reversion, after which Dermira shall have the sole right to perform Medical Affairs Activities for the Product. For purposes of this Agreement, “ Medical Affairs Activities ” shall mean with respect to the Product and the Roche Retained Field, activities related to medical affairs and disease state awareness, hiring and oversight of medical science liaisons, educational grants and sponsorships, speaker training, and professional and patient society activities and personnel and training for the foregoing.
Within thirty (30) days after the Effective Date and receipt of an invoice from Roche, Dermira shall pay to Roche US$ 80,000,000 (US$ eighty million) in consideration of Roche’s development costs incurred for the Compound, including the development costs that Roche plans to incur subsequent to the Effective Date for the completion of Roche’s ongoing studies outside the Roche Retained Field. This payment is non-refundable and non-creditable.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Dermira shall pay to Roche up to a total of US$ 305,000,000 (US$ three hundred and five million) in relation to the achievements of events with respect to the Product as applicable in any indication outside of the Roche Retained Field.
Upon reaching development events, Dermira shall timely notify Roche and development event payments shall be paid by Dermira to Roche within [*****] ([*****]) days from occurrence of the applicable event.
Payments shall be made by Dermira according to the following schedule of development events for the Product:
Development Event |
US$ (in millions) |
At the earlier of (i) achievement of 50% recruitment of patients in the Phase II Dose-finding Study or (ii) September 15, 2018 |
25 |
At the earlier of (i) achievement of 100% recruitment of patients in the Phase II Dose-finding Study or (ii) December 15, 2018 |
30 |
Initiation of first Phase III Study* |
40 |
Submission of first BLA for [*****] |
[*****] |
Submission of first BLA for [*****] |
[*****] |
Submission of first BLA for [*****] |
[*****] |
First Commercial Sale in [*****] |
[*****] |
First Commercial Sale in [*****] |
[*****] |
First Commercial Sale in [*****] |
[*****] |
Total |
305 |
* In the event that a Phase III Study will not be needed to receive marketing authorization for the Product this milestone will be payable with submission of the first BLA in the first country.
Dermira shall pay to Roche up to a total of US$ 1,025,000,000 (US$ one billion and twenty five million) based on aggregate Calendar Year Net Sales of the Product (in any indication but excluding the Net Sales in the Roche Retained Field) in the Territory:
Net Sales Threshold |
Payment US$ (in millions) |
|
|
Total Calendar Year Net Sales of the Product in the Territory exceed US$ 250,000,000 (US$ two hundred and fifty million) |
[*****] |
Total Calendar Year Net Sales of the Product in the Territory exceed US$ [*****] (US$ [*****]) |
[*****] |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Each of the sales based event payments shall be paid no more than once during the Agreement Term, at first occurrence of the event in the Territory, and shall be non-refundable and non-creditable. For clarity, if aggregate Calendar Year Net Sales of the Product achieve two or more milestones under this Section in the same Calendar Year, then each applicable milestone shall be payable in such Calendar Year.
Royalties shall be payable by Dermira on Net Sales of the Product in any indication outside of the Roche Retained Field on a country-by-country basis until the expiry of the Royalty Term. Upon the expiration of the Royalty Term in a country, the license shall be fully paid up, perpetual and non-exclusive in such country.
The following royalty rates shall apply to the respective tiers of aggregate Calendar Year Net Sales of the Product (in any indication outside of the Roche Retained Field) in the Territory, on an incremental basis, as follows:
Tier of Calendar Year Net Sales in million US$ |
Percent (%) of Net Sales |
0 – [*****] |
[*****] |
> [*****] – [*****] |
[*****] |
> [*****] – [*****] |
[*****] |
> [*****] – 3,000 |
[*****] |
> 3,000 |
[*****] |
For example, if Net Sales in all indications outside the Roche Retained Field, for a given Calendar Year, are US$ [*****], then the royalty applicable on such Net Sales of such Product for that year shall be calculated as follows:
([*****] %*[*****] US$)+([*****] %*[*****] US$) = US$ [*****].
For the purpose of calculating royalties under Section 9.4.2, Net Sales of the Product and the royalty rates shall be subject to the following adjustments, as applicable:
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
appropriate adjustment to Net Sales to reflect the relative commercial value contributed by the components of the Combination Product (the “ Relative Commercial Value ”). If, after such [*****] negotiations not to exceed [*****] ( [*****] ) days, the Parties cannot agree to an appropriate adjustment, the dispute shall be initially referred to the executive officers of the Parties in accordance with Sect ion 21.2. Should the Parties fail to agree within [*****] ( [*****] ) days of such referral, then the Relative Commercial Value shall be determined b y an Expert Committee u nder the procedures of Section 9.4. If the Parties are unable to agree on the Relative Commercial Value under this Section, then Roche will select [*****] who would qualify as an Expert, Dermira will select [*****] who would qualify as an Expert, and those [*****] ( [*****] ) individuals shall select [*****] who would qualify as an Expert and who shall be chairman of a committee of the [*****] Experts (the “Expert Committee”), each with a single deciding vote. The Expert Committee will promptly hold a meeting to review the issue under review, at which it will consider memoranda submitted by each Party at least [*****] ( [*****] ) d ays before the meeting, as well as reasonable presentations that each Party may present at the meeting. The determination of the Expert Committee as to the issue under review will be binding on both Parties. The Parties will share equally in the costs of the Expert Committee. Unless otherwise agreed to by the Parties, the Expert Committee may not decide on issues outside the scope mandated under terms of this Agreement. |
9.4.3.3 |
No Valid Claim. If in a given country within the Territory there is no Valid Claim of a Licensed Compound Patent Right Covering the Product in such country, then the royalty |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
payments due to Roche for such Product in such country shall be reduced by [*****] percent ( [*****] %). |
9.4.3.4 |
Biosimilar Product. Upon the first entry in a given country of a Biosimilar Product by any entity that is not authorized by Dermira or its Affiliates or by a Sublicensee of Dermira or its Affiliates, the royalties in such country for the Product shall be reduced as follows: |
|
(a) |
If the average Net Sales in any [*****] subsequent Calendar Quarters at any time after entry of a Biosimilar Product decline by more than [*****] percent ([*****]%) of the average level of the Net Sales of such Product achieved in the [*****] Calendar Quarters immediately prior to such entry, then the royalty payments due to Roche for such Product in such country shall be reduced by [*****] percent ([*****]%); |
|
(b) |
If the average Net Sales in any [*****] subsequent Calendar Quarters at any time after entry of a Biosimilar Product decline by more than [*****] percent ([*****] %) of the average level of the Net Sales of the Product achieved in the [*****] Calendar Quarters immediately prior to such entry, then the royalty payments due to Roche for the Product in such country shall end and no royalties shall be due by Dermira in such country for such Product. |
As from the date of the first Regulatory Approval for the first country in the Roche Retained Field and for each following Accounting Period Dermira shall pay Roche the following amount:
Net Sales in the Roche Retained Field, minus (i) [*****] percent ([*****]%) of the Net Sales in the Roche Retained Field to account for the Distribution of the Product and other unreimbursed costs; (ii) to the extent Roche supplied Drug Substance or Drug Product under this Agreement or the supply agreement described in Section 6.1.5 for use in the Roche Retained Field, then all amounts paid to Roche for such supply of Drug Substance and Drug Product, as applicable, plus [*****] percent ([*****]%) of such amounts, (iii) to the extent Roche did not supply Drug Substance or Drug Product under this Agreement or the Supply Agreement for use in the Roche Retained Field, then the Fully Burdened Manufacturing Costs of Dermira that are allocable to the Net Sales in the Roche Retained Field plus [*****] percent ([*****]%) of such Fully Burdened Manufacturing Costs, such mark-up to be [*****] percent ([*****]%) if Dermira has outsourced the entire Manufacturing of the Product to a CMO, and (iv) amounts Dermira incurs for any Third Party intellectual property rights under Section 9.4.3.2 that are allocable to Net Sales in the Roche Retained Field, which amounts shall not apply to the Deduction Cap under Section 9.4.3.2. If Dermira demonstrates that its costs for the Distribution of the Product and other unreimbursed costs exceed the [*****] percent ([*****]%) described in (i) above for any given Calendar Year, then upon Dermira’s written request the Parties shall negotiate [*****] an [*****] to account for the Distribution of the Product and other unreimbursed costs. Such amounts shall be payable in accordance with Section 10.
Other than as explicitly set forth in this Agreement, each Party shall bear all costs such Party incurs in exercising its rights and performing its obligations under this Agreement.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Dermira shall pay amounts owed to Roche under Sections 9.3, 9.4 and 9.5 within [*****] ([*****]) days after the end of each Accounting Period in which the applicable Net Sales occur; provided, however that no later than [*****] ([*****]) years after the First Commercial Sale in any country (in any indication in the Field, including the Roche Retained Field) the Parties shall reduce such time period to [*****] ([*****]) days. For the purpose of determining any amounts payable to Roche in an Accounting Period under Section 9.5, Dermira shall calculate Net Sales in the Roche Retained Field and resulting payments to Roche as follows:
|
(a) |
for any country in which the Roche Retained Field Trademark(s) and the Trademark(s) for Other Indications have been established in accordance with Section 13.2.2 and the Switch (as defined in Section 13.2.2) has not occurred or has occurred during such Accounting Period, (i) Net Sales in the Roche Retained Field in an Accounting Period shall be equal to Net Sales of the Product that was sold under the Roche Retained Field Trademark(s), and (ii) Dermira shall calculate amounts payable to Roche for Net Sales in accordance with Sections 9.3, 9.4, and 9.5; |
Other than for payments due under Section 9, for any payments owed by a Party to the other Party under this Agreement, the other Party shall within [*****] ([*****]) days after the end of each Accounting Period prepare an invoice itemizing such amounts incurred by or on account of such Party during such Accounting Period and submit such invoice to the other Party. Each Party shall
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
pay the undisputed portion of the invoice received from the other Party within [*****] ( [*****] ) day s after the date of receipt of such invoice.
Any payment under this Agreement that is not paid on or before the date such payment is due shall bear interest, to the extent permitted by Applicable Law, at [*****] ([*****]) percentage points above the average [*****], as reported by Reuters from time to time, calculated on the number of days such payment is overdue.
Royalties on Net Sales outside of the Roche Retained Field and the financial consideration to Roche for Dermira sales in the Roche Retained Field and all other amounts payable by one Party to the other Party hereunder shall be paid in US Dollars (the “ Payment Currency ”) to account(s) designated by such other Party.
When calculating Net Sales that occur in currencies other than the Payment Currency, Dermira shall convert the amount of such sales into the Payment Currency using Dermira’s then-current foreign currency translation rates actually used on a consistent basis in preparing its audited financial statements.
With each royalty payment Dermira shall provide Roche in writing for the relevant Calendar Quarter the following information:
a) |
recognized sales in local currency on a country-by-country basis; |
b) |
Net Sales in local currency on a country-by-country and Housemark-by-Housemark basis; |
c) |
Net Sales in payment currency on a country-by-country basis; |
d) |
adjustments made pursuant to Section 9.4.3 on a country-by-country basis ; |
e) |
Net Sales in payment currency after adjustments made pursuant to Section 10.5 in reporting currency; |
f) |
royalty rate pursuant to Section 9.4.2; |
g) |
adjustments made pursuant to Section 9.4.3, and |
h) |
total royalty payable in the payment currency. |
Each Party shall be solely responsible for the payment of all taxes imposed on its share of income arising from the efforts of the Parties under this Agreement and each Party shall pay all sales, turnover, value added, and similar taxes levied on account of any payment accruing or made to the other Party under this Agreement.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
If provision is made in law or regulation of any country for withholding of taxes of any type, levies or other charges with respect to any royalty or other amounts payable under this Agreement, then the paying Party shall promptly pay such tax, levy or charge for and on behalf of the other Party to the proper governmental authority, and shall promptly furnish the other Party with receipt of payment. The paying Party shall be entitled to deduct any such tax, levy or charge actually paid from royalty or other payment due to the other Party or be promptly reimbursed by the other Party if no further payments are due to the other Party. Each Party agrees to reasonably assist the other Party in claiming exemption from such deductions or withholdings under double taxation or similar agreement or treaty from time to time in force and in minimizing the amount required to be so withheld or deducted.
Except where otherwise specified all amounts stated in this Agreement are exclusive of sales, turnover, value added or equivalent taxes. If and to the extent supplies or services rendered under this Agreement are subject to sales, turnover, value added or equivalent taxes, the Party receiving the invoice for such supplies or services shall pay such tax in addition to the amounts agreed under this Agreement.
Dermira shall keep, and shall require its Affiliates and Sublicensees to keep, full, true and accurate books of account containing all particulars that may be necessary for the purpose of calculating all payment obligations of Dermira under this Agreement. Such books of accounts shall be kept at their principal place of business.
At the expense of Roche, Roche has the right to appoint one of the major public accountant firms to perform, on behalf of Roche an audit of such books and records of Dermira and its Affiliates, and Sublicensees, that are deemed necessary by the appointed major public accountant firm to report on the correctness of Net Sales of Product, royalty calculations, the calculation of the financial consideration for Dermira sales in the Roche Retained Field and any other financial report or payment obligations under this Agreement for the period or periods requested by Roche.
Upon timely request and at least [*****] ([*****]) Business Days prior written notice from Roche, such audit shall be conducted in the countries specifically requested by Roche, during regular business hours in such a manner as to not unnecessarily interfere with Dermira's normal business activities, and shall be limited to results in the [*****] ([*****]) full Calendar Years prior to audit notification.
Such audit shall not be performed more frequently than [*****] per [*****] nor more frequently than [*****] with respect to records or countries covering any specific period of time.
All information, data documents and abstracts herein referred to shall be used only for the purpose of verifying financial reports or payment obligations under this Agreement, shall be treated as Dermira’s Confidential Information subject to the obligations of this Agreement and need neither be retained more than [*****] after completion of an audit hereof, if an audit has been requested; nor more than [*****] from the end of the Calendar Year to which each shall pertain; nor more than [*****] after the date of termination of this Agreement.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The auditors shall only state factual findings in the audit reports and shall not interpret the agreement. The final audit report shall be shared with Dermira at the same time it is shared with Roche.
If the audit reveals an overpayment, Roche shall reimburse Dermira for the amount of the overpayment within [*****] ([*****]) days. If the audit reveals an underpayment, Dermira shall reimburse Roche for the amount of the underpayment within [*****] ([*****]) days. Dermira shall pay for the audit costs if the underpayment of Dermira exceeds [*****] percent ([*****]%) of the aggregate amount owed subject of the audit. Section 10.3 shall apply to this Section 12.3.
Dermira shall solely own all Dermira Inventions and all Dermira Know-How. Roche shall solely own all Roche Inventions and all Roche Know-How including Licensed Know-how. The Parties shall jointly own any Joint Inventions and Joint Know-How. Such ownership rights of each Party in Joint Inventions and Joint Know-How include the right to license and sublicense, and to freely exploit, transfer or encumber its ownership interest, without the consent of, payment to, or obligation to account to, the other Party. Each Party hereby waives any right it may have under the laws of any jurisdiction to require such payment, accounting, or consent with respect to Joint Invention(s) and Patent Rights in Joint Invention(s). Dermira and Roche each shall require all of its employees and contractors to assign all Inventions related to Compounds, Modified Compounds, or Products made by them to Roche and Dermira, as the case may be. The determination of inventorship for Inventions shall be in accordance with US inventorship laws.
Except as specifically set forth herein, this Agreement shall not be construed as (i) giving any of the Parties any license, right, title, interest in or ownership to the Confidential Information; (ii) granting any license or right under any intellectual property rights; or (iii) representing any commitment by either Party to enter into any additional agreement, by implication or otherwise.
Subject to the terms and conditions of this Agreement, Dermira shall have the right to determine the trademark(s) for the Product outside of the Roche Retailed Field, Roche shall have the same right with regard to Product in the Roche Retained Field, and Dermira shall own all trademarks used on or in connection with Product in the Territory, and shall, at its sole cost, be responsible for procurement, maintenance, enforcement and defense of all trademarks used on or in connection with Product in the Territory; provided, however, that all external costs incurred by or on behalf of Dermira or its Affiliates or Sublicensees with respect to trademarks for the Product in the Roche Retained Field shall be reimbursed by Roche with a mark-up of [*****] percent ([*****]%).
Each Party shall use the respective Product trademarks in accordance with sound trademark and trade name usage principles and in accordance with all applicable laws and regulations as reasonably necessary to maintain the validity and enforceability of the Product trademarks.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Neither Party shall use the Housemark(s) of the other Party for any purposes, absent express, written agreement from the other Party.
Within [*****] ([*****]) months after the database lock of the ongoing IPF Study, the Parties shall convene and establish a robust concept that allows tracking of Net Sales during the Agreement Term apportioned by (i) Net Sales of Product used in the Roche Retained Field and (ii) Net Sales of Product used in all other indications. The Parties shall then also define the content of the quarterly reporting from Dermira to Roche regarding Net Sales of Product used in the Roche Retained Field. The concept shall be based on the following principles:
Dermira shall [*****] establish one or more trademarks for the sale of Product in the Roche Retained Field (the “ Roche Retained Field Trademark(s) ”) and one or more separate trademarks for sale in all other indications (the “ Trademark(s) For Other Indications ”). Dermira shall ensure that the Roche Retained Field Trademark(s) are sufficiently separate from the Trademark(s) For Other Indications.
In countries in which a Roche Retained Field Trademark has been established, the calculation of Net Sales shall be based on the following principles:
|
(a) |
Net Sales in the Roche Retained Field shall be equal to the Net Sales of the Product that was sold under the Roche Retained Field Trademark(s); |
|
(b) |
Net Sales outside the Roche Retained Field shall be equal to the Net Sales of the Product that was sold under the Trademark(s) For Other Indications; and |
In countries in which, [*****], a sufficiently separate trademark for the Roche Retained Field has not yet been established or cannot be established for reasons outside of Dermira’s control, the calculation of Net Sales shall be based on the following principles:
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
|
published, (ii) adjustments to account for biases in the sample of prescription data (iii) whether a different method is warranted during the first three Calendar Quarters after First Commercial Sale (in any indication in the Field, including the Roche Retained Field), and (iv) how to deal with unallocated prescriptions; |
|
(b) |
Should the Parties not be able to agree upon the prescription data to be used for one of the countries listed in the “Country”-column of Appendix 13.2.2, the use of the Product shall be tracked using the respective data as listed in the “Prescription Data”-column of Appendix 13.2.2; |
|
(c) |
Net Sales in the Roche Retained Field shall be calculated as Net Sales of the Product multiplied with the proportion of (i) units of Product used in the Roche Retained Field to (ii) the overall units of Product used, as per the prescription data and the method agreed for such country and |
|
(d) |
Net Sales outside the Roche Retained Field shall be calculated as Net Sales of the Product multiplied with the proportion of (i) units of Product used outside the Roche Retained Field to (ii) the overall units of Product used, as per the prescription data and the method agreed for such country. |
For countries in which, [*****], a sufficiently separate trademark for the Roche Retained Field has not yet been established or cannot be established for reasons outside of Dermira’s control, and reliable prescription data are not available on reasonable terms, the Parties shall agree upon an extrapolation method for calculating the Net Sales of the Product in the Roche Retained Field. Such extrapolation method shall be based on the proportion of (i) Net Sales in the Roche Retained Field to (ii) total Net Sales of selected countries in which a Roche Retained Field Trademark has been established or Net Sales are calculated based on reliable prescription data.
The [*****] shall [*****] the external costs of applying the above processes (in particular, costs for obtaining prescription data from Third Parties).
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(a) |
Roche shall, at its own expense and discretion, (i) Handle all Roche Patent Rights including Licensed Compound Patent Rights and, (ii) inform Dermira as to the Handling of Licensed Compound Patent Rights, and Roche shall [*****] and in view of applicable national patent laws and practice divide the claimed subject matter of the Non-Compound Patent Right disclosed by [*****] during national phase prosecution so that a corresponding national phase patent application becomes a Licensed Compound Patent Right and added to Appendix 1.57 in accordance with Section 13.4 and will use [*****] to divide the claimed subject matter of New Compound Patents (defined below) such that they are Handled in the same manner. |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
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of such Licensed Compound Patent Rights. For purposes of this Agreement, such Patents continue to be included in the Licensed Compound Patent Rights. |
If, after the Effective Date and during the Agreement Term, an invention is conceived of or reduced to practice by or on behalf of Roche that arises from the research, Manufacture, development or commercialization of the Compound, whether under this Agreement or otherwise, and Roche Controls and intends to pursue Patent Rights which include at least one claim that recites the Compound with respect to such invention (“ New Compound Patent ”), then Roche shall notify Dermira of such New Compound Patent in writing. If the claims in such New Compound Patent [*****], then such New Compound Patent shall [*****] be included in the Licensed Compound Patent Rights and added to Appendix 1.57. If the claims in such New Compound Patent [*****], then the Parties shall discuss [*****] whether such New Compound Patent should be included as a Licensed Compound Patent Right, provided that if such New Compound Patent is not included as a Licensed Compound Patent Right, then it shall be included as a Non-Compound Patent Right and added to Appendix 1.62.
Dermira shall, at its own expense and discretion, Handle all Dermira Patent Rights and Joint Patent Rights. Dermira shall inform Roche as to the Handling of all Joint Patent Rights.
Should Dermira decide that it does not desire to Handle a patent or patent application that claims a Dermira Invention or Joint Invention that is conceived or reduced to practice as a result of its activities under the Agreement, it shall provide at least [*****] ([*****]) days written notice to Roche. Thereafter, Roche may undertake at its sole expense and its sole discretion, the Handling of such Patent Rights.
Each Party shall promptly provide written notice to the other Party during the term of this Agreement of any (i) known infringement or suspected infringement by a Third Party of any Licensed Compound Patent Rights, or (ii) known or suspected unauthorized use or misappropriation by a Third Party of any Licensed Know-how, and shall provide the other Party with all evidence in its possession supporting such infringement or unauthorized use or misappropriation.
Within [*****] ([*****]) days after Dermira provides or receives such written notice (“ Decision Period ”), Dermira, [*****], shall decide whether or not to initiate such suit or action in the Territory and shall notify Roche in writing of its decision in writing (“ Suit Notice ”).
If Dermira decides to bring a suit or take action, once Dermira provides Suit Notice, Dermira may immediately commence such suit or take such action. In the event that Dermira (i) does not in writing advise Roche within the Decision Period that Dermira will commence suit or take action, or (ii) fails to commence suit or take action within [*****] after providing Suit Notice, Roche shall thereafter have the right to commence suit or take action in the Territory and shall provide written notice to Dermira of any such suit commenced or action taken by Roche.
Upon written request, the Party bringing suit or taking action (“ Initiating Party ”) shall keep the other Party informed of the status of any such suit or action and shall provide the other Party with copies, to the extent the Initiating Party is lawfully permitted to do so, of all substantive documents
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
or communications filed in such suit or action. The Initiating Party shall [*****] to select counsel for any such suit or action.
The Initiating Party shall, except as provided below, pay all expenses of the suit or action, including the Initiating Party’s attorneys’ fees and court costs. Any damages, settlement fees or other consideration received as a result of such suit or action shall be allocated as follows:
|
(a) |
First, to reimburse the Initiating Party for its costs and, if any remains, to the other Party for any advisory counsel fees and costs; and |
|
(b) |
Second, the balance, if any, shall be allocated [*****] percent ([*****]%) to the Initiating Party, and [*****] percent ([*****]%) to the other Party. |
If the Initiating Party believes it is [*****] to obtain an effective remedy, upon written request the other Party agrees to be joined as a party to the suit or action but shall be under no obligation to participate except to the extent that such participation is required as the result of its being a named party to the suit or action. At the Initiating Party’s written request, the other Party shall offer [*****] assistance to the Initiating Party in connection therewith [*****] to the Initiating Party [*****]. The other Party shall have the right to participate and be represented in any such suit or action by its own counsel at its own expense.
The Initiating Party may settle, consent judgment or otherwise voluntarily dispose of the suit or action (“ Settlement ”) without the written consent of the other Party but only if such Settlement can be achieved without adversely affecting the other Party (including any of its Patent Rights). If a Settlement [*****] adversely affect the other Party, then the written consent of the other Party would be required, [*****].
For any Patent Right within the Roche Patent Rights that is not a Licensed Compound Patent Right, Roche, [*****], shall decide whether or not to initiate such suit or action in the Territory. Roche shall have [*****] discretion as to how it wishes to handle such suit and may reach Settlement and retain all damages, settlement fees or other consideration under any terms and conditions it desires and retain whatever. Only if a Settlement [*****] adversely affect Dermira shall the written consent of Dermira be required, [*****].
If an action for infringement is commenced against either Party, its licensees or its sublicensees related to the discovery, development, Manufacture, use or sale of the Product, then: (a) to the extent such alleged infringement arises from activity outside the Roche Retained Field (or, after the occurrence of the Roche Reversion, in any field), then Dermira shall defend such action at [*****] expense, and Roche shall assist and cooperate with Dermira, at [*****] expense, to the extent necessary in the defense of such suit; and (b) to the extent such alleged infringement arises from activity related to the Roche Retained Field, including sales by or on behalf of Dermira, its Affiliates or Sublicensees in the Roche Retained Field, then Roche shall defend such action at [*****] expense, and Dermira shall assist and cooperate with Roche, at [*****] expense, to the extent necessary in the defense of such suit. The Party defending such suit in accordance with the previous sentence (the “ Defending Party ”) shall have the right to settle the suit or consent to an adverse judgment thereto, [*****] so long as such settlement or adverse judgment does not adversely affect the rights of the other Party and its Affiliates (including any Patent Rights Controlled by any of them). The payment of any award for damages or any amount due pursuant to any settlement entered into with such Third Party shall be paid by each Party to the extent the underlying suit arose from such Party’s activities subject to any applicable obligations under Section 15.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
If the Manufacture, use, importation, offer for sale or sale of any Product pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement or trade secret misappropriation against Roche, then such Party shall promptly notify the other Party hereto. The Parties shall cooperate with each other in connection with any such claim, suit or proceeding and shall keep each other reasonably informed of all material developments in connection with any such claim, suit or proceeding.
If a Third Party asserts that Patent Rights owned by or licensed to it are infringed by the development, Manufacture, use, importation, offer for sale or sale of Product, or that its trade secrets were misappropriated in connection with such activity, then Dermira shall have the [*****] right and responsibility to resolve any such claim, whether by obtaining a license from such Third Party, by defending against such Third Party’s claims or otherwise, and shall be [*****] responsible for the defense of any such action, [*****] costs incurred in connection with such action (including, without limitation, attorneys’ and expert fees) and [*****] liabilities incurred in connection therewith; provided, however, that if any such costs are incurred in connection with the Roche Retained Field, then such costs shall be deemed [*****] allocable to sales of Products in the Roche Retained Field for purposes of determining amounts owed to Roche for such sales in accordance with Section 9.5. Notwithstanding the above, Dermira shall not enter into any settlement of any such claim without the prior written consent of Roche if such settlement would require Roche to be subject to an injunction or to make any monetary payment to Dermira or any Third Party, or admit any wrongful conduct by Roche or its Affiliates, or would limit or restrict the claims of or admit any invalidity and/or unenforceability of any of the Patent Rights Controlled by Roche, or have any impact on activities outside the Field.
With regard to any information or opinions disclosed pursuant to this Agreement by one Party to each other regarding intellectual property and/or technology owned by Third Parties, the Parties agree that they have a common legal interest in determining whether, and to what extent, Third Party intellectual property rights may affect the conduct of the Development Program and/or Compounds and/or Product, and have a further common legal interest in defending against any actual or prospective Third Party claims based on allegations of misuse or infringement of intellectual property rights relating to the conduct of the Development Program and/or Compounds and/or Product. Accordingly, the Parties agree that all such information and materials obtained by Dermira and Roche from each other will be used by the receiving Party solely for purposes of the Parties’ common legal interests with respect to the conduct of the Agreement. All information and materials will be treated as protected by the attorney-client privilege, the work product privilege, and any other privilege or immunity that may otherwise be applicable. By sharing any such information and materials, neither Party intends to waive or limit any privilege or immunity that may apply to the shared information and materials. Neither Party shall have the authority to waive any privilege or immunity on behalf of the other Party without such other Party’s prior written consent, nor shall the waiver of privilege or immunity resulting from the conduct of one Party be deemed to apply against any other Party.
Notwithstanding anything herein to the contrary, should a Party receive a certification for the Product pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984 (Public Law 98-417, known as the Hatch-Waxman Act), as amended, or its equivalent in a country other than the US, then such Party shall immediately provide the other Party with a copy of such certification. Roche shall have [*****] ([*****]) days from date on which it receives or provides a copy of such certification to provide written notice to Dermira (“ H-W Suit Notice ”) whether Roche will bring suit, at its expense, within a [*****] ([*****]) day period from the date of such certification.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Should such [*****] ( [*****] ) day period expire without Roche bringing suit or providing such H-W Suit Notice, then Dermira shall be free to immediately bring suit in its name.
Notwithstanding anything herein to the contrary, within [*****] ([*****]) years after the approval of the Product that has been licensed in the US as a biological product under 42 USC §262(a), and as may be needed from time to time thereafter, the Parties shall consult as to potential strategies with respect to unexpired US Patent Rights that Cover the Product. Specifically, in anticipation of a receipt by the Product’s reference product sponsor (“ Reference Product Sponsor ”) of a biosimilar or interchangeable product application pursuant to the Biologics Price Competition and Innovation Act of 2009 (Public Law 111-148), the Parties will discuss the Reference Product Sponsor’s likely course of action with regard to each such US Patent Right in the procedural steps set forth under 42 USC §262(l), including a general plan for timely communication between the Parties in light of the statutory response deadlines.
The Parties shall use Commercially Reasonable Efforts to obtain all available patent term extensions, adjustments or restorations, or supplementary protection certificates (“ SPCs ”, and together with patent term extensions, adjustments and restorations, “ Patent Term Extensions ”). If Dermira decides to file a BLA before the date of the occurrence of the Roche Reversion, then Dermira shall notify Roche in writing, and regardless of whether a BLA is first filed in the U.S. within or outside of the Roche Retained Field, patent term extension shall be sought for U.S. Patent No. [*****], provided that if a Party desires otherwise, the Parties shall discuss in good faith an appropriate strategy for seeking Patent Term Extensions, including the likely impact of such Patent Term Extension on the profits arising from sales of Products within and outside the Roche Retained Field. After the date of the occurrence of the Roche Reversion, Dermira shall have the sole right to determine which patent(s) should be the subject of Patent Term Extensions. Subject to the foregoing, each Party shall execute such authorizations and other documents and take such other actions as may be reasonably requested by the other Party to obtain such Patent Term Extensions, including, as applicable, designating the other Party as its agent for such purpose as provided in 35 U.S.C. Section 156. All filings for such Patent Term Extensions shall be made by the owner of the patent in question; provided, that in the event that a Party elects not to file for a Patent Term Extension, such Party shall (a) promptly inform the other Party of its intention not to file and (b) grant the other Party the right to file for such Patent Term Extension. Each Party shall execute such authorizations and other documents and take such other actions as may be reasonably requested by the other Party to obtain such extensions. The Parties shall cooperate with each other in gaining patent term restorations, extensions and/or SPCs wherever applicable to such Licensed Compound Patent Rights.
The Parties acknowledge and agree that Roche may terminate the Agreement at Roche’s discretion (but taking into account Dermira’s fulfillment of its obligations under this Agreement), in the event Dermira, its Affiliate or a Sublicensee challenges, or knowingly participates with or assists a Third Party (except as required by Applicable Law) to challenge the validity, enforceability, patentability and/or scope of any claim within the Licensed Compound Patent Rights in a court or patent office or other governmental agency; provided that, if Dermira acquires (or otherwise becomes an Affiliate of) a company that has challenged, directly or indirectly, individually or in association with another person or entity, the validity, enforceability or scope of any Licensed Compound Patent Rights, Dermira shall have [*****] ([*****]) days from the date of such acquisition to terminate such challenge to such Licensed Compound Patent Rights before
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Roche’s rights under this Section 13.12 become effective. In the event of termination by Roche pursuant to this section, any royalty or other payment owed to Roche prior to such termination shall be [*****] .
Each Party represents and warrants to the other that, as of the Effective Date: (a) it is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation, and has full corporate or other power and authority to enter into this Agreement and to carry out the provisions hereof; (b) it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate or partnership action; and (c) this Agreement is legally binding upon it, enforceable in accordance with its terms, and does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.
Roche represents and warrants as of the Effective Date and covenants to Dermira (only where applicable) that:
|
(a) |
Roche has not received written notice from any Third Party claiming that the use or sale of Compound or Product infringes any Patent Right of any Third Party; |
|
(b) |
Roche is not a party to any legal action, suit or proceeding in a court of law relating to Compound or Product; |
|
(c) |
Roche has the full right, power and authority to grant all of the right, title and interest in the licenses, sub-licenses and other rights granted to Dermira under this Agreement; |
|
(d) |
all of Roche’s activities related to its use of the Licensed Compound Patent Rights and Licensed Know-how, and the research, development, Manufacturing and Promotion of the Compound and/or Product, pursuant to Sections 2.5, 5.3 and 8.3 of this Agreement, shall comply with all Applicable Laws; |
|
(e) |
Roche has Control of all the Licensed Compound Patent Rights listed on Appendix 1.57 and the Non-Compound Patent Rights listed on Appendix 1.62 and the filings and correspondence with any Regulatory Authority with respect to the Compound or Product that are set forth in the Appendices 1.58 and 2.4.1; |
|
(f) |
[*****] Roche has Control of all the Licensed Know-how [*****]; |
|
(g) |
[*****] Appendices 1.57 and 1.62 list all Patent Rights that Roche Controls as of the Effective Date that claim the composition, formulation, or use of Drug Substance or Drug Product as they exist on the Effective Date; |
|
(h) |
[*****] the Appendices 1.55 and 2.4.1 list all the material Know-How specifically directed to the Compound that is Controlled by Roche and that is reasonably necessary for Dermira to exercise its rights under this Agreement; |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Dermira represents and warrants as of the Effective Date and covenants that:
|
(b) |
all of its activities related to its use of the Roche Patent Rights and Roche Know-How, and the research, development and commercialization of the Compound, Dermira Modified Compound, Joint Modified Compound and/or Product, pursuant to this Agreement shall comply with all Applicable Laws. |
Except as provided in Section 14.2, Roche makes no representation or warranty that all intellectual property rights necessary for Dermira to make, have made, use, sell, offer for sale and import the Compound or the Product in the Territory have been granted to Dermira under Section 2. Roche did not perform an exhaustive and final search for Third Party Patent Rights or an evaluation thereof for Compounds and/or technologies relevant under this Agreement. Roche will not keep Dermira updated about further searches or analyses of Third Party Patent Rights nor will it keep Dermira updated about any further developments of any Third Party rights or steps taken or intended to be taken by Roche with regard to such Third Party rights.
Except as expressly set forth herein and elsewhere in this Agreement, EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Roche shall indemnify, hold harmless Dermira, Dermira’s Affiliates and its and their officers, directors, employees, consultants and agents (" Dermira Indemnitees ") from and against any and all losses, damages, liabilities, expenses and costs, including reasonable legal expense and attorneys’ fees (“ Indemnified Losses ”), to which any such Dermira Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Indemnified Losses arise out of (i) the breach by Roche of any obligation, representation, warranty, covenant or agreement made by it under this Agreement, (ii) the development, manufacture, promotion, of the Product in or for the Roche Retained Field, including sale of Product by or on behalf of Dermira, its Affiliates or Sublicensees for use in the Roche Retained Field, (iii) Roche’s exercise of its retained rights under Sections 2.5, 5.3 and 8.3, or (iv) the Manufacture of Compound or Product by or on behalf of Roche, except in each case to the extent such Indemnified Losses result from the negligence or willful misconduct of any Dermira Indemnitee (including without limitation any item subject to indemnification by Dermira under Section 15.2).
Dermira shall indemnify, hold harmless Roche, Roche’s Affiliates and its and their officers, directors, employees, consultants and agents (" Roche Indemnitees ") from and against any and all Indemnified Losses, to which any such Roche Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Indemnified Losses arise out of (i) the breach by Dermira of any representation, warranty, covenant or agreement made by it under this Agreement, or (ii) the development, Manufacture, use, handling, storage, sale or other disposition of the Compound and/or any Product by Dermira or any of its Affiliates or Partners (including but not limited to (1) Product liability claims and (2) infringement of Third Party patents, except to the extent such Indemnified Losses result from the negligence or willful misconduct of any Roche Indemnitee (including without limitation any item subject to indemnification by Roche under Section 15.1).
In the event an Dermira Indemnitee or Roche Indemnitee (as the case may be) seeks indemnification under Section 15.1 or 15.2, it shall inform the other party (the “ Indemnifying Party ”) of a claim [*****] after it receives notice of the claim, shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim, provided that the Indemnifying Party shall not settle any such claim without the prior written consent of any affected Roche Indemnitee or Dermira Indemnitee (as the case may be), if such settlement contains any admission of fault of such Dermira Indemnitee or Roche Indemnitee (as the case may be).
In no event shall either Dermira or Roche be liable for indirect damages (indirekte Schäden/mittelbare Schäden/weitere Schäden als Schäden mit langem Kausalzusammenhang) or consequential damages (Mangelfolgeschäden und Schäden, die sich aus einem direkten Schaden ergeben) including lost profit (entgangener Gewinn) arising out of this Agreement based
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
on contract, tort or any other legal theory, except to the extent such damages or lost profit are due to the gross negligence or willful misconduct of the other Party. The foregoing limitations shall not limit the indemnification obligation of such Party under the provisions of Sections 15.1 and 15.2 for such damages claimed by a Third Party.
Dermira shall maintain, at its own cost, the following insurance coverages:
16.2.1 |
Commencing as of the Effective Date, and during the Agreement Term, Dermira shall obtain and maintain on an ongoing basis, commercial general liability insurance, including contractual liability and products liability insurance, in the minimum amount of US$ [*****] (US $[*****]) per occurrence, combined single limit for bodily injury and property damage liability, to increasing to US$ [*****] (US$ [*****]) per occurrence, combined single limit for bodily injury and property damage liability upon the First Commercial Sale. |
16.2.2 |
Dermira shall maintain statutory workers’ compensation limits and employers liability limits shall be at a minimum amount of US$ [*****] (US$ [*****]). |
16.2.3 |
Dermira shall have and maintain clinical trial liability insurance covering the development (including for Dermira’s development in the Roche Retained Field after occurrence of the Roche Reversion), Manufacture (after receipt by Dermira of the Drug Substance Transfer Notice or the Drug Product Transfer Notice, as the case may be), use and sale (including for Dermira’s promotion in the Roche Retained Field after occurrence of the Roche Reversion) of Products with a minimum combined single limit per occurrence of US$ [*****] (US$ [*****]) for any period during which Dermira (or any Sublicensees) is conducting a clinical trial. This insurance shall be primary insurance. |
16.2.4 |
Policy limits set forth in the first paragraph of this Section above may be met with a combination of primary, umbrella or excess insurance. |
All such insurance coverage shall be primary insurance with respect to Dermira’s own participation under this Agreement, and shall be maintained with an insurance company or companies having an A.M. Best’s rating of [*****] or better.
Dermira shall name Roche as an additional insured by endorsement under its commercial general liability and products liability insurance policies.
The insurance policies shall be under an occurrence form, but if only a claims-made form is reasonably available to Dermira, then in such a case, Dermira shall maintain the insurance coverage for at least [*****] ([*****]) years following completing performance of its obligations under this Agreement.
Upon [*****] ([*****]) days after the Effective Date, Dermira shall provide to Roche its certificates of insurance evidencing the insurance coverage set forth in this Section. Dermira shall provide to Roche at least [*****] ([*****]) days prior written notice of any cancellation, nonrenewal or material change in any of the insurance coverage. Dermira shall, upon receipt of written request from Roche, provide renewal certificates to Roche for as long as Dermira is required to maintain insurance coverage hereunder.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
During the Agreement Term and for [*****] ([*****]) years thereafter, a party receiving Confidential Information (“Receiving Party”) shall (i) treat Confidential Information provided by Disclosing Party as it would treat its own information of a similar nature, (ii) take all reasonable precautions not to disclose such Confidential Information to Third Parties, unless permitted to do so by the Disclosing Party with the Disclosing Party’s prior written consent, and (iii) not use such Confidential Information other than for fulfilling its obligations under this Agreement.
Notwithstanding the obligation of non-use and non-disclosure set forth in Section 17.1, the Parties recognize the need for certain exceptions to this obligation, specifically set forth below, with respect to press releases, patent rights, publications, and certain commercial considerations.
Dermira may issue a press release announcing the existence and selected key terms of this Agreement, in a form substantially similar to the template attached as Appendix 17.3.
For other press releases related to the activities concerning this Agreement that disclose information other than set forth on Appendix 17.3 by Dermira during the Agreement Term, Dermira shall provide Roche with a copy of any draft press release at least [*****] prior to its intended publication for Roche's review. Roche may provide Dermira with suggested modification to the draft press release. Dermira shall consider Roche’s suggestions prior to issuing its press release.
Roche shall only issue press releases related to the activities contemplated by this Agreement that have either (i) been approved by Dermira or (ii) are required to be issued by Roche as a matter of law and Roche has a competent legal opinion to that effect. In all circumstances, Roche shall provide Dermira with a draft press release at least [*****] prior to its intended publication for Dermira's review. During such period, Dermira shall (i) approve the draft press release and permit Roche to issue the press release, (ii) contact Roche to discuss modification to the draft press release, or (iii) contact Roche and disapprove the press release. If Dermira asks for modification, then Roche shall either make such modification or work with Dermira to arrive at a press release that Dermira approves. If Roche issues a press release without Dermira's approval, then Roche must obtain a competent legal opinion that the release was required to be issued by Roche as a matter of law.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
|
The incorporation of such recommended changes shall not be [*****] refused by such Publishing Party; and if such other Party notifies (" Publishing Notice ") the Publishing Party in writing, within [*****] ( [*****] ) days after receipt of the copy of the proposed publication or presentation (or at least [*****] ( [*****] ) days in the case of oral presentations), that such publication or presentation in its [*****] judgment (i) contains an invention, solely or jointly conceived and/or reduced to practice by the other Party, for which the other Party [*****] desires to obtain patent protection or (ii) [*****] to have a [*****] effect on t he commercial value of any Confidential Information disclosed by the other Party to the Publishing Party, the Publishing Party shall prevent such publication or delay such publication for a [*****] period of time. In the case of inventions, a delay shall be for a period [*****] to permit the timely preparation and filing of a patent application(s) on such invention, and in no event less than [*****] ( [*****] ) da ys from the date of the Publishing Notice. |
|
(b) |
Until the occurrence of the Roche Reversion, Dermira shall not make any public disclosure of any data or information specifically directed to the Compound in the Roche Retained Field until Roche provides its written consent, [*****]. |
Nothing in this Agreement shall prevent Dermira or its Affiliates from disclosing Confidential Information of Roche to (i) governmental agencies to the extent required or desirable to secure government approval for the development, Manufacture or sale of Product in the Territory, (ii) Third Parties acting on behalf of Dermira, to the extent [*****] for the development, Manufacture or sale of Product in the Territory, (iii) Third Parties to the extent [*****] to market the Product in the Territory, (iv) Third Parties with which Dermira is considering a potential transaction related to this Agreement who have a need to see the Agreement (including each of Dermira’s and such Third Party’s accounting, financial, legal or tax advisors associated with such potential transaction) provided that such disclosure shall be limited to the terms such Third Party has requested to review in order to proceed with the potential transaction and that are [*****] for the purposes of proceeding with such potential transaction and is under terms of confidentiality that are consistent with those contained in this Agreement, (v) consultants and advisors subject to terms of confidentiality that are consistent with those contained in this Agreement, or (vi) Dermira’s employees, officers, members of its board of directors, and its accounting, legal or tax advisors.
The Receiving Party may disclose Confidential Information of the Disclosing Party to the extent that such Confidential Information is required to be disclosed by the Receiving Party to comply with Applicable Law, IFRS or GAAP, to defend or prosecute litigation or to comply with governmental regulations or applicable regulations of a stock exchange, provided that the Receiving Party provides prior written notice of such disclosure to the Disclosing Party and, [*****], takes [*****] actions to minimize the degree of such disclosure. No notice shall be required under Section 17 if and to the extent that the specific information contained in the proposed disclosure
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
has previously been included in any previous disclosure made by either Party hereunder pursuant to Section 17, or is otherwise approved in advance in writing by the other Party .
Other than with respect to Sections 17, 21.1, 21.2, 21.3 and 22, which shall commence on the Execution Date, this Agreement shall commence on the Effective Date and continue for the Agreement Term.
A Party (“ Non-Breaching Party ”) shall have the right to terminate this Agreement in its entirety or on a country-by-country basis in the event the other Party (“ Breaching Party ”) is in breach of any of its material obligations under this Agreement. The non-Breaching Party shall provide written notice to the Breaching Party, which notice shall identify the breach and the countries in which the Non-Breaching Party intends to have this Agreement terminate. The Breaching Party shall have a period of [*****] ([*****]) days after such written notice is provided (“ Peremptory Notice Period ”) to cure such breach. If the Breaching Party has a bona fide dispute as to whether such breach occurred or has been cured, it will so notify the Non-Breaching Party and after delivery of such notification the expiration of the Peremptory Notice Period shall be tolled until such dispute is resolved pursuant to Section 21.2. Upon a determination of breach or failure to cure, the Breaching Party shall have the remainder of the Peremptory Notice Period to cure such breach. If such breach is not cured within the Peremptory Notice Period, then the Non-Breaching Party shall either withdraw its request for termination or within [*****] ([*****]) days after the expiration of the Peremptory Notice Period terminate this Agreement with immediate effect.
A Party shall have the right to terminate this Agreement in its entirety, if the other Party incurs or undergoes an Insolvency Event; provided, however, in the case of any involuntary bankruptcy proceeding, such right to terminate shall only become effective if the Party that incurs the Insolvency Event consents to such involuntary bankruptcy or such proceeding is not dismissed within [*****] ([*****]) days after the filing thereof. Upon an Insolvency Event the Party not incurring the Insolvency Event shall have the right to terminate this Agreement within [*****] ([*****]) days of the Insolvency Event of the other Party.
Dermira shall have the right to terminate this Agreement at any time, on a country-by-country basis upon six (6) months prior written notice before First Commercial Sale of the Product or upon nine (9) months prior written notice after the First Commercial Sale of the Product. The effective date of termination under this Section shall be the date six (6) months (or nine (9) months as the case may be) after Dermira provides such written notice to Roche.
If HSR Approval is not received by the Outside Date, then either Party shall have the right to terminate this Agreement upon written notice to the other Party.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Upon breach by Roche or Roche’s Insolvency, Dermira shall have the right to terminate this Agreement in accordance with Section 18.2.1 or Section 18.2.2, as applicable. If Dermira does not practice its aforementioned right to terminate, then Dermira may retain the rights and licenses granted by Roche under this Agreement; provided, however, that Dermira shall have the right to offset amounts that are mutually agreed to by the Parties (including as a result of a settlement of such breach of Insolvency) or any amounts for judgments awarded to Dermira in accordance with Section 21.3 against amounts otherwise payable to Roche under this Agreement.
18.3.2 |
Termination by Dermira without Cause, Termination by Roche for Breach by Dermira or Dermira Insolvency |
Upon termination by Dermira without cause in accordance with Section 18.2.3, Termination by Roche for breach by Dermira in accordance with Section 18.2.1 or Roche’s termination due to Dermira incurring an Insolvency Event in accordance with Section 18.2.2, the rights and licenses granted by Roche to Dermira under this Agreement shall terminate in their entirety or on a country-by-country basis, as applicable, on the effective date of such termination.
If Roche desires to continue development and/or commercialization of Product(s), Roche shall deliver a Continuation Election Notice (in accordance with the definition described therein) to Dermira within [*****] ([*****]) days of receipt of Dermira’s notice of termination without cause under Section 18.2.3. If Dermira receives such a timely Continuation Election Notice, and to the extent reasonably requested by Roche:
|
(a) |
After the date of notice of termination Dermira shall, to the extent Dermira has the right to do so and Controlled by Dermira, transfer to Roche all regulatory filings and approvals, all final nonclinical and clinical study reports and clinical study protocols, Trademarks, Know-How, including Dermira Know-How, and a copy of all clinical data generated under this Agreement, including materials and information, in Dermira’s possession and Control related to Compound(s), Modified Compound(s), or Product(s) ([*****]) in the country necessary for Roche to continue to develop and commercialize the Product(s); |
|
(b) |
Dermira shall assign all clinical trial, manufacturing and supply agreements that are assignable to Roche by Dermira, [*****]; |
|
(c) |
Roche shall, upon transfer, have the right to disclose such filings, approvals and data to (i) governmental agencies of the country to the extent required or desirable to secure government approval for the development, Manufacture or sale of Product(s) in the country; (ii) Third Parties acting on behalf of Roche, its Affiliates or licensees for the development, Manufacture, or sale of Product(s) in the country, or (iii) Third Parties to the extent reasonably necessary to market Product(s) in the country; and |
|
(d) |
Roche shall have a fully paid-up, royalty-free, worldwide, non-exclusive, sublicensable, transferable license under the Dermira Patent Rights and Dermira Know-How, including Dermira’s interest in the Joint Know-How to allow Roche, its Affiliates or licensees to research, develop, Manufacture, have Manufactured, use, offer to sell, sell, promote, export and import the applicable Compounds, Modified Compounds, and Product(s) in the applicable country(ies). |
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Irrespective of anything to the contrary in this Agreement, any then-existing sublicense granted by Dermira to a Partner under Section 2.2 of this Agreement (and any further sublicenses thereunder) shall, upon the written request of Dermira within [*****] ([*****]) days following the effective of termination, remain in full force and effect, provided that (i) such Partner is not then in breach of its Partner Agreement (and, in the case of termination by Roche for breach by Dermira, that such Partner did not cause the breach that gave rise to the termination by Roche); and (ii) and such Partner agrees to be bound to Roche under the terms and conditions of such sublicense agreement.
18.3.4.1 |
Obligations Related to Ongoing Activities |
If Roche does not provide timely Continuation Election Notice, then Dermira (a) shall have the right to cancel all cancellable ongoing obligations and (b) shall complete all non-cancellable obligations at [*****] expense.
If Roche provides such timely Continuation Election Notice, then from the date of notice of termination until the effective date of termination, Dermira shall continue activities, including preparatory activities, ongoing as of the date of notice of termination. However, Dermira shall not be obliged to initiate any new activities not ongoing at the date of notice of termination.
After the effective date of termination, Dermira shall not have any obligation to perform and/or complete any activities or to make any payments for performing or completing any activities under this Agreement, except as expressly stated herein.
Notwithstanding the foregoing, in case of termination by Roche under Section 18.2.1 or Section 18.2.2 or by Dermira under Section 18.2.3, upon the request of Roche, Dermira shall complete any studies related to the Product(s) that are being conducted under its IND for the Product(s) and are ongoing as of the effective date of termination; provided, however, that
(i) |
both Dermira and Roche [*****] have concluded that completing any such Clinical Studies does not present an unreasonable risk to patient safety; |
(ii) |
Dermira shall have no obligation to recruit or enroll any additional patients after the date of termination; and |
(iii) |
Roche agrees to reimburse Dermira for [*****] its development costs that arise after the effective date of termination in completing such studies. |
18.3.4.2 |
Obligations Related to Manufacturing |
a) |
Clinical Supplies |
In the case of termination by Roche according to Section 18.2.1 or Section 18.2.2 or by Dermira under Section 18.2.3, in each case after Manufacture and supply responsibility has been transferred to Dermira according to Section 6.2, if Roche elects to develop the Product(s), upon the request of Roche, Dermira shall transfer all existing and available clinical material to Roche at Dermira’s Fully Burdened Manufacturing Cost, provided however that Dermira shall procure the supply for the ongoing study(ies) until the transfer of the respective study and/or supply has been completed.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
In the case of termination by Roche according to Section 18.2.1 or Section 18.2.2 or by Dermira under Section 18.2.3, in each case after Manufacture and supply responsibility has been transferred to Dermira according to Section 6.2, if the Product is marketed or filed in any country of Territory on the date of the notice of termination of this Agreement, upon the request of Roche, Dermira shall manufacture and supply such Product to Roche after the effective date of the termination of this Agreement at Fully Burdened Manufacturing Costs plus a markup of [*****] %, such mark-up to be [*****] percent ([*****]%) if Dermira has outsourced the entire Manufacturing of the Product to a CMO. Dermira shall use Commercially Reasonable Efforts to transfer the manufacturing and supply [*****] after the effective date of termination.
18.3.4.3 |
Ancillary Agreements |
Unless otherwise agreed by the Parties, the termination of this Agreement shall cause the automatic termination of all ancillary agreements related hereto, including but not limited to the Supply Agreement, if any.
18.3.4.4 |
Royalty and Payment Obligations |
Termination of this Agreement by a Party, for any reason, shall not release either Party from any obligation to pay royalties or make any payments to the other Party that are incurred by such Party as of the effective date of termination. Termination of this Agreement by a Party, for any reason, will release the other Party from any obligation to pay royalties or make any payments to the terminating Party that relate to a period or point in time after the effective date of termination.
Section 1 (Definitions), Section 13.1 (Ownership of Inventions); Section 15 (Indemnification), Section 17 (Confidential Information), Section 18 (Term and Termination), Section 21.1 (Governing Law and Jurisdiction) and Section 21.3 (Arbitration) shall survive any expiration or termination of this Agreement for any reason.
If there is a Change of Control, then the Party experiencing such Change of Control (“Acquired Party”) shall provide written notice to the other Party (“Non-Acquired Party”) at least [*****] ([*****]) days prior to completion of such Change of Control, subject to any confidentiality obligations of the Acquired Party then in effect (but in any event shall notify the Non-Acquired Party within [*****] ([*****]) days after completion of such Change of Control).
Following consummation of the Change of Control, the Non-Acquired Party and the Change of Control Group shall adopt in writing [*****] procedures to prevent the disclosure of any of the Non-Acquired Party’s Know-How, Patent Rights, Inventions, materials or Confidential Information or Joint Know-How, Joint Patent Rights or Joint Inventions (collectively, “ Sensitive Information ”) beyond the Acquired Party’s personnel who need to know the Sensitive Information solely for the purpose of fulfilling the Acquired Party’s obligations and exercising its rights under this Agreement. The Non-Acquired Party may restrict the Acquired Party’s participation in the JSC and any other committee in effect at the time of the Change of Control only to the extent necessary for the purposes of protecting Sensitive Information.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
All licenses (and to the extent applicable rights) granted under or pursuant to this Agreement by Roche to Dermira are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, US Code (the “ Bankruptcy Code ”) licenses of rights to “intellectual property” as defined under Section 101(60) of the Bankruptcy Code and any similar laws in any other applicable country. Unless Dermira elects to terminate this Agreement, the Parties agree that Dermira, as a licensee or sublicensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code, subject to the continued performance of its obligations under this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of [*****], without reference to its conflict of laws principles, and without applicability of the [*****].
Unless otherwise set forth in this Agreement, in the event of any dispute in connection with this Agreement, such dispute shall, by written notice (“ Escalation Notice ”) be referred to the respective executive officers of the Parties designated below or their designees, for good faith negotiations attempting to resolve the dispute. The designated executive officers are as follows:
For Dermira:CEO
For Roche:Head of Roche Partnering
Should the Parties fail to agree within [*****] after such dispute has first arisen, it shall be finally settled by arbitration in accordance with the commercial arbitration rules of [*****] as in force at the time when initiating the arbit ration. The tribunal shall consist of three arbitrators. The place of arbitration shall be [*****], [*****]. The language to be used shall be English.
Each Party shall nominate one arbitrator. Should the claimant fail to appoint an arbitrator in the request for arbitration within [*****] ([*****]) days of being requested to do so, or if the respondent should fail to appoint an arbitrator in its answer to the request for arbitration within [*****] ([*****]) days of being requested to do so, the other Party shall request the [*****] to make such appointment.
The arbitrators nominated by the Parties shall, within [*****] ([*****]) days from the appointment of the arbitrator nominated in the answer to the request for arbitration, and after consultation with the Parties, agree and appoint a third arbitrator, who will act as a chairman of the Arbitral Tribunal. Should such procedure not result in an appointment within the [*****] ([*****]) day time limit, either Party shall be free to request the [*****] to appoint the third arbitrator.
Where there is more than one claimant and/or more than one respondent, the multiple claimants or respondents shall jointly appoint one arbitrator.
Any Party-appointed arbitrator or the third arbitrator resigns or ceases to be able to act, a replacement shall be appointed in accordance with the arrangements provided for in this clause.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
The arbitrators shall, in rendering any decision hereunder, apply the substantive law set forth in Section 21.1 without regard to conflict of laws provisions. The Parties have agreed that [*****] , and in particular [*****] , shall not apply to any arbitration under this clause. A request to produce documents by the Parties shall be considered by the Arbitral Tribunal according to [*****] .
The language of the arbitration shall be English. Documents submitted in the arbitration (the originals of which are not in English) shall be submitted together with an English translation.
The arbitrators shall render a written opinion setting forth findings of fact and conclusions of law with the reason therefor stated, within no later than [*****] ([*****]) months from the date on which the arbitrators were appointed to the dispute. A transcript of the evidence adduced at the arbitration hearing shall be made and, upon request, shall be made available to each Party.
Notwithstanding the above, in the case of JSC disputes that are not amicably resolved, the arbitrators shall render a written opinion setting forth findings of fact and conclusions of law with the reason therefor stated, within no later than [*****] ([*****]) months from the date on which the arbitrators were appointed to the dispute.
The time periods set forth in the [*****] Arbitration Rules shall be followed; provided however that the arbitrators may modify such time periods as reasonably necessary to render a written opinion in accordance with this Section.
The Arbitrator is empowered to award any remedy allowed by law, including money damages, prejudgment interest and attorneys’ fees, and to grant final, complete, interim, or interlocutory relief, including injunctive relief.
This arbitration agreement does not preclude either Party seeking conservatory or interim measures from any court of competent jurisdiction including, without limitation, the courts having jurisdiction by reason of either Party's domicile. Conservatory or interim measures sought by either Party in any one or more jurisdictions shall not preclude the Arbitral Tribunal granting conservatory or interim measures. Conservatory or interim measures sought by either Party before the Arbitral Tribunal shall not preclude any court of competent jurisdiction granting conservatory or interim measures.
In the event that any issue shall arise which is not clearly provided for in this Section 21.3, the matter shall be resolved in accordance with the [*****] Arbitration Rules.
Any arbitration proceeding hereunder shall be confidential and the arbitrators shall issue appropriate protective orders to safeguard each Party’s Confidential Information. Except as required by law, neither Party shall make (or instruct the arbitrators to make) any public announcement with respect to the proceedings or decision of the arbitrators without prior written consent of the other Party. The existence of any dispute submitted to arbitration, and the award, shall be kept in confidence by the Parties and the arbitrators, except as required in connection with the enforcement of such award or as otherwise required by Applicable Law.
Notwithstanding anything to the contrary in this Agreement, any and all issues regarding the scope, construction, validity and/or enforceability of any Patent Rights shall be determined in a court of competent jurisdiction under the local patent laws of the jurisdictions having issued the Patent Rights in question.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Notwithstanding anything to the contrary in this Agreement, any and all issues regarding a breach or alleged breach of a Party’s obligations under Section 17 (Obligation Not to Disclose Confidential Information) shall be determined in a court of competent jurisdiction under the laws of [*****] , with express exclusion of its conflict of laws principles.
Neither Party shall have the right to assign the present Agreement or any part thereof to any Third Party other than Affiliates without the prior written approval of the other Party (such approval not to be unreasonably withheld, conditioned or delayed); provided, that, after both the Roche Reversion and First Commercial Sale have occurred, Dermira shall have the right to assign this Agreement without Roche’s prior consent in the context of a merger, acquisition, sale or other transaction involving all or substantially all of Dermira’s assets.
Each Party represents and warrants to the other that such representing and warranting Party and its Affiliates have never been debarred under 21 U.S.C. §335a, disqualified under 21 C.F.R. §312.70 or §812.119, sanctioned by a Federal Health Care Program (as defined in 42 U.S.C §1320 a-7b(f)), including without limitation the federal Medicare or a state Medicaid program, or debarred, suspended, excluded or otherwise declared ineligible from any other similar Federal or state agency or program. In the event a Party or any of its Affiliates receives notice of debarment, suspension, sanction, exclusion, ineligibility or disqualification under the above-referenced statutes, then such Party shall immediately notify the other Party in writing and such other Party shall have the right, but not the obligation, to terminate this Agreement, effective, at such other Party’s option, immediately or at a specified future date.
No employee or representative of either Party shall have any authority to bind or obligate the other Party to this Agreement for any sum or in any manner whatsoever or to create or impose any contractual or other liability on the other Party without said Party's prior written approval. For all purposes, and notwithstanding any other provision of this Agreement to the contrary, Xxx legal relationship to Roche under this Agreement shall be that of independent contractor.
If any of the provisions of this Agreement are held to be void or unenforceable, then such void or unenforceable provisions shall be replaced by valid and enforceable provisions that will achieve as far as possible the economic business intentions of the Parties. However the remainder of this Agreement will remain in full force and effect, provided that the material interests of the Parties are not affected, i.e. the Parties would presumably have concluded this Agreement without the unenforceable provisions.
The failure by either Party to require strict performance and/or observance of any obligation, term, provision or condition under this Agreement will neither constitute a waiver thereof nor affect in any way the right of the respective Party to require such performance and/or observance. The waiver by either Party of a breach of any obligation, term, provision or condition hereunder shall not constitute a waiver of any subsequent breach thereof or of any other obligation, term, provision or condition.
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
All Appendices to this Agreement shall form an integral part to this Agreement.
This Agreement contains the entire understanding between the Parties hereto with respect to the within subject matter and supersedes any and all prior agreements, understandings and arrangements, whether written or oral.
No amendments of the terms and conditions of this Agreement shall be binding upon either Party hereto unless in writing and signed by both Parties.
All invoices that are required or permitted hereunder shall be in writing and sent by one Party to the other at the following address or other address as such Party may later provide:
If to Dermira:
Attn: Dermira Finance
275 Middlefield Road
Suite 150
Menlo Park, California 94025
USA
With a copy to: apinvoice@dermira.com
If to Roche:
F. Hoffmann-La Roche Ltd
Kreditorenbuchhaltung
Grenzacherstrasse 124
4070 Basel
Switzerland
If Dermira sends invoices to Roche, Dermira shall include the name of a Roche contact person on the invoice.
All notices that are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by facsimile (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent by nationally recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:
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[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith
- 65 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
[Signature Page Follows]
- 66 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
IN WITNESS WHEREOF, the Parties have entered into this Agreement as of the Effective Date.
Dermira, Inc.
/s/ Tom Wiggans Name: Tom Wiggans Title: Chairman and CEO Date: 08-Aug-2017 |
|
F. Hoffmann-La Roche Ltd
/s/ Vikas Kabra Name: Vikas Kabra Title: Head of Transactions Excellence Date: July 25, 2017 |
/s/ Dr. Christof Burri Name: Christof Burri Title: Legal Counsel
|
Genentech, Inc.
/s/ Ed Harrington Name: Ed Harrington Title: CFO and Head of Pharma Finance NA Date: July 26, 2017 |
- 67 –
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Compound
Amino acid sequence of lebrikizumab heavy chains:
1 10 20 30 40 50 60
| | | | | | |
| | | | |
Q
VTLRESGPALVKPTQTLTLTCTVSGFSLS
AYSVN
WIRQPPGKALEWLA
MIWGDGKIVYN
70 80 90 100 110 120
| | | | | | | | | | | |
SALKS
RLTISKDTSKNQVVLTMTNMDPVDTATYYCAG
DGYYPYAMDN
WGQGSLVTVS
S
AS
130 140 150 160 170 180
| | | | | | | | | | | |
TKGPSVFPLAPCSRSTSESTAALGCLVKDYFPEPVTVSWNSGALTSGVHTFPAVLQSSGL
190 200 210 220 230 24
0
| | | | | | | | | | | |
YSLSSVVTVPSSSLGTKTYTCNVDHKPSNTKVDKRVESKYGPPCP
P
CPAPEFLGGPSVFL
250 260 270 280 290 300
| | | | | | | | | | |
FPPKPKDTLM
ISRTPEVTCVVVDVSQEDPEVQFNWYVDGVEVHNAKTKPREEQF
N
STYRV
310 320 330 340 350 360
| | | | | | | | | | | |
VSVLTVLHQDWLNGKEYKCKVSNKGLPSSIEKTISKAKGQPREPQVYTLPPSQEEMTKNQ
370 380
390 400 410 420
| | | | | | | | | | | |
VSLTCLVKGFYPSDIAVEWESNGQPENNYKTTPPVLDSDGSFFLYSRLTVDKSRWQEGNV
430 440 450
| | | | | |
FSCSVMHEALHNHYTQKSLSLSLG
K
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
1 10 20 30 40 50 60
| | | | | | |
| | | | |
Q
VTLRESGPALVKPTQTLTLTCTVSGFSLS
AYSVN
WIRQPPGKALEWLA
MIWGDGKIVYN
70 80 90 100 110 120
| | | | | | | | | | | |
SALKS
RLTISKDTSKNQVVLTMTNMDPVDTATYYCAG
DGYYPYAMDN
WGQGSLVTVS
S
AS
130 140 150 160 170 180
| | | | | | | | | | | |
TKGPSVFPLAPCSRSTSESTAALGCLVKDYFPEPVTVSWNSGALTSGVHTFPAVLQSSGL
190 200 210 220 230 24
0
| | | | | | | | | | | |
YSLSSVVTVPSSSLGTKTYTCNVDHKPSNTKVDKRVESKYGPPCP
P
CPAPEFLGGPSVFL
250 260 270 280 290 300
| | | | | | | | | | |
FPPKPKDTLM
ISRTPEVTCVVVDVSQEDPEVQFNWYVDGVEVHNAKTKPREEQF
N
STYRV
310 320 330 340 350 360
| | | | | | | | | | | |
VSVLTVLHQDWLNGKEYKCKVSNKGLPSSIEKTISKAKGQPREPQVYTLPPSQEEMTKNQ
370 380
390 400 410 420
| | | | | | | | | | | |
VSLTCLVKGFYPSDIAVEWESNGQPENNYKTTPPVLDSDGSFFLYSRLTVDKSRWQEGNV
430 440 450
| | | | | |
FSCSVMHEALHNHYTQKSLSLSLG
K
Amino acid sequence of lebrikizumab light chains:
1 10 20 30 40 50 60
| | | | | | | | | | | |
DIVMTQSPDSLSVSLGERATINC
RASKSVDSYGNSFMH
WYQQKPGQPPKLLIY
LASNLES
70 80 90 100 110 120
| |
| | | | | | | | | |
GVPDRFSGSGSGTDFTLTISSLQAEDVAVYYC
QQNNEDPRT
FGGGTKVEIKRTVAAPSVF
130 140 150 160 170 180
| | | | | | | | | | | |
IFPPSDEQLKSGTASVVCLLNNFY
PREAKVQWKVDNALQSGNSQESVTEQDSKDSTYSLS
190 200 210 220
| | | | | | | |
STLTLSKADYEKHKVYACEVTHQGLSSPVTKSFNRGEC
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
1 10 20 30 40 50 60
| | | | | | | | | | | |
DIVMTQSPDSLSVSLGERATINC
RASKSVDSYGNSFMH
WYQQKPGQPPKLLIY
LASNLES
70 80 90 100 110 120
| |
| | | | | | | | | |
GVPDRFSGSGSGTDFTLTISSLQAEDVAVYYC
QQNNEDPRT
FGGGTKVEIKRTVAAPSVF
130 140 150 160 170 180
| | | | | | | | | | | |
IFPPSDEQLKSGTASVVCLLNNFY
PREAKVQWKVDNALQSGNSQESVTEQDSKDSTYSLS
190 200 210 220
| | | | | | | |
STLTLSKADYEKHKVYACEVTHQGLSSPVTKSFNRGEC
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Appendix 1.57
Licensed Compound Patent Rights
Full list will be provided by Roche.
Patent Families:
[*****]
U.S. Provisional Application Nos. [*****] and all subsequently filed utility application(s) that claim the benefit of priority of at least one of the foregoing provisional applications.
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Non-Compound Patent Rights
Full list will be provided by Roche.
Patent Families:
[*****]
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Appendix 1.58
[*****]
[*****]
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Appendix 1.76
Excluded Patent Rights
[*****], which means (a) U.S. Patent No. [*****], issued [*****], and any and all patents issuing from divisionals, continuations, or continuations-in part of any application from which U.S. Patent No. [*****] claims priority, as well as reissues, reexaminations, extensions, and foreign patent counterparts, including inventors certificates, of any of the foregoing, and including any related supplemental protection certificates; and (b) U.S. Patent No. [*****], issued [*****], and any and all patents issuing from divisionals, continuations, or continuations-in-part of any application from which U.S. Patent No. [*****] claims priority, as well as reissues, reexaminations, extensions, and foreign patent counterparts, including inventors certificates, of any of the foregoing, and including any related supplemental protection certificates.
[*****], which means any of the U.S. patents listed below and any and all patents issuing from divisionals, continuations or continuations-in-part, and any reissues, reexaminations or extensions, of these patents or of any application from which these U.S. patents claim priority, as well as foreign counterparts, including inventors certificates, of the foregoing, and including any related supplemental protection certificates:
[*****]
[*****], which means any of the U.S. patents/patent application listed below and any and all patents issuing from divisionals, continuations or continuations-in-part, and any reissues, reexaminations or extensions, of these patents or of any application from which these U.S. patents claim priority, as well as foreign counterparts, including inventors certificates, of the foregoing, and including any related supplemental protection certificates:
[*****]
[*****], which means the following U.S. patent and any and all divisionals, continuations, continuations-in-part of any application from which these U.S patents claim priority, including reissues, reexaminations or extensions of these patents and foreign counterparts and supplementary protection certificates of the foregoing:
[*****]
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Except where noted in the “Delivery Date” column, the documents and materials relating to the Compound or Product and listed in the table below will be transferred electronically or physically to Dermira.
The Parties agree to initiate a transfer tracking plan which clarifies the logistics of the transfer and serves as confirmation of receipt by Dermira. The Parties will follow up after each key delivery date to assess the progress and transfer any documents necessary to complete the transfer of Know-How [*****] herein and requested by Dermira within [*****] ( [*****] ) months of the Effective Date. The Know-How contained in such documents transferred to Dermira that is specifically directed to the Compound, except to the extent such Know-How is related to Manufacturing, shall be Licensed Know-How and all other Know-How shall remain Roche Know-How. [*****]
Documents |
Delivery Date |
[*****] |
Within [*****] ([*****]) days after the Effective Date |
[*****] |
By [*****] |
[*****] |
Within [*****] ([*****]) days after the Effective Date |
[*****] |
Within [*****] ([*****]) days upon the availability of raw data |
|
[*****] |
Within [*****] ([*****]) days after the Effective Date (to be made available for Dermira review on site) |
|
[*****] |
Within [*****] after the Effective Date but no later than [*****] (to be transferred to Dermira or Third Parties) |
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Within [*****] ([*****]) days after Dermira’s request for such
|
||
[*****] |
Within [*****] ([*****]) days after the Effective Date |
|
[*****] |
Within [*****] ([*****]) days after Dermira’s request for such |
|
[*****] |
Within [*****] ([*****]) days after execution of [*****] |
|
[*****] |
Within [*****] ([*****]) days of the [*****] but no later than [*****] |
|
[*****] |
Within the earlier of (a) [*****] ([*****]) days after the completion of the [*****] or (b) [*****] ([*****]) days after availability to Roche |
|
[*****] |
As described in Pharmacovigilance Agreement |
|
[*****] |
Within [*****] ([*****]) days after [*****] |
|
[*****] |
Within [*****] ([*****]) Business Days after Dermira’s request for up to [*****] studies, and within [*****] ([*****]) days for more than [*****] studies |
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Development Plan
[*****]
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Drug Product and Placebo First Order
Product |
Price |
Quantity of Active (Syringes) |
Quantity of Placebo (Syringes) |
Estimated Delivery Date |
Drug Product and Placebo |
[*****] CHF/syringe |
[*****] |
[*****] |
[*****] |
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Appendix 13.2.2
Country |
Prescription Data |
[*****] |
anonymized patient longitudinal claims data provided by Symphony Health (commonly referred to as SHA claims data)
|
[*****] |
IMS LRx
|
[*****] |
IMS LPD
|
[*****] |
For retail-use: IMS LRx; for hospital-use: IMS MDV; for other use: tbd by the Parties
|
[*****] |
For hospital-use: IMS ward-level data; for other use: tbd by the Parties
|
[*****] |
For hospital-use: IMS ward-level data; for other use: tbd by the Parties
|
[*****] |
For hospital-use: IMS ward-level data; for other use: tbd by the Parties
|
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Appendix 17.3
Press Release
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Dermira Enters into Agreement to License Exclusive, Worldwide Rights to Lebrikizumab
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Dermira plans to develop and commercialize lebrikizumab, a monoclonal antibody targeting IL-13, for moderate-to-severe atopic dermatitis |
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Initiation of a Phase 2b clinical study is expected in the first quarter of 2018 |
- |
Management will host webcast and conference call today at 5:30 a.m. PT / 8:30 a.m. ET |
MENLO PARK, Calif., August 8, 2017 – Dermira, Inc. (NASDAQ: DERM), a biopharmaceutical company dedicated to bringing biotech ingenuity to medical dermatology by delivering differentiated, new therapies to the millions of patients living with chronic skin conditions, today announced that it has entered into a licensing agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group (together Roche). Pursuant to the agreement, Dermira will obtain exclusive, worldwide rights to develop and commercialize lebrikizumab, a monoclonal antibody targeting interleukin 13 (IL-13), for atopic dermatitis and all other indications, except Roche will retain certain rights, including exclusive rights to develop and promote lebrikizumab for interstitial lung diseases, such as idiopathic pulmonary fibrosis.
Under the terms of the agreement, Dermira will make an initial payment of $80 million to Roche and payments totaling $55 million in 2018. Dermira will also be obligated to make additional payments upon the achievement of certain milestones, comprising $40 million upon the initiation of Dermira’s first Phase 3 clinical study, up to $210 million upon the achievement of regulatory and first commercial sale milestones in certain territories and up to $1.025 billion based on the achievement of certain thresholds for net sales of lebrikizumab for indications other than interstitial lung disease. Upon potential regulatory approval, Dermira will make royalty payments representing percentages of net sales that range from the high single-digits to the high teens. The effectiveness of the agreement is subject to expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, as amended (HSR).
“Atopic dermatitis is one of the most common skin diseases in the world, affecting millions of adults and children, and moderate to severe forms of this condition present a tremendous burden for patients,” said Tom Wiggans, chairman and chief executive officer of Dermira. “We believe atopic dermatitis is one of the greatest unmet needs in dermatology, and lebrikizumab, if successfully developed and approved, could represent a meaningful advancement in the treatment of this disease. The addition of this program to our development portfolio represents an important step toward our goal of building a leading medical dermatology company dedicated to delivering differentiated, new therapies to the millions of patients living with chronic skin conditions.”
Dermira plans to initiate a Phase 2b dose-ranging study assessing lebrikizumab in adult patients with moderate-to-severe atopic dermatitis in the first quarter of 2018. The objective of the Phase 2b dose-ranging study will be to optimize the dose of lebrikizumab for the design of a Phase 3 program. Preliminary design elements of the Phase 2b dose-ranging study include evaluating a
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
loading dose and higher dose regimens of lebrikizumab than were explored in previous atopic dermatitis studies.
“Lebrikizumab is a potent and specific inhibitor of IL-13 with a differentiated mechanism of action and attractive pharmacokinetic properties,” said Eugene Bauer, M.D., chief medical officer of Dermira. “Data from preclinical and clinical studies, including pharmacokinetic and pharmacodynamic results from early clinical experience in atopic dermatitis, are encouraging and suggest higher doses of lebrikizumab could lead to greater efficacy in atopic dermatitis, while potentially offering a less frequent and therefore more convenient dosing regimen relative to existing therapies. If successfully developed, we believe that lebrikizumab could be a best-in-class IL-13 inhibitor and could have a best-in-disease profile.”
The transaction is expected to close in the third quarter of 2017 subject to the expiration or termination of the waiting period under HSR. Upon the close, Dermira expects to record a charge related to the acquisition of in-process research and development for a total of $135 million, consisting of the $80 million initial payment and $55 million of payments due in 2018. In addition, Dermira estimates it will incur up to $10 million in operating expenses in 2017 for costs related to transferring the lebrikizumab program to Dermira and preparing for the initiation of the Phase 2b dose-ranging study. Including the payments to Roche and costs related to the program, Dermira anticipates that it will spend approximately $200 million to obtain the topline results for the Phase 2b study. Assuming the close of the transaction, Dermira anticipates that its cash and cash equivalents and investments would be sufficient to meet its anticipated cash requirements into the first half of 2019, consistent with previously issued financial guidance.
Leerink Partners, LLC acted as financial advisor, and King & Spalding LLP and Fenwick & West LLP acted as legal counsel to Dermira, Inc.
Webcast and Conference Call Information
Dermira will host a webcast and conference call today to review details of the agreement beginning at 5:30 a.m. Pacific Time / 8:30 a.m. Eastern Time. Analysts and investors can participate in the conference call by dialing (877) 359-9508 for domestic callers and +1 (224) 357-2393 for international callers using the conference ID# 67835410. The webcast can be accessed live on the Investor Relations page of Dermira’s website, http://investor.dermira.com, and will be available for replay for 30 days following the call. A telephone replay of the call will be available by dialing (855) 859-2056 for domestic callers or +1 (404)-537-3406 for international callers and entering the conference code: 67835410.
About Lebrikizumab and Phase 2 Exploratory Clinical Studies
Lebrikizumab is a novel, humanized monoclonal antibody designed to specifically block the action of IL-13, a cytokine that is a central pathogenic mediator in atopic dermatitis. Two exploratory Phase 2 clinical studies, TREBLE and ARBAN, evaluated the safety and efficacy of lebrikizumab in adult patients with moderate-to-severe atopic dermatitis. TREBLE was a double-blind, placebo-controlled study that evaluated the safety and efficacy of lebrikizumab in combination with topical corticosteroids. ARBAN was an open-label study designed to assess the safety of lebrikizumab as a monotherapy, with an exploratory assessment of efficacy. In both studies, clinical improvements were observed in patients treated with lebrikizumab. Adverse event rates were generally similar between treatment groups in each trial and most were mild or moderate in severity. Additional studies are needed to fully assess the potential benefits and risks of lebrikizumab.
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
About Atopic Dermatitis
Atopic dermatitis is the most common and severe form of eczema, a chronic inflammatory condition that can present as early as childhood and continue into adulthood. A moderate-to-severe form of the disease is characterized by rashes on the skin that often cover much of the body and can include redness, cracking, dryness and intense, persistent itching. Moderate-to-severe atopic dermatitis has a profound negative impact on patients’ mental and physical functioning, limiting their activities and health-related quality of life. Patients with moderate-to-severe atopic dermatitis have reported a larger impact on quality of life than patients with psoriasis.
About Dermira
Dermira is a biopharmaceutical company dedicated to bringing biotech ingenuity to medical dermatology by delivering differentiated, new therapies to the millions of patients living with chronic skin conditions. Dermira is committed to understanding the needs of both patients and physicians and using its insight to identify and develop leading-edge medical dermatology programs. Dermira’s pipeline includes three late-stage product candidates that could have a profound impact on the lives of patients: CIMZIA® (certolizumab pegol), for which marketing applications have been submitted for potential approval for the treatment of moderate-to-severe chronic plaque psoriasis, in collaboration with UCB Pharma S.A.; glycopyrronium tosylate (formerly DRM04), which has completed a Phase 3 program for the treatment of primary axillary hyperhidrosis (excessive underarm sweating); and olumacostat glasaretil (formerly DRM01), in Phase 3 development for the treatment of acne vulgaris. Dermira is headquartered in Menlo Park, Calif. For more information, please visit http:// www.dermira.com .
In addition to filings with the Securities and Exchange Commission (SEC), press releases, public conference calls and webcasts, Dermira uses its website ( www.dermira.com ) and LinkedIn page (https://www.linkedin.com/company/Dermira-inc) as channels of distribution of information about its company, product candidates, planned financial and other announcements, attendance at upcoming investor and industry conferences and other matters. Such information may be deemed material information and Dermira may use these channels to comply with its disclosure obligations under Regulation FD. Therefore, investors should monitor Dermira’s website and LinkedIn page in addition to following its SEC filings, press releases, public conference calls and webcasts.
Dermira® is a registered trademark owned by Dermira, Inc.
Forward-Looking Statements
The information in this press release contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. This press release contains forward-looking statements that involve substantial risks and uncertainties, including statements with respect to: effectiveness of the agreement and expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, as amended; Dermira’s plan to develop and commercialize lebrikizumab for moderate-to-severe atopic dermatitis; the expected timing for initiation of a Phase 2b dose-ranging study of lebrikizumab for moderate-to-severe atopic dermatitis; the potential payments by Dermira to Roche, including the initial payment, payments in 2018, payment upon initiation of Dermira’s first Phase 3 clinical study of lebrikizumab, payments based on achievement of regulatory and first
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
commercial sale milestones, milestone payments based on the achievement of certain thresholds for net sales and royalty payments representing percentages of net sales; lebrikizumab potentially representing a meaningful advancement in the treatment of atopic dermatitis if successfully developed and approved; Dermira’s goal of building a leading medical dermatology company dedicated to delivering differentiated, new therapies to the millions of patients living with chronic skin conditions; the objective and design elements of the planned Phase 2b dose-ranging study; the potential that higher doses of lebrikizumab could lead to greater efficacy in atopic dermatitis while potentially offering a less frequent and therefore more convenient dosing regimen relative to existing therapies; the possibility of lebrikizumab becoming a best-in-class IL-13 antibody and having a best-in-disease profile if successfully developed; lebrikizumab potentially playing an important role in addressing the unmet need for certain conditions, including atopic dermatitis; the anticipated timing for closing of the transaction; the charge related to the acquisition of in-process research and development expected to be recorded upon the closing; estimated operating expenses in 2017 for costs related to transferring the lebrikizumab program to Dermira and preparing for the initiation of the Phase 2b dose-ranging study; estimated spend to obtain the topline results for the Phase 2b study; and the expectation that Dermira’s cash and cash equivalents and investments will be sufficient to meet its anticipated cash requirements into the first half of 2019. These statements deal with future events and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially include risks and uncertainties such as those relating to the design, implementation and outcomes of Dermira’s clinical trials; Dermira’s dependence on third-party clinical research organizations, manufacturers and suppliers; the outcomes of future meetings with regulatory agencies; and Dermira’s ability to continue to stay in compliance with applicable laws and regulations. You should refer to the section entitled “Risk Factors” set forth in Dermira’s Annual Report on Form 10-K, Dermira’s Quarterly Reports on Form 10-Q and other filings Dermira makes with the SEC from time to time for a discussion of important factors that may cause actual results to differ materially from those expressed or implied by Dermira’s forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this press release. Dermira undertakes no obligation to publicly update any forward-looking statements or reasons why actual results might differ, whether as a result of new information, future events or otherwise, except as required by law.
Contacts:
Media:
Erica Jefferson
Senior Director, Head of Corporate Communications
650-421-7216
media@dermira.com
Investors:
Ian Clements, Ph.D.
Vice President, Investor Relations
650-422-7753
investor@dermira.com
Robert H. Uhl
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
CONFIDENTIAL TREATMENT REQUESTED
Managing Director
858-356-5932
robert.uhl@westwicke.com
[*****] Certain portions denoted with an asterisk have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Exhibit 10.2
SUBLEASE AGREEMENT
SUBLEASE (“ Sublease ”) made as of this 22nd day of September, 2017 (the “ Effective Date ”) by and between McDermott Will & Emery LLP, an Illinois limited liability partnership (“ Sublessor ”) and Dermira, Inc., a Delaware corporation (“ Sublessee ”).
WHEREAS , Middlefield Park, a California general partnership (“ Overlandlord ”) and Sublessor entered into a lease dated as of November 6, 2008 (the “ Original Overlease ”) as amended by that certain First Amendment to Lease, dated December 2, 2009 (the “ First Amendment ”), that certain Second Amendment to Lease, dated May 14, 2010 (the “ Second Amendment ”), and that certain Third Amendment to Lease, dated November 28, 2012 (the “ Third Amendment ”), and that certain Fourth Amendment to Lease, dated June 25, 2014 (the “ Fourth Amendment ”, together with the Original Overlease, the First Amendment, the Second Amendment, and the Third Amendment, collectively, the “ Overlease ”) for certain premises located in the building (the “ Building ”) known as 275 Middlefield Road, Menlo Park, California (collectively, the “ Overlease Premises ”).
WHEREAS , Sublessor desires to lease to Sublessee and Sublessee desires to lease from Sublessor, a portion of the Overlease Premises consisting of approximately 23,798 rentable square feet of space on the 3 rd floor of the Building (the “ Sublease Premises ”) and further described on Exhibit A attached hereto and by this reference incorporated herein on the terms and conditions and for the term as hereinafter set forth.
NOW THEREFORE , in consideration of the mutual covenants and agreements herein contained, the parties for themselves and, as permitted hereunder, their successors and assigns, covenant and agree as follows:
1. Definitions .
All terms contained in this Sublease, shall for purposes hereof, have the same meaning ascribed to them in the Overlease unless otherwise defined herein.
“ Abatement ” shall have the meaning set forth in Section 3(d) hereof.
“ Additional Rent ” shall mean, collectively, all sums of money which shall become due and payable by Sublessee to Sublessor hereunder, including, without limitation, the Sublessee Operating Expense Payment and the Sublessee Tax Payment.
“ Alterations ” shall have the meaning set forth in Section 20(a) hereof.
“ Base Rent ” shall have the meaning set forth in Section 3(a) hereof.
“ Brokers ” shall have the meaning set forth in Section 24 hereof.
“ Building Services ” shall have the meaning set forth in Section 6 hereof.
“ Business Days ” shall mean all days except Saturdays, Sundays and Holidays.
DM_US 84278156-8.PG0510.0010
“ Commencement Date ” shall have the meaning set forth in Section 2 hereof.
“ Expiration Date ” shall have the meaning set forth in Section 2 hereof.
“ FF&E ” shall have the meaning set forth in Section 16(f) hereof.
“ HVAC ” shall have the meaning set forth in Section 11(a) hereof.
“ Incorporated Provisions ” shall mean the provisions of the Overlease listed on Exhibit C attached hereto and made a part hereof.
“ Initial Alterations ” shall have the meaning set forth in Section 20(a) hereof.
“ Interim Electric Charge ” shall have the meaning set forth in Section 12(d) hereof.
“ Letter of Credit ” shall have the meaning set forth in Section 14(c) hereof.
“ Permitted Uses ” shall have the meaning set forth in Section 7(a) hereof.
“ Rent Commencement Date ” shall have the meaning set forth in Section 3(c) hereof.
“ Security Deposit ” shall have the meaning set forth in Section 14(a) hereof.
“ Sublessee Operating Amount ” shall mean Sublessee’s Operating Share of Common Operating Expenses for an applicable calendar year.
“ Sublessee Operating Expense Payment ” shall have the meaning set forth in Section 4(a) hereof.
“ Sublessee Tax Payment ” shall have the meaning set forth in Section 4(b) hereof.
“ Sublessee’s Delay ” shall have the meaning set forth in Section 16(c) hereof.
“ Sublessee’s Operating Share ” shall mean 36.37%.
“ Sublessee’s Tax Share ” shall mean 36.37%.
“ Sublessee’s Work ” shall have the meaning set forth in Section 20(b) hereof.
“ Sublessor’s Work ” shall have the meaning set forth in Section 16(a) hereof.
“ Term ” shall have the meaning set forth in Section 2 hereof.
“ Underlying Lessor ” shall have the meaning set forth in Section 13(a) hereof.
2. Term .
Subject to Overlandlord’s consent to this Sublease in accordance with Section 32(i) , Sublessor hereby leases to Sublessee, and Sublessee hires and subleases from Sublessor,
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on the terms, covenants and conditions hereinafter provided, the Sublease Premises for a term (the “ Term ”) commencing on the earlier to occur of ( i ) January 1, 2018, and (ii) the date on which Sublessee’s Work is completed ( such earlier date, the “ Commencement Date ”) , and ending on April 30, 2024 (the “ Expiration Date ”) unless sooner terminated as herein provided. Sublessee shall have access to the Sublease Premises (X) to assist in its planning of Sublessee’s Work (for planning purposes only) during the first thirty (30) days following the Effective Date, and (Y) from and after the thirty-first (31 st ) day following the Effective Date, to plan, commence and complete Sublessee’s Work, in each case upon reasonable advance notice to Sublessor, and provided that (a) such access shall not interfere with Sublessor’s use of the Overlease Premises, (b) such access shall not delay or interfere with Sublessor’s Work, (c) Sublessee shall have secured and have in force all insurance coverages required pursuant to Article 5 hereof, and (d) if requested by Sublessor, Sublessee shall be accompanied at all times by a representative designated by Sublessor .
3. Rent .
(a) Sublessee shall pay Sublessor a fixed annual rental (the “ Base Rent ”) at the rate set forth in the table below, to be paid in equal monthly installments. The Base Rent shall be prorated for any partial lease year during the Term.
Months of Term |
Monthly Rate (Per RSF) |
Rent Commencement Date through the last day of the 12 th full calendar month of the Term |
$5.85 |
First day of the 13 th full calendar month of the Term through the last day of the 24 th full calendar month of the Term |
$6.03 |
First day of the 25 th full calendar month of the Term through the last day of the 36 th full calendar month of the Term |
$6.21 |
First day of the 37 th full calendar month of the Term through the last day of the 48 th full calendar month of the Term |
$6.39 |
First day of the 49 th full calendar month of the Term through the last day of the 60 th full calendar month of the Term |
$6.58 |
First day of the 61 st full calendar month of the Term through the last day of the 72 nd full calendar month of the Term |
$6.78 |
First day of the 73 rd full calendar month of the Term through the Expiration Date |
$6.99 |
(b) Sublessee shall pay the Base Rent, in advance, on the first day of each and every month during the term of this Sublease without prior demand therefor and without set off or reduction whatsoever, except that the first monthly installment of Base Rent shall be paid at the execution this Sublease.
(c) If the Rent Commencement Date shall not occur on the first day of a calendar month, the monthly rent shall be prorated on a per diem basis, and Sublessor shall credit the excess amount paid on the execution of this Sublease for the payment of Base Rent for the next succeeding calendar month following the Rent Commencement Date.
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(d) P rovided that Sublessee shall not then be in default under any of the terms, covenants and conditions contained in this Sublease beyond the expiration of any applicable notice and/or cure period, Sublessee shall be entitled to an abatement (the “ Abatement ”) of the Base Rent for the period commencing on the Commencement Date and ending forty-five (45) days after the Commencement Date, and Sublessee’s obligation to pay the Base Rent shall commence on the date that is forty-six (46) days after the Commencement Date ( the “ Rent Commencement Date ” ) . Notwithstanding the foregoing, (i) during such periods in which the Abatement is effective , Sublessee shall not be relieved of its obligation to pay any Additional Rent , and (ii) the Abatement is expressly conditioned upon Sublessee not bei ng in default of this Sublease. I n the event that Sublessee defaults hereunder beyond any applicable cure period , then Sublessee shall promptly pay to Sublessor upon demand, as Additional Rent, a sum equal to the unamortized amount of the Abatement as of the date of such default . Sublessee acknowledges and agrees that the consideration for the Abatement is Sublessee’s agreement to perform all of the terms, covenants and conditions of this Subleas e on its part to be performed.
(e) If Sublessee fails to pay the full amount of any Base Rent or Additional Rent or other charges within five (5) days after the date payment is due and payable, the unpaid amounts will be subject to, in addition to any other remedies available to Sublessor under the terms of this Sublease or the Incorporated Provisions, (i) a late payment charge equal to four (4%) percent of the unpaid amounts and (ii) interest at the maximum legal interest rate allowed by law between contracting parties, compounded annually, for each dollar overdue until such payment is made in full, in each case to defray Sublessor’s administrative and other costs in connection therewith. The payment of this late payment charge and/or interest charge will not constitute a waiver by Sublessor of any default by Sublessee under the Sublease. In the event any late payment charge is applied to all or any portion of Base Rent or Additional Rent, Sublessor will promptly provide written notice thereof to Sublessee; provided that Sublessor’s failure to provide such notice shall not constitute a waiver of its right to receive any amounts due under this Section 3(e) from time to time.
4. Additional Rent .
(a) Commencing on the Commencement Date, Sublessee shall also pay Sublessee’s Operating Share of Common Operating Expenses required to be paid by Sublessor to Overlandlord under the Overlease (as and when the same shall become due under the Overlease) (the “ Sublessee Operating Expense Payment ”).
(b) Commencing on the Commencement Date, Sublessee shall also pay Sublessee’s Tax Share of Real Property Taxes required to be paid by Sublessor to Overlandlord under the Overlease (as and when the same shall become due under the Overlease) (the “ Sublessee Tax Payment ”)
(c) Sublessee shall pay Additional Rent within ten (10) Business Days after receipt by Sublessee of a bill from Sublessor. The remedies afforded Sublessor for the non-payment of Additional Rent by Sublessee shall be the same as for non-payment of Base Rent. In the event that Sublessor shall receive any credit or reimbursement from Overlandlord with respect to either Common Operating Expenses or Real Property Taxes for periods subsequent to the Commencement Date hereof which, in either case, had been partially paid by Sublessee,
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Sublessor shall within ten (10) Business Days after receipt of any such credit or reimbursement by Sublessor credit or reimburse Sublessee its proportionate amount of such credit or reimbursement.
5. Insurance .
(a) Sublessee shall secure and keep in force from and after the date Sublessor shall deliver possession of the Sublease Premises to Sublessee and throughout the Term, at Sublessee’s own cost and expense, such insurance with respect to the Sublease Premises and the Alterations and in such amounts (i) as is required to be secured by Sublessor, as tenant, under the Overlease, including, without limitation, the insurance requirements set forth in the Overlease, and (ii) as any superior mortgagee may reasonably require from time to time; provided , however , that notwithstanding the foregoing, Sublessor shall maintain, at Sublessor’s sole cost and expense and with respect to earthquakes and flooding only, the “all risk” insurance required by Section 9.1.B of the Overlease covering the Sublease Premises.
(b) Sublessor, Overlandlord (and each member thereof in the event Overlandlord is a partnership, joint venture or other entity) and Overlandlord’s managing agent shall be named as additional insureds in the aforesaid insurance policies along with any superior mortgagees. At least ten (10) days before Sublessor shall deliver possession of the Sublease Premises to Sublessee, Sublessee shall provide Sublessor with Acord 28 (or the nearest equivalent if such form is discontinued or superseded) certificates of insurance evidencing such policies, including the additional insureds as required above and reasonably satisfactory evidence of payment of premiums if requested by Sublessor. Such certificates shall provide that, in the event of cancellation or material change, thirty (30) days prior written notice shall be given to Sublessor and all such other additional insureds. Sublessee shall supply renewal certificates no less than thirty (30) days prior to expiration. Each policy of insurance shall contain a waiver of the insurance carrier’s right of subrogation against Sublessor, superior mortgagee and Overlandlord as respects loss, damage or destruction by fire or other insured casualty occurring while this Sublease is in effect.
(c) Sublessor’s insurance shall contain waivers of subrogation with respect to Sublessee and add Sublessee’s name as an additional insured.
6. Incorporation of Overlease .
(a) This Sublease is subject and subordinate to the Overlease. This provision shall be self-operative but Sublessee shall within fifteen (15) days of Sublessor’s request execute any instrument reasonably requested by Sublessor or Overlandlord to evidence or confirm the same.
(b) Sublessee acknowledges it has read and examined the Overlease, and is fully familiar with the terms, covenants and conditions on Sublessor’s part to be performed thereunder. Except as otherwise expressly provided in, or otherwise inconsistent with, this Sublease, and except to the extent not applicable to the Sublease Premises, the Incorporated Provisions are hereby incorporated in this Sublease by reference with the same force and effect as if set forth herein, except that, unless the context requires otherwise:
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(1) references in such provisions to Owner, Landlord or Lessor shall be deemed to refer to Sublessor;
(2) references in such provisions to Tenant or Lessee shall be deemed to refer to Sublessee;
(3) references in such provisions to the Premises or the Office Premises or the Demised Premises or the Leased Premises shall be deemed to refer to the Sublease Premises;
(4) references in such provisions to the Term or the Scheduled Term shall be deemed to refer to the term of this Sublease;
(5) references in such provisions to Base Monthly Rent shall be deemed to refer to the Base Rent hereof;
(6) references in such provisions to the Commencement Date shall be deemed to refer to the Commencement Date hereof;
(7) references in such provisions to the Expiration Date shall be deemed to refer to the Expiration Date hereof;
(8) references in such provisions to other provisions of the Overlease that are not incorporated herein shall be disregarded;
(9) references in such provisions to subleases, sublettings or subtenants shall be deemed to refer to subsubleases, subsublettings or subsubtenants; and
(10) references in such provisions to Tenant’s Allocated Share shall be deemed to refer to Sublessee’ Operating Share.
(c) Notwithstanding the incorporation herein of the Incorporated Provisions, (a) Sublessor shall not be deemed to have made any representation made by Overlandlord in the Overlease, and (b) Sublessor shall not be obligated:
(1) to provide any of the services or utilities that Overlandlord has agreed in the Overlease to provide,
(2) to make any of the repairs or restorations that Overlandlord has agreed in the Overlease to make,
(3) to comply with any laws or requirements of public authorities with which Overlandlord has agreed in the Overlease to comply, or
(4) to take any action with respect to the operation, administration or control of the Building or any of its public or common areas that the Overlandlord has agreed in the Overlease to take,
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(all the foregoing being herein called the “ Building Services ”) and, subject to Sub lessor ’s covenants in Section 6( d ) below, Sublessor shall have no liability to Sublessee on account of any failure of Overlandlord to do so, or on account of any failure of Overlandlord to observe or perform any of the terms, covenants or conditions of the Overlease required to be observed or performed by Overlandlord, or on account of any other act or omission of Overlandlord. Sublessee shall not be entitled to any abatement or diminution of rent for any period on account of the untenantability of the Sublease Premises or otherwise (including any such abatement or diminution provided for in any of the Incorporated Provisions), except that if Sublessor is entitled to and receives (or would receive based on the terms of the Overlease except that Sublessor failed to make written request of Overlandlord) an abatement of rent under the Overlease with respect to any portion of the Sublease Premises with respect to any day, then Sublessee shall be entitled to an abatement of rent hereunder with respect to such portion of the Sublease Premises with respect to such day.
(d) Sublessor agrees to use commercially reasonable efforts to (i) cause Overlandlord to provide to Sublessee services it is required to provide under the Overlease to Sublessor, and (ii) obtain Overlandlord’s consent or approval whenever required by the Overlease (unless, in such instance, Sublessor is reasonably withholding its consent or approval). If Sublessor fails to enforce Sublessor’s rights against Landlord with respect to the Sublease Premises within ten (10) days after written request from Sublessee, then Sublessee shall have the right to take such action in its own name. For that purpose and to such extent only, all rights of Sublessor under the Overlease with respect to the Sublease Premises hereby are conferred upon and assigned to Sublessee, and Sublessee hereby is subrogated to such rights and remedies to the extent applicable to the Sublease Premises. If any such action against Overlandlord in Sublessee’s name shall be barred by reason of lack of privity, non-assignability or otherwise, then Sublessee may take such action in Sublessor’s name, provided that Sublessee shall indemnify and hold Sublessor harmless from and against Sublessee’s costs and expenses (including, without limitation, attorney fees and expenses) which Sublessor suffers or incurs by reason of such action.
(e) Whenever Sublessee desires to do any act or thing which requires the consent or approval of Overlandlord:
(1) Sublessee shall not do such act or thing without first having obtained the consent or approval of both Overlandlord and Sublessor (and Sublessor’s right to withhold consent or approval shall be independent of Overlandlord’s right, but shall not be unreasonably withheld or delayed);
(2) Sublessee shall not request Overlandlord’s consent or approval directly (and no efforts by Sublessor to obtain Overlandlord’s consent or approval shall constitute Sublessor’s consent or approval or prejudice Sublessor’s right to withhold consent or approval), provided, however, that Sublessee may directly contact Overlandlord with respect to overtime Building Services; and
(3) in no event shall Sublessor be required to give its consent or approval prior to Overlandlord doing so.
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(f) Sublessor shall not voluntarily terminate or voluntarily consent to the termination of the Overlease in whole or with respect to the Sublease Premises unless such termination is effected pursuant to a right of termination arising out of casualty or condemnation set forth in the Overlease (it being understood that Sublessor shall have the right to exercise any such right of termination). So long as Sublessee has complied with its payment and performance obligations under this Sublease, Sublessor shall comply with its payment and performance obligations under the Overlease. If the Overlease shall terminate for any reason then this Sublease shall also terminate, subject to the immediately following sentence. Sublessor shall not have any liability to Sublessee on account of any such termination unless such termination (a) shall have arisen out of a default under the Overlease by Sublessor not arising out of a default hereunder by Sublessee or (b) shall have been effected by Sublessor in violation of this Section 6(f) . If the Sublease Premises shall be damaged by circumstances in which Overlandlord is required to make repairs pursuant to the provisions of the Overlease, Sublessor shall use commercially reasonable efforts to cause the obligations of the Overlease to be fulfilled by Overlandlord in accordance with the terms of the Overlease. No damages, compensation or claims shall be payable by Sublessor for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Sublease Premises or of the Building , unless Sublessor receives compensation from Overlandlord for such inconvenience, loss of business or annoyance that is expressly alloca ble to the Sublease Premises .
7. Use .
(a) Subject to Overlandlord’s consent to this Sublease and the terms of the Overlease, Sublessee shall use and occupy the Sublease Premises for general office and related uses and for no other purpose whatsoever (the “ Permitted Uses ”).
(b) Subject to and in accordance with the other terms and conditions of this Sublease and the Overlease, Sublessee shall use the Sublease Premises solely for the Permitted Uses. Sublessee shall not use or permit or suffer the use of the Sublease Premises for any other business or purpose. Sublessee agrees to conduct Sublessee’s business in the Sublease Premises under Sublessee’s trade name first above-appearing, which Sublessee represents it has the right to use.
8. Indemnification and Subordination .
To the extent of the Incorporated Provisions, Sublessee does hereby covenant and agree not to perform or fail to perform any act which would cause Sublessor to be in breach of any duty or obligation contained or imposed on Sublessor by any of the Incorporated Provisions with respect to the Sublease Premises except as otherwise herein specified, and Sublessee agrees to indemnify, defend (by counsel reasonably acceptable to Sublessor) and hold Sublessor harmless against any claim or liability asserted against Sublessor by reason of Sublessee’s failure to perform such obligations. Sublessee agrees that this Sublease is separate from and subordinate to any agreement to which the Overlease (and amendments thereto) is subject.
9. Default and Remedies .
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(a) Notwithstanding any other provision of this Sublease, Sublessee shall perform all of its obligations hereunder at such times, by such dates or within such periods as Sublessor shall be required to perform its corresponding obligations under the Overlease. In the event Sublessee shall default in the full performance of any of the terms, covenants and conditions on its part to be performed under this Sublease, then , subject to Section 9(b) hereof, Sublessor shall have the same rights and remedies with respect to such default as are given to Overlandlord under the Overl ease, all with the same force and effect as though the provisions of the Overlease with respect to defaults, and the rights and remedies of the Overlandlord in the event thereof, were set forth at length herein. Sublessee further agrees that Sublessor shall have no liability of any nature whatsoever to Sublessee as a consequence of Overlandlord ’s default under the Overlease , including but not limited to, Overlandlord ’s breach of a covenant of quiet enjoyment.
(b) If Overlandlord shall give any notice of failure or default under the Overlease arising out of any failure by Sublessee to perform any of its obligations hereunder (other than the payment of money) then Sublessor shall promptly furnish Sublessee with a copy thereof. If the Overlease shall provide any grace or cure period for such failure or default then the grace or cure period hereunder shall expire two (2) days prior to the date on which the grace or cure period under the Overlease shall expire. In no event shall this Section 9(b) extend the time, date or period by or within which Sublessee is required to perform.
(c) Sublessor agrees to forward to Sublessee, promptly upon receipt thereof by Sublessor, a copy of any such notice of default received by Sublessor in its capacity as tenant under the Overlease. Sublessee agrees to forward to Sublessor, promptly upon receipt thereof, copies of any notices received by Sublessee with respect to the Sublease Premises from Overlandlord or from any governmental authorities.
10. Sublessor’s Right to Cure .
(a) If Sublessee shall fail to perform any of its obligations hereunder, Sublessor shall have the right (but not the obligation) to perform or endeavor to perform such obligations, at Sublessee’s expense, and Sublessee shall, within five (5) business days of Sublessor’s demand from time to time, reimburse Sublessor for all costs and expenses incurred by Sublessor in doing so. Except in case of any emergency, Sublessor shall give Sublessee reasonable prior written notice of its intention to take action pursuant to this Section 10(a) , and Sublessee shall have five (5) business days from receipt of such written notice to commence and thereafter diligently pursue the performance of such obligations or Sublessor shall be entitled to take the actions provided for under this Section 10(a) . Notwithstanding the foregoing, Sublessor’s rights hereunder shall not be greater than the rights of the Overlandlord under the terms of the Overlease and Sublessee’s payment rights and obligation shall be similar to Sublessor’s payment rights and obligations under the terms of the Overlease.
(b) If Sublessor makes any expenditures or incurs any obligations for the payment of money, including attorney’s fees, in connection with (i) defending any action brought by Sublessee against Sublessor or against Overlandlord and naming Sublessor which is prohibited by the terms hereof or for which Sublessee does not ultimately prevail or (ii) curing Sublessee’s defaults or in instituting, prosecuting or defending any action or proceeding, by
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reason of any default of Sublessee hereunder or of Overlandlord under the Overlease , such sums paid or obligations i ncurred, with interest thereon at the maximum interest rate allowed by law between contracting parties , shall be paid by Sublessee to Sublessor as Additional Rent within upon demand by Sublessor . Sublessor shall have the same rights with respect thereto, and Sublessee shall have the same obligations therefor as if same constituted Base Rent hereunder.
11. Services .
(a) Subject to Section 6(c) hereof, so long as Sublessee is not in default hereunder, Sublessee shall be entitled to receive all services to be rendered to Sublessor under the Overlease in so far as such services pertain to the Sublease Premises. Sublessee shall be responsible for all charges relating thereto as provided in the Overlease.
(b) In furtherance of Section 6(c) hereof, Sublessee does, to the extent permitted by law, and except for the wrongful acts or gross negligence of Sublessor, hereby waive any cause of action and any right to bring any action against Sublessor by reason of any act or omission of Overlandlord.
12. Electricity and HVAC .
(a) Sublessee’s use of electricity shall not at any time exceed, either in voltage, rated capacity or overall load, the capacity of the electrical system within or serving the Sublease Premises and Sublessee shall not overload any component of such system, in each case provided that the electrical system capacity is at least the capacity available as of the Effective Date. In no event shall Sublessee draw more electricity than that which the feeders, risers, panels and other electricity supply equipment (as equipped as of the Effective Date) serving the Sublease Premises are capable of safely supplying or which is standard for Tenant’s Permitted Use (as defined in the Overlease).
(b) In no event shall Sublessor have any obligations, liability for any defect in, or liability for any interruption or failure of, the electricity furnished to the Sublease Premises. Sublessor shall not be deemed to have made any representation with respect to the capacity of electrical system within or serving the Sublease Premises or the amount of electricity available in the Sublease Premises.
(c) Sublessee shall pay Sublessee’s Operating Share of the electricity costs allocated to the Overlease Premises.
(d) Notwithstanding anything in this Sublease to the contrary, if Sublessee is in default of Section 12(a) above, then Sublessor shall be entitled to take all reasonable steps necessary to correct such default and charge the actual cost therefor to Sublessee, which shall be paid within five (5) Business Days of Sublessor’s demand.
13. Attornment .
(a) Sublessee agrees that if by reason of default on the part of Sublessor or Overlandlord under any ground, superior or underlying lease or any mortgage on the Building, land and/or improvements or on any such ground, superior or underlying lease, a ground,
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superior or underlying lessor or a mortgagee (collectively, “ Underlying Lessor ”) shall enter into and become possessed of the real property of which the Sublease Premises form a part, or any part or parts of such real property either through possession or foreclosure action or proceedings, or through the issuance and delivery of a deed or a new lease of the premises covered by the ground, superior or underlying lease, then, if this Sublease is in full force and effect at such time, Sublessee shall a ttorn to such Underlying Lessor as its landlord , and upon such Underlying Lessor’s request, execute and deliver all instruments necessary or appropriate to confirm such attornment and recognition .
(b) Notwithstanding such attornment and recognition, such Underlying Lessor shall not (i) be liable for any previous act or omission of the Overlandlord under this Sublease, (ii) be subject to any offset, not expressly provided for in this Sublease, that shall have accrued to Sublessee hereunder against said Overlandlord, or (iii) be bound by any modification of this Sublease or by any prepayment of more than one month’s Base Rent and/or Additional Rent, unless such modification or prepayment shall have been previously approved in writing by the Underlying Lessor. Sublessee hereunder hereby waives all rights under any present or future law to elect, by reason of the termination of such underlying lease, to terminate this Sublease or surrender possession of the Sublease Premises.
14. Security Deposit .
(a) Sublessee shall deliver to Sublessor an irrevocable commercial letter of credit (the “ Letter of Credit ”) in the amount of Three Hundred Thousand Dollars ($300,000) (the “ Security Deposit ”) upon the execution of this Sublease to be held as security for the faithful performance and observation by Sublessee of the terms, covenants and conditions of this Sublease. Time is of the essence with respect to Sublessee’s delivery of the Letter of Credit. It is agreed that in the event Sublessee defaults in respect of any of the terms, covenants and conditions of this Sublease, including, but not limited to, the payment of Base Rent and/or Additional Rent, Sublessor may use, apply or retain the whole or any part of the Security Deposit to the extent required for the payment of any Base Rent or Additional Rent or any other sum which Sublessor may expend or may be required to expend by reason of Sublessee’s default in respect of any of the terms, covenants and conditions of this Sublease, including, but not limited to, any damages or deficiency in the re-letting of the Sublease Premises (excluding any tenant improvement allowance or customized build-out costs for the subsequent subtenant), whether such damages or deficiency accrued before or after summary proceeding or other re-entry by Sublessor. In the event that Sublessee shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Sublease after the date fixed as the end of the Term and after delivery of entire possession of the Sublease Premises to Sublessor.
(b) In the event of a transfer of the interest of Sublessor in the Sublease Premises, Sublessor shall have the right to transfer the Security Deposit to the transferee and Sublessor shall thereupon be released by Sublessee from all liability for the return of such Security Deposit. In such event, Sublessee agrees to look to the new sublessor solely for the return of said Security Deposit, and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the Security Deposit to a new Sublessor. Sublessee further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as the Security Deposit, and that neither Sublessor nor its successors or assigns
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shall be bound by any such assignment, encumbrance or attempted assignment or attempted encumbrance.
(c) Letter of Credit .
(1) The Letter of Credit shall be issued by a member bank of the New York Clearinghouse Association, in form and substance reasonably acceptable to Sublessor, and payable upon presentation by Sublessor to such bank of a sight-draft, without presentation of any other documents, statement or authorizations, and shall provide (i) for the continuance of such credit for the period of at least one (1) year from the date of execution hereof, (ii) for the automatic extension of such letter of Credit for additional periods of one (1) year from the initial and each future expiration date thereof (the last such extension to provide for the continuance of such Letter of Credit for at least three (3) months beyond the Expiration Date) unless such bank gives Sublessor notice of its intention not to renew such Letter of Credit, not less than forty-five days prior to the initial or any future expiration date of such Letter of Credit, (iii) that in the event such notice is given by such bank, Sublessor shall have the right to draw on such bank at sight for the balance remaining in such Letter of Credit and hold and apply the proceeds thereof in accordance with the provisions of this Sublease, (iv) partial draws shall be permitted and (v) the Letter of Credit shall be freely transferable (without costs or fees payable by Sublessor).
(2) In the event that Sublessor transfers its right, title and interest under this Sublease to a third party and the issuing bank does not consent to the transfer of such Letter of Credit to such third party, Sublessor may draw on the Letter of Credit, and the proceeds of such Letter of Credit shall then be held and applied as security (and be replenished, if necessary) as herein provided.
(3) Sublessor shall have the right to draw upon the Letter of Credit (or portions thereof) in order to remedy any default by Sublessee. If Sublessor shall have drawn upon the Letter of Credit to remedy any default by Sublessee, Sublessee, within ten (10) business days after notice of such reduction, deliver to Sublessor a replacement Letter of Credit or an additional Letter of Credit, in form and substance satisfactory to Sublessor, issued by the same bank (or other bank satisfactory to Sublessor) in the amount necessary to restore the Letter of Credit to the Security Deposit amount.
(d) Notwithstanding anything to the contrary in this Sublease, Sublessee will have the option to initially provide a cash Security Deposit simultaneously with the execution of this Sublease in lieu of the Letter of Credit. Sublessee must replace any cash Security Deposit with a Letter of Credit within thirty (30) days following the Effective Date. Upon receipt of the Letter of Credit, Sublessor shall promptly return the cash Security Deposit to Sublessee.
15. Notices .
Any notice, demand, consent, approval, direction, agreement or other communication required or permitted hereunder or under any other documents in connection herewith shall be in writing and shall be directed as follows:
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McDermott Will & Emery LLP
340 Madison Avenue
New York, New York 10173
Attention: Daniel Martin, Esq.
Fax: (646) 439 - 9248
If to Sublessee :
Dermira, Inc.
275 Middlefield Road, #150
Menlo Park, CA 94025
Attention: Legal Department
Fax: (650) 365-3410
With copies to :
Fenwick & West LLP
555 California Street, 12 th Floor
San Francisco, CA 94104
Attention: Doug Cogen, Esq.
Fax: dcogen@fenwick.com
or to such changed address as a party hereto shall designate to the other parties hereto from time to time in writing. Notices shall be (i) personally delivered by Federal Express, United Parcel Service or other comparable overnight courier service to the offices set forth above, in which case they shall be deemed delivered on the date of delivery (or first business day thereafter if delivered other than on a business day or after 5:00 P.M. New York, New York time to said offices); or (ii) sent by certified mail, return receipt requested, in which case they shall be deemed delivered on the date shown on the receipt unless delivery is refused or delayed by the addressee in which event they shall be deemed delivered on the third day after the date of deposit in the U.S. Mail. Attorneys for the parties are authorized to give all notices hereunder.
16. Sublessor’s Work .
(a) To the extent not already completed, Sublessor or its designated contractor(s), in accordance with the provisions of this Article 16 , shall perform the work (“ Sublessor’s Work ”) set forth in the plans described on Exhibit D attached hereto and made a part hereof; provided , however , that Sublessor shall have the right to make any changes in Sublessor’s Work required by (i) any governmental department or bureau having jurisdiction over the Building or (ii) Overlandlord. Sublessee may not make changes to Sublessor’s Work during Sublessor’s performance thereof without Sublessor’s approval which shall not be unreasonably withheld, conditioned or delayed and Overlandlord’s approval (if such approval is required under the terms of the Overlease); however, Sublessee shall be responsible for any additional cost relating to such changes. Sublessor’s Work shall be performed by Sublessor only once, it being understood that Sublessor’s obligation to perform Sublessor’s Work is a single, non-recurring obligation.
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(b) Su blessee hereby acknowledges that the Commencement Date hereunder is indeterminate and shall occur only as provided in Article 2 above . Sublessee hereby waives any damages which may result from any delay in the completion of Sublessor’s Work (or any portion thereof) or the delivery of possession of the Sublease Premises on or by any particular date or dates . Sublessor shall use commercially reasonable efforts, subject to force majeure or any other circumstances outside of Sublessor’s control, to cause the completion of Sublessor’s Work to occur by January 31 , 2018 .
(c) All furniture, fixtures and equipment identified in Exhibit E attached hereto and made a part hereof (the “ FF&E ”) shall remain in the Sublease Premises for Sublessee’s use during the Term, provided that all such FF&E shall be in their “as is” condition and state of repair, and provided further than Sublessor makes no warranties or representations whatsoever with respect to such FF&E. At the end of the Term, Sublessee shall take title to the FF&E and shall remove the FF&E from the Sublease Premises and any damage caused by such removal shall be promptly repaired by Sublessee. Any furniture, fixtures or equipment that is in the Sublease Premises as of the Commencement Date but is not included in Exhibit E shall be removed from the Sublease Premises by Sublessor, at its sole cost, prior to the Commencement Date and any damage caused by such removal shall be promptly repaired by Sublessor.
(d) Other than Sublessor’s Work, Sublessor shall have no obligation to pay any money or perform any other work in, or make any alteration, or improvements to, the Sublease Premises to ready the Sublease Premises for Sublessee’s initial occupancy and, but for Sublessor’s Work, Sublessee accepts the Sublease Premises in its AS-IS and WHERE-AS condition as of the Commencement Date.
(e) On or about the Commencement Date, Sublessor shall provide Sublessee with an ACP-5 certificate for the Sublease Premises.
17. Condition of the Sublease Premises . Sublessor has made no representation, agreement or promises with respect to the Building or the Sublease Premises other than those expressly set forth in this Sublease. No rights are to be deemed acquired by Sublessee, by implication or otherwise, except those expressly granted herein. Notwithstanding the foregoing, Sublessor is not aware of any violations of building codes or ordinances or the presence of any asbestos or hazardous materials within the Sublease Premises. This Sublease and the Incorporated Provisions contain the entire agreement between Sublessor and Sublessee with respect to the Sublease Premises.
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18. Surrender and Hold Over Tenancy .
(a) On the Expiration Date or earlier termination of this Sublease, Sublessee shall quit and surrender the Sublease Premises in “broom clean” condition, ordinary wear and tear excepted and shall surrender all keys for the Sublease Premises to Sublessor at the place then fixed for the payment of rent. Sublessee shall remove only those fixtures, alterations, equipment, improvements and related appurtenances that it installed during the Term and that are required to be removed in accordance with the Overlease, and in such case in compliance with the Overlease.
(b) In the event Sublessee, or anyone claiming status through or on behalf of Sublessee, remains in possession of the Sublease Premises after the Expiration Date or earlier termination of this Sublease without the execution of a new sublease or a direct lease with Overlandlord, (i) Sublessor shall be entitled to all of the rights and remedies of a landlord against a tenant holding over after the expiration of a term and to such other rights and remedies as may be provided for in this Sublease at law or in equity, and (ii) Sublessee, at the option of Sublessor, shall be deemed to be occupying the Sublease Premises as a tenant from month to month, at a monthly rental equal to the holdover amounts due under the Overlease with respect to the Overlease Premises, subject to all of the other terms of this Sublease insofar as the same are applicable to a month-to-month tenancy.
(c) If Sublessee shall hold-over or remain in possession of any portion of the Sublease Premises beyond the Expiration Date, Sublessee shall be subject not only to summary proceeding and all damages related thereto, including without limitation all claims, damages, and liabilities claimed by Overlandlord in connection with or arising out of such holdover, but also to any consequential damages arising therefrom.
19. Assignment and Sublease .
Sublessee shall not sublease all or any portion of the Sublease Premises, or assign, mortgage, encumber or otherwise transfer this Sublease, nor underlet or suffer to permit the Sublease Premises or any part thereof to be used by others, by operation of law or otherwise, without the prior written consent of the Overlandlord and Sublessor granted in accordance with the terms, conditions and provisions of Article 14 of the Overlease. Notwithstanding the foregoing, Sublessor’s consent with respect to any such sublease or assignment shall not be unreasonably withheld, conditioned or delayed.
20. Sublessee’s Alterations and Improvements .
(a) Sublessee desires to make initial alterations and installations as set forth in Exhibit B attached hereto (“ Initial Alterations ”) and by this reference incorporated herein and may desire to make further alterations or installations from time to time during the Term (together with the Initial Alterations, collectively, “ Alterations ”). All Alterations shall be paid for at Sublessee’s sole cost and expense.
(b) On or after the thirty-first (31 st ) day following the Effective Date, subject to the requirements of Section 20(c) below and the Overlease, Sublessee shall commence the work required for installation of the Initial Alterations (“ Sublessee’s Work ”); provided , however , that
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with respect to Sublessee’s Work , Sublessor shall use commercially reasonable efforts to cooperate with and assist Sublessee in satisfying the requirements of the Overlease.
(c) In performing Sublessee’s Work, Sublessee shall observe the following covenants and restrictions, without limitation of any other covenants or restrictions that may be imposed on Sublessee’s Work by this Sublease, by the Overlease, by operation of law or otherwise:
(1) Sublessee acknowledges and agrees that the performance of Sublessee’s Work shall be subject and subordinate in all respects to the performance of Sublessor’s Work, and accepts any delays or hindrances to Sublessee’s Work caused by Sublessor’s Work including, without limitation, delays or hindrances caused by Sublessor’s Work in the plaza and lobby spaces of the Building. Any material delays in Sublessor’s Work caused by Sublessee’s Work, whether directly or indirectly, shall be deemed a Sublessee’s Delay.
(2) All Sublessee’s Work causing, creating, generating, or resulting in the creation or generation of any amount of noise, odors, or vibrations that may interfere with or adversely affect the comfort or operation of Sublessor’s business shall be performed on days other than Business Days or on Business Days between the hours of 12:00 am and 8:30 am and/or between the hours of 7:00 pm and 11:59 pm.
(3) Sublessee shall observe and adhere to the reasonable rules and regulations imposed by Sublessor and Overlandlord with respect to the Building and the Sublease Premises including, but not limited to, rules concerning the security of and access to the Building and the Sublease Premises.
(e) All Alterations to the Sublease Premises that Sublessee desires to make and perform from time to time during the Term shall be made in accordance with the Overlease and require the prior written consent of Overlandlord and Sublessor, subject, in each case, to the standards of consent and requirements of commencement and completion as provided in the Overlease. Notwithstanding anything to the contrary contained herein or in the Overlease, Sublessee shall not be obligated to pay for any costs and expenses relating to Sublessor’s review of such Alterations except to the extent that (i) such costs and expenses are the reasonable out-of-pocket expenses actually incurred by Sublessor to review such Alterations or (ii) such costs and expenses are incurred by Overlandlord and charged to Sublessor in accordance with the Overlease; in each case, any such costs and expenses shall be paid by Sublessee as Additional Rent within five (5) days following Sublessor’s written demand therefor. Subject to the Overlease, Sublessee shall be permitted to use its own contractors and subcontractors for all phases of the Alterations and for all phases of any subsequent alterations, subject to Overlandlord’s consent (if required pursuant to the Overlease) and Sublessor’s consent, provided, however, that Sublessor’s consent shall not be unreasonably withheld, conditioned or delayed.
21. Building Directory .
Sublessee shall have its proportionate share of directory listings in the Building directory. Sublessee shall pay Overlandlord’s standard fee for any work performed in connection with adding, changing or deleting its lines in the Building directory. Sublessee shall be entitled to
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install signage in the elevator lobby on the 3 rd floor of the Building that identifies Sublessee and suite number, which signage shall be subject to the terms and conditions governing such signage set forth in the Overlease . Any such signage installed by (or at the direction of) Sublessee shall be removed by Sublessee on or prior to the Expiration Date or the earlier termination of this Sublease. The installation and removal (including, without limit ation, the repair of any damage occasioned thereby) of such signage shall be performed at Sublessee’s sole cost and expense.
22. Access to the Sublease Premises .
Subject to Overlandlord’s reasonable security regulations and circumstances beyond Overlandlord’s control, Sublessee and its agents and employees shall have access to the Sublease Premises, twenty-four hours per day, three hundred sixty-five days per year and may provide for card access that is unique to Sublessee and not shared with Sublessor.
23. Confidential and Protected Information . Sublessee and Sublessor, together with their respective partners, officers, directors, principals, members and employees, shall maintain the terms and conditions of this Sublease confidential and, without the prior written consent of the other, shall neither discuss nor disclose the existence or terms of this Sublease to any party other than (a) the Broker, (b) Overlandlord, and (c) their respective attorneys, accountants and other advisors and services providers, or if required to do so to enforce the terms of, or otherwise preserve or protect its rights under, the Overlease or as may otherwise be required to be disclosed by law or judicial process; provided that, if Sublessee is required or requested by legal process to disclose the terms and conditions of this Sublease, Sublessee shall provide Sublessor with prompt notice of such requirement or request, together with a copy of the proposed disclosure, and shall obtain the prior written consent of Sublessor (not to be unreasonably withheld, conditioned or delayed) prior to making such disclosure.
24. Brokers .
Sublessee and Sublessor each covenant, warrant and represent that it has not dealt with any brokers in connection with this Sublease other than Cornish & Carey Commercial dba Newmark Cornish & Carey (the “ Broker ”). Sublessor agrees to pay the commission of Broker in accordance with a separate agreement. Sublessor agrees to indemnify and hold Sublessee harmless from any and all liability, damage, and costs, expenses and fees (including attorneys’ fees) which Sublessee may incur or be required to pay as a result of Sublessor’s dealings with any broker including the Broker or Sublessor’s breach of the foregoing representation and warranty. Sublessee agrees to indemnify and hold Sublessor harmless from any and all liability, damage, costs, expenses and fees (including attorneys’ fees) which Sublessor may incur or be required to pay as a result of Sublessee’s dealings with any broker other than Broker or Sublessee’s breach of the foregoing representation and warranty.
25. No Waiver .
No act or thing done by Sublessor or its agents during the Term shall be deemed an acceptance of a surrender of the Sublease Premises, and no agreement to accept such a waiver shall be valid unless in a writing signed by Sublessor. The failure of either party to seek redress for violation of, or to insist upon the strict performance of, any term, covenant or condition of
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this Sublease shall be deemed to have waived any subsequent or other violations of the terms of this Sublease.
26. Entire Agreement .
This Sublease, together with the Incorporated Provisions, constitutes and contains the entire agreement between the parties with respect to the subject matter hereof and each party acknowledges that it did not, in entering this Sublease, rely upon any representation or promises made by or on behalf of the other except as expressly set forth herein. No provision of this Sublease shall be modified, waived or discharged other than by an instrument in writing signed by Sublessor and Sublessee.
27. Severability .
Whenever possible, each provision of this Sublease shall be interpreted in such manner as to be effective and valid under applicable law. If, however, any provision of this Sublease or the application of any provision to any party or circumstance shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating this Sublease or any provision hereof, or the application of the provision in question to other parties or circumstances.
28. Construction .
All parties to this Sublease and their counsel have reviewed and revised this Sublease, and hereby agree that the rule of construction that any ambiguities are to be construed and resolved against the drafting party shall not be applied to the interpretation of this Sublease.
29. Counterpart and Electronic Signatures .
This Sublease may be executed in several counterparts, all of which constitute one and the same instrument. This Sublease may be executed by facsimile or electronic transmission, provided that original counterparts will be delivered concurrently by overnight courier.
30. Waiver of Trial By Jury .
Sublessor and Sublessee waive the right to trial by jury in a court action, proceeding or counterclaim on any matters concerning this Sublease, the relationship of Sublessor and Sublessee or the use or occupancy of the Sublease Premises by Sublessee.
31. Successors and Assigns .
The covenants, agreements, terms and conditions contained in this Sublease shall bind and inure to the benefit of the parties hereto and their respective successors, and, except as otherwise provided in this Sublease, their respective assigns.
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(a) Nothing contained in this Sublease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent or of partnership or of joint venture or of any association between Sublessor and Sublessee other than the relationship of sublessor and sublessee, any intention to create any other relationship being hereby expressly disavowed.
(b) Neither this Sublease nor any memorandum thereof shall be recorded.
(c) As used in this Sublease, and where the context so requires: (i) the masculine shall be deemed to include the feminine and neuter and vice-versa, and (ii) the singular shall be deemed to include the plural and vice-versa.
(d) This Sublease shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of the State of California.
(e) Time is of the essence with respect to each covenant, term and provision of this Sublease to be performed by Sublessee.
(f) The liability of Sublessor and Sublessee under this Sublease shall be limited to the assets, from time to time, of such party, excluding (i) any claim or recourse against any partner, member, shareholder, officer, director or manager of such party or holder of other ownership interest in such party; (ii) any client files and other documents or records relating to or created or obtained in connection with such party’s business and (iii) all assets held in pension or profit sharing plans. In no event shall any partner, member, shareholder, officer, director or manager of Sublessee or Sublessor or holder of other ownership interest in such party be liable for the payment or performance of the obligations or liabilities of such party hereunder, either directly or indirectly, by way of contribution or otherwise.
(g) Intentionally omitted.
(h) Submission by or on behalf of Sublessor of the within Sublease, or any draft thereof, for execution by Sublessee shall confer no rights nor impose any obligations on either party with respect to the Sublease Premises or any of the subject matter hereof unless and until: (i) both Sublessor and Sublessee shall have executed this Sublease; (ii) Sublessor shall have delivered a fully-executed original hereof to Sublessee; (iii) Sublessee has funded its Security Deposit and paid its first month Base Rent and (iv) Overlandlord shall have consented to this Sublease. Sublessee waives any claim against Overlandlord arising out of any failure or refusal by Overlandlord to grant consent.
(i) In addition to and without limiting anything set forth in Section 32(h) , above, this Sublease is subject to the express written consent of the Overlandlord (in form and substance reasonably acceptable to Sublessor and Sublessee), and shall be of no force or effect until and unless it shall have been approved and executed by or on behalf of the Overlandlord. In the event that such consent has been denied, this Sublease shall be null and void ab initio , and Sublessee shall have and claim no rights hereunder or in connection herewith. Notwithstanding
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anything to the contrary contained herein, in the event this Sublease shall not have been approved by the Overlandlord on or before the thirtieth (30 th ) day from the date hereof, then either Sublessor or Sublessee may terminate this Sublease upon written notice to the other party.
(j) The captions appearing within the body of this Sublease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope of meaning of this Sublease or any provision of this Sublease.
(k) Sublessor hereby represents as follows:
(1) A true, correct and complete copy of the Overlease (as redacted) has been provided to Sublessee and represents the entire agreement between Sublessor and Overlandlord with respect to the Sublease Premises. The Overlease is unmodified and in full force and effect.
(2) To Sublessor’s knowledge, neither Sublessor nor Overlandlord is in default under the Overlease (beyond applicable notice and cure periods).
(l) The time limits provided in the Overlease for the giving of notices, making demands, performance of any act, condition or covenant, or the exercise of any right, remedy or option, are changed for the purposes of this Sublease, by lengthening or shortening the same in each instance by three (3) days, as appropriate, so that notices may be given, demands made, or any act, condition or covenant performed, or any right, remedy or option hereunder exercised, by Sublessor or Sublessee, as the case may be (and each party covenants that it will do so), within the time limit relating thereto contained in the Overlease. Sublessor shall, no later than three (3) business days after receipt thereof, give to Sublessee a copy of each notice and demand received from Overlandlord concerning the Sublease Premises and shall within such time give to Overlandlord a copy, or the substance of, each notice and demand received from Sublessee concerning the Sublease Premises.
(m) Sublessor’s refusal to consent to any matter or thing, whenever Sublessor’s consent or approval is required under this Sublease or under the Overlease shall be deemed reasonable if, inter alia, Overlandlord has refused to give such consent or approval (provided that Sublessor has used commercially reasonable efforts to ensure that Overlandlord receives and understands such request).
(n) Pursuant to Section 1938 of the California Civil Code, Sublessor hereby advises Sublessee that the Sublease Premises, as delivered to Sublessee, has not undergone an inspection by a Certified Access Specialist (CASp). Sublessor makes no representations or warranties with respect to the Sublease Premises complying with any applicable federal, state and local standards, codes, rules and regulations governing physical access for persons with disabilities at places of public accommodation, including, but not limited to, the Americans with Disabilities Act of 1990, California’s Unruh Civil Rights Act, California Building Standards Code, or California Health and Safety Code.
[The remainder of the page is intentionally omitted. Signature pages and Exhibits follow.]
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IN WITNESS WHEREOF, Sublessor and Sublessee have respectively signed this Sublease as of the day, month and year first above written.
SUBLESSOR:
MCDERMOTT WILL & EMERY LLP
By: /s/ John Yoshimura
Name: John Yoshimura
Title: COO
SUBLESSEE:
DERMIRA, INC.
By: /s/ Andrew L. Guggenhime
Name: Andrew L. Guggenhime
Title: Chief Operating Officer and Chief Financial Officer
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Exhibit 10.2
SUBLEASE PREMISES
INITIAL ALTERATIONS
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Install new carpet |
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Paint walls |
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Move in furniture, fixtures and equipment |
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Install video conferencing equipment into corner offices |
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Re-cable offices if needed for high speed internet access |
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Install security system tied to Sublessee’s other premises in building |
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Consider and install showers if commercially feasible |
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Remove certain walls and potentially add certain partitions |
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Exhibit 10.2
INCORPORATED PROVISIONS
The following provisions are incorporated from the Overlease into this Sublease:
Original Lease :
In “Basic Lease Information”, the definitions “Property Description”, “Common Areas”, “Tenant’s Permitted Use”, “Tenant’s Minimum Liability Insurance Coverage”, and “Landlord’s Address For Notices”; Sections 1.4 (excluding the first sentence), 1.5, 1.7, 1.8, and 1.10; Sections 2.1 and 2.2 (excluding Section 2.2(A) and (B)); Section 3.2; Sections 4.1 – 4.4, and 4.6 – 4.9; Article 5 (excluding Section 5.2(A), (B), and (C)); Article 6; Articles 7 – 10; Article 13 – 16; Exhibit A and Exhibit F.
First Amendment : None.
Second Amendment : None.
Third Amendment : None.
Fourth Amendment : Section 2, which reads as follows: “ Extension of the Lease Term . The Term of the Lease is hereby extended through and including April 30, 2024.”
EXHIBIT D
SUBLESSOR’S WORK
Pursuant to Article 16 of this Sublease, Sublessor agrees to perform the following work and installations in the Sublease Premises:
Sublessor shall demise the Sublease Premises in accordance with local and municipal building codes.
Sublessor shall remove any branding associated with Sublessor from the Demised Premises, and repair any damage caused by such removal.
Sublessor shall demise a multi-tenant elevator lobby in the Building.
Sublessor shall remove any unwanted furniture, fixtures and equipment identified by Sublessee and repair damage caused by removal.
Sublessor shall segregate all of Sublessor’s systems (Telecom, Security, etc.) from Sublessee’s systems.
The parties hereto shall agree upon detailed plans for the Sublessor’s Work via a separate written agreement (which may occur through facsimile or electronic transmission of PDF files).
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Exhibit 10.2
INVENTORY OF FF&E
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Office Chairs: 117 |
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Guest Chairs: 100 |
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Free Stand Bookshelves: 84 |
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Built-In Bookshelves: 134 |
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U-Shaped Desks: 63 |
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L-Shaped Desks: 10 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas G. Wiggans, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Dermira, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 6, 2017 |
By: |
/s/ THOMAS G. WIGGANS |
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Thomas G. Wiggans |
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Chief Executive Officer and Chairman of the Board |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew L. Guggenhime, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Dermira, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 6, 2017 |
By: |
/s/ ANDREW L. GUGGENHIME |
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Andrew L. Guggenhime |
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Chief Operating Officer and Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting |
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Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas G. Wiggans, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Quarterly Report of Dermira, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2017 (the “ Report ”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Dermira, Inc. for the periods presented therein.
Date: November 6, 2017 |
By: |
/s/ THOMAS G. WIGGANS |
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Thomas G. Wiggans |
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Chief Executive Officer and Chairman of the Board |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew L. Guggenhime, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Quarterly Report of Dermira, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2017 (the “ Report ”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Dermira, Inc. for the periods presented therein.
Date: November 6, 2017 |
By: |
/s/ ANDREW L. GUGGENHIME |
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Andrew L. Guggenhime |
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Chief Operating Officer and Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting |
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Officer) |