Item
1. Description of Business
ORGANIZATION
Vicapsys
Life Sciences, Inc. (“VLS”) was incorporated in the State of Florida on July 8, 1997 under the name All Product Distribution
Corp. On August 19, 1998, the Company changed its name to Phage Therapeutics International, Inc. On November 13, 2007, the Company changed
its name to SSGI, Inc. On September 13, 2017, the Company changed its name to Vicapsys Life Sciences, Inc., effected a 1-for-100 reverse
stock split of its outstanding common stock, increased the Company’s authorized capital stock to 300,000,000 shares of common stock,
par value $0.001 per share, and 20,000,000 shares of “blank check” preferred stock, par value $0.001 per share. On December
22, 2017, pursuant to a Share Exchange Agreement (the “Exchange Agreement”) by and among VLS, Michael W. Yurkowsky, ViCapsys,
Inc. ( “VI”) and the shareholders of VI, a private company, VI became a wholly owned subsidiary of VLS. We refer to VLS and
VI together as the “Company”. VLS serves as the holding company for VI. Other than its interest in VI, VLS does not have
any material assets or operations.
The
Company’s strategy is to develop and commercialize, on a worldwide basis, various intellectual property rights (patents, patent
applications, know how, etc.) relating to a series of encapsulated product candidates that incorporate proprietary derivatives of the
chemokine CXCL12 for creating a zone of immunoprotection around cells, tissues, organs and devices for therapeutic purposes. The product
name VICAPSYN™ is the Company’s line of proprietary product candidates that is applied to transplantation therapies and related
stem-cell applications in the transplantation field. The lead product candidate embodiment in transplantation therapy to treat Type 1
Diabetes (T1D) is an encapsulated human islet cell cluster that is intended to restore normal glucose control when implanted into the
peritoneal cavity of a patient. During the research and development process in transplantation, the Company and its related academic
researchers had a novel and unexpected finding. The transplanted islet clusters were absolutely free of any signs of fibrotic encapsulation.
This anti-fibrotic effect was reconfirmed in additional research studies and the Company has now moved into the development of another
product candidate line based on CXCL12 with the trade name of VYBRIN™. The clinical applications of VYBRIN™ are being explored
in several areas including (1) prevention of post-surgical adhesions in abdominal surgery, (2) coating of implantable medical devices
and other implants to eliminate fibrosis and (3) wound healing with a focus on diabetic ulcers.
MGH
License Agreement
On
May 8, 2013, ViCapsys, Inc. and The General Hospital Corporation, d/b/a Massachusetts General Hospital (“MGH”) entered into
an Exclusive Patent License Agreement as amended (the “License Agreement”), pursuant to which MGH granted to the Company,
in the field of coating and transplanting cells, tissues and devices for therapeutic purposes (the “License Field”), on a
worldwide basis (the “License Territory”): (i) an exclusive, royalty-bearing license under its rights in its Patent Cooperation
Treaty (PCT) patent application serial number PCT/US00/09678, filed on March 7, 2000, including any division, continuation (but not continuation
in part) U.S. and foreign patent application, Letters Patent, and/or the equivalent thereof issuing thereon, and/or reissue, reexamination
or extension thereof (the “Patent Rights”), to make, use, sell, lease, import and transfer any article, device or composition,
the manufacture, use, or sale of which, in whole or in part (the “Products”), employs, is based upon or is derived from research
data, designs, formulae, process information and other information pertaining to the invention(s) claimed in the Patent Rights which
is created by Dr. Poznansky and owned by MGH and is not confidential information of or otherwise obligated to any third party and which
Dr. Poznansky knows as of the date of the License Agreement and reasonably believes is necessary in order for Company to utilize the
licenses granted thereunder (the “Technical Information”); (ii) a non-exclusive, sub-licensable (solely in the License Field
and License Territory royalty-bearing license to the Company’s xenotransplantation (animal-to-human transplants) patent rights
to the issued U.S. Patent/s numbered 6,153,428; 6,413,769; 7,547,522 and 7,547,816 and/or the equivalent of such application including
any division, continuation (but not including continuation-in-part), U.S. and foreign patent application, Letters Patent, and/or the
equivalent thereof issuing thereon, and/or reissue, reexamination or extension thereof (the “Xenotransplantation Patent Rights”),
and to make, have made, use, have used, biological material that incorporates, is derived from, is related to, or is a modified form
of the Xenotransplantation Patent Rights for only the purpose of creating Products, the transfer of Products and to use, have used and
transfer processes that employs or is derived from Technical Information; (iii) the right to grant sublicenses subject to and in accordance
with the terms of the License Agreement, and (iv) the nonexclusive right to use Technological Information disclosed by MGH to the Company
under the License Agreement, all subject to and in accordance with the License Agreement.
As
amended by the Seventh Amendment to the License Agreement on December 22, 2017, the License Agreement requires that ViCapsys satisfy
the following requirements prior to the first sale of Products (“MGH License Milestones”), by certain dates which have passed.
The table below lists the MGH Milestones and the Company’s progress in satisfying or negotiating the extension of each milestone:
MILESTONE:
|
|
STATUS:
|
(i)
Provide a detailed business and development plan.
|
|
The
Company has provided MGH with a completed corporate pitch deck which outlines the Company’s business and development plans.
|
|
|
|
(ii)
Raise $2 million in a financing round.
|
|
The
Company has raised $1 million and is currently in the process of raising the second $1 million. The Company and MGH are currently
negotiating extending this milestone.
|
|
|
|
(iii)
Initiate and finance research regarding the role of CXCL12 in minimizing fibrosis formation.
|
|
Milestone
completed.
|
|
|
|
(iv)
Initiate and finance research regarding the role of CXCL12 in beta cell function and differentiation.
|
|
Dr.
Poznansky’s lab was focusing on this as part of the academic project. The Company therefore made the strategic decision to
fund another aspect of CXCL12 biology which focuses on the role of CXCL12 in wound healing. For the time being, the Company is excused
from meeting this milestone as it has provided an alternative milestone as well as a justification for not pursuing this particular
milestone.
|
The
Company and MGH have agreed to work together to restate the license agreement, incorporating all the relevant provisions from the seven
amendments and agreeing on a new set of milestones for future development.
The
License Agreement also requires ViCapsys to pay to MGH a one percent (1%) royalty rate on net sales related to the first license sub-field,
which is the treatment of Type 1 Diabetes. Future sub-fields shall carry a reasonable royalty rate, consistent with industry standards,
to be negotiated at the time the first such royalty payment shall become due with respect to the applicable Products and Processes (as
defined in the License Agreement). The License Agreement additionally requires ViCapsys to pay to MGH a $1 million ($1,000,000) “success
payment” within 60 days after the first achievement of total Net Sales of Product or Process equal or exceed $100 million ($100,000,000)
in any calendar year and $4 million ($4,000,000) within sixty (60) days after the first achievement of total Net Sales of Product or
process equal or exceed $250 million ($250,000,000) in any calendar year. ViCapsys is also required to reimburse MGH’s expenses
in connection with the preparation, filing, prosecution and maintenance of all Patent Rights.
The
License Agreement expires on the later of (i) the date on which all issued patents and filed patent applications within the Patent Rights
have expired or been abandoned, and (ii) one (1) year after the last sale for which a royalty is due under the License Agreement.
The
License Agreement also grants MGH the right to terminate the License Agreement if ViCapsys fails to make any payment due under the License
Agreement or defaults in the performance of any of its other obligations under the License Agreement, subject to certain notice and rights
to cure set forth therein. MGH may also terminate the License Agreement immediately upon written notice to ViCapsys if ViCapsys: (i)
shall make an assignment for the benefit of creditors; or (ii) shall have a petition in bankruptcy filed for or against it that is not
dismissed within sixty (60) days of filing.
ViCapsys
may terminate the License Agreement prior to its expiration by giving ninety (90) days’ advance written notice to MGH, and upon
such termination shall, subject to the terms of the License Agreement, immediately cease all use and sales of Products and Processes.
As
of the date hereof, there have not been any sales of product or process under this License Agreement.
Share
Exchange
On
December 22, 2017, pursuant to the Share Exchange Agreement, the shareholders of ViCapsys and VLS consummated a share exchange (the “Share
Exchange”), pursuant to which:
|
●
|
each
issued and outstanding share of ViCapsys common stock was exchanged for one and one-half (1-1/2) shares of common stock of the Company;
|
|
●
|
each
issued and outstanding share of ViCapsys Series A Preferred Stock was exchanged for one and one-half (1-1/2) shares of Series A Convertible
Preferred Stock of the Company;
|
|
●
|
each
issued and outstanding share of ViCapsys Series B Preferred Stock was exchanged for one and one-half (1-1/2) shares of Series B Convertible
Preferred Stock of the Company;
|
|
●
|
each
option to purchase shares of ViCapsys common stock, whether or not then vested or exercisable (a “ViCapsys Option”),
was converted into an option to acquire a number of shares of common stock of the Company equal to the number of shares of ViCapsys
common stock subject to such ViCapsys Option, multiplied by 1.5, with an exercise price per share equal to the exercise price per
share of the ViCapsys Option, divided by 1.5; and
|
|
●
|
each
warrant to purchase or receive shares of ViCapsys common stock, whether or not then vested or exercisable (a “ViCapsys Warrant”),
was converted into a warrant to acquire a number of shares of VLS common stock equal to the number of shares of ViCapsys common stock
subject to such ViCapsys Warrant, multiplied by 1.5, with an exercise price per share equal to the exercise price per share of the
ViCapsys Warrant, if any, divided by 1.5.
|
As
a result of the Share Exchange Agreement, ViCapsys became a wholly-owned subsidiary of the Company and the prior shareholders of ViCapsys
received, in the aggregate, approximately 87.45% on a fully diluted basis of the issued and outstanding shares of the Company after the
closing of the Exchange Agreement.
As
a result of the Share Exchange Agreement, for financial statement reporting purposes, the Share Exchange Agreement between the Company
and ViCapsys has been treated as a reverse acquisition and recapitalization with ViCapsys being deemed the accounting acquirer and the
Company deemed the accounting acquiree under the acquisition method of accounting in accordance with ASC Section 805-10-55 issued by
the Financial Accounting Standards Board (FASB). Therefore, the consolidated financial statements are those of ViCapsys (the accounting
acquirer) prior to the Share Exchange Agreement and reflect the consolidated operations of the Company (the accounting acquiree) from
the date of the Share Exchange Agreement. Prior to the Share Exchange Agreement, the Company had no operations. The equity of the consolidated
entity is the historical equity of ViCapsys retroactively restated to reflect the number of shares issued by the Company in the reverse
acquisition.
Lease
Agreements
None
Investment
and Restructuring Agreement
On
May 21, 2019, pursuant to that certain Investment and Restructuring Agreement, dated April 11, 2019 (the “IAR Agreement”),
by and among the Company; ViCapsys; YPH, LLC, a Texas limited liability company (“YPH”); Stephen McCormack, the then Chief
Executive Officer and a director of the Company; Steven Gorlin, then a director of the Company; Charles Farrahar, the then Chief Financial
Officer of the Company; Athens Encapsulation Inc., a George corporation (“AEI”); and additional investors (the “Additional
Investors”) pursuant to which:
|
●
|
Stephen
McCormack and Steven Gorlin each resigned from the Board of Directors of the Company and from all positions as officers or employees
of the Company and ViCapsys.
|
|
|
|
|
●
|
Michael
Yurkowsky and Frances Toneguzzo were appointed to the Board of Directors to replace Mr. McCormack and Mr. Gorlin. Federico Pier was
appointed as the Executive Chairman of the Board of Directors of the Company. Michael Yurkowsky and Frances Toneguzzo were appointed
the Board of Directors of the Company. Ms. Toneguzzo was appointed as the Chief Executive Officer of the Company.
|
|
|
|
|
●
|
YPH
and the Additional Investors (together, the “Investors”) purchased an aggregate of 3,980,000 shares of common stock of
the Company at a purchase price of $0.25 per share and warrants to purchase the same amount of common stock exercisable from the
date of their respective investment dates (ranging from July 14, 2019 to September 9, 2019) (the “Investment Date”) until
the third anniversary of the Investment Date for $0.50 per share. The Company received $971,500 net proceeds from the sale of the
common stock and warrants.
|
|
|
|
|
●
|
The
Company assigned all of the Company’s right, title and interest in the Master Service Agreement (the “MSA”) and
related work orders with its customer, Otsuka, to AEI.
|
|
|
|
|
●
|
ViCapsys
assigned its lease to the Athens, Georgia Laboratory and office (the “Athens Facility”) to AEI.
|
|
●
|
The
Company contributed to AEI all physical assets located at the Athens Facility. These contributed assets did not include intellectual
property related to the use of CXCL12, and the AEI Parties agreed that neither they nor any affiliated party will use CXCL12 or any
analogues in any of its activities. The Company retained the right to use any of the “encapsulation technology” utilized
or developed at the Athens Facility before the IAR Agreement was executed.
|
|
|
|
|
●
|
AEI
assumed certain liabilities of the Company, including, but not limited to: $189,922 owed by the Company to Aperisys, Inc.; an aggregate
of $353,092 in advances made by Steve Gorlin, Charles Farrahar and Stephen McCormack to the Company; an aggregate of $395,833 in
accrued salaries owed by the Company to Stephen McCormack and Charles Farrahar; and an aggregate of $150,395 in trade payables attributable
to the Athens Facility.
|
|
|
|
|
●
|
AEI
issued an aggregate of 1,600 shares of AEI common stock (the “AEI Common Stock”) to the officer and employees of AEI
(the “AEI Shareholders”), representing 80% of the outstanding capital stock of AEI. The AEI Shareholders are Steve Gorlin,
Stephen McCormack, and Charles Farrahar, current shareholders of the Company who beneficially own 11.9%, 3.3% and 2.6%, respectively,
of the Company’s common stock and two of whom were former Directors of the Company.
|
|
|
|
|
●
|
AEI
issued 400 shares of preferred stock (the “AEI Preferred Stock”), to the Company. Once AEI pays the assumed liabilities
noted above, the Certificate of Designation for the AEI Preferred Stock entitles the holder to receive all distributions made by
AEI on any of its equity securities up to a total of $4,000,000 (the “AEI Preferred Payment”). Following the full payment
of the AEI Preferred Payment, the AEI Preferred Stock shall automatically be converted into a number of shares of AEI Common Stock
such that it is equal to 20% of all issued and outstanding AEI Common Stock at such time.
|
|
|
|
|
●
|
Mr.
McCormack and the Company amended Mr. McCormack’s original option agreement dated March 20, 2017, to (i) reduce the number
of Mr. McCormack’s option shares from 1,440,000 to 600,000; and (ii) extend the exercise period of Mr. McCormack’s options
from three (3) months to three (3) years following the Closing Date.
|
The
primary purpose of the IAR Agreement was to raise capital in order to continue to pursue, with appropriate governmental approvals, clinical
trials and commercial development of the technology. The Company accounted for this transaction as a discontinued operation in the consolidated
financial statements for the year ended December 31, 2019.
Manufacturing
We
contract primarily with small and medium-sized manufacturers that are subject to FDA compliance and approval standards. These manufacturers
are highly innovative and cost effective because of their streamlined sales infrastructures. All of our manufacturing partners will be
qualified to manufacture under the FDA’s Quality System Regulations/ISO 13485 standards. The Company intends to retain in-house
the quality assurance function so that we can approve all products prior to their release to market. We also intend to utilize high quality
software in an effort to assure that our products remain compliant throughout all operations. The Company believes that there are no
significant issues with availability of needed materials that would prevent us from meeting the projected market demand for our initial
products in a timely manner. Packaging design and manufacturing will be outsourced to one or more experienced medical device packaging
companies. The Company believes that this will allow for accelerated time to market and optimizing the shelf life of those products that
are pre-packaged sterile.
Our
Market
We
intend to develop therapeutic products for treatment of Type 1 Diabetes (TID). A 2020 report from Centers for Disease Control and Prevention
(CDC) shows a nearly 30% increase in TID diagnoses in the United States, with youth cases growing most sharply among diverse populations.
The CDC’s 2020 National Diabetes Statistics Report, cites that in the United States, T1D diagnoses included 1.4 million adults,
20 years and older, and 187,000 children younger than 20.
That
totals nearly 1.6 million Americans with T1D—up from 1.25 million people—or nearly 30% from 2017.
A
separate CDC report, focused on T1D in youth, showed that T1D is growing most sharply in African American and Hispanic youth populations.
As the reason is unknown, the CDC is advocating for continued “surveillance” of T1D in today’s youth populations.
According
to the report, between 2002 and 2015:
|
●
|
T1D
cases among African American children increased by 20% with 20.8 children diagnosed per 100,000
|
|
●
|
T1D
cases among Hispanic children increased nearly 20% with 16.3 per 100,000
|
|
●
|
T1D
cases among Asian / Pacific Island children increased 19% with 9.4 per 100,000
|
|
●
|
White
children are the slowest growing demographic with a 14% increase, yet remain the most impacted group with 27.3 T1D cases per 100,000
|
The
report also showed that diagnoses occurred most frequently between the ages of 5 and 14.
|
●
|
33.5%
were ages 10-14
|
|
●
|
27%
were 5-9
|
The
latest CDC data further demonstrates that despite all the progress in managing the disease, our community’s needs are growing and
the need to respond is even more urgent today.
Competition
We
are engaged in rapidly evolving industries. Competition from other pharmaceutical companies and from other research and academic institutions
is intense and expected to increase. Many of these companies have substantially greater financial and other resources and development
capabilities than we do, have substantially greater experience in undertaking pre-clinical and clinical testing of products, and are
commonly regarded in the pharmaceutical industries as very aggressive competitors. In addition to competing with universities and other
research institutions in the development of products, technologies and processes, we compete with other companies in acquiring rights
to products or technologies from universities. There can be no assurance that we can develop products that are more effective or achieve
greater market acceptance than competitive products, that we can convince physicians, hospitals and patients of the benefits of our technology,
or that our competitors will not succeed in developing products and technologies that are more effective than those being developed by
us and that would therefore render our products and technologies less competitive or even obsolete.
Several
companies are developing therapies to treat Type 1 Diabetes. The companies listed below are select competitors that are specifically
developing competitively or potentially competitive transplant technologies for treatment of Type 1 Diabetes.
|
●
|
ViaCyte
Inc. develops human embryonic stem cells that differentiate into pancreatic progenitor cells. We believe they are one of our most
significant and advanced competitors, as they announced on August 1, 2017 that the first patients have been implanted with the PEC-Direct™
product candidate, an islet cell replacement therapy in development as a functional cure for patients with Type 1 Diabetes who are
at high risk for acute life-threatening complications. ViaCyte has established a collaboration with W.L. Gore & Associates, the
makers of Goretex to created devices for implantation and protection of transplanted islets. ViacCte is currently recruiting for
a Phase 1/II clinical trial (NCT03163511).
|
|
|
|
|
●
|
Sernova
Corp. is a microcap company trading on the Toronto, Canada exchange that has developed a macro-cell pouch system for encapsulating
cadaveric (allo-) islets that is currently in a Phase 1/II clinical trial. In July 2019, Sernova reported interim analysis demonstrating
the cell pouch transplanted with islet cells showed initial safety as well as key efficacy measures.
|
|
|
|
|
●
|
Beta
O2 Technologies Ltd. (Rosh-Haayin, Israel). A biomedical company developing an implantable device, the BetaAir, to encapsulate islet
cells for the treatment of Type 1 Diabetes. They are in the process of changing from a device that requires external infusion of
oxygen into their encapsulation device containing islet cells. Last public information was in 2015. Status of company unclear.
|
|
|
|
|
●
|
DefyMed
(Strasbourg, France): Defymed was founded in 2011 to develop implantable bio-artificial medical devices for diverse therapeutic applications,
with a first focus on Type 1 Diabetes. The diabetes product, named MAILPAN® (Macro- encapsulation of PANcreatic Islets), is a
result of work done by the Centre Europeen d’etude du Diabete (CeeD), STATICE and the Centre de Transfert de Technologies du
Mans (CTTM). The Mailpan system which is still in preclinical development uses non-biodegradable, biocompatible membranes for selective
diffusion of insulin and glucose while protecting implanted stem-cell derived beta cells.
|
|
●
|
Sigilon
Therapeutics is a discovery-based platform combines cell engineering and its proprietary Afibromer™ technology, a new class
of implantable biomaterials that do not trigger fibrosis. The company will develop products that emerge from its discovery platform
to treat serious hematologic, enzyme deficiency and endocrine disorders –including T1D. They partnered with Lilly on the T1D
indication in April 2018 but no recent information is available on the status of the partnership.
|
|
|
|
|
●
|
Novo
Nordisk has a stem cell line that differentiates into beta cells and one of the largest diabetes franchises in the world. In collaboration
with Cornell researchers they have developed a hydrogel-based nanofiber encapsulation device with macroscopic dimensions. Currently
appear to be in pre-clinical development.
|
|
|
|
|
●
|
Sanofi
and Evotec formed a partnership to jointly develop a beta cell replacement therapy for the treatment of diabetes in a deal that could
reach more than 300 million Euros in potential milestone payments. Evotec achieved a milestone in 2018 for a manufacturing process
for generation of iPSC-derived beta cells including scale-up. Collaboration is still in the pre-clinical phase.
|
Several
companies have developed and are continuing to develop products and treatments to treat scar formation and/or internal adhesions resulting
from the fibrosis process, which may compete with the products and treatments that we develop.
The
following selected companies are developing products to treat scar formation and/or internal adhesions:
|
●
|
Baxter
Healthcare has been marketing Adept®, a liquid solution for adhesion reduction, for gynecologic laparoscopic adhesiolysis indications
since 2006.. Baxter’s Adept solution has been extensively studied and its ability to prevent adhesions is controversial. Baxter
Healthcare also markets COSEAL®, a synthetic hydrogel used in patients undergoing cardiac or abdomino-pelvic surgery to prevent
or reduce the incidence, severity and extent of postsurgical adhesion formation. In February 2020, Baxter acquired the Sanofi franchise
for Seprafilm Adhesion Barrier, a mechanical bioresorbable adhesion barrier that is indicated for the reduction in the incidence,
extent, and severity of postoperative adhesions in patients undergoing abdominal or pelvic laparotomy. While Seprafilm is regarded
as an effective barrier, challenges with respect to placement remain and limit its widespread use.
|
|
|
|
|
●
|
Gynecare
Worldwide, a division of Ethicon, Inc., a Johnson & Johnson company, markets Interceed®, a sheet adhesion barrier similar
in intended use to Seprafilm but is indicated only for selected open gynecological indications.
|
|
|
|
|
●
|
FzioMed,
Inc. has received CE Mark approval in the European Union for Oxiplex®/AP Gel, an adhesion barrier for abdominal/pelvic surgery,
and is conducting a clinical trial in the U.S., which is expected to be completed by December 2020. Fziomed has announced a global
distribution agreement with Ethicon for distribution of Oxiplex/AP Gel.
|
|
|
|
|
●
|
Covidien
introduced SprayShield®, an adhesion barrier used in abdominopelvic procedures, that is approved for sale in Europe. In 2013,
Covidien sold the SprayShield product line to Integra Life Sciences.
|
Research
and Development
The
Company is primarily engaged in preclinical testing of CXCL12 and delivery systems associated with the treatment of Type 1 Diabetes.
Costs and expenses that can be clearly identified as research and development are charged to expense as incurred. For the years ended
December 31, 2020, and 2019, the Company recorded $102,180 and $98,983, respectively, of research and development expenses to
a related party.
Intellectual
Property
We
strive to protect and enhance the proprietary technology, inventions and improvements that we believe are commercially important to our
business by seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties existing and
planned therapeutic programs. We also rely on trade secret protection and confidentiality agreements to protect our proprietary technologies
and know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection,
as well as continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position
in the field of cellular therapies.
We
will additionally rely on trademark protection, copyright protection and regulatory protection available via orphan drug designations,
data exclusivity, market exclusivity, and patent term extensions. Our success will depend significantly on our ability to defend and
enforce our intellectual property rights and our ability to operate without infringing any valid and enforceable patents and proprietary
rights of third parties.
Patents
and Copyrights
We
do not currently own any patents or copyrights. Pursuant to our License Agreement with MGH, MGH granted us, in the field of coating and
transplanting cells, tissues and devices for therapeutic purposes, on a worldwide basis: (i) an exclusive, royalty-bearing license under
its rights in Patent Rights (as defined in the License Agreement) to make, use, sell, lease, import and transfer Products and Processes
(each as defined in the License Agreement); (ii) a non-exclusive, sub-licensable (solely in the License Field and License Territory (each
as defined in the License Agreement)) royalty- bearing license to Materials (as defined in the License Agreement) and to make, have made,
use, have used, Materials for only the purpose of creating Products, the transfer of Products and to use, have used and transfer Processes;
(iii) the right to grant sublicenses subject to and in accordance with the terms of the License Agreement, and (iv) the nonexclusive
right to use Technological Information (as defined in the License Agreement) disclosed by MGH to the Company under the License Agreement,
all subject to and in accordance with the License Agreement.
Pursuant
to the IAR Agreement, we retained the right to use any and all know-how relating to “encapsulation technology” then utilized
at the Athens Facility in order to develop and/or manufacture any products covered by patents or patent applications owned or controlled
by VI and know-how related thereto, including know-how regarding the use of CXCL12 and all intellectual property rights related thereto.
Trademarks
The
table below sets forth information about our two trademarks:
Trademark:
|
|
Serial
No:
|
|
Status:
|
|
Owner:
|
|
Issue
Date:
|
|
Filing
Date:
|
|
Published
for Opposition:
|
|
Goods
and Services:
|
VICAPSYN
|
|
87608595
|
|
731
- Second Extension - Granted
|
|
Vicapsys,
Inc.
|
|
4/10/2019
|
|
9/14/2017
|
|
2/23/2018
|
|
Cells
for medical or clinical use, namely, implantable and insulin producing pancreatic cells
|
VYBRIN
|
|
87657573
|
|
First
Extension - Granted 7/15/2019
|
|
Vicapsys,
Inc.
|
|
|
|
10/24/2017
|
|
7/31/2018
|
|
Pharmaceutical
preparations, namely, liquid compositions for application to human tissue for reducing fibrosis, scarring and keloid formation for
use by medical professionals, namely, surgeons
|
Government
Regulation
Government
authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European
Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging,
storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import
and export of pharmaceutical products, including biological products. Some jurisdictions outside of the United States also regulate the
pricing of such products. The processes for obtaining marketing approvals in the United States and in other countries and jurisdictions,
along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of
substantial time and financial resources.
Licensure
and Regulation of Biologics in the United States
In
the United States, our product candidates are regulated as biological products, or biologics, under the Public Health Service Act or
PHSA, and the Federal Food, Drug, and Cosmetic Act, or FDCA, and their implementing regulations. The failure to comply with the applicable
U.S. requirements at any time during the product development process, including nonclinical testing, clinical testing, the approval process
or post-approval process, may subject an applicant to delays in the conduct of a study, regulatory review and approval, and/or administrative
or judicial sanctions. These sanctions may include, but are not limited to, the FDA’s refusal to allow an applicant to proceed
with clinical testing, refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, untitled
or warning letters, adverse publicity, product recalls, product seizures, total or partial suspension of production or distribution,
injunctions, fines, and civil or criminal investigations and penalties brought by the FDA or the Department of Justice, or DOJ, or other
governmental entities. An applicant seeking approval to market and distribute a new biologic in the United States generally must satisfactorily
complete each of the following steps:
|
●
|
preclinical
laboratory tests, animal studies and formulation studies all performed in accordance with the FDA’s Good Laboratory Practice,
or GLP, regulations;
|
|
●
|
submission
to the FDA of an Investigational New Drug, or IND, application for human clinical testing, which must become effective before human
clinical trials may begin;
|
|
●
|
approval
by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated,
or by a central IRB if appropriate;
|
|
●
|
performance
of adequate and well-controlled human clinical trials to establish the safety, potency, and purity of the product candidate for each
proposed indication, in accordance with the FDA’s Good Clinical Practice, or GCP, regulations;
|
|
●
|
preparation
and submission to the FDA of a Biologics License Application, or BLA, for a biologic product requesting marketing for one or more
proposed indications, including submission of detailed information on the manufacture and composition of the product and proposed
labeling;
|
|
●
|
review
of the product by an FDA advisory committee, where appropriate or if applicable;
|
|
●
|
satisfactory
completion of one or more FDA inspections of the manufacturing facility or facilities, including those of third parties, at which
the product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that the facilities, methods,
and controls are adequate to preserve the product’s identity, strength, quality, and purity, and, if applicable, the FDA’s
current good tissue practice, or CGTP, for the use of human cellular and tissue products;
|
|
●
|
satisfactory
completion of any FDA audits of the nonclinical study and clinical trial sites to assure compliance with GLPs and GCPs, respectively,
and the integrity of clinical data in support of the BLA;
|
|
●
|
payment
of user fees and securing FDA approval of the BLA;
|
|
●
|
compliance
with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy,
or REMS, adverse event reporting, and compliance with any post-approval studies required by the FDA; and
|
|
●
|
Preclinical
Studies and Investigational New Drug Application.
|
Before
testing any biologic product candidate in humans, including a gene therapy product candidate, the product candidate must undergo preclinical
testing. Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate
the potential for efficacy and toxicity in animals. The conduct of the preclinical tests and formulation of the compounds for testing
must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information
and analytical data, are submitted to the FDA as part of an IND application. The IND automatically becomes effective 30 days after receipt
by the FDA, unless before that time the FDA imposes a clinical hold based on concerns or questions about the product or conduct of the
proposed clinical trial, including concerns that human research subjects would be exposed to unreasonable and significant health risks.
In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns before the clinical trials can begin.
As
a result, submission of the IND may result in the FDA not allowing the trials to commence or allowing the trial to commence on the terms
originally specified by the sponsor in the IND. If the FDA raises concerns or questions either during this initial 30-day period, or
at any time during the conduct of the IND study, including safety concerns or concerns due to non-compliance, it may impose a partial
or complete clinical hold. This order issued by the FDA would delay either a proposed clinical study or cause suspension of an ongoing
study, until all outstanding concerns have been adequately addressed and the FDA has notified the company that investigations may proceed
or recommence but only under terms authorized by the FDA. This could cause significant delays or difficulties in completing planned clinical
studies in a timely manner.
Human
Clinical Trials in Support of a BLA
Clinical
trials involve the administration of the investigational product candidate to healthy volunteers or patients with the disease to be treated
under the supervision of a qualified principal investigator in accordance with GCP requirements. Clinical trials are conducted under
study protocols detailing, among other things, the objectives of the study, inclusion and exclusion criteria, the parameters to be used
in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and subsequent protocol amendments
must be submitted to the FDA as part of the IND.
A
sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical
trial under an IND. If a non-U.S. clinical trial is not conducted under an IND, the sponsor may submit data from a well-designed and
well-conducted clinical trial to the FDA in support of the BLA so long as the clinical trial is conducted in compliance with GCP and
the FDA is able to validate the data from the study through an onsite inspection if the FDA deems it necessary.
Further,
each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, either centrally or individually
at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, clinical trial design,
subject informed consent, ethical factors, and the safety of human subjects. An IRB must operate in compliance with FDA regulations.
The FDA or the clinical trial sponsor may suspend or terminate a clinical trial at any time for various reasons, including a finding
that the clinical trial is not being conducted in accordance with FDA requirements or the subjects or patients are being exposed to an
unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical
trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious
harm to patients. Clinical testing also must satisfy extensive GCP rules and the requirements for informed consent. Additionally, some
clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety
monitoring board or committee. This group may recommend continuation of the study as planned, changes in study conduct, or cessation
of the study at designated check points based on access to certain data from the study. Finally, research activities involving infectious
agents, hazardous chemicals, recombinant DNA, and genetically altered organisms and agents may be subject to review and approval of an
Institutional Biosafety Committee, or IBC, a local institutional committee that reviews and oversees basic and clinical research conducted
at that institution established under the National Institutes of Health, or NIH, Guidelines for Research Involving Recombinant or Synthetic
Nucleic Acid Molecules, or NIH Guidelines. The IBC assess the safety of the research and identifies any potential risk to public health
or the environment.
Clinical
trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Additional studies may be required
after approval.
|
●
|
Phase
1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including adverse
effects, dose tolerance, absorption, metabolism, distribution, excretion, and pharmacodynamics in healthy humans or, on occasion,
in patients, such as cancer patients.
|
|
|
|
|
●
|
Phase
2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety
risks, evaluate the efficacy of the product candidate for specific targeted indications and determine dose tolerance and optimal
dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and costlier
Phase 3 clinical trials.
|
|
|
|
|
●
|
Phase
3 clinical trials are undertaken within an expanded patient population to further evaluate dosage and gather the additional
information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide
an adequate basis for physician labeling.
|
Progress
reports detailing the results, if known, of the clinical trials must be submitted at least annually to the FDA. Written IND safety reports
must be submitted to the FDA and the investigators within 15 calendar days after determining that the information qualifies for reporting.
IND safety reports are required for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro
testing that suggest a significant risk to humans exposed to the drug, and any clinically important increase in the rate of a serious
suspected adverse reaction over that listed in the protocol or investigator brochure. Additionally, a sponsor must notify FDA within
7 calendar days after receiving information concerning any unexpected fatal or life-threatening suspected adverse reaction.
In
some cases, the FDA may approve a BLA for a product candidate but require the sponsor to conduct additional clinical trials to further
assess the product candidate’s safety and effectiveness after approval. Such post-approval trials are typically referred to as
Phase 4 clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic
indication and to document a clinical benefit in the case of biologics approved under accelerated approval regulations. Failure to exhibit
due diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of approval for products.
Compliance
with cGMP and CGTP Requirements
Before
approving a BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve
an application unless it determines that the manufacturing processes and facilities are in full compliance with cGMP requirements and
adequate to assure consistent production of the product within required specifications. The PHSA emphasizes the importance of manufacturing
control for products like biologics whose attributes cannot be precisely defined.
For
a gene therapy product, the FDA also will not approve the product if the manufacturer is not in compliance with CGTP. These requirements
are found in FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells,
tissues, and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion,
or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that cell and tissue-based products are
manufactured in a manner designed to prevent the introduction, transmission, and spread of communicable disease. FDA regulations also
require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through screening
and testing.
Manufacturers
and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain
state agencies for products intended for the U.S. market, and with analogous health regulatory agencies for products intended for other
markets globally. Both U.S. and non-U.S. manufacturing establishments must register and provide additional information to the FDA and/or
other health regulatory agencies upon their initial participation in the manufacturing process. Any product manufactured by or imported
from a facility that has not registered, whether U.S. or non-U.S., is deemed misbranded under the FDCA, and could be affected by similar
as well as additional compliance issues in other jurisdictions. Establishments may be subject to periodic unannounced inspections by
government authorities to ensure compliance with cGMPs and other laws. Manufacturers may also have to provide, on request, electronic
or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA or other governing
health regulatory agency may lead to a product being deemed to be adulterated.
Review
and Approval of a BLA
The
results of product candidate development, preclinical testing, and clinical trials, including negative or ambiguous results as well as
positive findings, are submitted to the FDA as part of a BLA requesting a license to market the product. The BLA must contain extensive
manufacturing information and detailed information on the composition of the product and proposed labeling as well as payment of a user
fee.
The
FDA has 60 days after submission of the application to conduct an initial review to determine whether it is sufficient to accept for
filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission
has been accepted for filing, the FDA begins an in-depth review of the application. Under the goals and policies agreed to by the FDA
under the Prescription Drug User Fee Act, or the PDUFA, the FDA has ten months in which to complete its initial review of a standard
application and respond to the applicant, and six months for a priority review of the application. The FDA does not always meet its PDUFA
goal dates for standard and priority BLAs. The review process may often be significantly extended by FDA requests for additional information
or clarification. The review process and the PDUFA goal date may be extended by three months if the FDA requests or if the applicant
otherwise provides through the submission of a major amendment additional information or clarification regarding information already
provided in the submission within the last three months before the PDUFA goal date.
Under
the PHSA, the FDA may approve a BLA if it determines that the product is safe, pure, and potent and the facility where the product will
be manufactured meets standards designed to ensure that it continues to be safe, pure, and potent. On the basis of the FDA’s evaluation
of the application and accompanying information, including the results of the inspection of the manufacturing facilities and any FDA
audits of nonclinical study and clinical trial sites to assure compliance with GLPs and GCPs, respectively, the FDA may issue an approval
letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information
for specific indications. If the application is not approved, the FDA will issue a complete response letter, which will contain the conditions
that must be met in order to secure final approval of the application, and when possible will outline recommended actions the sponsor
might take to obtain approval of the application. Sponsors that receive a complete response letter may submit to the FDA information
that represents a complete response to the issues identified by the FDA. Such resubmissions are classified under PDUFA as either Class
1 or Class 2. The classification of a resubmission is based on the information submitted by an applicant in response to an action letter.
Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission and six months
to review a Class 2 resubmission. The FDA will not approve an application until issues identified in the complete response letter have
been addressed. Alternatively, sponsors that receive a complete response letter may either withdraw the application or request a hearing.
The
FDA may also refer the application to an advisory committee for review, evaluation, and recommendation as to whether the application
should be approved. In particular, the FDA may refer applications for novel biologic products or biologic products that present difficult
questions of safety or efficacy to an advisory committee. Typically, an advisory committee is a panel of independent experts, including
clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should
be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations
carefully when making decisions.
If
the FDA approves a new product, it may limit the approved indications for use of the product. It may also require that contraindications,
warnings or precautions be included in the product labeling. In addition, the FDA may call for post-approval studies, including Phase
4 clinical trials, to further assess the product’s safety after approval. The agency may also require testing and surveillance
programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk
management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can include
medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but
are not limited to, specific or special training or certification for prescribing or dispensing, dispensing only under certain circumstances,
special monitoring, and the use of patent registries. The FDA may prevent or limit further marketing of a product based on the results
of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications,
certain manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Fast
Track, Breakthrough Therapy and Priority Review Designations
The
FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment
of a serious or life-threatening disease or condition. These programs are referred to as fast track designation, breakthrough therapy
designation, and priority review designation. Our product candidates do not currently qualify under any of the foregoing programs which
are also described below.
Specifically,
the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other products,
for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs
for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate
review of sections of a fast track product’s application before the application is complete. This rolling review may be available
if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective.
The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must
pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last
section of the application is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that
the designation is no longer supported by data emerging in the clinical trial process, or if the designated drug development program
is no longer being pursued.
Second,
FDA has a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A product
may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other products, to treat
a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early
in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the
sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving
more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design
the clinical trials in an efficient manner.
Third,
the FDA may designate a product for priority review if it is a product that treats a serious condition and, if approved, would provide
a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product represents
a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased
effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting adverse reaction, documented
enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new
subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and
to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.
Accelerated
Approval Pathway
The
FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage
to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably
likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on
an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that
is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of
the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory
standards for safety and effectiveness as those granted traditional approval. Our product candidates do not currently qualify for accelerated
approval by the FDA which is also described below.
For
the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical
sign, or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate endpoints
can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic
effect that is considered reasonably likely to predict the clinical benefit of a product, such as an effect on IMM. The FDA has limited
experience with accelerated approvals based on intermediate clinical endpoints but has indicated that such endpoints generally could
support accelerated approval where a study demonstrates a relatively short-term clinical benefit in a chronic disease setting in which
assessing durability of the clinical benefit is essential for traditional approval, but the short-term benefit is considered reasonably
likely to predict long-term benefit.
The
accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is
required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint
occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of products for treatment of a variety
of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease
course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit.
The
accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval
confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate approved on this basis
is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to
confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during
post-marketing studies, would allow the FDA to withdraw the product from the market on an expedited basis. All promotional materials
for product candidates approved under accelerated regulations are subject to prior review by the FDA.
Post-Approval
Regulation
If
regulatory approval for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to
comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA has imposed as part
of the approval process. The sponsor will be required to report certain adverse reactions and production problems to the FDA, provide
updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Manufacturers
and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject
to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including
cGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Accordingly, the sponsor and its
third-party manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain
compliance with cGMP regulations and other regulatory requirements.
A
product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of
the product before it is released for distribution. If the product is subject to official lot release, the manufacturer must submit samples
of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the
manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some
products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity,
potency, and effectiveness of pharmaceutical products.
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in
revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new
safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences of a failure to
comply with regulatory requirements include, among other things:
|
●
|
restrictions
on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
|
|
|
|
|
●
|
fines,
untitled or warning letters or holds on post-approval clinical trials;
|
|
|
|
|
●
|
refusal
of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license
approvals;
|
|
|
|
|
●
|
product
seizure or detention, or refusal to permit the import or export of products; or
|
|
|
|
|
●
|
injunctions
or the imposition of civil or criminal penalties.
|
The
FDA strictly regulates marketing, labeling, advertising and promotion of licensed and approved products that are placed on the market.
Pharmaceutical products may be promoted only for the approved indications and in accordance with the provisions of the approved label.
The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that
is found to have improperly promoted off-label uses may be subject to significant liability.
Orphan
Drug Designation
Orphan
drug designation in the United States is designed to encourage sponsors to develop products intended for rare diseases or conditions.
In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000 individuals in
the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation
that the cost of developing and making available the biologic for the disease or condition will be recovered from sales of the product
in the United States.
Orphan
drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the product’s
marketing approval if granted by the FDA. An application for designation as an orphan product can be made any time prior to the filing
of an application for approval to market the product. A product becomes an orphan when it receives orphan drug designation from the Office
of Orphan Products Development, or OOPD, at the FDA based on acceptable confidential requests made under the regulatory provisions. The
product must then go through the review and approval process for commercial distribution like any other product.
A
sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already marketed product.
In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may seek and obtain orphan
drug designation for the subsequent product for the same rare disease or condition if it can present a plausible hypothesis that its
product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for the same product
for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete request for designation.
The
period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the indication for
which the product has been designated. The FDA may approve a second application for the same product for a different use or a second
application for a clinically superior version of the product for the same use. The FDA cannot, however, approve the same product made
by another manufacturer for the same indication during the market exclusivity period unless it has the consent of the sponsor or the
sponsor is unable to provide sufficient quantities.
Pediatric
Studies and Exclusivity
Under
the Pediatric Research Equity Act of 2003, as amended, a BLA or supplement thereto must contain data that are adequate to assess the
safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and
administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study
plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans
to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The
applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other,
and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
The
FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until
after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Unless otherwise required
by regulation, the pediatric data requirements do not apply to products with orphan designation.
Pediatric
exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of
an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan
exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request
from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if
the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested
pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods
of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively
extends the regulatory period during which the FDA cannot approve another application.
Biosimilars
and Exclusivity
The
Patient Protection and Affordable Care Act, which was signed into law in March 2010, included a subtitle called the Biologics Price Competition
and Innovation Act of 2009 or BPCIA. The BPCIA established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable
biosimilars. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.
Under
the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable
with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar
product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product
in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the
agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for
products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered
without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
Under
the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of
the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved.
Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version
of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate
and well-controlled clinical trials to demonstrate the safety, purity, and potency of their product. The BPCIA also created certain exclusivity
periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable”
by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
Patent
Term Restoration and Extension
A
patent claiming a new biologic product may be eligible for a limited patent term extension under the Drug Price Competition and Patent
Term Restoration Act of 1984, or Hatch-Waxman Amendments, which permits a patent restoration of up to five years for patent term lost
during product development and FDA regulatory review. The restoration period granted on a patent covering a product is typically one-half
the time between the effective date of an IND and the submission date of a marketing application, plus the time between the submission
date of the marketing application and the ultimate approval date, less any time the applicant failed to act with due diligence. Patent
term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date.
Only one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted
prior to the expiration of the patent in question. A patent that covers multiple products for which approval is sought can only be extended
in connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension or restoration
in consultation with the FDA.
Regulation
and Procedures Governing Approval of Medicinal Products in the European Union
In
order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements
of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing
authorization, commercial sales and distribution of products. Whether or not it obtains FDA approval for a product, an applicant will
need to obtain the necessary approvals by the comparable health regulatory authorities before it can commence clinical trials or marketing
of the product in those countries or jurisdictions. Specifically, the process governing approval of medicinal products in the European
Union, or EU, generally follows the same lines as in the United States. It entails satisfactory completion of preclinical studies and
adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication. It also
requires the submission to the European Medicines Agency, or EMA, or the relevant competent authorities of a marketing authorization
application, or MAA, and granting of a marketing authorization by the EMA or these authorities before the product can be marketed and
sold in the EU.
Clinical
Trial Approval
Pursuant
to the currently applicable Clinical Trials Directive 2001/20/EC and the Commission Directive 2005/28/EC on GCP, a system for the approval
of clinical trials in the EU has been implemented through national legislation of the member states. Under this system, an applicant
must obtain approval from the competent national authority of an EU member state in which the clinical trial is to be conducted, or in
multiple member states if the clinical trial is to be conducted in a number of member states. Furthermore, the applicant may only start
a clinical trial at a specific study site after the ethics committee has issued a favorable opinion. The CTA must be accompanied by an
investigational medicinal product dossier with supporting information prescribed by Directive 2001/20/EC and Commission Directive 2005/28/EC
and corresponding national laws of the member states and further detailed in applicable guidance documents.
In
April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive
2001/20/EC. The new Clinical Trials Regulation (EU) No 536/2014 is expected to become applicable in 2019. It will overhaul the current
system of approvals for clinical trials in the EU. Specifically, the new legislation, which will be directly applicable in all member
states, aims at simplifying and streamlining the approval of clinical trials in the EU. For instance, the new Clinical Trials Regulation
provides for a streamlined application procedure via a single-entry point and strictly defined deadlines for the assessment of clinical
trial applications.
Marketing
Authorization
To
obtain a marketing authorization for a product under the EU regulatory system, an applicant must submit an MAA, either under a centralized
procedure administered by the European Medicines Agency, or EMA, or one of the procedures administered by competent authorities in EU
Member States (decentralized procedure, national procedure, or mutual recognition procedure). A marketing authorization may be granted
only to an applicant established in the EU. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in
the EU, an applicant must demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP,
covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, class waiver, or a deferral for
one or more of the measures included in the PIP.
The
centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all EU
member states. Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, including for
medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products
and products with a new active substance indicated for the treatment of certain diseases, including products for the treatment of cancer.
For products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure
may be optional.
Specifically,
the grant of marketing authorization in the European Union for products containing viable human tissues or cells such as gene therapy
medicinal products is governed by Regulation (EC) No 1394/2007 on advanced therapy medicinal products, read in combination with Directive
2001/83/EC of the European Parliament and of the Council, commonly known as the Community code on medicinal products. Regulation (EC)
No 1394/2007 lays down specific rules concerning the authorization, supervision, and pharmacovigilance of gene therapy medicinal products,
somatic cell therapy medicinal products, and tissue engineered products. Manufacturers of advanced therapy medicinal products must demonstrate
the quality, safety, and efficacy of their products to EMA which provides an opinion regarding the application for marketing authorization.
The European Commission grants or refuses marketing authorization in light of the opinion delivered by EMA.
Under
the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the EMA is responsible for
conducting an initial assessment of a product. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation
of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant
in response to questions of the CHMP. Accelerated evaluation may be granted by the CHMP in exceptional cases, when a medicinal product
is of major interest from the point of view of public health and, in particular, from the viewpoint of therapeutic innovation. If the
CHMP accepts such a request, the time limit of 210 days will be reduced to 150 days, but it is possible that the CHMP may revert to the
standard time limit for the centralized procedure if it determines that it is no longer appropriate to conduct an accelerated assessment.
Regulatory
Data Protection in the European Union
In
the European Union, new chemical entities approved on the basis of a complete independent data package qualify for eight years of data
exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Regulation (EC) No 726/2004, as
amended, and Directive 2001/83/EC, as amended. Data exclusivity prevents regulatory authorities in the European Union from referencing
the innovator’s data to assess a generic (abbreviated) application for a period of eight years. During the additional two-year
period of market exclusivity, a generic marketing authorization application can be submitted, and the innovator’s data may be referenced,
but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be
extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains
an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, is held
to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical
entity so that the innovator gains the prescribed period of data exclusivity, another company may market another version of the product
if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical
tests and clinical trials.
Periods
of Authorization and Renewals
A
marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation
of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To that end, the marketing authorization
holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy,
including all variations introduced since the marketing authorization was granted, at least nine months before the marketing authorization
ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the
competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period.
Any authorization that is not followed by the placement of the drug on the EU market (in the case of the centralized procedure) or on
the market of the authorizing member state within three years after authorization ceases to be valid.
Regulatory
Requirements after Marketing Authorization
Following
approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing,
marketing, promotion and sale of the medicinal product. These include compliance with the EU’s stringent pharmacovigilance or safety
reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. In addition, the
manufacturing of authorized products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict
compliance with the EMA’s GMP requirements and comparable requirements of other regulatory bodies in the EU, which mandate the
methods, facilities, and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. Finally,
the marketing and promotion of authorized products, including advertising directed toward the prescribers of drugs and/or the general
public, are strictly regulated in the European Union under Directive 2001/83/EC, as amended.
Orphan
Drug Designation and Exclusivity
Regulation
(EC) No 141/2000 and Regulation (EC) No 847/2000 provide that a product can be designated as an orphan drug by the European Commission
if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (i) a life-threatening or chronically
debilitating condition affecting not more than five in ten thousand persons in the EU when the application is made, or (ii) a life-threatening,
seriously debilitating or serious and chronic condition in the EU and that without incentives it is unlikely that the marketing of the
drug in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must
demonstrate that there exists no satisfactory method of diagnosis, prevention, or treatment of the condition in question that has been
authorized in the EU or, if such method exists, the drug will be of significant benefit to those affected by that condition.
An
orphan drug designation provides a number of benefits, including fee reductions, regulatory assistance, and the ability to apply for
a centralized EU marketing authorization. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity.
During this market exclusivity period, neither the European Commission nor the member states can accept an application or grant a marketing
authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product
containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for
the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may, however, be reduced to
six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation
because, for example, the product is sufficiently profitable not to justify market exclusivity.
For
other markets in which we might in future seek to obtain marketing approval for the commercialization of products, there are other health
regulatory regimes for seeking approval, and we would need to ensure ongoing compliance with applicable health regulatory procedures
and standards, as well as other governing laws and regulations for each applicable jurisdiction.
Coverage,
Pricing and Reimbursement
Significant
uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may seek regulatory approval by
the FDA or other government authorities. In the United States and markets in other countries, patients who are prescribed treatments
for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of
the associated healthcare costs. Patients are unlikely to use any product candidates we may develop unless coverage is provided and reimbursement
is adequate to cover a significant portion of the cost of such product candidates. Even if any product candidates we may develop are
approved, sales of such product candidates will depend, in part, on the extent to which third-party payors, including government health
programs in the United States such as Medicare and Medicaid, commercial health insurers, and managed care organizations, provide coverage,
and establish adequate reimbursement levels for, such product candidates. The process for determining whether a payor will provide coverage
for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once
coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing
the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage
to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular
indication.
In
order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic
studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain
FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary or cost effective.
A decision by a third-party payor not to cover any product candidates we may develop could reduce physician utilization of such product
candidates once approved and have a material adverse effect on our sales, results of operations and financial condition. Additionally,
a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further,
one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement
for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Third-party reimbursement
and coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment
in product development.
The
containment of healthcare costs also has become a priority of various federal, state and/or local governments, as well as other payors,
within the U.S. and in other countries globally, and the prices of pharmaceuticals have been a focus in these efforts. Governments and
other payors have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement,
and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from
the sale of any approved products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage
and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less
favorable coverage policies and reimbursement rates may be implemented in the future.
Outside
the United States, ensuring adequate coverage and payment for any product candidates we may develop will face challenges. Pricing of
prescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental authorities
can extend well beyond the receipt of regulatory marketing approval for a product and may require us to conduct a clinical trial that
compares the cost effectiveness of any product candidates we may develop to other available therapies. The conduct of such a clinical
trial could be expensive and result in delays in our commercialization efforts.
In
the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be
marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare
the cost-effectiveness of a particular product candidate to currently available therapies (so called health technology assessments, or
HTAs) in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to
restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal
products for human use. E.U. member states may approve a specific price for a product or it may instead adopt a system of direct or indirect
controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own
prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently,
many countries in the European Union have increased the amount of discounts required on pharmaceuticals and these efforts could continue
as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many
countries in the European Union. The downward pressure on health care costs in general, particularly prescription products, has become
intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic, and regulatory
developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained.
Reference pricing used by various European Union Member States, and parallel trade (arbitrage between low-priced and high-priced member
states), can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products, if approved in those countries.
Healthcare
Law and Regulation
Healthcare
providers and third-party payors play a primary role in the recommendation and prescription of pharmaceutical products that are granted
marketing approval. Arrangements with providers, consultants, third-party payors, and customers are subject to broadly applicable fraud
and abuse, anti-kickback, false claims laws, reporting of payments to physicians and teaching physicians and patient privacy laws and
regulations and other healthcare laws and regulations that may constrain our business and/or financial arrangements. Restrictions under
applicable federal and state healthcare laws and regulations, include the following:
|
●
|
the
U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting,
offering, paying, or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward
either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may
be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;
|
|
|
|
|
●
|
the
federal civil and criminal false claims laws, including the civil U.S. False Claims Act, and civil monetary penalties laws, which
prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government,
claims for payment that are false, fictitious, or fraudulent or knowingly making, using, or causing to be made or used a false record
or statement to avoid, decrease, or conceal an obligation to pay money to the federal government. In addition, the government may
assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the U.S. False Claims Act;
|
|
●
|
the
federal false statements statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making
any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services; similar
to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent
to violate it in order to have committed a violation;
|
|
|
|
|
●
|
the
anti-inducement law, which prohibits, among other things, the offering or giving of remuneration, which includes, without limitation,
any transfer of items or services for free or for less than fair market value (with limited exceptions), to a Medicare or Medicaid
beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier
of items or services reimbursable by a federal or state governmental program;
|
|
|
|
|
●
|
the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for
Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, (collectively “HIPAA”)
which imposes criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any
healthcare benefit program (including private payors) or obtain, by means of false or fraudulent pretenses, representations, or promises,
any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor
(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact
or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services;
|
|
●
|
HIPAA,
which impose obligations with respect to safeguarding the privacy, security, and transmission of individually identifiable information
that constitutes protected health information, including mandatory contractual terms and restrictions on the use and/or disclosure
of such information without proper authorization;
|
|
|
|
|
●
|
the
federal transparency requirements known as the federal Physician Payments Sunshine Act, under the U.S. Patient Protection and Affordable
Care Act, as amended by the U.S. Health Care and Education Reconciliation Act, collectively the Affordable Care Act or ACA, which
requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare &
Medicaid Services, or CMS, within the U.S. Department of Health and Human Services, information related to payments and other transfers
of value made by that entity to physicians and teaching hospitals, and requires certain manufacturers and applicable group purchasing
organizations to report ownership and investment interests held by physicians or their immediate family members;
|
|
|
|
|
●
|
federal
government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner
to government programs;
|
|
|
|
|
●
|
federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm
consumers;
|
|
|
|
|
●
|
The
Foreign Corrupt Practices Act, or FCPA, prohibits companies and their intermediaries from making, or offering or promising to make
improper payments to non-U.S. officials for the purpose of obtaining or retaining business or otherwise seeking favorable treatment;
and
|
|
|
|
|
●
|
analogous
laws and regulations in other national jurisdictions and states, such as state anti-kickback and false claims laws, which may apply
to healthcare items or services that are reimbursed by non-governmental third-party payors, including private insurers.
|
Some
state and other laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government in addition to requiring pharmaceutical manufacturers to report
information related to payments to physicians and other health care providers or marketing expenditures. State and other laws also govern
the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often
are not preempted by HIPAA, thus complicating compliance efforts.
Healthcare
Reform
A
primary trend in the U.S. healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposals
during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement
for drugs and other medical products, government control and other changes to the healthcare system in the United States.
By
way of example, the United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare.
In March 2010, the United States Congress enacted the ACA, which, among other things, includes changes to the coverage and payment for
products under government health care programs. Among the provisions of the ACA of importance to our potential product candidates are:
|
●
|
an
annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products,
apportioned among these entities according to their market share in certain government healthcare programs, although this fee would
not apply to sales of certain products approved exclusively for orphan indications;
|
|
|
|
|
●
|
expansion
of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals
with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate
liability;
|
|
|
|
|
●
|
expanded
manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and
generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid
drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicare
Advantage plans;
|
|
|
|
|
●
|
addressed
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for products that
are inhaled, infused, instilled, implanted or injected;
|
|
|
|
|
●
|
expanded
the types of entities eligible for the 340B drug discount program;
|
|
●
|
established
the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% point-of-sale-discount off the negotiated
price of applicable products to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’
outpatient products to be covered under Medicare Part D;
|
|
|
|
|
●
|
a
new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness
research, along with funding for such research; and
|
|
|
|
|
●
|
established
the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare
and Medicaid spending, potentially including prescription product spending. Funding has been allocated to support the mission of
the Center for Medicare and Medicaid Innovation from 2011 to 2019.
|
Other
legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, in August 2011, the Budget
Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction,
tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach
required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate
reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect
through 2024 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer
Relief Act of 2012, which, among other things, further reduced Medicare payments to several l providers, including hospitals, imaging
centers, and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to
providers from three to five years.
Since
its enactment, some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial,
Congressional, and Executive challenges. In 2012, the U.S. Supreme Court upheld certain key aspects of the legislation, including a tax-based
shared responsibility payment imposed on certain individuals who fail to maintain qualifying health coverage for all or part of a year,
which is commonly the requirement that all individuals maintain health insurance coverage or pay a penalty, referred to as the “individual
mandate.” Though Congress has not passed repeal legislation to date, the 2017 Tax Reform Act included a provision which repealed
the individual mandate effective January 1, 2019. On December 14, 2018, a U.S. District Court judge in the Northern District of Texas
ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate
was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. The Trump administration
and CMS have both stated that the ruling will have no immediate effect, and on December 30, 2018 the same judge issued an order staying
the judgment pending appeal. It is unclear how this decision and any subsequent appeals and other efforts to repeal and replace the ACA
will impact the ACA and our business.
On
January 20, 2017, United States President Donald Trump signed an Executive Order directing federal agencies with authorities and responsibilities
under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable
Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers,
health insurers, or manufacturers of pharmaceuticals or medical devices. A second Executive Order signed in 2017 terminates the cost-sharing
subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating
the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. The loss of
the cost share reduction payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA.
Congress continues to consider subsequent legislation to replace elements of the Affordable Care Act or to repeal it entirely. It is
unclear whether new legislation modifying the Affordable Care Act will be enacted, and, if so, precisely what the new legislation will
provide, when it will be enacted and what impact it will have on the availability of healthcare and containing or lowering the cost of
healthcare. We plan to continue to evaluate the effect that the Affordable Care Act and its possible repeal and replacement may have
on our business.
Further,
the Centers for Medicare & Medicaid Services, or CMS, recently proposed regulations that would give states greater flexibility in
setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health
benefits required under the ACA for plans sold through such marketplaces. On November 30, 2018, CMS announced a proposed rule that would
amend the Medicare Advantage and Medicare Part D prescription drug benefit regulations to reduce out of pocket costs for plan enrollees
and allow Medicare plans to negotiate lower rates for certain drugs. Among other things, the proposed rule changes would allow Medicare
Advantage plans to use pre-authorization (PA) and step therapy (ST) for six protected classes of drugs, with certain exceptions, permit
plans to implement PA and ST in Medicare Part B drugs; and change the definition of “negotiated prices” while a definition
of “price concession” in the regulations. It is unclear whether these proposed changes we be accepted, and if so, what effect
such changes will have on our business.
There
has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has
resulted in several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product
pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for pharmaceutical products. Individual states in the United States have also become increasingly active in enacting legislation and
implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage
importation from other countries and bulk purchasing. Beyond challenges to the ACA, other legislative measures have also been enacted
that may impose additional pricing and product development pressures on our business. For example, on May 30, 2018, the Right to Try
Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational
new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain
circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the
FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients
as a result of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to
that policy. We expect that additional foreign, federal and state 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 limited
coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
There
have been, and likely will continue to be, legislative and regulatory proposals at the national level in the U.S. and other jurisdictions
globally, as well as at some regional, state and/or local levels within the U.S. or other jurisdictions, directed at broadening the availability
of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effect on anticipated revenues from
product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial
condition and ability to develop product candidates.
Additional
Regulation
In
addition to the foregoing, state, and federal laws regarding environmental protection and hazardous substances, including the Occupational
Safety and Health Act, the Resource Conservation and Recovery Act, and the Toxic Substances Control Act, affect our business. These and
other laws govern the use, handling, and disposal of various biologic, chemical, and radioactive substances used in, and wastes generated
by, operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could
be liable for damages and governmental fines. Equivalent laws have been adopted in third countries that impose similar obligations.
Employees
As
of the date of this report, we have the equivalent of three employees, one of whom was a full-time employee. None of our employees are
represented by a labor union, and none of our employees has entered into a collective bargaining agreement with us. We consider our employee
relations to be good.