424B4 1 d684877d424b4.htm 424B4 424B4
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Filed pursuant to Rule 424(b)(4)
Registration No. 333-229600

5,880,000 Shares

 

 

LOGO

Common Stock

We are offering 5,880,000 shares of common stock. Our common stock is listed on the Nasdaq Global Select Market under the symbol “XERS”. On February 13, 2019, the last sale price of our common stock as reported on the Nasdaq Global Select Market was $10.54 per share.

We are an “emerging growth company” under the federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and for filings.

Investing in our common stock involves a high degree of risk. Before buying any shares, you should read carefully the discussion of the material risks of investing in our common stock under the heading “Risk Factors” starting on page 10 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     PER SHARE      TOTAL  

Public offering price

   $ 10.00      $ 58,800,000  

Underwriting discount (1)

   $ 0.60      $ 3,528,000  

Proceeds, before expenses, to Xeris Pharmaceuticals, Inc.

   $ 9.40      $ 55,272,000  

 

 

(1)    We refer you to “Underwriting” beginning on page 168 of this prospectus for additional information regarding underwriting compensation.

Delivery of the shares of common stock is expected to be made on or about February 19, 2019. We have granted the underwriters an option for a period of 30 days to purchase an additional 882,000 shares of our common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $4,057,200, and the total proceeds to us, before expenses, will be $63,562,800.

Joint Book-Running Managers

 

Jefferies   SVB Leerink   RBC Capital Markets
  Mizuho Securities  

The date of this prospectus is February 13, 2019.


Table of Contents

TABLE OF CONTENTS

 

 

 

     PAGE  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     10  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     57  

USE OF PROCEEDS

     59  

DIVIDEND POLICY

     60  

CAPITALIZATION

     61  

DILUTION

     62  

SELECTED FINANCIAL INFORMATION

     63  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     65  

BUSINESS

     78  

MANAGEMENT

     132  

EXECUTIVE COMPENSATION

     140  

DIRECTOR COMPENSATION

     151  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     153  

PRINCIPAL STOCKHOLDERS

     155  

DESCRIPTION OF CAPITAL STOCK

     158  

SHARES ELIGIBLE FOR FUTURE SALE

     162  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     164  

UNDERWRITING

     168  

LEGAL MATTERS

     176  

EXPERTS

     177  

WHERE YOU CAN FIND MORE INFORMATION

     178  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

 

 

 

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Neither we nor the underwriters have authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus, any amendment or supplement to this prospectus and any related free writing prospectus. We and the underwriters take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus or in any free writing prospectus is only accurate as of its date, regardless of its time or delivery or the time of any sale of our common stock. Our business, financial condition, results of operations and future growth prospects may have changed since that date.

 

 

 

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PROSPECTUS SUMMARY

This summary highlights information contained in greater detail elsewhere in this prospectus. This summary does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes thereto and the information set forth under the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included in this prospectus. Unless the context otherwise requires, we use the terms “Xeris,” the “Company,” “we,” “us,” “our” and similar designations in this prospectus to refer to Xeris Pharmaceuticals, Inc.

Our Company

We are a specialty pharmaceutical company leveraging our novel non-aqueous formulation technology platforms, XeriSol and XeriJect, to develop and commercialize ready-to-use injectable and infusible drug formulations. We have developed a ready-to-use, room-temperature stable liquid glucagon formulation that, unlike any currently available products, can be administered without any preparation or reconstitution. Our lead product candidate, Gvoke HypoPen, delivers ready-to-use glucagon via a commercially-available auto-injector for the treatment of severe hypoglycemia, a potentially life-threatening condition, in people with diabetes. We have completed three Phase 3 clinical trials for our Gvoke HypoPen and submitted a New Drug Application, or NDA, to the U.S. Food & Drug Administration, or the FDA, in August 2018. The FDA has set June 10, 2019 as the Prescription Drug User Fee Act, or PDUFA, action goal date for our NDA. If our NDA is approved at that time, we believe we will have the first ready-to-use, room-temperature stable liquid glucagon formulation that can be administered without any preparation or reconstitution. Additionally, through our interactions with the European Medicines Agency, or EMA, regarding our development path in Europe, we have finalized our regulatory plan and initiated a requisite Phase 3 pivotal trial to support our European Marketing Authority Application, or MAA. We also are applying our novel ready-to-use, room-temperature stable liquid glucagon formulation for the management of hypoglycemia associated with additional intermittent and chronic conditions with significant unmet medical need. In addition, we are applying our technology platforms to convert other commercially-available drugs into ready-to-use, room-temperature stable liquid formulations to address the needs in multiple therapeutic areas and conditions, including epilepsy and diabetes.

Our Technology Platforms and Our Pipeline

Our proprietary non-aqueous formulation technology platforms are designed to address solubility and stability challenges presented by current aqueous formulations of certain drugs. Our proprietary XeriSol and XeriJect platforms offer the opportunity to eliminate the need for reconstitution and refrigeration, enable long-term room-temperature stability, significantly reduce injection volume and allow for a more convenient subcutaneous or intramuscular administration as opposed to intravenous infusion, all of which we believe are distinct advantages over existing aqueous formulations of marketed and development-stage products and product candidates. We believe that our technology platforms can lead to products that will improve outcomes and enable easier administration while reducing costs for payors and the healthcare system. XeriSol is best suited for peptides and small molecules that currently encounter formulation challenges. XeriJect is best suited for drugs and biologics consisting of large molecules, such as proteins, monoclonal antibodies and vaccines.



 

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We are the sponsor of five active Investigational New Drug, or IND, applications for our Gvoke HypoPen and ready-to-use glucagon for the treatment of severe hypoglycemia and the intermittent and chronic conditions listed below, respectively, and one IND for ready-to-use diazepam for the treatment of epileptic seizures. The following table summarizes key information about our internal product candidates.

 

 

LOGO

 

*   Orphan Drug Designation

Additionally, we are providing our ready-to-use glucagon in a vial to Oregon Health & Science University, or OHSU, for its ongoing Phase 1 closed-loop dual-hormone artificial pancreas study and expect OHSU to report top-line results in the second half of 2019. Based on the results, we plan to support advancement of this OHSU program and other artificial pancreas programs with ready-to-use glucagon in a vial.

Severe Hypoglycemia and Limitations of Existing Products

Hypoglycemia, a key concern of people with both Type 1 Diabetes, or T1D, and Type 2 Diabetes, or T2D, occurs when a person has a deficiency of glucose in their bloodstream, often as a result of insulin treatment. Symptoms of hypoglycemia include fatigue, shakiness, anxiety, headache, nausea and vomiting, and in severe cases hypoglycemia can result in cardiovascular disease, seizure, coma and, if left untreated, death. Treatment-associated hypoglycemia in people with diabetes remains the major limiting factor in the glycemic management of T1D and T2D. In the United States, all of the approximately 1.3 million people with T1D and approximately 4.3 million people with T2D who require insulin therapy to lower their blood glucose levels are at risk for hypoglycemia. Hypoglycemic events of any severity are a daily concern for people with diabetes and represent the greatest barrier to optimal glycemic control. Severe hypoglycemic events are extremely frightening for patients and caregivers and can result in seizure, coma and, if left untreated, death. The American Diabetes Association, or ADA, recommends that glucagon be prescribed for all individuals at increased risk of clinically significant hypoglycemia for use in the event of an emergency.

Because of the urgent nature of severe hypoglycemia, the majority of severe hypoglycemic events are treated on an emergency basis, outside of a healthcare facility. Two emergency glucagon products are currently available to treat severe hypoglycemia. Each product is sold as a vial of lyophilized, glucagon powder with an exposed needle/syringe that contains a liquid diluent. The glucagon powder must be combined with the liquid diluent at the time of use and drawn into a syringe in accordance with a complex multi-step reconstitution and dose calibration procedure. Additionally, once reconstituted, the glucagon must be used immediately because once the lyophilized glucagon is combined with water, the solution becomes unstable and can fibrillate, rendering it inactive and potentially toxic.



 

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In published comparative human factors studies with currently marketed emergency glucagon kits, only 6% to 31% of users were able to successfully administer the full dose of glucagon. In other words, in these studies, test subjects failed to deliver the full dose of glucagon 69% to 94% of the time. The complex, unreliable administration of currently marketed products inhibits patient interest in carrying a kit and physician focus on ensuring each clinically appropriate patient at increased risk has a filled prescription. In 2018, U.S. sales for emergency glucagon kits totaled approximately $246 million, based on approximately 662,000 total prescriptions written for approximately 978,000 single-dose kits.

Our Gvoke HypoPen

Our key priority is developing and commercializing our lead product candidate, Gvoke HypoPen, for the treatment of severe hypoglycemia in people with diabetes. Our Gvoke HypoPen delivers our ready-to-use glucagon formulation via a commercially-available auto-injector. We believe our Gvoke HypoPen addresses the administration challenges of currently marketed emergency glucagon kits, and, if approved, has the potential to be the preferred emergency glucagon product. The key features of our Gvoke HypoPen are:

 

   

Ready-to-use: With its easy two-step administration process, the user simply pulls off the red cap and pushes the Gvoke HypoPen down on the skin for five seconds, until the window turns red. There is no reconstitution required at the time of emergency.

 

   

Easy-to-use: In our human factors study, 99% of users were able to successfully administer the full dose with our Gvoke HypoPen.

 

   

No dose calibration required: The Gvoke HypoPen will be offered in two pre-measured doses, 0.5 mg for pediatric administration and 1 mg for adolescents and adults.

 

   

No visible needle: The needle in the Gvoke HypoPen is not visible to the user.

 

   

Auto-retraction: The needle auto-retracts after administration for safety.

 

   

Auto-locks: The device auto-locks after use for safety.

 

   

Two-year, room-temperature stability: No refrigeration is required at any time.

We submitted a NDA to the FDA in August 2018 utilizing the 505(b)(2) regulatory pathway. To generate additional information regarding the entire treatment episode, including preparation and administration time of our Gvoke HypoPen compared to Eli Lilly’s Glucagon Emergency Kit, we completed an additional Phase 3b clinical trial of our Gvoke HypoPen in the second quarter of 2018. We also intend to offer our ready-to-use glucagon in a pre-filled syringe presentation, Gvoke PFS, which may be preferred by some healthcare professionals.

Gvoke HypoPen Market Potential

Based on current market data, as well as our caregiver and patient and healthcare professional perceptions studies, we believe that our Gvoke HypoPen, if approved, has the potential to increase demand for emergency glucagon treatments among people with diabetes. Despite the risk of experiencing a severe hypoglycemic event, we believe that emergency glucagon therapy is under-appreciated, under-evaluated and under-taught, resulting in a market that is under-penetrated. According to a 2015 study published in the journal Endocrine Practice, approximately 50% of people with T1D and approximately 3% of people with T2D with a new insulin prescription had a filled glucagon prescription. We intend to market our Gvoke HypoPen to all 3.5 million people that we believe are clinically appropriate for glucagon. We believe by increasing penetration into the market for emergency glucagon kits and based on the current price per unit for currently marketed kits, the U.S. potential annual sales opportunity may total up to $2.0 billion.

We expect to initially target approximately 8,000 healthcare professionals that are high prescribers of current glucagon kits and/or mealtime insulin products, using an expected initial sales force of 60-70 individuals. As part of our marketing strategy, we plan to activate patient demand efficiently and effectively through targeted direct-to-patient promotion, as the majority of people with diabetes are concentrated in 15 states.



 

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Ready-to-Use Glucagon for Hypoglycemia Associated with Intermittent and Chronic Conditions

We are applying our ready-to-use, liquid-stable glucagon formulation to treat five intermittent and chronic conditions with significant unmet medical need: Post-Bariatric Hypoglycemia, or PBH; Congenital Hyperinsulinism, or CHI; Hypoglycemia-Associated Autonomic Failure, or HAAF; Exercise-Induced Hypoglycemia, or EIH; and management of diabetes via glucagon in a fully-integrated, bi-hormonal artificial pancreas closed-loop system. By applying our ready-to-use glucagon to these conditions, we expect to leverage operating efficiencies across our supply chain, research and development, and commercial and medical organizations.

We also are applying our technology platforms to develop additional product candidates, such as ready-to-use, liquid-stable diazepam delivered via a commercially-available auto-injector for the emergency treatment of epileptic seizures, and a fixed-dose co-formulation of pramlintide and insulin, or Pram-Insulin, for the management of diabetes. Additionally, based on the promising data seen in some of our early clinical trials as well as formulations in our laboratory, we believe we have the potential to advance a number of programs in other indications and that our strong product candidate portfolio will support our vision to effectively and efficiently meet the needs of our target markets.

Intellectual Property and Barriers to Entry

We own the worldwide rights to our proprietary formulation technology platforms and our product candidates, with 75 patents issued globally as of February 7, 2019, including a composition of matter patent covering our ready-to-use glucagon formulation that expires in 2036. The FDA has granted orphan drug status to four indications for our product candidates, which are our ready-to-use glucagon for PBH and CHI and our ready-to-use, liquid-stable formulation of diazepam for the treatment of Dravet Syndrome, a rare form of epilepsy that presents in the first year of life, and acute repetitive seizures in patients with epilepsy. Additionally, we have received orphan drug designation from the EMA for CH and Noninsulinoma Pancreatogenous Hypoglycaemia Syndrome, or NIPHS, which includes patients with PBH.

Management

Our management team includes veterans in drug development, discovery and commercialization, with executive experience in leading global pharmaceutical and healthcare companies, including Durata Therapeutics, Baxter Healthcare, Merck, Searle, Takeda, Warner Chilcott, MedPointe Healthcare, Amylin Pharmaceuticals, PowderJect Technologies and Alpharma.

Our Strategy

Our strategy is to utilize our proprietary non-aqueous formulation technology platforms to convert marketed and development-stage products that have poor solubility and stability into ready-to-use, user-friendly injectable and infusible drugs for multiple therapeutic areas and conditions, including hypoglycemia, epilepsy and diabetes. We also seek to apply our formulation technology platforms to enhance the formulations of proprietary marketed and development-stage products and product candidates of other pharmaceutical and biotechnology companies. The key elements of our strategy include the following objectives:

 

   

Rapidly secure regulatory approval for our lead product candidate, Gvoke HypoPen, for severe hypoglycemia.

 

   

Maximize the commercial potential for our Gvoke HypoPen.

 

   

Continue to advance our ready-to-use glucagon portfolio to address hypoglycemia associated with other intermittent chronic conditions.

 

   

Continue to leverage our technology and expertise to develop a portfolio of additional product candidates.

 

   

Collaborate with pharmaceutical and biotechnology companies to apply our technology platforms to enhance the formulations of their proprietary products and candidates.



 

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The nature of our product candidates and target conditions provides us with a potentially faster and capital-efficient development and regulatory pathway to approval.

Risks Affecting Our Business

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary and include the following:

 

   

As a company, we have a limited operating history and no history of commercializing pharmaceutical products and have incurred significant losses since inception. We expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.

 

   

We are dependent on the success of our glucagon product candidates, particularly our Gvoke HypoPen. We cannot be certain that our Gvoke HypoPen or any of our other product candidates will receive marketing approval. Without marketing approval, we will not be able to commercialize our product candidates or generate product revenues.

 

   

Our business depends entirely on the success of our product candidates. Even if approved, our product candidates may not be accepted in the marketplace and our business may be materially harmed.

 

   

The market opportunity for our product candidates may be smaller than we estimate.

 

   

Even if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties. If we fail to comply with continuing U.S. and non-U.S. regulations or new safety data arise, we could lose our marketing approvals and our business would be seriously harmed.

 

   

We operate in a competitive business environment and, if we are unable to compete successfully against our existing or potential competitors, our sales and operating results may be negatively affected, and we may not successfully commercialize our product candidates, even if approved.

 

   

Clinical failure may occur at any stage of clinical development, and the results of our clinical trials may not support our proposed indications for our product candidates. If our clinical trials fail to demonstrate efficacy and safety to the satisfaction of the FDA or other regulatory authorities, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidates.

 

   

Our reliance on third-party suppliers, including single-source suppliers and a limited number of options for alternate sources for our product candidates, including our Gvoke HypoPen, could harm our ability to develop our product candidates or to commercialize any product candidates that are approved.

 

   

Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement for our products, it is less likely that they will be widely used.

 

   

We have drawn down $35.0 million from our loan and security agreement with Oxford Finance LLC and Silicon Valley Bank. The final tranche of an additional $10.0 million is only available if we receive approval of our Gvoke HypoPen NDA by the FDA before September 30, 2019.

 

   

Our independent registered public accounting firm has identified a material weakness in our internal control over financial reporting which will require remediation.

Corporate Information

We were incorporated in 2005 under the laws of the state of Delaware. Our principal executive offices are located at 180 N. LaSalle St., Suite 1810, Chicago, Illinois 60601, and our phone number is 1-844-445-5704. Our website address is http://www.xerispharma.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus.



 

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The “Xeris” name, and the XeriJect, XeriSol, GVOKE, GVOKE HYPOPEN, HYPOPEN, and CSI Glucagon names and related images, logos and symbols appearing in this prospectus are our properties, trademarks and service marks. Other marks appearing in this prospectus are the property of their respective owners.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

   

Only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

Reduced disclosure about our executive compensation arrangements;

 

   

No advisory votes on executive compensation or golden parachute arrangements; and

 

   

Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock.



 

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THE OFFERING

 

Shares of common stock offered by us

5,880,000 shares.

 

Shares of our common stock outstanding after this offering

26,773,205 shares (or 27,655,205 shares assuming full exercise of the underwriters’ option to purchase additional shares).

 

Option to purchase additional shares

We have granted the underwriters a 30-day option to purchase up to 882,000 additional shares of our common stock.

 

Use of proceeds

We currently intend to use the net proceeds of this offering, together with our existing cash and cash equivalents and short-term investments, to support the commercial launch of Gvoke HypoPen, including investments in sales and marketing, direct-to-consumer marketing, inventory and our commercial and medical affairs infrastructure; to advance our other pipeline product candidates; and the remainder for working capital and other general corporate purposes. For a more complete description of our intended use of the proceeds from this offering, see “Use of Proceeds.”

 

Nasdaq Global Select Market symbol

“XERS”.

 

Risk factors

Investment in our common stock involves substantial risks. You should read this prospectus carefully, including the section entitled “Risk Factors” and the financial statements and the related notes to those statements included in this prospectus, before investing in our common stock.

The number of shares of common stock outstanding after this offering is based on 20,893,205 shares of our common stock outstanding as of December 31, 2018, which includes 84,839 shares of unvested restricted stock, and excludes:

 

   

2,315,677 shares of common stock issuable upon exercise of options issued under our 2011 Stock Option/Stock Issuance Plan at a weighted-average exercise price of $4.46 per share;

 

   

723,137 shares of common stock issuable upon exercise of options issued under our 2018 Stock Option and Incentive Plan at a weighted-average exercise price of $20.05 per share;

 

   

8,635 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $5.912 per share and 94,012 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $11.169 per share;

 

   

1,934,591 shares of common stock reserved for issuance under our 2018 Stock Option and Incentive Plan;

 

   

401,932 shares of common stock reserved for future issuance under our 2018 Employee Stock Purchase Plan; and

 

   

750,000 shares of common stock reserved for future issuance under our Inducement Equity Plan adopted by our board of directors in February 2019.

Except as otherwise noted, all information in this prospectus assumes:

 

   

no exercise of outstanding options after December 31, 2018; and

 

   

no exercise of the underwriters’ option to purchase additional shares.



 

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SUMMARY FINANCIAL INFORMATION

The following tables summarize our financial and operating data for the periods indicated. The summary statements of operations data for the years ended December 31, 2016 and 2017 have been derived from our audited financial statements included elsewhere in this prospectus. The summary statements of operations data for the nine months ended September 30, 2017 and 2018 and the summary balance sheet data as of September 30, 2018 have been derived from our unaudited interim financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for the nine months ended September 30, 2018 are not necessarily indicative of results to be expected for the full year ending December 31, 2018 or any other period.

The summary financial information below should be read in conjunction with the information contained in “Selected Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and notes thereto, and other financial information included elsewhere in this prospectus.

 

 

 

     YEARS ENDED DECEMBER 31,     NINE MONTHS
ENDED SEPTEMBER 30,
 
     2016     2017     2017     2018  
(in thousands, except share and per share data)                (unaudited)  

Statements of Operations Data:

        

Grant income

   $ 1,022     $ 1,540     $ 1,073     $ 1,611  

Service revenue

     53       16       16       53  

Cost of revenue

     8       4       4       42  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,067       1,552       1,085       1,622  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     10,238       20,166       13,588       28,264  

General and administrative

     4,060       8,015       4,917       12,388  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expense from operations

     14,298       28,181       18,505       40,652  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (13,231     (26,629     (17,420     (39,030
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     5       124       45       796  

Interest expense

     (2     (2     (1     (1,490

Change in fair value of warrants

     24       (46     (32     63  

Other expense

     (5     (1            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     22       75       12       (631
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,209   $ (26,554   $ (17,408   $ (39,661
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share-basic and diluted (1)

   $ (7.17   $ (13.09   $ (8.63   $ (4.36
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding, basic and diluted (1)

     1,842,416       2,028,224       2,016,112       9,104,491  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 



 

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     AS OF SEPTEMBER 30, 2018  
     ACTUAL      AS ADJUSTED (2)  
(in thousands)              

Balance Sheet Data:

     

Cash and cash equivalents

   $ 75,745      $ 130,295  

Short-term investments

     55,296        55,296  

Working capital (3)

     127,462        182,012  

Total assets

     137,591        192,141  

Long-term debt, net of unamortized deferred costs

     31,642        31,642  

Other long-term liabilities

     2,621        2,621  

Total liabilities

     42,471        42,471  

Additional paid in capital

     195,422        249,971  

Total stockholders’ equity

     95,120        149,670  

 

 

(1)    See Note 2 to our audited financial statements and Note 2 to our unaudited interim financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share, unaudited basic and diluted net loss per share and the shares used in computing basic and diluted net loss per share.

 

(2)    The table above presents our balance sheet data as of September 30, 2018 on an actual basis and on an as adjusted basis to give effect to the sale of 5,880,000 shares of common stock offered by us in this offering at the public offering price of $10.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

(3)    We define working capital as current assets less current liabilities.


 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and other information contained in this prospectus, including our financial statements and the related notes and the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before you make an investment decision. If any of the events contemplated by the following discussion of risks were to occur, our business, results of operations and financial condition could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all or part of your investment in our common stock.

Risks Related to our Financial Position and Need for Financing

As a company, we have a limited operating history and no history of commercializing pharmaceutical products and have incurred significant losses since inception. We expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.

We are a clinical-stage pharmaceutical company with a limited operating history. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We have not generated any product revenues and have financed our operations primarily through private placements of our preferred stock, borrowings under the Loan and Security Agreement that we entered into with Oxford Finance LLC and Silicon Valley Bank, and our initial public offering in June 2018, or our IPO. We do not expect to generate any product revenues unless one or more of our product candidates receives regulatory approval and is commercialized. We have not yet demonstrated an ability to obtain marketing approvals, manufacture a commercial-scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies prior to regulatory approval of any product candidates, especially pharmaceutical companies such as ours. Any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully commercializing pharmaceutical products. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will need to transition from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition. We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

We have incurred significant losses in every fiscal year since inception. We incurred net losses of $13.2 million and $26.6 million in the years ended December 31, 2016 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, we reported a net loss of $39.7 million and $17.4 million, respectively. In addition, our accumulated deficit as of September 30, 2018 was $100.2 million. Substantially all our operating losses have resulted from costs incurred in connection with research and development of our product candidates and clinical and regulatory initiatives to obtain approvals for our product candidates.

We expect that our operating expenses will continue to increase as we continue to build our commercial infrastructure, develop, enhance and commercialize new products and incur additional operational and reporting costs associated with being a public company. In particular, we anticipate that our expenses will increase substantially as we:

 

   

continue our research and development efforts;

 

   

seek regulatory approval for new product candidates and product enhancements;

 

   

build commercial infrastructure to support sales and marketing for our product candidates;

 

   

hire and retain additional personnel and add operational, financial and management information systems; and

 

   

continue to operate as a public company.

All of our product candidates are still in development and none have been approved for sale. We submitted a New Drug Application, or NDA, for our Gvoke HypoPen to the U.S. Food and Drug Administration, or FDA, in

 

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August 2018. The FDA has set June 10, 2019 as the Prescription Drug User Fee Act, or PDUFA, action goal date for our NDA. However, the FDA may not approve our Gvoke HypoPen. Our ability to generate revenue from our product candidates and to transition to profitability and generate positive cash flows is uncertain and depends on the successful development and commercialization of our product candidates. Successful development and commercialization will require achievement of key milestones, including completing clinical trials of our product candidates that are under clinical development, obtaining marketing approval for our product candidates, manufacturing, marketing and selling those products for which we, or any of our future collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues, and if or when we might achieve profitability. We and any future collaborators may never succeed in these activities and, even if we or any future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. If we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their entire investment.

We have not generated any revenue from our product candidates, including our Gvoke HypoPen, and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from any of our product candidates. We do not expect to generate significant revenue unless or until we obtain marketing approval of, and begin to sell, our product candidates. We do not expect to commercialize any of our product candidates before the second quarter of 2019, if ever. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

 

   

obtain marketing approval for our product candidates, including our Gvoke HypoPen;

 

   

obtain commercial quantities of our product candidates, if approved, at acceptable cost levels;

 

   

commercialize our product candidates, if approved, by developing our own sales force for commercialization in the United States or in other key territories by entering into partnership or co-promotion arrangements with third parties;

 

   

set an acceptable price for our product candidates, if approved;

 

   

obtain and maintain third-party coverage and adequate reimbursement for our product candidates, if approved; and

 

   

achieve an adequate level of market acceptance of our product candidates, if approved, in the medical community and with third-party payors, including placement in accepted clinical guidelines for the conditions for which our product candidates are intended to target.

If any of our product candidates are approved for commercial sale, we expect to incur significant sales and marketing costs as we prepare for its commercialization. Even if we receive marketing approval and expend these costs, our product candidates may not be commercially successful. We may not achieve profitability soon after generating product sales, if ever. If we are unable to generate product revenue, we will not become profitable and may be unable to continue operations without continued funding.

We may require additional capital to sustain our business, and this capital may cause dilution to our stockholders and might not be available on terms favorable to us, or at all, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.

Pharmaceutical development is a time-consuming, expensive and uncertain process that takes years to complete. In addition, if any of our product candidates are approved, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we may need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and development programs. We plan to use the net proceeds of this offering, together with our existing cash and cash equivalents, short-term investments

 

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and expected revenue from sales of Gvoke HypoPen to support the expected commercial launch of our Gvoke HypoPen, including investments in sales and marketing, inventory and our commercial and medical affairs infrastructure, to advance our other pipeline product candidates and for working capital and other general corporate purposes. We will be required to expend significant funds in order to commercialize our Gvoke HypoPen, as well as any of our other product candidates that receive marketing approval. The net proceeds of this offering together with our existing cash and cash equivalents, short-term investments and expected revenue from sales of Gvoke HypoPen may not be sufficient to fund all of the efforts that we plan to undertake.

We may be required to obtain further funding through public equity offerings, debt financings, royalty-based financing arrangements, collaborations and licensing arrangements or other sources. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing obtained by us would be senior to our common stock, would likely cause us to incur interest expenses, and could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may increase our expenses and make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions and in-licensing opportunities. We may also be required to secure any such debt obligations with some or all of our assets. For example, our Loan and Security Agreement is secured by substantially all of our existing property and assets other than our intellectual property assets, subject to certain exceptions. Our Loan and Security Agreement also contains a negative pledge on intellectual property owned by us, pursuant to which we have agreed not to encumber any of our intellectual property.

If we raise additional funds through collaborations or marketing, distribution or licensing, or royalty-based financing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. Securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development and commercialization, if approved, of our product candidates. It is also possible that we may allocate significant amounts of capital toward solutions or technologies for which market demand is lower than anticipated and, as a result, abandon such efforts. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Any of these negative developments could have a material adverse effect on our business, operating results, financial condition and common stock price.

We may not have cash available to us in an amount sufficient to enable us to make interest or principal payments on our indebtedness when due.

Our Loan and Security Agreement provides for term loans of up to an aggregate of $45.0 million, of which $20.0 million was borrowed upon signing. Following submission of an NDA for our Gvoke HypoPen, we drew down an additional $15.0 million in September 2018. We become eligible to draw the remaining $10.0 million if we receive approval of our Gvoke HypoPen NDA by the FDA before September 30, 2019, and then only available to be drawn until the earlier of September 30, 2019 or the 30th day following NDA approval by the FDA.

All obligations under our Loan and Security Agreement are secured by substantially all of our existing property and assets other than our intellectual property assets, subject to certain exceptions. This debt financing may create additional financial risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity.

Failure to satisfy our current and future debt obligations under our Loan and Security Agreement could result in an event of default and, as a result, our lenders could accelerate all of the amounts due. Events of default include our failure to comply with customary affirmative covenants as well as our breach of customary negative covenants in the Loan and Security Agreement. Affirmative covenants include the maintenance of a $5.0 million minimum cash balance in the event that we maintain one or more permitted accounts at other institutions. Negative covenants include prohibition on the payment of dividends and distributions, certain mergers and change of control events, and the occurrence of material adverse changes in the company’s business or its prospect of repayment of its obligations.

 

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In the event of an acceleration of amounts due under our Loan and Security Agreement as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness while still pursuing our current business strategy. In addition, our lenders could seek to enforce their security interests in any collateral securing such indebtedness.

Risks Related to the Product Development and Regulatory Approval of Our Product Candidates

We are dependent on the success of our glucagon product candidates, particularly our Gvoke HypoPen. We cannot be certain that our Gvoke HypoPen or any of our other product candidates will receive marketing approval. Without marketing approval, we will not be able to commercialize our product candidates or generate product revenues.

We have devoted a significant portion of our financial resources and business efforts to the development of the Gvoke HypoPen. We submitted an NDA for the Gvoke HypoPen in the third quarter of 2018, however, we have not received approval from regulatory authorities to market the Gvoke HypoPen or any other product candidate in any jurisdiction, and it is possible that neither our Gvoke HypoPen nor any other product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us to commence product sales. The FDA’s decision to accept the NDA for filing and set a PDUFA date does not indicate that it has made any decision regarding approval nor does it guarantee approval by June 10, 2019, if at all. We cannot be certain that our Gvoke HypoPen or any of our other product candidates will receive marketing approval.

The development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA in the United States and by comparable regulatory authorities in other countries. We are not permitted to market our product candidates in the United States until we receive approval of an NDA from the FDA. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions.

NDAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. NDAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. Our Gvoke HypoPen is considered to be a drug-device combination product by the FDA, and its NDA will require review and coordination by the FDA’s drug and device centers prior to approval. We cannot predict whether we will obtain regulatory approval to commercialize our Gvoke HypoPen or any of our other product candidates, and we cannot, therefore, predict the timing of any future revenues from these product candidates, if any. Any delay or setback in the regulatory approval or commercialization of any of these product candidates will adversely affect our business.

The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example, the FDA:

 

   

could determine that we cannot rely on the Section 505(b)(2) regulatory pathway for our product candidates;

 

   

could determine that the information provided by us was inadequate, contained clinical deficiencies or otherwise failed to demonstrate the safety and effectiveness of our Gvoke HypoPen or any of our product candidates for any indication;

 

   

may not find the data from bioequivalence studies and/or clinical trials sufficient to support the submission of an NDA or to obtain marketing approval in the United States, including any findings that the clinical and other benefits of our product candidates outweigh their safety risks;

 

   

may disagree with our trial design or our interpretation of data from preclinical studies, bioequivalence studies and/or clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our trials;

 

   

may determine that there are unacceptable risks associated with the device component of our glucagon HypoPen or that there are deficiencies with the information submitted to demonstrate the safety, effectiveness and reliability of the device component;

 

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may determine that we have identified the wrong listed drug or drugs or that approval of our Section 505(b)(2) application for our Gvoke HypoPen or any of our other product candidates is blocked by patent or non-patent exclusivity of the listed drug or drugs or of other previously-approved drugs with the same conditions of approval as those of our Gvoke HypoPen or any of our other product candidates (as applicable);

 

   

may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for the manufacturing of our product candidates;

 

   

may audit some or all of our clinical research and human factors study sites to determine the integrity of our data and may reject any or all of such data;

 

   

may approve our product candidates for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials;

 

   

may change its approval policies or adopt new regulations; or

 

   

may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates.

At our pre-NDA meeting with the FDA in December 2017, we presented the results from our two Phase 3 Gvoke HypoPen clinical trials that had been completed as of that meeting. Our first Phase 3 clinical trial was a non-inferiority comparison of the Gvoke HypoPen against Eli Lilly’s glucagon determined by an increase in plasma glucose concentration from below 50.0 mg/dL to greater than 70.0 mg/dL within 30 minutes after receiving glucagon. In this trial, our Gvoke HypoPen did not meet a primary endpoint for noninferiority in the intent-to-treat, or ITT, population due to one response failure in excess of the pre-specified threshold of three response failures. In the same trial, two subjects were censored from the modified ITT, or mITT, population because of a clinically significant protocol violation, and the remaining subjects were used for the per-protocol analysis. In accordance with FDA and International Council for Harmonisation guidance for evaluation of non-inferiority studies, we presented a series of analyses implementing ITT, mITT, and per-protocol cohorts for all the endpoints for this clinical trial to the FDA at this pre-NDA meeting. In that meeting, the FDA agreed overall that the totality of data for our Gvoke HypoPen is sufficient to support NDA review. However, certain of our analyses may be viewed as post-hoc analyses, and although we believe that post-hoc analyses can provide additional information regarding results from this trial, retrospective analyses can result in the introduction of bias and may be given less weight by the FDA, including for purposes of determining whether to approve our NDA.

The FDA provided additional comments to address prior to NDA submission related to the pre-filled syringe presentation of our ready-to-use glucagon, or Gvoke PFS. Based on these comments, we conducted additional studies, the results from which were included in our Gvoke HypoPen submission to the FDA.

In order to generate additional information regarding the entire treatment episode, we completed an additional non-inferiority Phase 3b clinical trial in the second quarter of 2018 comparing our Gvoke HypoPen to Eli Lilly’s glucagon, the results of which were included in our NDA submission. Even though we completed this Phase 3b clinical trial, the FDA or other regulatory authorities may require us to conduct additional clinical trials prior to approval.

Even if a product is approved, the FDA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials and/or reporting as conditions of approval. Regulators of other countries and jurisdictions have their own procedures for approval of product candidates with which we must comply prior to marketing in those countries or jurisdictions.

Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the United States or other countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidates or other products. Also, regulatory approval for any of our product candidates may be withdrawn.

 

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We intend to utilize the 505(b)(2) pathway for the regulatory approval of certain of our product candidates, including our Gvoke HypoPen. If the FDA does not conclude that the Gvoke HypoPen or such other product candidates meet the requirements of Section 505(b)(2), final marketing approval of our product candidates by the FDA or other regulatory authorities may be delayed, limited, or denied, any of which would adversely affect our ability to generate operating revenues.

We are pursuing a regulatory pathway pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA, for the approval of certain of our product candidates, including our Gvoke HypoPen, which allows us to rely on submissions of existing clinical data for the drug. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, and permits the submission of an NDA where at least some of the information required for approval comes from preclinical studies or clinical trials not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The FDA interprets Section 505(b)(2) of the FDCA to permit the applicant to rely upon the FDA’s previous findings of safety and efficacy for an approved product. The FDA requires submission of information needed to support any changes to a previously approved drug, such as published data or new studies conducted by the applicant or clinical trials demonstrating safety and efficacy. The FDA could require additional information to sufficiently demonstrate safety and efficacy to support approval.

If the FDA determines that our Gvoke HypoPen or our other product candidates do not meet the requirements of Section 505(b)(2), we may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. In March 2010, President Obama signed into law legislation creating an abbreviated pathway for approval under the Public Health Service Act, or PHS Act, of biological products that are similar to other biological products that are approved under the PHS Act. The legislation also expanded the definition of biological product to include proteins such as insulin. The new law contains transitional provisions governing protein products such as insulin, that under certain circumstances, might permit companies to seek approval for their insulin products as biologics under the PHS Act and might require that our XeriSol pramlintide-insulin co-formulation be approved under the PHS Act rather than in a 505(b)(2) NDA. In addition, if any of our product candidates are approved under Section 505 of the FDCA as of the March 23, 2020 transition date and are then “deemed to be a license” for the biological product under section 351 of the PHS Act, we could lose certain unexpired exclusivities and this could materially harm our business. If our product candidates do not meet the requirements of Section 505(b)(2) or are otherwise ineligible for approval via the Section 505(b)(2) pathway, the time and financial resources required to obtain FDA approval for these product candidates, and the complications and risks associated with these product candidates, would likely substantially increase. Moreover, an inability to pursue the Section 505(b)(2) regulatory pathway would likely result in new competitive products reaching the market more quickly than our product candidates, which would likely materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.

Some pharmaceutical companies and other actors have objected to the FDA’s interpretation of Section 505(b)(2) to allow reliance on the FDA’s prior findings of safety and effectiveness. If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit. Moreover, the FDA recently adopted an interpretation of the three-year exclusivity provisions whereby a 505(b)(2) application can be blocked by exclusivity even if it does not rely on the previously-approved drug that has exclusivity (or any safety or effectiveness information regarding that drug). Under the FDA’s new interpretation, the approval of one or more of our product candidates may be blocked by exclusivity awarded to a previously-approved drug product that shares certain innovative features with our product candidates, even if our 505(b)(2) application does not identify the previously-approved drug product as a listed drug or rely upon any of its safety or efficacy data. Any failure to obtain regulatory approval of our product candidates would significantly limit our ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues.

 

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Clinical failure may occur at any stage of clinical development, and the results of our clinical trials may not support our proposed indications for our product candidates. If our clinical trials fail to demonstrate efficacy and safety to the satisfaction of the FDA or other regulatory authorities, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidate.

We cannot be certain that existing clinical trial results will be sufficient to support regulatory approval of our product candidates. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. Moreover, success in clinical trials in a particular indication does not ensure that a product candidate will be successful in other indications. A number of companies in the pharmaceutical industry have suffered significant setbacks in clinical trials, even after promising results in earlier preclinical studies or clinical trials or successful later-stage trials in other related indications. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. The results of preclinical and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and initial clinical trials. A failure of a clinical trial to meet its predetermined endpoints would likely cause us to abandon a product candidate and may delay development of any other product candidates. Any delay in, or termination of, our clinical trials will delay the submission of the applicable NDA to the FDA, the Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, or other similar applications with other relevant foreign regulatory authorities and, ultimately, our ability to commercialize our product candidates and generate revenue.

Additional time may be required to obtain regulatory approval for our product candidates because they are combination products.

Certain of our product candidates, including our Gvoke HypoPen, are drug and device combination products that require coordination within the FDA and similar foreign regulatory agencies for review of their device and drug components. Medical products containing a combination of new drugs, biological products or medical devices may be regulated as “combination products” in the United States and Europe. A combination product generally is defined as a product comprised of components from two or more regulatory categories (e.g., drug/device, device/biologic, drug/biologic). Each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a new drug, biologic or device. In order to facilitate pre-market review of combination products, the FDA designates one of its centers to have primary jurisdiction for the pre-market review and regulation of the overall product based upon a determination by the FDA of the primary mode of action of the combination product. Where approval of the drug and device is sought under a single application, there could be delays in the approval process due to the increased complexity of the review process and the lack of a well-established review process and criteria. The EMA has a parallel review process in place for combination products, the potential effects of which in terms of approval and timing could independently affect our ability to market our combination products in Europe.

Delays in conducting clinical trials could result in increased costs to us and delay our ability to obtain regulatory approval for our product candidates.

Any delays in conducting clinical trials and related drug development programs could materially affect our product development costs and delay regulatory approval of our product candidates. We do not know whether planned clinical trials will begin on time, will need to be redesigned, or will be completed on schedule, if at all. A clinical trial can be delayed for a variety of reasons, including:

 

   

delays or failures in obtaining regulatory authorization to commence a trial because of safety concerns of regulators relating to our product candidates or similar product candidates, competitive or comparator products or supportive care products or failure to follow regulatory guidelines;

 

   

delays or failures in obtaining clinical materials and manufacturing sufficient quantities of the product candidate for use in a trial;

 

   

delays or failures in reaching agreement on acceptable terms with prospective study sites or other contract research organizations, or CROs;

 

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delays or failures in obtaining approval of our clinical trial protocol from an institutional review board, or IRB, to conduct a clinical trial at a prospective study site;

 

   

receipt by a competitor of marketing approval for a product targeting an indication that our product candidate targets, such that we are not “first to market” with our product candidate;

 

   

delays in recruiting or enrolling subjects to participate in a clinical trial, particularly with respect to our product candidates for certain rare indications, including those for which we have obtained, or plan to seek, orphan drug designation;

 

   

failure of a clinical trial or clinical investigators to be in compliance with current Good Clinical Practices, or cGCPs;

 

   

unforeseen safety issues;

 

   

inability to monitor subjects adequately during or after treatment;

 

   

difficulty monitoring multiple study sites;

 

   

the FDA requiring alterations to any of our study designs, our nonclinical strategy or our manufacturing plans;

 

   

failure of our third-party clinical trial managers to satisfy their contractual duties, comply with regulations, or meet expected deadlines; and

 

   

determination by regulators that the clinical design of a trial is not adequate.

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the Internal Review Boards, or IRBs, at the sites where the IRBs are overseeing a trial, a data safety monitoring board overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors, including:

 

   

failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

 

   

inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities;

 

   

unforeseen safety issues, including serious adverse events associated with a product candidate, or lack of effectiveness; and

 

   

lack of adequate funding to continue the clinical trial.

Further, conducting clinical trials in foreign countries, as we have done and plan to do for certain of our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.

Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require them to include safety warnings, require them to be taken off the market or otherwise limit their sales.

Undesirable side effects that may be caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. The range and potential severity of possible side effects from systemic therapies are significant. The results of future clinical trials may show that our product candidates cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings. Recent developments in the pharmaceutical industry have prompted heightened government focus on safety reporting during both pre- and post-approval time periods and pharmacovigilance. Global health authorities may impose regulatory requirements to monitor safety that may burden our ability to commercialize our drug products.

To date, patients treated with our ready-to-use glucagon have experienced drug-related side effects typically observed with glucagon products, including nausea, vomiting and headaches. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. It is possible that there may be side effects associated with our other product candidates’ use. In such an event, our trials could be suspended or

 

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terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects.

Even if any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products:

 

   

regulatory authorities may require the addition of labeling statements, including “black box” warnings, contraindications or dissemination of field alerts to physicians and pharmacies;

 

   

we may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

   

we may be subject to limitations on how we may promote the product;

 

   

sales of the product may decrease significantly;

 

   

regulatory authorities may require us to take our approved product off the market;

 

   

we may be subject to litigation or product liability claims; and

 

   

our reputation may suffer.

Any of these events could also prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.

We have received orphan drug designation for our product candidates with respect to certain indications and intend to pursue such designation for others, but we may be unable to obtain such designation or to maintain the benefits associated with orphan drug status, including market exclusivity, even if that designation is granted.

We have received orphan drug designation from the FDA for four indications for our product candidates, which are our ready-to-use glucagon for Post-Bariatric Hypoglycemia, or PBH, and congenital hyperinsulinism, and our ready-to-use diazepam for acute repetitive seizures and Dravet Syndrome. We have also received orphan drug designation from the EMA for Noninsulinoma Pancreatogenous Hypoglycaemia Syndrome, or NIPHS, which includes patients with PBH. We intend to pursue such designation for others in specific orphan indications in which there is a medically plausible basis for its use. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Although we intend to seek orphan drug designation for certain additional indications, we may never receive such designation. Moreover, obtaining orphan drug designation for one indication does not mean we will be able to obtain such designation for another indication.

If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan drug exclusivity. For a product that obtains orphan drug designation on the basis of a plausible hypothesis that it is clinically superior to the same drug that is already approved for the same indication, such as our diazepam for acute repetitive seizures and our ready-to-use glucagon for PBH product candidates, in order to obtain orphan drug exclusivity upon approval, clinical superiority of such product to this same drug that is already approved for the same orphan indication must be demonstrated. Orphan drug exclusivity means that the FDA may not approve any other applications, including an NDA, to market the same drug for the same indication for seven years, except in limited circumstances such as if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Similarly, the FDA can subsequently approve a drug with the same active moiety for the same condition during the exclusivity period if the FDA concludes that the later drug is clinically superior, meaning the later drug is

 

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safer, more effective or makes a major contribution to patient care. Even with respect to the indications for which we have received orphan designation, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products, and thus approval of our product candidates could be blocked for seven years if another company previously obtained approval and orphan drug exclusivity for the same drug and same condition. If we do obtain exclusive marketing rights in the United States, they may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of the relevant patients. Further, exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition, the same drugs can be approved for different indications and might then be used off-label in our approved indication, and different drugs for the same condition may already be approved and commercially available.

In Europe, the period of orphan drug exclusivity is ten years, although it may be reduced to six years if, at the end of the fifth year, it is established that the criteria for orphan drug designation are no longer met, in other words, when it is shown on the basis of available evidence that the product is sufficiently profitable not to justify maintenance of market exclusivity. We have received orphan drug designation from the EMA for our ready-to-use glucagon for the treatment of congenital hyperinsulinism and Noninsulinoma Pancreatogenous Hypoglycaemia Syndrome, or NIPHS, which includes patients with post-bariatric hypoglycemia, or PBH.

Our failure to successfully identify, develop and market additional product candidates could impair our ability to grow.

As part of our growth strategy, we intend to identify, develop and market additional product candidates leveraging our formulation technology platforms. We are exploring various therapeutic opportunities for our pipeline programs. We may spend several years completing our development of any particular current or future internal product candidates, and failure can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. While we identified several potential applications of our ready-to-use glucagon, including our Gvoke HypoPen and several intermittent and chronic conditions, there is no guarantee that we will be able to utilize our formulation technology platforms to advance additional product candidates.

In the future, we may be dependent upon pharmaceutical companies, academic scientists and other researchers to sell or license product candidates, approved products or the underlying technology to us. The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.

In addition, future acquisitions may entail numerous operational and financial risks, including:

 

   

exposure to unknown liabilities;

 

   

disruption of our business and diversion of our management’s time and attention to develop acquired products or technologies;

 

   

incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;

 

   

higher than expected acquisition and integration costs;

 

   

difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;

 

   

increased amortization expenses;

 

   

impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

 

   

inability to motivate key employees of any acquired businesses.

 

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Further, any product candidate that we identify internally or acquire would require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and other regulatory authorities.

Risks Related to the Commercialization and Marketing of our Product Candidates

Our business depends entirely on the success of our product candidates. Even if approved, our product candidates may not be accepted in the marketplace and our business may be materially harmed.

To date, we have expended significant time, resources and effort on the development of our product candidates, and a substantial portion of our resources going forward will be focused on seeking marketing approval for and planning for potential commercialization of our lead product candidate, our Gvoke HypoPen, in the United States. Our business and future success are substantially dependent on our ability to successfully and timely obtain regulatory approval for and commercialize our Gvoke HypoPen. Our other product candidates are in earlier stages of development and subject to the risks of failure inherent in developing drug products. Accordingly, our ability to generate product revenues in the immediate term will depend on our ability to successfully obtain marketing approval for and commercialize our Gvoke HypoPen. Any delay or setback in the regulatory approval or commercialization of any of our product candidates will adversely affect our business.

Even if all regulatory approvals are obtained, the commercial success of our product candidates depends on gaining market acceptance among physicians, patients, patient advocacy groups, healthcare payors and the medical community. The degree of market acceptance of our product candidates will depend on many factors, including:

 

   

the scope of regulatory approvals, including limitations or warnings contained in a product candidate’s regulatory-approved labeling;

 

   

our ability to produce, through a validated process, sufficiently large quantities of our product candidates to permit successful commercialization;

 

   

our ability to establish and maintain commercial manufacturing arrangements with third-party manufacturers;

 

   

our ability to build and maintain sales, distribution and marketing capabilities sufficient to launch commercial sales of our product candidates;

 

   

the acceptance in the medical community of the potential advantages of the product candidate, including with respect to our efforts to increase adoption of our product candidates such as our Gvoke HypoPen by patients and healthcare providers;

 

   

the incidence, prevalence and severity of adverse side effects of our product candidates;

 

   

the willingness of physicians to prescribe our product candidates and of the target patient population to try these therapies;

 

   

the price and cost-effectiveness of our product candidates;

 

   

the extent to which each product is approved for use at, or included on formularies of, hospitals and managed care organizations;

 

   

any negative publicity related to our or our competitors’ products or other formulations of products that we administer, including as a result of any related adverse side effects;

 

   

alternative treatment methods and potentially competitive products;

 

   

the potential advantages of the product candidate over existing and future treatment methods;

 

   

the strength of our sales, marketing and distribution support; and

 

   

the availability of sufficient third-party coverage and reimbursement.

Additionally, if the Gvoke HypoPen or any of our other product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw approvals of such products, require us to take our approved product off the market or ask us to voluntarily remove the product from the market;

 

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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

   

regulatory authorities may impose conditions under a risk evaluation and mitigation strategy, or REMS, including distribution of a medication guide to patients outlining the risks of such side effects or imposing distribution or use restrictions;

 

   

we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

   

we may be subject to limitations on how we may promote the product;

 

   

sales of the product may decrease significantly;

 

   

we may be subject to litigation or product liability claims; and

 

   

our reputation may suffer.

If our product candidates are approved but do not achieve an adequate level of acceptance by physicians, patients and third-party payors, we may never generate significant revenue from these products, and our business, financial condition and results of operations may be materially harmed. Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new therapeutics are introduced that are more favorably received than our products or that render our products obsolete, or if significant adverse events occur. If our products do not achieve and maintain market acceptance, we will not be able to generate sufficient revenue from product sales to attain profitability.

The market opportunity for our product candidates may be smaller than we estimate.

The potential market opportunity for our product candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates include several key assumptions of the current market size and current pricing for commercially available products and are based on industry and market data obtained from industry publications, studies conducted by us, our industry knowledge, third-party research reports and other surveys. Industry publications and third-party research generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. For example, our projections for the potential size of the market for our Gvoke HypoPen are based on our belief that we would be able to increase the adoption of emergency glucagon products by patients and care providers. While we believe that our internal assumptions are reasonable, if any of these assumptions proves to be inaccurate, then the actual market for our product candidates, including our Gvoke HypoPen, could be smaller than our estimates of our potential market opportunity. If the actual market for our product candidates is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

Our company has limited experience marketing and selling drug products and is currently developing an internal sales organization. If we are unable to establish marketing, sales and distribution capabilities or enter into agreements with third parties to market, sell and distribute our product candidates, we may not be able to generate product revenues.

We currently do not have sufficient infrastructure for the sales, marketing or distribution of our product candidates, and the cost of establishing and maintaining such an organization may exceed the benefits of doing so. In order to commercialize our product candidates, we must expand our marketing, sales, distribution, managerial and other non-technical capabilities and/or make arrangements with third parties to perform these services. We intend to establish a sales force to market our Gvoke HypoPen in the United States, if we obtain FDA approval. There are significant expenses and risks involved with establishing our own sales and marketing capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities could delay any product launch, which would adversely impact the commercialization of our product candidates, including our Gvoke HypoPen. We are building out our commercial organization in anticipation of receiving marketing approval of our Gvoke HypoPen. If the expected commercial launch of our Gvoke HypoPen is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

 

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We cannot be sure that we will be able to hire a sufficient number of sales representatives or that they will be effective at promoting our products that receive regulatory approval, if any. In addition, we will need to commit significant additional management and other resources to establish and grow our sales organization. We may not be able to achieve the necessary development and growth in a cost-effective manner or realize a positive return on our investment. We will also have to compete with other companies to recruit, hire, train and retain sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our products include:

 

   

our inability to recruit and train adequate numbers of sales and marketing personnel;

 

   

the inability of sales personnel to obtain access to or to persuade adequate numbers of physicians to prescribe any of our product candidates that receive regulatory approval; and

 

   

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

In the event that we are unable to effectively implement our sales organization or distribution strategy on a timely and effective basis, if at all, the commercialization of our product candidates could be delayed which would negatively impact our ability to generate product revenues.

We intend to leverage the sales and marketing capabilities that we establish for our Gvoke HypoPen to commercialize additional product candidates for the management of other hypoglycemic conditions, if approved by the FDA, in the United States. If we are unable to do so for any reason, we would need to expend additional resources to establish commercialization capabilities for those product candidates, if approved.

In addition, we intend to establish collaborations to commercialize our product candidates outside the United States, if approved by the relevant regulatory authorities. Therefore, our future success will depend, in part, on our ability to enter into and maintain collaborative relationships for such efforts, the collaborator’s strategic interest in the product and such collaborator’s ability to successfully market and sell the product. We may not be able to establish or maintain such collaborative arrangements, or if we are able to do so, such collaborators may not have effective sales forces. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and such efforts may not be successful.

Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement for our products, it is less likely that they will be widely used.

Our future revenues and profitability will be adversely affected if U.S. and foreign governmental, private third-party insurers and payors and other third-party payors, including Medicare and Medicaid, do not agree to defray or reimburse the cost of our products to the patients. If these entities fail to provide coverage and reimbursement with respect to our products or provide an insufficient level of coverage and reimbursement, our products may be too costly for some patients to afford them and physicians may not prescribe them. In addition, limitations on the amount of reimbursement for our products may also reduce our profitability. In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, actions and proposals to control and reduce healthcare costs. There have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any of our product candidates for which we obtain marketing approval. Government and other third-party payors are also challenging the prices charged for healthcare products and increasingly limiting, and attempting to limit, both coverage and level of reimbursement for prescription drugs. On December 27, 2018, the District Court for the District of Columbia invalidated a recent reimbursement formula change under the 340B program. The 340B program imposes ceilings on prices that drug manufacturers can charge for medications sold to certain health care facilities. It is unclear how this decision could affect covered hospitals who might purchase our products in the future, and affect the rates we may charge such facilities for our approved products.

Market acceptance and sales of our products and product candidates that we develop, if approved, will depend on reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. In the United States, no uniform policy of coverage and reimbursement for

 

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drugs exists among third-party payors. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, obtaining coverage and reimbursement approval of a drug from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our drugs on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. We cannot be certain that reimbursement will be available for any of our product candidates, or that reimbursement rates will not change for our current products. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize any of our product candidates.

The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could negatively affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. Furthermore, third-party payors are increasingly requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We expect to experience pricing pressures in connection with the sale of our products that we develop due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, the ACA, became law in the United States, and is significantly impacting the provision of, and payment for, health care. With regard to pharmaceutical products specifically, the ACA, among other things, expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare prescription drug benefit. Among other things, the ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, and mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs.

Adoption of general controls and measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceutical drugs. While we cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business specifically, the ACA may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of our products and our product candidates.

Some patients may require health insurance coverage to afford our products, if approved, and if we are unable to obtain adequate coverage and reimbursement by third-party payors for our products, our ability to successfully commercialize our product candidates may be adversely impacted. Any limitation on the use of our products or any decrease in the price of our products will have a material adverse effect on our ability to achieve profitability.

Pricing pressure from healthcare industry consolidation and our competitors may impact our ability to sell our products at prices necessary to support our current business strategies.

Our market is subject to competitive pricing pressure as a result of product competition and a trend of consolidation in the healthcare industry to aggregate purchasing power as healthcare costs increase and reforms initiated by legislators, regulators and third-party payors to curb these costs are implemented.

For example, Eli Lilly’s Glucagon Emergency Kit, or GEK, is covered at or above 94% with unrestricted access across commercial, Medicare, Managed Medicaid and State Medicaid plans. Of our target patient population, approximately 50% are commercially-insured, one-third are covered by Medicare and approximately 15% are covered by Medicaid. However, as the healthcare industry consolidates, competition to provide products and services to industry participants has become more intense and may intensify as the potential purchasers of our products or third-party

 

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payors use their purchasing power to exert competitive pricing pressure. We expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to change the healthcare industry worldwide, resulting in further business consolidations and alliances among our potential purchasers. If competitive forces drive down the prices we are able to charge for our products, our profit margins will shrink, which will adversely affect our ability to invest in and grow our business.

Even if we successfully obtain approval for, produce and distribute our Gvoke HypoPen, its success will be dependent on its proper use by patients, healthcare practitioners and caregivers.

While we have designed our Gvoke HypoPen to be operable by patients, caregivers and healthcare practitioners, we cannot control the successful use of the product by patients, caregivers and healthcare practitioners. Even though our Gvoke HypoPen was used correctly by individuals in our human factors study, there is no guarantee that these results will be replicated by users in the future. If we are not successful in promoting the proper use of our Gvoke HypoPen, if approved, by patients, healthcare practitioners and caregivers, we may not be able to achieve market acceptance or effectively commercialize our Gvoke HypoPen. In addition, even in the event of proper use of our Gvoke HypoPen, individual devices may fail. Increasing the scale of production inherently creates increased risk of manufacturing errors, and we may not be able to adequately inspect every device that is produced, and it is possible that individual devices may fail to perform as designed. Manufacturing errors could negatively impact market acceptance of any of our product candidates that receive approval, result in negative press coverage, or increase the risk that we may be sued.

Guidelines and recommendations can reduce the use of our product candidates.

Government agencies and industry associations such as the American Diabetes Association promulgate guidelines applicable to certain drug classes which may include our products and product candidates that we are developing. Recommendations from these organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Regulations or guidelines affecting our products and product candidates that we are developing or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our product candidates or negatively impact our ability to gain market acceptance and market share.

Risks Related to our Industry and the Ongoing Legal and Regulatory Requirements to which our Product Candidates are Subject

Even if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties. If we fail to comply with continuing U.S. and non-U.S. regulations or new safety data arise, we could lose our marketing approvals and our business would be seriously harmed.

Our product candidates, if approved, will also be subject to ongoing regulatory requirements for manufacturing, distribution, sale, labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information. In addition, approved products, third-party suppliers and their facilities are required to comply with extensive FDA requirements and requirements of other similar agencies even after approval, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMPs, and applicable Quality System Regulations, or QSRs. As such, we and our third-party suppliers are subject to continual review and periodic inspections, both announced and unannounced, to assess compliance with cGMPs and QSRs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA and other similar agencies and to comply with certain requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. Accordingly, we may not promote our approved products, if any, for indications or uses for which they are not approved.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. These unknown problems could be discovered as a result of any post-marketing follow-up studies, routine safety surveillance or other reporting required as a condition to approval.

 

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Regulatory agencies may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the Department of Justice, or DOJ, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or any future collaborators, do not market any of our products for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state healthcare fraud and abuse laws and state consumer protection laws.

If our product candidates fail to comply with applicable regulatory requirements, or if a problem with one of our products or third-party suppliers is discovered, a regulatory agency may:

 

   

restrict the marketing or manufacturing of such products;

 

   

restrict the labeling of a product;

 

   

issue warning letters or untitled letters which may require corrective action;

 

   

mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;

 

   

require us to enter into a consent decree or permanent injunction, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

 

   

impose other administrative or judicial civil or criminal penalties including fines, imprisonment and disgorgement of profits;

 

   

suspend or withdraw regulatory approval;

 

   

refuse to approve pending applications or supplements to approved applications filed by us;

 

   

close the facilities of our third-party suppliers;

 

   

suspend ongoing clinical trials;

 

   

impose restrictions on operations, including costly new manufacturing requirements; or

 

   

seize or detain products or recommend or require a product recall.

The FDA’s and foreign regulatory agencies’ policies are subject to change, and additional federal, state, local or non-U.S. governmental regulations may be enacted that could affect our ability to maintain compliance. We cannot predict the likelihood, nature or extent of adverse governmental regulation that may arise from future legislation or administrative action, either in the United States or abroad.

We operate in a competitive business environment and, if we are unable to compete successfully against our existing or potential competitors, our sales and operating results may be negatively affected and we may not successfully commercialize our product candidates, even if approved.

The pharmaceutical and biotechnology industries are characterized by intense competition and significant and rapid technological change as researchers learn more about diseases and develop new technologies and treatments. Any product candidates that we successfully develop and commercialize will compete with existing drugs and new drugs that may become available in the future. While we believe that our product and product candidate platform, development expertise and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Many of our current and potential competitors are major pharmaceutical companies that have substantially greater financial, technical and marketing resources than we do, and they may succeed in developing products that would render our products obsolete or noncompetitive. Our ability to compete successfully will depend on our ability to develop future products that reach the market in a timely manner, are well adopted by patients and healthcare providers and receive adequate coverage and reimbursement from third-party payors. Because of the size of the potential market, we anticipate that companies will dedicate significant resources to developing products competitive to our product candidates.

 

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For example, we have numerous competitors in the severe hypoglycemia market, which currently include Eli Lilly’s Glucagon Emergency Kit and Novo Nordisk’s GlucaGen, and in the future may include a subcutaneous dasiglucagon auto-injector, being developed by Zealand Pharma, and an intranasal glucagon dry powder, being developed by Eli Lilly. At any time, these or other industry participants may develop alternative treatments, products or procedures for the treatment of severe hypoglycemia that compete directly or indirectly with our glucagon HypoPen, if approved. For example, based on its public disclosure of its submission of an NDA to the FDA for its intranasal glucagon in 2018, we believe Eli Lilly’s product candidate could receive marketing approval prior to our PDUFA target action date. Competitors may also develop and patent processes or products earlier than we can or obtain regulatory clearance or approvals for competing products more rapidly than we can, which could impair our ability to develop and commercialize similar processes or products. If alternative treatments are, or are perceived to be, superior to our products, sales of our products, if approved, could be negatively affected and our results of operations could suffer.

The widespread acceptance of currently available therapies with which our product candidates will compete may limit market acceptance of our product candidates even if commercialized. For example, emergency glucagon products are currently available for hypoglycemia and are widely accepted in the medical community and have a long history of use. These treatments will compete with our Gvoke HypoPen, if approved, and may limit the potential for our Gvoke HypoPen to receive widespread acceptance if commercialized.

If the FDA approves a competitor’s application for a product candidate or drug-device combination product before our application for a similar product candidate or drug-device combination product, and grants such competitor a period of exclusivity, the FDA may take the position that it cannot approve our 505(b)(2) application for a similar product candidate until the exclusivity period expires. Additionally, even if our 505(b)(2) application for our Gvoke HypoPen is approved first and we receive three-year marketing exclusivity, we may still be subject to competition from other companies with approved products or approved 505(b)(2) NDAs for different conditions of use that would not be restricted by any grant of exclusivity to us.

If the FDA or other applicable regulatory authorities approve generic products that compete with any of our product candidates, the sales of our product candidates, if approved, could be adversely affected.

Once an NDA, including a Section 505(b)(2) application, is approved, the product covered becomes a “listed drug” which can be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA. FDA regulations and other applicable regulations and policies provide incentives to manufacturers to create modified versions of a drug to facilitate the approval of an ANDA or other application for similar substitutes. If these manufacturers demonstrate that their product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or labeling, as our product candidate, they might only be required to conduct a relatively inexpensive study to show that their generic product is absorbed in the body at the same rate and to the same extent as, or is bioequivalent to, our product candidate. In some cases, even this limited bioequivalence testing can be waived by the FDA. Competition from generic equivalents to our product candidates could substantially limit our ability to generate revenues and therefore to obtain a return on the investments we have made in our product candidates.

Even if we obtain FDA approval of our lead product candidate, Gvoke HypoPen, or our other product candidates in the United States, we may never obtain or maintain foreign regulatory approvals to market our products in other countries.

We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval in international markets. In order to market products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval or certification by one foreign regulatory authority does not ensure approval or certification by regulatory authorities in other foreign countries or by the FDA. International jurisdictions require separate regulatory approvals and compliance with numerous and varying regulatory requirements. The approval procedures vary among countries and may involve requirements for additional testing, and the time required to obtain approval may differ from country to country and from that required to obtain clearance or approval in the United States. In addition, with respect to our Gvoke HypoPen, we are engaged in ongoing interactions with European regulatory authorities regarding our development path in Europe. For our Gvoke HypoPen, because Eli Lilly’s Glucagon Emergency Kit is not approved in Europe, we are conducting an additional

 

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clinical trial comparing our Gvoke HypoPen to Novo Nordisk’s GlucaGen, in addition to our existing clinical trials involving Eli Lilly’s Glucagon Emergency Kit. Such requirements may increase our development expenses and delay our regulatory development plans for potential European approval of our Gvoke HypoPen. There can be no assurance that the results that we observed from our prior clinical trials for our Gvoke HypoPen will be replicated in our ongoing and any future clinical trials that we undertake, or that any such results will be sufficient to secure approval in Europe.

In addition, some countries only approve or certify a product for a certain period of time, and we are required to re-approve or re-certify our products in a timely manner prior to the expiration of our prior approval or certification. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals or certifications and may not receive necessary approvals to commercialize our products in any market. If we fail to receive necessary approvals or certifications to commercialize our products in foreign jurisdictions on a timely basis, or at all, or if we fail to have our products re-approved or re-certified, our business, results of operations and financial condition could be adversely affected. The foreign regulatory approval or certification process may include all of the risks associated with obtaining FDA clearance or approval. In addition, the clinical standards of care may differ significantly such that clinical trials conducted in one country may not be accepted by healthcare providers, third-party payors or regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any drug we develop will be unrealized.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory approval of our product candidates, including our Gvoke HypoPen, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, President Obama signed into law the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.

Among the provisions of the ACA of importance to our product candidates are the following:

 

   

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

 

   

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

 

   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;

 

   

expansion of healthcare fraud and abuse laws, including the False Claims Act and the federal Anti-Kickback Statute, or AKS, which include, among other things, new government investigative powers and enhanced penalties for non-compliance;

 

   

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

   

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals, thereby potentially increasing manufacturers’ Medicaid rebate liability;

 

   

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

   

the requirements under the federal open payments program and its implementing regulations;

 

   

a requirement to annually report drug samples that manufacturers and distributors provide to physicians; and

 

   

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

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. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. The U.S. Supreme Court has 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 known as the requirement that all individuals maintain health insurance coverage or pay a penalty, referred to as the “individual mandate.” However, as a result of tax reform legislation passed in December 2017, the individual mandate has been eliminated effective January 1, 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise.

Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order 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. Further, on June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business, are not yet known.

In addition, the Centers for Medicare & Medicaid Services, or CMS, has 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, or PA, and step therapy, or 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. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions to Medicare payments to providers of 2% per fiscal year through 2027. 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 providers, and increased the statute of limitations period for the government

 

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to recover overpayments to providers from three to five years. Since 2016, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing or delaying penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. 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. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business. We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies, and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.

The costs of prescription pharmaceuticals in the United States has also been the subject of considerable debate, and members of Congress and the Trump Administration have indicated that each will address such costs through new legislative and administrative measures. To date, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, improve transparency in drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare, and reform government program reimbursement methodologies for drug products.

At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological 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.

The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these other countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for approved products. In addition, there have been several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare and reform

 

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government program reimbursement methodologies for drugs. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent labeling and post-marketing testing and other requirements.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. Notably, on January 30, 2017, President Trump issued an Executive Order, applicable to all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within the Office of Management and Budget on February 2, 2017, the Trump administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. Further, on February 24, 2017, President Trump issued an Executive Order requiring each agency to designate a regulatory reform officer and create a regulatory reform task force to evaluate existing regulations and make recommendations regarding their repeal, replacement or modification. It is difficult to predict how these requirements will be implemented and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

Our relationships with customers and payors will be subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements with investigators, healthcare practitioners, consultants, third-party payors and customers, if any, will subject us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws and regulations may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute any products for which we obtain marketing approval. These include the following:

 

   

Anti-Kickback Statute. The federal AKS makes it illegal for any person or entity (including a prescription drug manufacturer or a party acting on its behalf) to knowingly and willfully solicit, offer, receive or pay remuneration, directly or indirectly, in cash or in kind, in exchange for or intended to induce or reward either the referral of an individual for, or the purchase, order, prescription or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, they are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. A person or entity can be found guilty of violating the AKS without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute. Violations of the AKS carry potentially

 

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significant civil and criminal penalties, including imprisonment, fines, administrative civil monetary penalties, and exclusion from participation in federal healthcare programs.

 

   

False Claims Laws. The federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or knowingly avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties.

 

   

Anti-Inducement Law. The anti-inducement law 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.

 

   

HIPAA. 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, imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program (including private payors) or making false or fraudulent statements relating to healthcare matters. Similar to the federal AKS, 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. Additionally, HIPAA, as amended by HITECH and its implementing regulations, also imposes obligations on covered entities and their business associates, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information.

 

   

Transparency Requirements. The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the CMS information related to payments or transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as information regarding ownership and investment interests held by the physicians described above and their immediate family members.

 

   

Analogous State and Foreign Laws. Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements, and claims involving healthcare items or services reimbursed by non-governmental third-party payors, and are generally broad and are enforced by many different federal and state agencies as well as through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources, and some state laws require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information. State and foreign 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 pre-empted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations involve substantial costs. It is possible that governmental authorities will conclude that our business practices, including our arrangements with physicians and other healthcare providers, some of whom may receive stock options as compensation for services provided, may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as

 

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Medicare and Medicaid, disgorgement, contractual damages, reputational harm and the curtailment or restructuring of our operations. Defending against any such actions can be costly and time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

European data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.

In the event we decide to conduct clinical trials in the European Union, or EU, we may be subject to additional privacy restrictions. The collection and use of personal health data in the EU is governed by the provisions of the General Data Protection Regulation, or GDPR. This directive imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the EU to the United States. Failure to comply with the requirements of the GDPR and the related national data protection laws of the EU Member States may result in fines and other administrative penalties. The GDPR introduces new data protection requirements in the EU and substantial fines for breaches of the data protection rules. The GDPR regulations may impose additional responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with these and/or new data protection rules. This may be onerous and adversely affect our business, financial condition, prospects and results of operations.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain product candidates outside of the United States and require us to develop and implement costly compliance programs.

We currently have operations in the United States and we maintain relationships with CMOs in certain parts of Europe, Asia and the United States for the manufacture of our product candidates. The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the DOJ. The Securities and Exchange Commission, or SEC, is involved with enforcement of the books and records provisions of the FCPA and may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with laws and regulations in each new jurisdiction in which we plan to operate, and these laws may preclude us from developing, manufacturing, or selling certain drugs and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

The creation and implementation of international business practices compliance programs, particularly FCPA compliance, is costly and such programs are difficult to enforce, especially in countries in which corruption is a recognized problem and where reliance on third parties is required. In addition, the FCPA presents particular challenges in the pharmaceutical industry because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. Indictment alone under the FCPA can lead to suspension of the right to

 

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do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor.

Accordingly, our failure to comply with the FCPA or other export control, anti-corruption, anti-money laundering and anti-terrorism laws or regulations and other similar laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under such laws would have a negative impact on our operations and harm our reputation and ability to procure government contracts. We cannot assure you that our compliance policies and procedures are or will be sufficient or that our directors, officers, employees, representatives, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

In some countries, such as the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. Reference pricing used by various countries and parallel distribution or arbitrage between low-priced and high-priced countries can further reduce prices. To obtain reimbursement or pricing approval in some countries, we, or any future collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies, which is time-consuming and costly. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.

We will need to obtain FDA approval of any proposed product names, and any failure or delay associated with such approval may adversely impact our business.

Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a trademark registration from the U.S. Patent and Trademark Office, or USPTO. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. The FDA may object to any product name we submit if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product names, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of any existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage

 

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against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

Risks Related to our Dependence on Third Parties

We depend on third parties to conduct the clinical trials for our product candidates, and any failure of those parties to fulfill their obligations could harm our development and commercialization plans.

We depend on independent clinical investigators, CROs, academic institutions and other third-party service providers to conduct clinical trials with and for our product candidates. Although we rely heavily on these parties for successful execution of our clinical trials, we are ultimately responsible for the results of their activities and many aspects of their activities are beyond our control. For example, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial, but the independent clinical investigators may prioritize other projects over ours or may fail to timely communicate issues regarding our products to us. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or our stated protocols. The delay or early termination of any of our clinical trial arrangements, the failure of third parties to comply with the regulations and requirements governing clinical trials, or our reliance on results of trials that we have not directly conducted or monitored could hinder or delay the development, approval and commercialization of our product candidates and would adversely affect our business, results of operations and financial condition.

We maintain compliance programs related to our clinical trials through our clinical operations and development personnel working with our finance and legal groups’ support. Our clinical trial vendors are required to monitor and report to us the possible remedial action required for the conduct of clinical studies, and we are obliged to take the appropriate action. We also monitor clinical trial vendors through our regulatory and quality assurance staff and service providers. However, we cannot assure you that our programs and personnel will timely and fully discover any fraud or abuse that may occur in connection with our clinical trials. Such fraud or abuse, if it occurs, could have a material adverse effect on our research, development, and commercialization activities and results.

Our reliance on third-party suppliers, including single-source suppliers and a limited number of options for alternate sources for our product candidates, including our Gvoke HypoPen, could harm our ability to develop our product candidates or to commercialize any product candidates that are approved.

We do not currently own or operate manufacturing facilities for the production of any of our product candidates, including our Gvoke HypoPen. We rely on third-party suppliers to manufacture and supply our products. We currently rely on a number of single-source suppliers, such as Bachem Americas, Inc., or Bachem, for active pharmaceutical ingredient, or API, Pyramid Laboratories Inc., or Pyramid, for drug product and SHL Pharma, LLC, or SHL Pharma, for auto-injector and final product assembly, and we have entered into supply agreements with Bachem, Pyramid and SHL Pharma. Our third-party suppliers may not be required to provide us with any guaranteed minimum production levels or have dedicated capacity for our products. As a result, there can be no assurances that we will be able to obtain sufficient quantities of key materials or products in the future, which could have a material adverse effect on our business.

For us to be successful, our third-party suppliers must be able to provide us with raw materials, components and products in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis. Reliance on third-party suppliers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility that products will not be delivered on a timely basis, the possibility of increases in pricing for our products, and the possibility of breach or termination of a manufacturing agreement or purchase order by the third party.

Our product candidates, including Gvoke HypoPen, are drug-device combination products that will be regulated under the drug regulations of the FDCA based on its primary mode of action as a drug. Third-party manufacturers

 

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may not be able to comply with the cGMP regulatory requirements applicable to drug-device combination products, including applicable provisions of the FDA’s drug cGMP regulations, device cGMP requirements embodied in the QSR or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of our product candidates. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs and QSRs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP and QSR requirements. Any failure to comply with cGMP or QSR requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.

The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with applicable cGMPs and QSRs. Contract manufacturers may face manufacturing or quality control problems causing drug substance or device component production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP or QSR requirements. Any failure to comply with cGMP or QSR requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.

There are a limited number of third-party suppliers that are compliant with cGMP and/or QSRs, as required by the FDA, the European Union, and other regulatory authorities, and that also have the necessary expertise and capacity to manufacture our materials and products. As a result, it may be difficult for us to locate third-party suppliers for our anticipated future needs, and our anticipated growth could strain the ability of our current third-party suppliers to deliver products, raw materials and components to us. If we are unable to arrange for third-party suppliers for our materials and products, or to do so on commercially reasonable terms, we may not be able to complete development of or market our products.

The introduction of new cGMP or QSR regulations or product specific requirements by a regulatory body may require that we source alternative materials, modify existing manufacturing processes or implement design changes to our products that are subject to prior approval by the FDA or other regulatory authorities. We may also be required to reassess a third-party supplier’s compliance with all applicable new regulations and guidelines, which could further impede our ability to manufacture and supply products in a timely manner. As a result, we could incur increased production costs, experience supply interruptions, suffer damage to our reputation and experience an adverse effect on our business and financial results.

In addition, our reliance on third-party suppliers involves a number of additional risks, including, among other things:

 

   

our suppliers may fail to comply with regulatory requirements or make errors in manufacturing raw materials, components or products that could negatively affect the efficacy or safety of our products or cause delays in shipments of our products;

 

   

we may be subject to price fluctuations by suppliers due to terms within long-term supply arrangements or lack of long-term supply arrangements for key materials and products;

 

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our suppliers may lose access to critical services or sustain damage to a facility, including losses due to natural disasters or geo-political events, that may result in a sustained interruption in the manufacture and supply of our products;

 

   

fluctuations in demand for our products or a supplier’s demand from other customers may affect their ability or willingness to deliver materials or products in a timely manner or may lead to long-term capacity constraints at the supplier;

 

   

we may not be able to find new or alternative sources or reconfigure our products and manufacturing processes in a timely manner if a necessary raw material or components becomes unavailable; and

 

   

our suppliers may encounter financial or other hardships unrelated to our demand for materials, products and services, which could inhibit their ability to fulfill our orders and meet our requirements.

If any of the above risks materialize and we are unable to satisfy commercial demand for our products in a timely manner, our ability to generate revenue would be impaired, market acceptance of our products could be adversely affected, and customers may instead purchase or use our competitors’ products. In addition, we could be forced to secure new materials or develop alternative third-party suppliers, which can be difficult given our product complexity, long development lead-times and global regulatory review processes.

We may in the future elect to manufacture certain new or existing products ourselves, without the assistance of third-party suppliers. However, in order to make that election, we will need to invest substantial additional funds and recruit qualified personnel in order to operate our own manufacturing facility on a commercial basis. There can be no assurance that we will be able to successfully manufacture our own products, and if we are not able to make or obtain adequate supplies of our raw materials, components or products, it will be more difficult for us to launch new products, supply our current markets and compete effectively.

If our third-party manufacturers of our product candidates are unable to increase the scale of their production of our product candidates, or increase the product yield of manufacturing, then our costs to manufacture the product may increase and commercialization may be delayed.

In order to produce sufficient quantities to meet the demand for clinical trials and subsequent commercialization of our Gvoke HypoPen or any of our other product candidates in our pipeline or that we may develop, our third-party manufacturers will be required to increase their production and automate and otherwise optimize their manufacturing processes while maintaining the quality of the product. The transition to larger scale production could prove difficult. In addition, if our third-party manufacturers are not able to automate and otherwise optimize their manufacturing process to increase the product yield for our Gvoke HypoPen and other components of our product candidates, or if they are unable to produce increased amounts of our product candidates while maintaining quality, then we may not be able to meet the demands of clinical trials or market demands, which could decrease our ability to generate revenues and have a material adverse impact on our business and results of operations.

We enter into various contracts in the normal course of our business in which we indemnify the other party to the contract. In the event we have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.

In the normal course of business, we periodically have entered, and in the future may enter, into academic, commercial, service, collaboration, licensing, feasibility, consulting and other agreements that contain indemnification provisions. We have in the past and may in the future agree to indemnify the counterparties from losses arising from claims relating to the products, processes or services made, used, sold or performed. We may also agree to indemnify our vendors from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party.

Should our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our business, financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage and does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.

 

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We expect to seek to establish collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

We expect to seek one or more collaborators for the development and commercialization of one or more of our product candidates, particularly with respect to our pipeline product candidates or foreign geographies. Likely collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the potential differentiation of our product candidate from competing product candidates, design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

Collaborations are complex and time-consuming to negotiate and document. Further, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Any collaboration agreements that we enter into in the future may contain restrictions on our ability to enter into potential collaborations or to otherwise develop specified product candidates. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.

Risks Related to our Intellectual Property

Our success depends on our ability to protect our intellectual property and proprietary technology, as well as the ability of our collaborators to protect their intellectual property and proprietary technology.

Our success depends in large part on our ability to obtain and maintain patent protection and trade secret protection in the United States and other countries with respect to our proprietary product candidates. If we do not adequately protect our intellectual property rights, competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel product candidates that are important to our business; we may in the future also license or purchase patent applications filed by others. The patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

If the scope of the patent protection we or our potential licensors obtain is not sufficiently broad, we may not be able to prevent others from developing and commercializing technology and products similar or identical to ours. The degree of patent protection we require to successfully compete in the marketplace may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our current and future product candidates or otherwise provide any competitive advantage. In addition, to the extent that we license intellectual property in the future, we cannot assure you that those licenses will remain in force. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally twenty years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited.

 

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Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

Even if they are unchallenged, our patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one or more of our product candidates but that uses a formulation and/or a device that falls outside the scope of our patent protection. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business. Although we currently own all of our patents and our patent applications, similar risks would apply to any patents or patent applications that we may in-license in the future.

We, or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen our patent position.

It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If we or our partners, collaborators, licensees or licensors fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our partners, collaborators, licensees or licensors are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.

Moreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found. If such prior art exists, it may be used to invalidate a patent, or may prevent a patent from issuing from a pending patent application. For example, such patent filings may be subject to a third-party preissuance submission of prior art to the USPTO and/or to other patent offices around the world. Alternately or additionally, we may become involved in post-grant review procedures, oppositions, derivations proceedings, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging patents or patent applications in which we have rights, including patents on which we rely to protect our business. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products.

Pending and future patent applications may not result in patents being issued which protect our business, in whole or in part, or which effectively prevent others from commercializing competitive products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, patent laws in

 

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various jurisdictions, including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the human body more than United States law does.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:

 

   

the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case;

 

   

patent applications may not result in any patents being issued;

 

   

patents that may be issued may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

 

   

our competitors, many of whom have substantially greater resources and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to make, use, and sell our potential product candidates;

 

   

there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and

 

   

countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates in such countries.

Issued patents that we have or may in the future obtain or license may not provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our or our future licensors’ patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek approval to market their own products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to market generic versions of any approved products by submitting ANDAs to the FDA in which they claim that patents owned or in the future licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid or unenforceable, or that our competitors are competing in a non-infringing manner. Thus, even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

In the future, we may enter into license agreements with third parties pursuant to which they have the right, but not the obligation, in certain circumstances to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents. Even if we are permitted to pursue such enforcement or defense, we will require the cooperation of those licensors, and cannot guarantee that we would receive it and on what terms. We cannot be certain that those licensors will allocate sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect our interests in the licensed patents. If we cannot obtain patent protection, or enforce existing or future patents against third parties, our competitive position and our financial condition could suffer.

In addition, we rely on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties and confidential information and inventions agreements with employees, consultants and advisors, we cannot provide any assurances that all such agreements have been duly executed, and third parties may still obtain this information or may come upon this or similar information independently. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets. If any of these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, our business may be harmed.

 

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It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for the use, formulation and structure of our product candidates, the methods used to manufacture them, the related therapeutic targets and associated methods of treatment as well as on successfully defending these patents against potential third-party challenges. Our ability to protect our products and product candidates from unauthorized making, using, selling, offering to sell or importing by third parties is dependent on the extent to which we have rights under valid and enforceable patents that cover these activities.

The patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Further, the determination that a patent application or patent claim meets all of the requirements for patentability is a subjective determination based on the application of law and jurisprudence. The ultimate determination by the USPTO or by a court or other trier of fact in the United States, or corresponding foreign national patent offices or courts, on whether a claim meets all requirements of patentability cannot be assured. We have not conducted searches for third-party publications, patents and other information that may affect the patentability of claims in our various patent applications and patents, so we cannot be certain that all relevant information has been identified. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or patent applications, in any future licensed patents or patent applications or in third-party patents.

We cannot provide assurances that any of our patent applications will be found to be patentable, including over our own prior art patents, or will issue as patents. Neither can we make assurances as to the scope of any claims that may issue from our pending and future patent applications nor to the outcome of any proceedings by any potential third parties that could challenge the patentability, validity or enforceability of our patents and patent applications in the United States or foreign jurisdictions. Any such challenge, if successful, could limit patent protection for our products and product candidates and/or materially harm our business.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

 

   

we may not be able to generate sufficient data to support full patent applications that protect the entire breadth of developments in one or more of our programs;

 

   

it is possible that one or more of our pending patent applications will not become an issued patent or, if issued, that the patent(s) will not: (a) be sufficient to protect our technology, (b) provide us with a basis for commercially viable products or (c) provide us with any competitive advantages;

 

   

if our pending applications issue as patents, they may be challenged by third parties as not infringed, invalid or unenforceable under U.S. or foreign laws; or

 

   

if issued, the patents under which we hold rights may not be valid or enforceable.

In addition, to the extent that we are unable to obtain and maintain patent protection for one of our products or product candidates or in the event that such patent protection expires, it may no longer be cost-effective to extend our portfolio by pursuing additional development of a product or product candidate for follow-on indications.

We also may rely on trade secrets to protect our technologies or products, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisers may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

 

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Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.

Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Where available, we will seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

Others may challenge inventorship or claim an ownership interest in our intellectual property which could expose it to litigation and have a significant adverse effect on its prospects.

A third party or former employee or collaborator may claim an ownership interest in one or more of our patents or other proprietary or intellectual property rights. A third party could bring legal actions against us and seek monetary damages and/or enjoin clinical testing, manufacturing and marketing of the affected product or products. While we are presently unaware of any claims or assertions by third parties with respect to our patents or other intellectual property, we cannot guarantee that a third party will not assert a claim or an interest in any of such patents or intellectual property. If we become involved in any litigation, it could consume a substantial portion of our resources and cause a significant diversion of effort by our technical and management personnel.

Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. New patent reform legislation in the United States, including the Leahy-Smith America Invents Act, or the America Invents Act, signed into law in September 2011, could increase those uncertainties and costs. The America Invents Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted, redefining prior art and providing more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the America Invents Act has reformed the United States patent law in part by changing the U.S. patent system from a “first to invent” system to a “first inventor to file” system. The first inventor to file provision, however, only became effective on March 16, 2013, so it is still not yet clear what, if any, impact the America Invents Act will have on the operations of our business. The America Invents Act and its implementation could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business, results of operations and financial condition.

Further, the America Invents Act created new procedures to challenge the validity of issued patents in the United States, including post-grant review and inter partes review proceedings, which some third parties have been using to cause the cancellation of selected or all claims of issued patents. For a patent with an effective filing date of March 16, 2013 or later, a petition for post-grant review can be filed by a third party in a nine month window

 

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from issuance of the patent. A petition for inter partes review can be filed immediately following the issuance of a patent if the patent has an effective filing date prior to March 16, 2013. A petition for inter partes review can be filed after the nine month period for filing a post-grant review petition has expired for a patent with an effective filing date of March 16, 2013 or later. Post-grant review proceedings can be brought on any ground of invalidity, whereas inter partes review proceedings can only raise an invalidity challenge based on published prior art and patents. In these adversarial actions, the USPTO reviews patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts and uses a lower burden of proof than used in litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or third party to have a U.S. patent invalidated in a USPTO post-grant review or inter partes review proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are challenged by a third party in such a USPTO proceeding, there is no guarantee that we will be successful in defending the patent, which would result in a loss of the challenged patent right to us. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

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

Filing, prosecuting, enforcing and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly in developing countries; thus, even in countries where we do pursue patent protection, there can be no assurance that any patents will issue with claims that cover our product candidates.

Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property protection to the same extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries outside the United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop and market their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Agreements through which we may license patent rights may not give us sufficient rights to permit us to pursue enforcement of those licensed patents or defense of any claims asserting the invalidity of these patents (or control of enforcement or defense) of such patent rights in all relevant jurisdictions as requirements may vary.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Moreover, such proceedings could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Furthermore, while we intend to protect our intellectual property rights in major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.

Others may claim an ownership interest in our intellectual property which could expose us to litigation and have a significant adverse effect on our prospects.

A third party may claim an ownership interest in one or more of our patents or other proprietary or intellectual property rights. A third party could bring legal actions against us and seek monetary damages and/or enjoin clinical

 

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testing, manufacturing and marketing of the affected product or products. While we are presently unaware of any claims or assertions by third parties with respect to our patents or other intellectual property, we cannot guarantee that a third party will not assert a claim or an interest in any of such patents or intellectual property. If we become involved in any litigation, it could consume a substantial portion of our resources and cause a significant diversion of effort by our technical and management personnel. If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product, in which case we may be required to pay substantial royalties or grant cross-licenses to our patents. We cannot, however, assure you that any such license will be available on acceptable terms, if at all. Ultimately, we could be prevented from commercializing a product candidate, or be forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other intellectual property rights. Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of any adverse party. This is especially true in intellectual property cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree.

The pharmaceutical industry is characterized by frequent patent litigation and we could become subject to litigation that could be costly, result in the diversion of management’s time and efforts, require us to pay damages or prevent us from marketing our existing or future products.

Our commercial success will depend in part on not infringing the patents or violating the other proprietary rights of third parties. Significant litigation regarding patent rights exists in our industry. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make and sell our products. Generally, we do not conduct independent reviews of patents issued to third parties. The large number of patents, the rapid rate of new patent issuances, the complexities of the technology involved, and uncertainty of litigation increase the risk of business assets and management’s attention being diverted to patent litigation. In the future, we may receive communications from various industry participants alleging our infringement of their patents, trade secrets, or other intellectual property rights and/or offering licenses to such intellectual property. Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the following:

 

   

stop selling products or using technology that contains the allegedly infringing intellectual property;

 

   

lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others;

 

   

incur significant legal expenses;

 

   

pay substantial damages to the party whose intellectual property rights we may be found to be infringing;

 

   

redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive and/or infeasible; or

 

   

attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business, and harm our reputation. In connection with such litigation or claims, we may be required to obtain licenses or make changes to our products or technologies, and if we fail to do so, we may have to withdraw existing products from the market or may be unable to commercialize one or more of our products, all of which could have a material adverse effect on our business, results of operations and financial condition.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.

Many of our employees were previously employed at other pharmaceutical companies, including our competitors or potential competitors, in some cases until recently. We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of these former employers

 

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or competitors. In addition, we have been and may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving one or more of our patents could limit our ability to assert those patents against those parties or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are unenforceable, that the alleged infringing mark does not infringe our trademark rights, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this last instance, we could ultimately be forced to cease use of such trademarks.

Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could adversely affect the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

Our unpatented trade secrets, know-how, confidential and proprietary information, and technology may be inadequately protected.

We rely in part on unpatented trade secrets, know-how and technology. This intellectual property is difficult to protect, especially in the pharmaceutical industry, where much of the information about a product must be submitted to regulatory authorities during the regulatory approval process. We seek to protect trade secrets, confidential information and proprietary information, in part, by entering into confidentiality and invention assignment agreements with employees, consultants, and others. These parties may breach or terminate these agreements, and we may not have adequate remedies for such breaches. Furthermore, these agreements may not provide meaningful protection for our trade secrets or other confidential or proprietary information or result in the effective assignment to us of intellectual property and may not provide an adequate remedy in the event of unauthorized use or disclosure of confidential information or other breaches of the agreements. Despite our efforts to protect our trade secrets and our other confidential and proprietary information, we or our collaboration partners, board members, employees, consultants, contractors, or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors.

 

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There is a risk that our trade secrets and other confidential and proprietary information could have been, or could, in the future, be shared by any of our former employees with, and be used to the benefit of, any company that competes with us.

If we fail to maintain trade secret protection or fail to protect the confidentiality of our other confidential and proprietary information, our competitive position may be adversely affected. Competitors may also independently discover our trade secrets. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secret protections against them, which could have a material adverse effect on our business.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marks of interest and our business may be adversely affected.

Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. During the trademark registration process, we may receive Office Actions from the USPTO objecting to the registration of our trademark. Although we would be given an opportunity to respond to those objections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and/or to seek the cancellation of registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.

An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuit that would delay or prevent the review or approval of our product candidate.

We submitted our NDA for our Gvoke HypoPen in August 2018 under Section 505(b)(2) of the FDCA, and we expect to submit NDAs for our other product candidates, to the FDA for approval under this section. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from preclinical studies and/or clinical trials that were not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. An NDA under Section 505(b)(2) would enable us to reference published literature and/or the FDA’s previous findings of safety and effectiveness for a previously approved drug.

For NDAs submitted under Section 505(b)(2), the patent certification and related provisions of the Hatch-Waxman Act apply. Accordingly, if we rely for approval on the safety or effectiveness information for a previously approved drug, referred to as a listed drug, we will be required to include patent certifications in our 505(b)(2) application regarding any patents covering the listed drug. If there are patents listed in the FDA publication Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book, for the listed drug, and we seek to obtain approval prior to the expiration of one or more of those patents, we will be required to submit a Paragraph IV certification indicating our belief that the relevant patents are invalid, unenforceable or will not be infringed by the manufacture, use or sale of the product that is the subject of our 505(b)(2) application. Otherwise, our 505(b)(2) application cannot be approved by the FDA until the expiration of any patents listed in the Orange Book for the listed drug. While we did not submit any Paragraph IV certifications in connection with our 505(b)(2) NDA for our Gvoke HypoPen, and do not expect to submit any Paragraph IV certifications for our other current product candidates, there can be no assurance that we will not be required to submit a Paragraph IV certification in respect of any future product candidates for which we seek approval under Section 505(b)(2).

If we submit any Paragraph IV certification that may be required, we will be required to provide notice of that certification to the NDA holder and patent owner shortly after our 505(b)(2) application is accepted for filing. Under the Hatch-Waxman Act, the patent owner may file a patent infringement lawsuit after receiving such notice. If a patent infringement lawsuit is filed within 45 days of the patent owner’s or NDA holder’s receipt of notice (whichever is later), a one-time, automatic stay of the FDA’s ability to approve the 505(b)(2) NDA is triggered, which typically extends for 30 months unless patent litigation is resolved in favor of the Paragraph IV filer or the patent expires before that time. Accordingly, we may invest a significant amount of time and expense in the development of one or

 

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more product candidates only to be subject to significant delay and patent litigation before such product candidates may be commercialized, if at all.

In addition, a 505(b)(2) application will not be approved until any non-patent exclusivity listed in the Orange Book for the listed drug, or for any other drug with the same protected conditions of approval as our product, has expired. The FDA also may require us to perform one or more additional clinical trials or measurements to support the change from the listed drug, which could be time consuming and could substantially delay our achievement of regulatory approval. The FDA also may reject any future 505(b)(2) submissions and require us to submit traditional NDAs under Section 505(b)(1), which would require extensive data to establish safety and effectiveness of the product for the proposed use and could cause delay and additional costs. In addition, the FDA could reject any future 505(b)(2) application and require us to submit an ANDA if, before the submission of our 505(b)(2) application, the FDA approves an application for a product that is pharmaceutically equivalent to ours. These factors, among others, may limit our ability to commercialize our product candidates successfully.

Risks Related to Employee Matters, Managing Growth and Ongoing Operations

If product liability lawsuits are brought against us, our business may be harmed, and we may be required to pay damages that exceed our insurance coverage.

We may face liability claims related to the use or misuse of our product candidates and, if approved, our products. These claims may be expensive to defend and may result in large judgments against us. During the course of treatment, patients using our product candidates could suffer adverse medical effects for reasons that may or may not be related to our product candidates. We will face even greater risks upon any commercialization by us of our product candidates. Any of these events could result in a claim of liability. Any such claims against us, regardless of their merit, could result in significant costs to defend or awards against us that could materially harm our business, financial condition or results of operations. In addition, any such claims against us could result in a distraction to management, decreased demand for our products, an adverse effect on our public reputation, and/or difficulties in commercializing our products. To date, we have not received notice of any product liability claims against us. We maintain total product liability insurance coverage of $5.0 million.

Although we maintain product liability insurance for claims arising from the use of our product candidates in clinical trials prior to FDA approval and for claims arising from the use of our products after FDA approval at levels that we believe are appropriate, we may not be able to maintain our existing insurance coverage or obtain additional coverage on commercially reasonable terms for the use of our other product candidates and products in the future. Also, our insurance coverage and resources may not be sufficient to satisfy any liability resulting from product liability claims, which could materially harm our business, financial condition or results of operations.

Product liability claims could result in an FDA or other regulatory authority investigation of the safety or efficacy of our products, our manufacturing processes and facilities, our marketing programs, our internal safety reporting systems or our staff conduct. A regulatory authority investigation could also potentially lead to a recall of our products or more serious enforcement actions, limitations on the indications for which they may be used, or suspension or withdrawal of approval. Product liability claims could also result in investigation, prosecution or enforcement action by the DOJ or other federal or state government agencies.

Our business could suffer if we lose the services of key members of our senior management, or if we are not able to attract and retain other key employees and consultants.

We are dependent upon the continued services of key members of our executive management and a limited number of key advisors and personnel. In particular, we are highly dependent on the skills and leadership of our executive management team, including Paul Edick, our Chief Executive Officer, Barry Deutsch, our Chief Financial Officer, Steven Prestrelski, our Chief Scientific Officer and Co-Founder, John Shannon, our Chief Operating Officer, Ken Johnson, our Senior Vice President, Clinical Development, Regulatory, Quality Assurance and Medical Affairs, and Beth Hecht, our Senior Vice President, General Counsel and Corporate Secretary. The loss of any one of these individuals could disrupt our operations or our strategic plans. Our industry has experienced a high rate of turnover of management personnel in recent years. Any of our personnel may terminate their employment at will. If we lose one or more of our executive officers or other key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers or other key employees may be

 

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difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain marketing approval of and commercialize products successfully.

Additionally, our future success will depend on, among other things, our ability to continue to hire and retain the necessary qualified scientific, technical and managerial personnel, for whom we compete with numerous other companies, academic institutions and organizations. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key employees on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.

We rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by other entities and may have commitments under consulting or advisory contracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability to develop and commercialize our product candidates will be limited.

We will need to increase the size of our organization, and we may encounter difficulties managing our growth.

As of January 31, 2019, we had 100 employees. As our product candidates continue to progress toward potential approval and commercialization, we anticipate the need to hire additional employees as required to add depth and specialized expertise to our team. This growth could place a strain on our administrative and operational infrastructure. If the product candidates that we are developing continue to advance in clinical trials, we will need to expand our development, regulatory, manufacturing, quality, compliance, recordkeeping, information technology, training, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to develop additional relationships with various collaborators, CROs, suppliers, manufacturers and other organizations. We may not be able to establish such relationships or may incur significant costs to do so. Our ability to manage our growth will also require us to continue to improve our operational, financial and management controls, reporting systems and procedures, and other compliance programs and processes, which will further increase our operating costs. Failure to manage our growth effectively could cause us to over-invest or under-invest in infrastructure, and result in losses or weaknesses in our infrastructure, which could adversely affect us. Additionally, our anticipated growth will increase the demands placed on our suppliers, resulting in an increased need for us to monitor our suppliers carefully for quality assurance, and our business could suffer.

We may be required to maintain high levels of inventory, which could consume a significant amount of our resources and reduce our cash flows.

As a result of the need to maintain substantial levels of inventory due to single third-party sourcing and long lead-time to develop alternate third-party sources, we intend to carry a high level of inventory for strategic materials and products and are subject to the risk of inventory obsolescence. In the event that a substantial portion of our inventory becomes obsolete, it could have a material adverse effect on our earnings and cash flows due to the resulting costs associated with the inventory impairment charges and costs required to replace such inventory.

As a result of being a public company, we will continue to incur significant additional costs which may adversely affect our operating results and financial condition.

We expect to continue to incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules implemented by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC and The Nasdaq Global Select Market. These rules and regulations have increased our accounting, legal and financial compliance costs and make some activities more time-consuming and costly. In addition, we will continue to incur additional costs associated with our public company reporting requirements and we expect those costs to continue to increase in the future. For example, we will be required to devote significant resources to complete the assessment and documentation of our internal control system and financial process under Section 404 of the Sarbanes-Oxley Act, including an assessment of the design of our information systems associated with our internal controls.

We have never conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them

 

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before we must provide the required reports. Furthermore, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we are required to timely file accurate quarterly and annual reports with the SEC under the Securities Exchange Act of 1934, or the Exchange Act, as amended. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The Nasdaq Global Select Market or other adverse consequences. We will incur significant costs to remediate any material weaknesses we identify through these efforts. We also expect these rules and regulations to make it more expensive for us to maintain directors’ and officers’ liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

New laws and regulations, as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act, the Dodd-Frank Act and rules adopted by the SEC and The Nasdaq Global Select Market, would likely result in increased costs to us as we respond to their requirements, which may adversely affect our operating results and financial condition.

We identified a material weakness in our internal control over financial reporting in our audit for the fiscal year ended December 31, 2017. If we fail to remediate this weakness or experience material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.

We are required under Section 404 of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ended December 31, 2019. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.

We may further enhance the computer systems processes and related documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. The effectiveness of our controls and procedures may be limited by a variety of factors, including:

 

   

faulty human judgment and simple errors, omissions or mistakes;

 

   

fraudulent action of an individual or collusion of two or more people;

 

   

inappropriate management override of procedures; and

 

   

the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial control.

For example, for the year ended December 31, 2017, we identified a material weakness in our internal control over financial reporting due to a lack of proper segregation of duties within our finance and accounting function. This weakness was due to our inability to implement the appropriate segregation of duties within our historical enterprise resource planning, or ERP, system. Since August 2017, we have made efforts to design manual controls to mitigate the risk. In addition, in December 2017, we implemented a new ERP system. If we are unable to conclude that our internal control over financial reporting is effective or take effective remedial measures to improve our internal control, we could lose investor confidence in the accuracy and completeness of our financial reports, which would likely cause the price of our common stock to decline.

 

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When we cease to be an “emerging growth company” under the federal securities laws, our auditors will be required to express an opinion on the effectiveness of our internal controls. If we are unable to confirm that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

If we experience significant disruptions in our information technology systems, our business may be adversely affected.

We depend on our information technology systems for the efficient functioning of our business, including accounting, data storage, compliance, purchasing and inventory management. Our current systems are not fully redundant. While we will attempt to mitigate interruptions, we may experience difficulties in implementing some upgrades which would impact our business operations, or experience difficulties in operating our business during the upgrade, either of which could disrupt our operations, including our ability to timely ship and track product orders, project inventory requirements, manage our supply chain and otherwise adequately service our customers. In the event we experience significant disruptions as a result of the current implementation of our information technology systems, we may not be able to repair our systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and have a material adverse effect on our results of operations and cash flows.

We are increasingly dependent on sophisticated information technology for our infrastructure. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems. Despite our implementation of security measures, our information systems, like those of other companies, are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber attack and other similar disruptions. Any system failure, accident or security breach could result in disruptions to our operations. For example, third parties may attempt to hack into systems and may obtain our proprietary information, which could cause significant damage to our reputation, lead to claims against the Company and ultimately harm our business.

Fluctuations in insurance cost and availability could adversely affect our profitability or our risk management profile.

We hold a number of insurance policies, including product liability insurance, directors’ and officers’ liability insurance, general liability insurance, property insurance and workers’ compensation insurance. If the costs of maintaining adequate insurance coverage increase significantly in the future, our operating results could be materially adversely affected. Likewise, if any of our current insurance coverage should become unavailable to us or become economically impractical, we would be required to operate our business without indemnity from commercial insurance providers. If we operate our business without insurance, we could be responsible for paying claims or judgments against us that would have otherwise been covered by insurance, which could adversely affect our results of operations or financial condition.

We may seek to grow our business through acquisitions of or investments in new or complementary businesses, products or technologies, and the failure to manage any acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect on us.

From time to time we expect to consider opportunities to acquire or make investments in other technologies, products and businesses that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. Potential acquisitions and strategic investments involve numerous risks, including:

 

   

problems assimilating the purchased technologies, products or business operations;

 

   

issues maintaining uniform standards, procedures, controls and policies;

 

   

unanticipated costs associated with acquisitions;

 

   

diversion of management’s attention from our core business;

 

   

adverse effects on existing business relationships with suppliers and customers;

 

   

risks associated with entering new markets in which we have limited or no experience;

 

   

potential loss of key employees of acquired businesses; and

 

   

increased legal and accounting compliance costs.

We have no current commitments with respect to any acquisition or investment and we have never entered into or completed an acquisition. We do not know if we will be able to identify suitable acquisitions, complete any such

 

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acquisitions on favorable terms or at all, successfully integrate any acquired business, product or technology into our business or retain any key personnel, suppliers or distributors. Our ability to grow through acquisitions successfully depends upon our ability to identify, negotiate, complete and integrate suitable target businesses and to obtain any necessary financing. These efforts could be expensive and time consuming and may disrupt our ongoing business and prevent management from focusing on our operations. If we are unable to integrate any acquired businesses, products or technologies effectively, our business, results of operations and financial condition will be materially adversely affected.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.

If we expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, upon

 

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completion of this offering and in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

Our employees, independent contractors, consultants, collaborators and contract research organizations may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm to our reputation.

We are exposed to the risk that our employees, independent contractors, consultants, collaborators and contract research organizations may engage in fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, to provide accurate information to the FDA or comparable non-U.S. regulatory authorities, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable non-U.S. regulatory authorities, to report financial information or data accurately or to disclose unauthorized activities to us. Such misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product materials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.

On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely), and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”). We continue to examine the impact this tax reform legislation may have on our business. The overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain how various states will respond to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

Risks Related to Our Common Stock and this Offering

Our stock price has been and will likely continue to be volatile, and you may not be able to sell shares of our common stock at or above the offering price, if at all.

The trading price of our common stock may be highly volatile and could be subject to large fluctuations in response to the risk factors discussed in this section, and others beyond our control, including:

 

   

the timing and results of applications for FDA review and approval of our Gvoke HypoPen and other regulatory actions with respect to our product candidates;

 

   

regulatory actions with respect to our competitors’ products and product candidates;

 

   

the success of existing or new competitive products or technologies;

 

   

results of clinical trials of product candidates of our competitors;

 

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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

 

   

the timing and results of clinical trials of our pipeline product candidates;

 

   

commencement or termination of collaborations for our development programs;

 

   

the results of our efforts to develop additional product candidates or products;

 

   

the level of expenses related to any of our product candidates or clinical development programs;

 

   

failure or discontinuation of any of our development programs;

 

   

the pricing and reimbursement of our Gvoke HypoPen, if approved, and of other product candidates that may be approved;

 

   

regulatory or legal developments in the United States and other countries;

 

   

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

actual or anticipated changes in estimates as to financial results or development timelines;

 

   

announcement or expectation of additional financing efforts;

 

   

sales of our common stock by us, our insiders or other stockholders;

 

   

variations in our financial results or those of companies that are perceived to be similar to us;

 

   

changes in estimates or recommendations by securities analysts, if any, that cover our stock;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

general economic, industry and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

In recent years, the stock markets, and particularly the stock of smaller pharmaceutical and biotechnology companies, at times have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of affected companies. Broad market and industry factors may significantly affect the market price of our common stock unrelated to our actual operating performance. Since shares of our common stock were sold in our IPO in June 2018 at a price of $15.00 per share, our stock price has fluctuated significantly, ranging from an intraday low of $10.42 to an intraday high of $27.98 through February 13, 2019. If the market price of our common stock after this offering does not exceed the public offering price, you may lose some or all of your investment. If the market price of shares of our common stock after this offering does not exceed the offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.

If you purchase shares of common stock in this offering, you will suffer immediate dilution in the net tangible book value of your investment.

The offering price of our common stock is substantially higher than the net tangible book value per share of our common stock before giving effect to this offering. Therefore, if you purchase shares of our common stock in this offering, you will incur immediate substantial dilution of $4.40 per share, based on the public offering price of $10.00 per share and our net tangible book value as of September 30, 2018. Furthermore, if the underwriters exercise their option to purchase additional shares, you will experience further dilution. For additional information on the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

Securities analysts may publish inaccurate or unfavorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.

The trading market for our common stock is influenced by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, the analysts who

 

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publish information about our common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. If any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of our company or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

We are an “emerging growth company” and the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (i) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (iii) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (iv) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.

As a result, our public filings may not be comparable to companies that are not “emerging growth companies”. We may remain an “emerging growth company” until the fiscal year-end following the fifth anniversary of the completion of our IPO, though we may cease to be an “emerging growth company” earlier under certain circumstances, including (i) if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30, in which case we would cease to be an “emerging growth company” as of the following January 1, or (ii) if our gross revenue exceeds $1.07 billion in any fiscal year.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. In addition, we qualify as a “smaller reporting company,” which allows us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

Investors may find our common stock less attractive if we rely on these exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline and/or become more volatile.

Our management might apply the proceeds of this offering in ways that do not increase the value of your investment.

Although we currently intend to use the net proceeds from this offering in the manner described in the section titled “Use of Proceeds” in this prospectus, our management will have broad discretion as to the use of the net proceeds of this offering and you will be relying on the judgment of our management regarding the application of these proceeds. We might apply the net proceeds of this offering in ways with which you do not agree, or in ways that do not yield a favorable return. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering or to assess whether proceeds are being used appropriately. If our management applies these proceeds in a manner that does not improve our operating results and yield a significant return, if any, on our investment of these net proceeds, the market price of our common stock could decline. For more information on our management’s planned use of proceeds, please read “Use of Proceeds” elsewhere in this prospectus. Pending their use, we may also invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Sales of a substantial number of shares of common stock could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell

 

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shares, could reduce the market price of our common stock. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. Upon completion of this offering, based on the number of shares outstanding as of December 31, 2018, we will have outstanding 26,773,205 shares of common stock (which includes 84,839 shares of unvested restricted stock), of which 542,933 are subject to lock-up agreements entered into in connection with this offering and will be available for sale in the public market beginning 90 days after the date of this prospectus. Any of our remaining shares of common stock may be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act, or to the extent such shares have already been registered under the Securities Act and are held by non-affiliates of ours.

In addition, holders of an aggregate of approximately 537,274 shares of our common stock are entitled, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

We have registered the shares of common stock issuable upon exercise or settlement of all equity awards issued or reserved for issuance under our 2018 Stock Option and Incentive Plan, 2018 Employee Stock Purchase Plan and our Inducement Equity Plan under a Registration Statement on Form S-8. These shares can be freely sold in the public market upon issuance and once vested, subject to the lock-up agreements described above and Rule 144 in the case of our affiliates.

We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.

As of December 31, 2017, we had federal net operating loss carryforwards of $55.8 million and federal research and orphan drug credit carryforwards of $2.0 million. If not utilized, these carryforwards will expire at various dates between 2025 and 2036. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the newly enacted federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain how various states will respond to the newly enacted federal tax law. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Our existing net operating losses or credits may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize our net operating losses or credits could be further limited by Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, many of which may be outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Accordingly, we may not be able to utilize a material portion of our net operating losses or credits.

We do not anticipate paying any cash dividends in the foreseeable future, and accordingly, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. In addition, under our Loan and Security Agreement, we are restricted from paying any dividends or making any distributions on account of our capital stock. Our ability to pay cash dividends also may be prohibited by future loan agreements. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not invest in our common stock.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us.

Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management

 

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team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

 

   

establish a classified board of directors such that all members of the board are not elected at one time;

 

   

allow the authorized number of our directors to be changed only by resolution of our board of directors;

 

   

limit the manner in which stockholders can remove directors from the board;

 

   

establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at stockholder meetings;

 

   

require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

 

   

limit who may call a special meeting of stockholders;

 

   

authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors;

 

   

require the approval of the holders of at least two-thirds of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws;

 

   

provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty by one or more of our directors, officers or employees, any action asserting a claim against us pursuant to the Delaware General Corporation Law, or any action asserting a claim against us that is governed by the internal affairs doctrine.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders. This could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

Our bylaws designate certain courts as the sole and exclusive forums for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any state law claim for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of or based on a fiduciary duty owed by any of our directors, officers and employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Our amended and restated bylaws also provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision.

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. Stockholders who do bring a claim in this court could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The Delaware Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders.

 

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In addition, our amended and restated bylaws further provide that the United States District Court for the Northern District of Illinois will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, and that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision. We have chosen the United States District Court for the Northern District of Illinois as the exclusive forum for Securities Act causes of action because our principal executive offices are located in Chicago, Illinois. However, on December 19, 2018, the Delaware Court of Chancery issued a decision declaring that such federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are ineffective and invalid under Delaware law. On January 17, 2019, that decision was appealed to the Delaware Supreme Court. Unless and until the Court of Chancery’s decision is reversed by the Delaware Supreme Court or otherwise abrogated, we will not seek to enforce our federal forum selection provision designating the Northern District of Illinois as the exclusive forum for Securities Act claims. In the event that the Delaware Supreme Court affirms the Court of Chancery’s decision or otherwise determines that federal forum selection provisions are invalid, our Board intends to amend promptly our amended and restated bylaws to remove our federal forum selection bylaw provision. As a result of the Court of Chancery’s decision or a decision by the Supreme Court of Delaware affirming the Court of Chancery’s decision, we may incur additional costs associated with our federal forum selection bylaw provision, which could have an adverse effect on our business, financial condition or results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

 

   

the timing or likelihood of approval by the FDA of our NDA for our Gvoke HypoPen;

 

   

our estimates regarding the market opportunities for our product candidates;

 

   

the commercialization, marketing and manufacturing of our product candidates, if approved;

 

   

the pricing and reimbursement of our Gvoke HypoPen or any other of our product candidates, if approved;

 

   

the rate and degree of market acceptance and clinical utility of our Gvoke HypoPen or any other of our product candidates for which we receive marketing approval;

 

   

the initiation, timing, progress and results of our research and development programs and future preclinical and clinical studies;

 

   

our ability to advance any other product candidates into, and successfully complete, clinical studies and obtain regulatory approval for them;

 

   

our ability to identify additional product candidates;

 

   

the implementation of our strategic plans for our business, product candidates and technology;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

   

our ability to use the proceeds of this offering in ways that increase the value of your investment;

 

   

our expectations related to the use of proceeds from this offering, and estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

   

our ability to manufacture, or the ability of third parties to deliver, sufficient quantities of components and drug product for commercialization of our Gvoke HypoPen or any other of our product candidates;

 

   

our ability to maintain and establish collaborations;

 

   

our financial performance;

 

   

our ability to effectively manage our anticipated growth;

 

   

developments relating to our competitors and our industry, including the impact of government regulation;

 

   

our ability to remediate the material weakness identified by our independent registered public accounting firm and avoid any findings of material weakness or significant deficiencies in the future; and

 

   

other risks and uncertainties, including those listed under the caption “Risk Factors.”

In some cases, forward-looking statements can be identified by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

 

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The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

This prospectus also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of 5,880,000 shares of our common stock in this offering will be approximately $54.6 million, or approximately $62.8 million if the underwriters exercise in full their option to purchase additional shares, based on the public offering price of $10.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

As of September 30, 2018, we had cash and cash equivalents and short-term investments of $131.0 million. We currently intend to use the net proceeds from this offering, together with our existing cash and cash equivalents and short-term investments, as follows:

 

   

approximately $40.0 million to support the commercial launch of Gvoke HypoPen, including investments in sales and marketing, direct-to-consumer marketing, inventory and our commercial and medical affairs infrastructure;

 

   

approximately $30.0 million to advance our other pipeline product candidates, including conducting Phase 3 clinical trials (i) for the glucagon HypoPen for Europe, (ii) for PBH, and (iii) for CHI; Phase 2 clinical trials for HAAF and EIH; and preclinical and clinical trials for ready-to-use diazepam and Pram-Insulin; and

 

   

the remainder for working capital and other general corporate purposes.

Based on our current plans, we believe our existing cash and cash equivalents and short-term investments, together with the net proceeds from this offering, expected revenue from sales of our Gvoke HypoPen, and available borrowing under our loan facility of $10.0 million upon approval of our Gvoke HypoPen NDA by the FDA until the earlier of September 30, 2019 or the 30th day following NDA approval by the FDA, will be sufficient to fund our operations and capital expenditure requirements through at least the first quarter of 2022.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. For example, we may use a portion of the net proceeds for the acquisition of businesses or technologies to continue to build our pipeline, our research and development capabilities and our intellectual property position, although we currently have no agreements, commitments or understandings with respect to any such transaction. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our research and development, the status of and results from nonclinical studies or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates or strategic opportunities that become available to us, and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Pending our use of proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation instruments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the development and expansion of our business, and therefore we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. Under our Loan Agreement with Oxford Finance LLC and Silicon Valley Bank, we are restricted from paying any dividends or making any distributions on account of our capital stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Loan Agreement” for a description of the restrictions on our ability to pay dividends.

 

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2018:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give further effect to the sale and issuance by us of 5,880,000 shares of our common stock in this offering at the public offering price of $10.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read the information below in conjunction with the financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

 

 

     AS OF SEPTEMBER 30,
2018
 
     ACTUAL     AS
ADJUSTED
 
(In thousands, except share and per share data)    (Unaudited)  

Cash and cash equivalents

   $ 75,745     $ 130,295  

Short-term investments

   $ 55,296     $ 55,296  
  

 

 

   

 

 

 

Long-term debt, net

   $ 31,642     $ 31,642  

Other long-term liabilities

     2,621       2,621  

Stockholders’ equity:

    

Common stock, $0.0001 par value; 150,000,000 shares authorized, 20,860,339 shares issued and outstanding, actual; 150,000,000 shares authorized, 26,740,339 shares issued and outstanding, as adjusted

     2       3  

Preferred stock, $0.0001 par value; 10,000,000 shares authorized and no shares issued and outstanding, actual and as adjusted

            

Additional paid in capital

     195,422       249,971  

Accumulated deficit

     (100,246     (100,246

Accumulated other comprehensive loss

     (58     (58
  

 

 

   

 

 

 

Total stockholders’ equity

     95,120       149,670  
  

 

 

   

 

 

 

Total capitalization

   $ 129,383     $ 183,933  
  

 

 

   

 

 

 

 

 

The table above excludes each of the following:

 

   

2,350,125 shares of common stock issuable upon exercise of options issued under our 2011 Stock Option/Stock Issuance Plan at a weighted-average exercise price of $4.42 per share;

 

   

298,410 shares of common stock issuable upon exercise of options issued under our 2018 Stock Option and Incentive Plan at a weighted-average exercise price of $20.73 per share;

 

   

19,931 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $5.912 per share and 94,012 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $11.169 per share;

 

   

2,374,918 shares of common stock reserved for future issuance under our 2018 Stock Option and Incentive Plan;

 

   

401,932 shares of common stock reserved for future issuance under our 2018 Employee Stock Purchase Plan; and

 

   

750,000 shares of common stock reserved for future issuance under our Inducement Equity Plan adopted by our board of directors in February 2019.

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock after this offering. As of September 30, 2018 our net tangible book value was $95.1 million, or $4.56 per share. Our historical net tangible book value represents total tangible assets less total liabilities, all divided by the number of shares of common stock outstanding on September 30, 2018.

After giving effect to the sale of 5,880,000 shares of common stock offered in this offering at the public offering price of $10.00 per share, and after deducting underwriting discounts and estimated offering expenses payable by us, our as adjusted net tangible book value as of September 30, 2018 would have been $149.7 million, or $5.60 per share. This represents an immediate increase in net tangible book value of $1.04 per share to existing stockholders and an immediate dilution of $4.40 per share to investors participating in this offering. The following table illustrates this dilution on a per share basis:

 

 

 

Public offering price per share

      $ 10.00  

Net tangible book value per share as of September 30, 2018

   $ 4.56     

Increase in net tangible book value per share attributable to new investors

     1.04     
  

 

 

    

As adjusted net tangible book value per share after giving effect to this offering

        5.60  
     

 

 

 

Dilution per share to new investors in this offering

      $ 4.40  
     

 

 

 

 

 

The above discussion and tables are based on 20,860,339 shares of our common stock issued and outstanding as of September 30, 2018, which includes 104,673 shares of unvested restricted stock, and exclude:

 

   

2,350,125 shares of common stock issuable upon exercise of options issued under our 2011 Stock Option/Stock Issuance Plan at a weighted-average exercise price of $4.42 per share;

 

   

298,410 shares of common stock issuable upon exercise of options issued under our 2018 Stock Option and Incentive Plan at a weighted-average exercise price of $20.73 per share;

 

   

19,931 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $5.912 per share and 94,012 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $11.169 per share;

 

   

1,934,591 shares of common stock to be reserved for future issuance under our 2018 Stock Option and Incentive Plan;

 

   

401,932 shares of common stock to be reserved for future issuance under our 2018 Employee Stock Purchase Plan; and

 

   

750,000 shares of common stock reserved for future issuance under our Inducement Equity Plan adopted by our board of directors in February 2019.

To the extent that outstanding options are exercised or shares are issued under our equity incentive plans, you will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.

 

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SELECTED FINANCIAL INFORMATION

The selected statements of operations data for the years ended December 31, 2016 and 2017 and the selected balance sheet data as of December 31, 2016 and 2017 are derived from our audited financial statements included elsewhere in this prospectus. The selected statements of operations data for the nine months ended September 30, 2017 and 2018 and the selected balance sheet data as of September 30, 2018 have been derived from our unaudited interim financial statements appearing elsewhere in this prospectus. The selected financial data in this section are not intended to replace the financial statements and the related notes. The unaudited interim financial data, in management’s opinion, have been prepared on the same basis as the audited consolidated financial statements and the related notes included elsewhere in this prospectus, and include all adjustments, consisting only of normal recurring adjustments, that management considers necessary for a fair presentation of the information for the periods presented. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for the nine months ended September 30, 2018 are not necessarily indicative of results to be expected for the full year ending December 31, 2018 or any other period.

You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

     YEARS ENDED DECEMBER 31     NINE MONTHS
ENDED SEPTEMBER 30,
 
     2016     2017     2017     2018  
(in thousands, except share and per share data)                (unaudited)  

Statements of Operations Data:

        

Grant income

   $ 1,022     $ 1,540     $ 1,073     $ 1,611  

Service revenue

     53       16       16       53  

Cost of revenue

     8       4       4       42  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,067       1,552       1,085       1,622  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     10,238       20,166       13,588       28,264  

General and administrative

     4,060       8,015       4,917       12,388  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expense from operations

     14,298       28,181       18,505       40,652  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (13,231     (26,629     (17,420     (39,030
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     5       124       45       796  

Interest expense

     (2     (2     (1     (1,490

Change in fair value of warrants

     24       (46     (32     63  

Other expense

     (5     (1            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     22       75       12       (631
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,209   $ (26,554   $ (17,408   $ (39,661
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share - basic and diluted (1)

   $ (7.17   $ (13.09   $ (8.63   $ (4.36
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding, basic and diluted (1)

     1,842,416       2,028,224       2,016,112       9,104,491  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

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     AS OF DECEMBER 31,     AS OF
SEPTEMBER 30,
2018
 
     2016     2017  
(in thousands)                (unaudited)  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 32,269     $ 42,045     $ 75,745  

Short-term investments

                 55,296  

Working capital (2)

     30,647       39,193       127,462  

Total assets

     33,533       44,998       137,591  

Long-term debt, net of unamortized deferred costs

                 31,642  

Other long-term liabilities

     42       90       2,621  

Total liabilities

     2,569       4,950       42,471  

Total convertible preferred stock

     62,898       97,878        

Total stockholders’ equity (deficit)

     (31,934     (57,830     95,120  

 

 

(1)    See Note 2 to our audited financial statements and Note 2 to our interim unaudited financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share and the shares used in computing basic and diluted net loss per share.
(2)    We define working capital as current assets less current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. In addition to financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

We are a specialty pharmaceutical company leveraging our novel technology platforms, XeriSol and XeriJect, to develop and commercialize ready-to-use, non-aqueous formulation injectable and infusible drug formulations. We have developed a ready-to-use, room-temperature stable liquid glucagon formulation that, unlike any currently available products, can be administered without any preparation or reconstitution. Our lead product candidate, Gvoke HypoPen, delivers ready-to-use glucagon via a commercially-available auto-injector for the treatment of severe hypoglycemia, a potentially life-threatening condition, in people with diabetes. We have completed three Phase 3 clinical trials for our Gvoke HypoPen and submitted a New Drug Application, or NDA, to the U.S. Food & Drug Administration, or the FDA, in August 2018. The FDA has set June 10, 2019 as the Prescription Drug User Fee Act, or PDUFA, action goal date for our NDA. If our NDA is approved at that time, we believe we will have the first ready-to-use, room-temperature stable liquid glucagon formulation that can be administered without any preparation or reconstitution. Additionally, through our interactions with the European Medicines Agency, or EMA, regarding our development path in Europe, we have finalized our regulatory plan and initiated a requisite Phase 3 pivotal trial to support our European Marketing Authority Application, or MAA. We also are applying our novel ready-to-use, room-temperature stable liquid glucagon formulation for the management of hypoglycemia associated with additional intermittent and chronic conditions with significant unmet medical need. In addition, we are applying our technology platforms to convert other commercially-available drugs into ready-to-use, room-temperature stable liquid formulations to address the needs in multiple therapeutic areas and conditions, including epilepsy and diabetes.

We have begun building out our commercial organization, including individuals in operations and marketing as well as medical affairs, in preparation for a commercial launch of the Gvoke HypoPen in the United States in the second half of 2019. Outside the United States, we plan to pursue development and commercialization partnerships. We currently contract with third parties for the manufacture, assembly, testing, packaging, storage and distribution of our products.

Since our inception in 2005, we have devoted substantially all of our resources to research and development initiatives, undertaking preclinical studies of our product candidates, conducting clinical trials of our most advanced product candidates, organizing and staffing our company and raising capital. We do not have any products approved for sale and have not generated any revenue from product sales.

We have funded our operations to date primarily with proceeds from the sale of preferred and common stock, bank financings and grant awards received from the National Institutes of Health, or NIH, and other philanthropic organizations. In particular, we have received cash proceeds of $104.9 million from sales of our preferred stock, $35.0 million from drawdowns of the Loan and Security Agreement, $10.6 million from grant awards from the NIH and other philanthropic organizations, and $98.4 million from our June 2018 initial public offering, or IPO, of our common stock pursuant to a registration statement on Form S-1, as amended. In the IPO, we sold an aggregate of 6,555,000 shares of our common stock under the registration statement at a public offering price of $15.00 per share, including 855,000 shares of our common stock pursuant to the exercise of the underwriters’ option to purchase additional shares. Net proceeds were approximately $89.0 million, after deducting underwriting discounts and commissions as well as other offering expenses. The Loan and Security Agreement includes an additional $10.0 million that will be available beginning upon approval of our Gvoke HypoPen NDA by the FDA until the earlier of September 30, 2019 or the 30th day following NDA approval by the FDA.

 

 

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For the years ended December 31, 2016 and 2017, our net loss was $13.2 million and $26.6 million, respectively. For the nine months ended September 30, 2017 and 2018, our net loss was $17.4 million and $39.7 million, respectively. We have not been profitable since inception, and as of September 30, 2018, our accumulated deficit was $100.2 million. In the near term, we expect to continue to incur significant expenses, operating losses and net losses as we:

 

   

prepare for a potential commercial launch of our Gvoke HypoPen, including hiring our sales force;

 

   

continue our research and development efforts;

 

   

seek regulatory approval for new product candidates and product enhancements;

 

   

hire and retain additional personnel and add operational, financial and management information systems; and

 

   

continue to operate as a public company.

We do not expect to generate significant product revenue unless or until we obtain marketing approval of, and begin to sell, our product candidates. We expect to continue to seek public equity and debt financing to meet our capital requirements. There can be no assurance that such funding may be available to us on acceptable terms, or at all, or that we will be able to commercialize our product candidates. In addition, we may not be profitable even if we commercialize any of our product candidates.

Components of our Results of Operations

Revenue

Grant income is derived from grants that we received from the NIH and other philanthropic organizations to help bring necessary drugs to the market place where there are currently unmet needs. As of September 30, 2018, we are eligible to receive $2.1 million in grants from the NIH and other philanthropic organizations that will help fund our ongoing clinical development for intermittent and chronic glucagon programs as well as our auto-injectable diazepam program for the treatment of epileptic seizures. These awards will be recognized as grant income when we have performed the services as outlined in the grant agreements.

Service revenue is derived from the feasibility studies we perform for third parties to determine whether our XeriSol and XeriJect technologies may enhance the formulation of such parties’ proprietary drugs.

Cost of revenue includes employees’ time, materials and overhead applied to the feasibility studies.

Research and Development

Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. Research and development costs that are paid in advance of performance are capitalized until services are provided or goods are delivered. Research and development expenses include:

 

   

expenses incurred under agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;

 

   

manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;

 

   

outsourced professional scientific development services;

 

   

employee-related expenses, which include salaries, benefits and stock-based compensation;

 

   

expenses relating to regulatory activities, including filing fees paid to regulatory agencies;

 

   

laboratory materials and supplies used to support our research activities; and

 

   

allocated expenses for facility-related costs.

Research and development activities are central to our business model. We expect research and development expenses to increase in the near term as we (i) complete clinical development of our Gvoke HypoPen; (ii) progress our intermittent and chronic glucagon programs for Post-Bariatric Hypoglycemia, Congenital Hyperinsulinism, Hypoglycemia-Associated Autonomic Failure and Exercise-Induced Hypoglycemia; (iii) initiate clinical development

 

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for our ready-to-use diazepam rescue pen; and (iv) conduct additional preclinical work for our Pramlintide-Insulin program. Our research and development expenses may vary significantly over time due to uncertainties relating to the terms and timing of regulatory approvals and unexpected results of our clinical trials.

General and Administrative

General and administrative expenses consist principally of salaries, stock-based compensation and related costs for personnel in executive, marketing and administrative positions, facility costs not otherwise included in research and development, marketing expenses, professional fees for legal, audit and accounting services, fees paid for market research and trade shows, and travel costs for marketing and administrative employees.

As a public reporting company, we have incurred greater expenses, including increased payroll, legal and compliance, accounting, insurance and investor relations costs. We expect some of these costs to continue to increase in conjunction with our anticipated growth as a public reporting company. We also expect selling and marketing costs to increase significantly as we prepare for the expected commercial launch of our Gvoke HypoPen in the United States, if approved, including the build out of a sales force in 2019.

Interest Expense and Other Income

Other income consists primarily of interest expense related to our Loan and Security Agreement, interest income earned on short-term deposits and investments, and the change in the fair market value of our warrants.

Income Tax

We have incurred operating losses since inception and therefore do not have any taxable income. As of December 31, 2017, we have $55.8 million in net operating loss carryforwards and $2.0 million in federal research credits that begin to expire in 2025. Additionally, we have a California Competes Tax Credit Allocation agreement and Illinois EDGE agreement that will reduce future taxable income in those respective states by up to $1.5 million and $1.4 million, respectively.

Results of Operations

Comparison of Nine Months Ended September 30, 2017 and 2018

The following table summarizes our results of operations for the nine months ended September 30, 2017 and 2018:

 

 

 

     NINE MONTHS ENDED
SEPTEMBER 30,
    INCREASE
(DECREASE)
 
(in thousands)    2017     2018  
     (unaudited)        

Grant income

   $ 1,073     $ 1,611     $ 538  

Service revenue

     16       53       37  

Cost of revenue

     4       42       38  
  

 

 

   

 

 

   

 

 

 

Gross profit

     1,085       1,622       537  
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development

     13,588       28,264       14,676  

General and administrative

     4,917       12,388       7,471  
  

 

 

   

 

 

   

 

 

 

Expense from operations

     18,505       40,652       22,147  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (17,420     (39,030     (21,610
  

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Interest income

     45       796       751  

Interest expense

     (1     (1,490     (1,489

Change in fair value of warrants

     (32     63       95  
  

 

 

   

 

 

   

 

 

 

Total other income (expense)

     12       (631     (643
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (17,408   $ (39,661   $ (22,253
  

 

 

   

 

 

   

 

 

 

 

 

 

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Gross Profit

Gross profit increased for the nine month period ended September 30, 2018 in comparison with the nine month period ended September 30, 2017 due to increased grant-funded activities performed during the current period.

Research and Development

The following table summarizes our research and development expenses by functional area for the nine months ended September 30, 2017 and 2018:

 

 

 

     NINE MONTHS ENDED
SEPTEMBER 30,
 
(in thousands)        2017              2018      

Clinical and preclinical

   $ 5,417      $ 8,795  

Product development

     5,667        13,210  

Compensation and related personnel costs

     2,458        5,861  

Stock-based compensation

     46        398  
  

 

 

    

 

 

 

Total research and development expenses

   $ 13,588      $ 28,264  
  

 

 

    

 

 

 

 

 

The following table summarizes our research and development expenses by program for the nine months ended September 30, 2017 and 2018:

 

 

 

     NINE MONTHS ENDED
SEPTEMBER 30,
 
(in thousands)        2017              2018      

Gvoke HypoPen

   $ 7,268      $ 14,898  

Intermittent and chronic glucagon programs

     2,740        2,894  

Additional pipeline programs

            1,335  

Overhead (personnel, facilities and other expenses)

     3,580        9,137  
  

 

 

    

 

 

 

Total research and development expenses

   $ 13,588      $ 28,264  
  

 

 

    

 

 

 

 

 

Research and development expenses increased $14.7 million for the nine months ended September 30, 2018 in comparison to the nine months ended September 30, 2017. These increases were primarily driven by increased product development expenses of $7.5 million in support of our Gvoke HypoPen NDA filing and additional pipeline programs, increased personnel expenses of $3.8 million due to additional headcount and other employee-related costs and increased expenses of $3.4 million associated with our clinical trials and preclinical studies.

General and Administrative

General and administrative costs increased $7.5 million for the nine months ended September 30, 2018 in comparison to the nine months ended September 30, 2017. These increases were primarily driven by increases in personnel expenses due to additional headcount and other employee related costs of $4.9 million, marketing and market research expenses of $1.9 million, and professional consulting fees of $0.7 million.

Other Income (expense)

For the nine months ended September 30, 2018, interest expense related to our debt issuances in 2018 was $1.5 million. Interest income earned on short-term investments and interest bearing accounts for the nine months ended September 30, 2018 was $0.8 million. In addition, the fair market value of our warrants decreased for the nine months ended September 30, 2018 in comparison to the nine months ended September 30, 2017 by $95,000. The change in fair value of warrants decreased as the fair value of the stock that it converts into decreased over the respective periods.

 

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Comparison of the Years Ended December 31, 2016 and 2017

The following table summarizes our results of operations for the years ended December 31, 2016 and 2017:

 

 

 

     YEARS ENDED
DECEMBER 31,
    INCREASE
(DECREASE)
 
(in thousands)    2016     2017  

Grant income

   $ 1,022     $ 1,540     $ 518  

Service revenue

     53       16       (37

Cost of revenue

     8       4       (4
  

 

 

   

 

 

   

 

 

 

Gross profit

     1,067       1,552       485  
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development

     10,238       20,166       9,928  

General and administrative

     4,060       8,015       3,955  
  

 

 

   

 

 

   

 

 

 

Expense from operations

     14,298       28,181       13,883  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (13,231     (26,629     (13,398
  

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Interest income

     5       124       119  

Interest expense

     (2     (2      

Change in fair value of warrants

     24       (46     (70

Other income (expense)

     (5     (1     4  
  

 

 

   

 

 

   

 

 

 

Total other income

     22       75       53  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,209   $ (26,554   $ (13,345
  

 

 

   

 

 

   

 

 

 

 

 

Gross Profit

Gross profit increased by $485,000 for the year ended December 31, 2017 when compared to the year ended December 31, 2016, primarily driven by an increase in grant income of $518,000. This increase was primarily driven by several clinical trials and preclinical studies for our CHI, PBH and auto-injector for auto-injectable diazepam formulation for treatment of epileptic seizures that were covered by grants awarded to us.

Research and Development

The following table summarizes our research and development expenses by functional area for the years ended December 31, 2016 and 2017:

 

 

 

     FOR THE YEARS ENDED
DECEMBER 31,
 
(in thousands)    2016      2017  

Clinical and preclinical

   $ 2,128      $ 9,233  

Product development

     5,406        6,654  

Compensation and related personnel costs

     2,626        4,217  

Stock-based compensation

     78        62  
  

 

 

    

 

 

 

Total research and development expenses

   $ 10,238      $ 20,166  
  

 

 

    

 

 

 

 

 

 

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The following table summarizes our research and development expenses by program for the years ended December 31, 2016 and 2017:

 

 

 

     FOR THE YEARS ENDED
DECEMBER 31,
 
(in thousands)    2016      2017  
   (in thousands)  

Gvoke HypoPen

   $ 4,687      $ 10,339  

Other ready-to-use glucagon products

     2,088        4,013  

Pipeline product candidates

     257        60  

Overhead (personnel, facilities and other expenses)

     3,206        5,754  
  

 

 

    

 

 

 

Total research and development expenses

   $ 10,238      $ 20,166  
  

 

 

    

 

 

 

 

 

Research and development expense increased $9.9 million for the year ended December 31, 2017 when compared to the year ended December 31, 2016. This increase was primarily driven by expenses associated with clinical trials, product development and an increase in headcount. In 2017, we started and completed two Phase 3 clinical trials for our Gvoke HypoPen and started Phase 2 clinical trials for PBH and CHI. We produced two registration batches and one engineering batch for the Gvoke HypoPen in 2017 that will be used to support our planned NDA submission in the third quarter of 2018. We also produced clinical supplies for the PBH and CHI programs as well as preclinical material for our intermittent and chronic glucagon programs and diazepam program. We increased headcount in 2017 from 10 to 24 employees to support our current research and development activities.

General and Administrative

General and administrative costs increased $4.0 million for the year ended December 31, 2017 when compared to the year ended December 31, 2016. This increase was primarily driven by increased expenses associated with an increase in headcount and marketing and market research expenses. In 2017, we increased our headcount from three to 17, including the addition of marketing, market research and medical affairs departments, and as a result compensation and related benefit expenses increased $3.4 million. Marketing and market research expenses increased $0.5 million in 2017 as we performed extensive market research for our existing product candidates as well as evaluated several new potential product candidates.

Other Income

Other income increased $53,000 to $75,000 for the year ended December 31, 2017 as a result of the interest income earned on our cash and cash equivalents. This increase was partially offset by the change in the fair market value of our warrants. The change in fair value of warrant liability represents non-cash (expense) income and is driven by the increase in the fair value of the preferred stock that it converts into.

Liquidity and Capital Resources

Our primary uses of cash are to fund product development costs, operating expenses and working capital requirements. In connection with our IPO, we received aggregate net proceeds of $89.0 million. Prior to our IPO, we funded our operations primarily through private placements of convertible preferred stock, issuance of debt, and grants awarded from the NIH and other philanthropic organizations. As of September 30, 2018, we have $2.1 million in awarded unused grants that can be utilized to offset program costs for several of our intermittent and chronic glucagon programs as well as our diazepam program, in accordance with the grant agreements.

Capital Resources and Funding Requirements

We have incurred operating losses since inception, and we have an accumulated deficit of $100.2 million at September 30, 2018. Based on our current plans, we believe our existing cash and cash equivalents and short-term investments together with the estimated net proceeds from this offering of approximately $54.6 million, expected revenue from sales of our Gvoke HypoPen, and available borrowing under our loan facility of $10.0 million upon approval of our Gvoke HypoPen NDA by the FDA until the earlier of September 30, 2019 or the 30th day following NDA approval by the FDA, will be sufficient to fund our operations and capital expenditure requirements through at least the first quarter of 2022. We expect to incur substantial additional expenditures in the near term to support our ongoing activities and the expected commercial launch of our Gvoke HypoPen. Additionally, we expect to incur

 

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additional costs as a result of operating as a public company. We expect to continue to incur net losses for the next several years. Our ability to fund our product development and clinical operations, including completion of our planned Phase 2 and Phase 3 clinical trials, as well as commercialization of our product candidates, will depend on the amount and timing of cash received from planned financings. Our future capital requirements will depend on many factors, including:

 

   

the costs, timing and outcome of regulatory review of our Gvoke HypoPen;

 

   

the costs, timing and outcomes of clinical trials and regulatory reviews associated with our product candidates;

 

   

the costs of commercialization activities, including product marketing, sales and distribution;

 

   

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

 

   

the emergence of competing technologies and products and other adverse marketing developments;

 

   

the effect on our product development activities of actions taken by the FDA or other regulatory authorities;

 

   

our degree of success in commercializing our Gvoke HypoPen, if approved; and

 

   

the number and types of future products we develop and commercialize.

Until we obtain regulatory approval to market our product candidates, if ever, we cannot generate revenues from sales of our products. Even if we are able to sell our products, we may not generate a sufficient amount of product revenues to finance our cash requirements. Accordingly, we may need to obtain additional financing in the future which may include public or private debt and equity financings. There can be no assurance that such funding may be available to us on acceptable terms, or at all, or that we will be able to successfully commercialize our product candidates. The issuance of equity securities may result in dilution to stockholders. If we raise additional funds through the issuance of debt securities, these securities may have rights, preferences and privileges senior to those of our common stock and the terms of the debt securities could impose significant restrictions on our operations. The failure to raise funds as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. If additional funding is not secured when required, we may need to delay or curtail our operations until such funding is received, which would have a material adverse impact on our business prospects and results of operations.

Loan Agreement

In February 2018, we entered into the Loan and Security Agreement that provides a senior secured loan facility of up to an aggregate principal amount of $45.0 million. The first tranche was $20.0 million and was drawn down in February 2018. The second tranche was $15.0 million and was drawn down in September 2018. The third tranche is $10.0 million and is available beginning upon approval of our Gvoke HypoPen NDA by the FDA until the earlier of September 30, 2019 or the 30th day following NDA approval by the FDA.

The interest rate under the Loan and Security Agreement is the thirty-day U.S. LIBOR rate plus 6.75%, which was approximately 8.86% as of September 30, 2018. Payments on the Loan and Security Agreement are interest only for the first 24 months, which can be extended by an additional twelve months if the third tranche is drawn. The total term of the loan is 59 months, and the principal payments will begin in either 36 months or 24 months, contingent on the third tranche being drawn.

Pursuant to the Loan and Security Agreement, we provided a first priority security interest in all existing and future-acquired assets, excluding intellectual property and certain other assets, owned by us. The Loan and Security Agreement contains a negative pledge on intellectual property owned by us. We also issued warrants to the Lenders to purchase common stock, which is further discussed in Note 7, “Warrants,” of the notes to our unaudited condensed financial statements included elsewhere in this prospectus.

The Loan and Security Agreement allows us to voluntarily prepay the outstanding amounts thereunder, but not less than $2.0 million of the outstanding principal at any time. Prior to April 1, 2020, we are subject to a prepayment penalty equal to 1.50% of the principal amount being prepaid. In the event we draw on the third tranche, the period subject to 1.50% prepayment is extended to April 1, 2021. No prepayment fee exists for prepayments made after April 1, 2020, or April 1, 2021 in the event the third tranche is issued. A final payment fee of 6.5% multiplied by the original principal amount of each tranche drawn is due upon the earlier to occur of the maturity date of the Loan

 

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and Security Agreement, the acceleration of the Loan and Security Agreement or prepayment of such borrowings. The Loan and Security Agreement includes a non-utilization fee of 2.0% multiplied by the principal amount of tranche three payable to Lenders in October 2019, if we elect not to draw the third tranche.

The Loan and Security Agreement also contains customary indemnification obligations and customary events of default, including, among other things, failure to fulfill certain obligations under the Loan and Security Agreement and the occurrence of a material adverse change in our business, operations or condition, a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of the Lenders’ lien in the collateral or in the value of such collateral. In the event of default under the Loan and Security Agreement, we would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 5%. All such interest would be payable on demand and in cash. Further, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan and Security Agreement.

The Loan and Security Agreement includes certain restrictions on, among other things, our ability to incur additional indebtedness, change the name or location of the business, merge with or acquire other entities, pay dividends or make other distributions to holders of our capital stock, make certain investments, engage in transactions with affiliates, create liens, open new deposit accounts, sell assets or pay subordinated debt.

Cash Flows

 

 

 

     NINE MONTHS ENDED
SEPTEMBER 30,
 
(in thousands)        2017             2018      

Net cash used in operating activities

   $ (15,563   $ (37,944

Net cash used in investing activities

     (464     (56,538

Net cash provided by financing activities

     29,672       128,182  
  

 

 

   

 

 

 

Increase in cash and cash equivalents

   $ 13,645     $ 33,700  
  

 

 

   

 

 

 

 

 

The increase in cash used in operating activities for the nine month period ended September 30, 2018 was primarily due to our net loss adjusted for non-cash charges primarily driven by increased spending in research and development and general and administrative operating expenses. For a discussion regarding the increase in spending, refer to “Results of Operations” above.

The increase in cash used by investing activities for the nine month period ended September 30, 2018 was primarily due to purchases of short-term investments with a portion of the net proceeds from the IPO.

The increase in cash provided by financing activities for the nine month period ended September 30, 2018 was primarily due to the net proceeds from the IPO of approximately $89.0 million after deducting payments for IPO costs, net proceeds from the Loan and Security Agreement of $34.7 million and net proceeds from the sale of Series C Preferred Stock of $4.4 million, partially offset by net proceeds from the sale of Series C Preferred Stock of $29.6 million in the prior year.

 

 

 

     FOR THE YEARS ENDED
DECEMBER 31,
 
(in thousands)    2016     2017  

Net cash used in operating activities

   $ (16,087   $ (24,663

Net cash used in investing activities

     (35     (700

Net cash provided by financing activities

     3,904       35,139  
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

   $ (12,218   $ 9,776  
  

 

 

   

 

 

 

 

 

Net cash used in operating activities for the year ended December 31, 2017 was $24.7 million, consisting primarily of a net loss of $26.6 million offset by non-cash charges of $0.8 million and an increase in net operating assets and

 

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liabilities of $1.1 million. Non-cash charges were primarily for stock compensation expense and depreciation of fixed assets. The increase in net operating assets and liabilities was primarily related to an increase in accrued expenses and accounts payable related to employee costs and clinical and research and development expenses partially offset by an increase in accounts receivable. Net cash used in operating activities for the year ended December 31, 2016 was $16.1 million, consisting primarily of a net loss of $13.2 million offset by non-cash charges of $0.7 million and a decrease in net operating assets and liabilities of $3.6 million. Non-cash charges were primarily for stock compensation expense and depreciation of fixed assets. The decrease in net operating assets and liabilities was primarily related to the payment of accrued expenses and accounts payable related to employee costs and clinical and research and development expenses.

Net cash used in investing activities for the year ended December 31, 2017 was $0.7 million, consisting of purchases of additional research laboratory equipment to facilitate our increased research and development activities. In 2016 we purchased $35,000 of computer and related hardware equipment used in our research and development activities and furniture for the Austin office. We will continue to incur capital expenditures in 2018.

Net cash provided by financing activities for the year ended December 31, 2017 was $35.1 million due primarily to the sale of $35.0 million of our Series C Preferred Stock. Net cash provided in financing activities for the year ended December 31, 2016 was $3.9 million due primarily to the sale of $4.0 million of our Series C Preferred Stock.

Contractual Obligations and Commitments

As of December 31, 2017, we were obligated to pay the following amounts for our operating leases:

 

 

 

(in thousands)    TOTAL      LESS THAN
1 YEAR
     1-2 YEARS      3-5 YEARS      MORE THAN
5 YEARS
 

Operating leases

   $ 5,395      $ 730      $ 1,693      $ 2,271      $ 701  

 

 

In the nine months ended September 30, 2018 we entered into a second lease for office space in Chicago as well as executed the Loan and Security Agreement. We are obligated to pay the following amounts under those agreements as of September 30, 2018.

 

 

 

(in thousands)    TOTAL      LESS THAN
1 YEAR
     1-2 YEARS      3-5 YEARS      MORE THAN
5 YEARS
 

Operating leases

   $ 6,225      $ 294      $ 1,987      $ 3,556      $ 388  

Future principal payments under Loan and Security Agreement

     35,000               9,000        26,000         

 

 

In November 2018, we signed an amendment to our existing office lease in Chicago, Illinois, to occupy an additional 40,850 square feet of space and expect to move into this additional space in March 2019. The lease term expires on June 30, 2031.

We enter into contracts in the normal course of business with clinical trial sites, manufacturing organizations and vendors for preclinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancellable contracts and not included in the table above.

As of September 30, 2018, we have received $0.8 million out of an expected $0.9 million in grant proceeds for the development of a stable liquid glucagon for use in an artificial pancreas. Under the terms of the agreement, we will be required to pay up to four times the award received upon commercialization of glucagon for use in the artificial pancreas. If we undergo a change in control, then we will be required to pay a mid-single digit percentage of the gross proceeds, capped at four times the award amount less any amounts already paid. Additionally, if sales of glucagon for use in the artificial pancreas exceed $750 million in the first five years after the first commercial sale, then we would be required to make an additional payment equal to the original award amount.

 

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As of September 30, 2018, we received $0.9 million in grant proceeds to help fund our EIH program. Under terms of this agreement, we will be required to pay up to two times the award amount upon the commercialization of an EIH product. These amounts are a low double-digit percentage of annual gross sales of an EIH product, capped at $0.5 million annually. If we undergo a change in control, then we will pay a mid-single digit percentage of the consideration capped at two times the award amount less any amounts already paid. Additionally, if sales exceed $1 billion, we will be required to pay an additional amount equal to two times the award amount.

As of September 30, 2018, we received $1.0 million in grant proceeds to help fund our chronic glucagon programs. Under terms of this agreement we will be required to pay up to two times the award amount upon the commercialization of any chronic glucagon program. These amounts are a low double-digit percentage of annual gross sales of all chronic glucagon programs, capped at $0.5 million annually. If we undergo a change in control, then we will pay a mid-single digit percentage of the consideration capped at two times the award amount less any amounts already paid. Additionally, for each chronic glucagon program where sales exceed $500 million, we will be required to pay an additional amount equal to two times the award amount.

The amounts we may have to repay under the grant agreements are contingent upon future events and therefore not included in the table above. We have also received awards from the NIH National Institute of Diabetes and Kidney Diseases, which awards are not subject to any repayment obligations.

Off-Balance Sheet Arrangements

As of September 30, 2018, we had unused letters of credit for $143,000 that are used to secure leases.

Internal Controls

Our internal policies and procedures relating to control over financial reporting are designed to provide reasonable assurance as to the reliability of our financial reporting. During 2017, we identified a material weakness in our internal control over financial reporting due to a lack of proper segregation of duties within our finance and accounting function, as one individual had control over two or more phases of a transaction or operation. This weakness was due to our inability to implement the appropriate segregation of duties within our historical enterprise resource planning system. Since August 2017, we have made efforts to design manual controls to mitigate the risk. In addition, in December 2017, we implemented a new enterprise resource planning system that allowed for greater segregation of duties.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks related to changes in interest rates.

Interest Rate Risk

Cash and Cash Equivalents and Short-Term Investments—We are exposed to the risk of interest rate fluctuations on the interest income earned on our cash and cash equivalents and short-term investments. A hypothetical one-percentage point increase or decrease in interest rates applicable to our cash and cash equivalents and short-term investments outstanding at September 30, 2018 would increase or decrease interest income by approximately $1.3 million on an annual basis. Any changes to interest income on short-term investments would only be realized if sold prior to maturity.

Loan and Security Agreement—Our interest rate risk relates primarily to U.S. dollar LIBOR-indexed borrowings. Based on our outstanding borrowings at September 30, 2018, a one-percentage point increase or decrease in interest rates would affect interest expense on the debt by $0.3 million on an annualized basis.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

We have based our management’s discussion and analysis of our financial condition and results of operations on our financial statements that have been prepared in accordance with generally accepted accounting principles, or GAAP,

 

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in the United States. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical trial expenses and stock-based compensation. We base our estimates on historical experience and on various other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully discussed in Note 2 to our audited financial statements included in this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements. We have reviewed these critical accounting policies and estimates with the audit committee of our board of directors.

Research and development costs

Research and development costs are expensed as incurred. Research and development costs include salaries and personnel-related costs, consulting fees, fees paid for contract research services, laboratory equipment and facilities costs, and other external costs.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are used or the services are performed.

When preparing our financial statements, we are required to estimate our accrued clinical expenses. This process involves reviewing open contracts and communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. Payments under some of the contracts we have with parties depend on factors, such as successful enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones. When accruing clinical expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from our service providers. However, we may be required to estimate the cost of these services based only on information available to us. If we underestimate or overestimate the cost associated with a trial or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued clinical expenses have approximated actual expense incurred.

Stock-based compensation

The following table summarizes the reporting of total stock-based compensation expense resulting from employee stock options and restricted stock awards:

 

 

 

     YEARS ENDED
DECEMBER 31,
     NINE MONTHS ENDED
SEPTEMBER 30,
 
(in thousands)        2016              2017              2017              2018      

Research and development

   $ 78      $ 62      $ 46      $ 398  

General and administrative

     462        437        305        751  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 540      $ 499      $ 351      $ 1,149  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

We account for our stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. Prior to our IPO, we estimated the grant date fair value of each option award using the Black-Scholes option-pricing model. For option awards granted subsequent to our IPO, our board of directors determined the grant date fair value based on the

 

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closing price on our common stock as reported on The Nasdaq Global Select Market on the date of grant. We recognize stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period.

Estimating the fair value of options requires the input of subjective assumptions, including the estimated fair value of our common stock, the expected life of the option, stock price volatility, the risk-free interest rate and expected dividends. The assumptions used in our Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties and assumptions and the application of management’s judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.

These assumptions used in our Black-Scholes option-pricing model are estimated as follows:

 

   

Expected Term. We do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in determining the fair value-based measurement of our options. Therefore, we have opted to use the “simplified method” for estimating the expected term of options, which is the average of the weighted-average vesting period and contractual term of the option.

 

   

Expected Volatility. As we have limited trading history for our common stock, the expected stock price volatility assumption is determined based on the historical volatilities of a peer group of publicly traded companies as well as the historical volatility of our own common stock since we began trading subsequent to our IPO in June 2018. In evaluating similarity, we consider factors such as stage of development, risk profile, enterprise value and position within the industry. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 

   

Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.

 

   

Expected Dividends. The expected dividend yield is 0% because we have not historically paid, and do not expect for the foreseeable future to pay, a dividend on our common stock.

Prior to our IPO in June 2018, our valuations were performed by a third-party valuation company using a discounted cash flow, or DCF, analysis. This method was chosen based on our sources of historical capital and potential future capital needs. For the December 31, 2017 valuation, we went from the DCF valuation technique to a hybrid method, which uses market approaches to estimate our enterprise value. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more of the scenarios is calculated using an option-pricing method, or OPM. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

For stock awards since our IPO in June 2018, our board of directors determines the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.

 

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The intrinsic value of all outstanding options as of the date of this prospectus was $13.1 million based on the public offering price of $10.00 per share.

If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. To the extent that our assumptions are incorrect, the amount of stock-based compensation recorded will change.

Income Taxes

Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. We determine our deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We account for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2017, we did not have any significant uncertain tax positions.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. We have not completed a study to assess whether an ownership change has occurred in 2017. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Our NOLs are also subject to international regulations, which could restrict our ability to utilize our NOLs. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.

Recent accounting pronouncements

See Note 2 to our audited financial statements and Note 2 to our interim unaudited financial statements beginning on page F-1 of this prospectus for a description of recent accounting pronouncements applicable to our financial statements.

JOBS ACT ACCOUNTING ELECTION

In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of such extended transition period.

 

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BUSINESS

Overview

We are a specialty pharmaceutical company leveraging our novel non-aqueous formulation technology platforms, XeriSol and XeriJect, to develop and commercialize ready-to-use injectable and infusible drug formulations. We have developed a ready-to-use, room-temperature stable liquid glucagon formulation that, unlike any currently available products, can be administered without any preparation or reconstitution. Our lead product candidate, Gvoke HypoPen, delivers ready-to-use glucagon via a commercially-available auto-injector for the treatment of severe hypoglycemia, a potentially life-threatening condition, in people with diabetes. We have completed three Phase 3 clinical trials for our Gvoke HypoPen and submitted a New Drug Application, or NDA, to the U.S. Food & Drug Administration, or the FDA, in August 2018. The FDA set June 10, 2019 as the Prescription Drug User Fee Act, or PDUFA, action goal date for our NDA. If our NDA is approved at that time, we believe we will have the first ready-to-use, room-temperature stable liquid glucagon formulation that can be administered without any preparation or reconstitution. Additionally, through our interactions with the European Medicines Agency, or EMA, regarding our development path in Europe, we have finalized our regulatory plan and initiated a requisite Phase 3 pivotal trial to support our European Marketing Authority Application, or MAA. We also are applying our novel ready-to-use, room-temperature stable liquid glucagon formulation for the management of hypoglycemia associated with additional intermittent and chronic conditions with significant unmet medical need. In addition, we are applying our technology platforms to convert other commercially-available drugs into ready-to-use, room-temperature stable liquid formulations to address the needs in multiple therapeutic areas and conditions, including epilepsy and diabetes. We own the worldwide rights to our proprietary formulation technology platforms and our product candidates, with 74 patents issued globally, including a composition of matter patent covering our ready-to-use glucagon formulation that expires in 2036.

Our proprietary XeriSol and XeriJect non-aqueous formulation technologies allow for the subcutaneous, or SC, and intramuscular, or IM, delivery of highly-concentrated, ready-to-use formulations of peptides, proteins, antibodies and small molecules using commercially-available syringes, auto-injectors, multi-dose pens and infusion pumps. Current aqueous formulations of certain drugs present numerous challenges for patients and care providers, including multi-step reconstitution, refrigeration requirements, large injection volumes and intravenous, or IV, administration over several hours. Our broadly-applicable platforms offer the opportunity to eliminate reconstitution and refrigeration, enable long-term room-temperature stability, significantly reduce injection volume and allow for a more convenient SC or IM administration as opposed to IV infusion, all of which we believe are distinct advantages over these existing aqueous formulations. We believe that our technology platforms can lead to products that will improve outcomes and enable easier administration while reducing costs for payors and the healthcare system.

Our key priority is developing and commercializing our lead product candidate, Gvoke HypoPen, for the treatment of severe hypoglycemia in people with diabetes to address limitations of currently marketed emergency glucagon kits. Hypoglycemia, a key concern of people with both Type 1 Diabetes, or T1D, and Type 2 Diabetes, or T2D, occurs when a person has a deficiency of glucose in their bloodstream, often as a result of insulin treatment. Symptoms of hypoglycemia include fatigue, shakiness, anxiety, headache, nausea and vomiting, and in severe cases, hypoglycemia can result in cardiovascular disease, seizure, coma, and, if left untreated, death. The current standard of care for severe hypoglycemia in the ambulatory setting is the emergency administration of glucagon, a hormone that raises the concentration of glucose in the bloodstream. Currently marketed emergency glucagon kits consist of a glucagon powder that must be reconstituted with a liquid diluent and drawn into a syringe using a multi-step procedure that can be difficult to successfully administer, particularly in an emergency. In published comparative human factors studies with currently marketed kits, only 6% to 31% of users were able to successfully administer the full dose of glucagon. In other words, in these studies, test subjects failed to deliver the full dose of glucagon 69% to 94% of the time. The underuse or unsuccessful use of currently marketed kits leaves people at risk of experiencing prolonged severe hypoglycemic events, which if left untreated, can lead to serious health consequences and death.

We believe our Gvoke HypoPen addresses the administration challenges of currently marketed products, and, if approved, has the potential to be the preferred emergency glucagon product. Our ready-to-use Gvoke HypoPen does not require reconstitution or refrigeration and features two-year, room-temperature stable liquid glucagon

 

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delivered in an auto-injecting device with no visible needle. In our human factors study, 99% of users were able to successfully administer the full dose with our ready-to-use Gvoke HypoPen.

Our goal is to establish our Gvoke HypoPen, if approved, as the preferred emergency glucagon product and drive greater adoption and penetration of emergency glucagon therapy by offering a glucagon product that better meets the needs of patients and caregivers. The ADA recommends that glucagon be prescribed for all individuals at increased risk of clinically significant hypoglycemia for use in the event of an emergency. People with diabetes who are treated with insulin or substances that promote production of insulin are increased risk of clinically significant hypoglycemia. There are an estimated 1.3 million people with T1D who are treated with insulin because their bodies do not naturally produce insulin, all of whom are clinically appropriate for glucagon. Approximately 4.3 million additional people with T2D are treated with insulin because their bodies do not use insulin properly, of which we estimate that approximately 50% are clinically appropriate for glucagon. Therefore, we estimate the potential target population for emergency glucagon therapy totals approximately 3.5 million people in the United States. Our commercial strategy is to penetrate this market efficiently with a concentrated sales force by targeting high prescribers of glucagon and mealtime insulin and activate demand through targeted direct-to-patient promotion. We also plan to use our medical affairs team to actively drive market access and obtain payor coverage for our Gvoke HypoPen.

Due to the limitations of currently marketed products, only approximately 662,000 total prescriptions for emergency glucagon kits were written in 2018 in the United States, resulting in the purchase of approximately 978,000 single-dose kits. Based on our market research, we intend to market two Gvoke HypoPens per package and to target all 3.5 million people that we believe are clinically appropriate for glucagon. In 2018, U.S. sales for emergency glucagon kits were approximately $246 million, but we believe that increasing penetration, including by new entrants that address unmet patient and caregiver needs such as our Gvoke HypoPen, may result in a potential sales opportunity totaling up to $2.0 billion. Outside of the United States, we estimate there are an additional 3.5 million people with diabetes in Europe and an additional 12.5 million people with diabetes in Japan and China that are clinically appropriate for emergency glucagon treatment. Following the receipt of EMA scientific advice, we initiated a requisite Phase 3 pivotal trial of our glucagon pen to support our European MAA. We expect top-line results from this trial in the first half of 2019 and plan to seek MAA approval in the second half of 2020. We plan to pursue development and commercialization collaborations for all non-U.S. markets.

We are also applying our glucagon formulation to five intermittent and chronic use conditions with significant unmet medical need. In 2018, all five development programs have either produced positive clinical trial results or advanced into clinical trials. We plan to continue to advance all five of these programs going forward. These additional applications are:

 

   

Post-Bariatric Hypoglycemia, or PBH, a serious complication of bariatric surgery that can arise from excessive insulin, or hyperinsulinism, due to the change in gastric anatomy resulting from bariatric surgery.

 

   

Congenital Hyperinsulinism, or CHI, a condition caused by several genetic defects that result in severe, persistent hypoglycemia in infants and children, which can lead to brain damage and death.

 

   

Hypoglycemia-Associated Autonomic Failure, or HAAF, in which chronic hypoglycemia impairs the body’s natural response to restore blood sugar levels and can lead to an individual becoming unaware of the onset of a severe hypoglycemic event and result in cardiovascular disease, seizure, coma, and, if left untreated, death.

 

   

Exercise-Induced Hypoglycemia, or EIH, in people with diabetes. Exercise, particularly aerobic exercise, often results in a significant drop in blood glucose levels for people on insulin.

 

   

Management of diabetes via glucagon in a fully-integrated, bi-hormonal artificial pancreas closed-loop system.

By applying our ready-to-use glucagon to treat multiple conditions, we expect to leverage operating efficiencies across our supply chain, research and development, and commercial and medical organizations.

We also are applying our technology platforms to develop additional product candidates, such as ready-to-use, liquid-stable diazepam delivered via a commercially-available auto-injector for the emergency treatment of epileptic

 

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seizures and a fixed-dose co-formulation of pramlintide and insulin, or Pram-Insulin, for the management of diabetes. Additionally, based on the promising data seen in some of our early clinical trials as well as formulations in our laboratory, we believe we have the potential to advance a number of additional programs in additional indications and that our strong product candidate portfolio, complemented by external expansion opportunities, will support our vision to effectively and efficiently meet the needs of our target markets.

The nature of our product candidates and target conditions provides us with a potentially faster and capital-efficient development and regulatory pathway to approval. The FDA has granted orphan drug status to four indications for our product candidates, which are our ready-to-use glucagon for PBH and CHI and our ready-to-use, liquid-stable formulation of diazepam for the treatment of Dravet Syndrome and acute repetitive seizures, or ARS, in patients with epilepsy. Additionally, we have received orphan drug designation for the EMA for CH and Noninsulinoma Pancreatogenous Hypoglycaemia Syndrome , or NIPHS, which includes patients with PBH.

In the United States, this designation provides us with research and development tax credits and exemption from FDA user fees, as well as seven years of orphan drug exclusivity upon product approval. In the EU, this designation provides us with ten years of market exclusivity upon product approval and a single MAA application to the EMA through centralized review and the potential for reduced regulatory review fees. In addition, because certain conditions that we intend to target are rare conditions, we believe our clinical trials may be of smaller size than studies for conditions that are not rare conditions. Furthermore, because the product candidates developed using our technology platforms are designed to be reformulations of currently approved products, in the United States, we expect to utilize the FDA’s pathway under Section 505(b)(2) of the U.S. Federal Food, Drug and Cosmetic Act, or the FDCA, which permits submissions to rely, in part, on the safety and effectiveness of a previously approved product, which may potentially result in a more expeditious pathway to FDA approval. Similarly, in the EU, we intend to submit an MAA through the Centralised Procedure via Article 8(3) – Full Mixed Dossier, which offers data protection and market exclusivity for up to 11 years.

Our management team includes veterans in drug development, discovery and commercialization, with executive experience in leading global pharmaceutical and healthcare companies, including Durata Therapeutics, Baxter Healthcare, Merck, Searle, Takeda, Warner Chilcott, MedPointe Healthcare, Amylin Pharmaceuticals, PowderJect Technologies and Alpharma.

Our Pipeline

The following table summarizes key information about our internal product candidates.

 

 

LOGO

 

*   Orphan Drug Designation

 

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Additionally, we are providing ready-to-use glucagon to Oregon Health & Science University, or OHSU, in their ongoing Phase 1 closed-loop dual-hormone artificial pancreas study and expect OHSU to report top-line results in the second half of 2019. Based on the results, we plan to support advancement of OHSU and other artificial pancreas programs with ready-to-use glucagon.

Our Strategy

Our strategy is to utilize our proprietary non-aqueous formulation technology platforms to convert marketed and development-stage products that have poor solubility and stability into ready-to-use, user-friendly injectable and infusible drugs for multiple therapeutic areas and conditions, including hypoglycemia, epilepsy and diabetes. We also seek to apply our formulation technology platforms to enhance the formulations of proprietary products and candidates of other pharmaceutical and biotechnology companies. The key elements of our strategy include:

 

   

Rapidly secure regulatory approval for our lead product candidate, Gvoke HypoPen, for severe hypoglycemia. We have completed three Phase 3 clinical trials for our Gvoke HypoPen and submitted a NDA to the FDA early in August 2018 utilizing the 505(b)(2) regulatory pathway, which has been accepted for review by the FDA with a PDUFA action goal date of June 10, 2019. Additionally, through our interactions with the European Medicines Agency, or EMA, regarding our development path in Europe, we have finalized our clinical study plan and initiated a Phase 3 pivotal trial to support EMA registration of an MAA.

 

   

Maximize the commercial potential for Gvoke HypoPen. If approved, we plan to commercially launch our Gvoke HypoPen in the United States in the second half of 2019. We expect to initially target approximately 8,000 healthcare professionals who are high prescribers of current glucagon kits and/or mealtime insulin products, using an expected initial sales force of 60-70 individuals, and activate demand through targeted direct-to-patient promotion. We have accelerated our build of our commercial organization and critical infrastructure, including individuals in operations, supply chain, medical affairs, pharmacovigilance, compliance, regulatory, marketing, sales leadership, market access and sales operations, as well as our medical affairs organization. Outside of the United States, we plan to pursue development and commercialization partnerships.

 

   

Continue to advance our ready-to-use glucagon portfolio to address other conditions associated with hypoglycemia. We plan to apply our ready-to-use, room-temperature stable liquid glucagon to address multiple conditions that could benefit from intermittent or chronic administration, such as PBH, CHI, HAAF and EIH in diabetes. We are also evaluating our liquid-stable glucagon as the glucagon component of a fully-integrated, bi-hormonal artificial pancreas. During 2018, all five of these programs have either produced positive clinical trial results or advanced into clinical trials. Through these programs, our primary goal is to secure FDA approval of a vial of our liquid glucagon for self-administration via a syringe or for use in filling a pump reservoir. We plan to leverage efficiencies across our portfolio, such as our supply chain, research and development, and our commercial and medical organizations. We plan to use commercially available drug delivery devices for our liquid-stable glucagon formulation and associated intermittent and chronic glucagon programs.

 

   

Continue to leverage our technology and expertise to develop a portfolio of additional product candidates. We are exploring the application of our formulation technology platforms to other commercially available drugs for multiple conditions. We are developing an improved formulation of diazepam for the treatment of ARS in patients with epilepsy as well as patients with Dravet syndrome, to be administered through a ready-to-use auto-injector. We have completed formulation development and preclinical pharmacokinetic studies. An IND application for our ready-to-use diazepam rescue pen for ARS went into effect on November 28, 2018. This IND authorized us to initiate a study evaluating the pharmacokinetics and pharmacodynamics of our ready-to-use, room-temperature stable liquid diazepam formulation in normal volunteers. We initiated this trial in December 2018 and expect top-line results in the first half of 2019. If results are positive, we plan to initiate a Phase 2 clinical trial in the second half of 2019. We formulated and completed several preclinical studies of a fixed-ratio pramlintide-insulin coformulation combination product for the treatment of diabetes and plan to begin a Phase 2 clinical trial in the second half of 2019. Finally, we have advanced several additional formulation programs in the past year, and plan to continue to advance these programs to clinical trials.

 

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Collaborate with pharmaceutical and biotechnology companies to apply our technology platforms to enhance the formulations of their proprietary products and candidates. We are pursuing formulation and development partnerships to apply our XeriSol and XeriJect technology platforms to enhance the formulation, delivery and clinical profile of other companies’ proprietary drugs and biologics. We currently are working with several companies on feasibility programs to evaluate the formulation of their proprietary therapeutics with, depending on the type of molecule, XeriSol or XeriJect. Active programs include feasibility evaluations with Regeneron Pharmaceuticals, Inc., Asahi Kasei Pharma Corporation, Hawaii Biotech, Inc. and Islet Sciences, Inc. on XeriJect monoclonal antibody formulations, a XeriJect biologic product formulation, a XeriJect vaccine formulation, and a XeriSol co-formulation of a peptide and small molecule for insulin-dependent diabetes, respectively. We plan to continue to explore the application of our formulation technology platforms to proprietary drugs and biologics from additional pharmaceutical and biotechnology companies.

Our Technology Platforms

Overview

Our proprietary non-aqueous formulation technology platforms are designed to address the challenges presented by current aqueous formulations of certain drugs. Injectable pharmaceuticals have conventionally used aqueous delivery systems to administer drugs and biologics, but, in the presence of water, many drugs have poor solubility and low stability. To optimize their stability and enable longer-term storage, many of these products are freeze dried into a powder and, when needed, must be reconstituted with a liquid diluent, which is often a challenging multi-step procedure with the potential for error. Furthermore, the drug product begins to break down once combined with water, which requires the drug to be used immediately or otherwise refrigerated. In addition, these products can require complicated formulations and large injection volumes to make them soluble. For many products, these volumes are too large for SC or IM delivery and instead necessitate IV infusion over several hours. These drugs can be difficult or painful to administer and have limited portability, resulting in an overall poor experience for patients and caregivers.

Our proprietary XeriSol and XeriJect platforms offer the opportunity to eliminate the need for reconstitution and refrigeration, enable long-term room-temperature stability, significantly reduce injection volume and allow for a more convenient SC or IM administration as opposed to IV infusion, all of which we believe are distinct advantages over existing aqueous formulations of marketed and development-stage products and product candidates. We believe that our technology platforms can lead to products that will improve outcomes and enable easier administration while reducing costs for payors and the healthcare system.

Our XeriJect formulation platform is best suited for drugs and biologics consisting of large molecules, such as proteins, monoclonal antibodies and vaccines. XeriSol is best suited for peptides and small molecules that currently encounter formulation challenges. With XeriJect, we have formulated suspensions with a protein concentration in excess of 400 mg/mL, far exceeding current aqueous formulation systems with maximum achievable protein concentrations of 50-250 mg/mL. These biocompatible non-aqueous, injectable solutions or suspensions formulated with our platforms can then be packaged for administration in a commercially-available auto-injector, pre-filled syringe, vial, multi-dose pen or infusion pump

Ready-to-Use Glucagon

Our novel, room-temperature stable liquid glucagon formulation represents a significant advancement over the current freeze-dried, or lyophilized, glucagon, enabling a ready-to-use solution that can be quickly and easily injected or infused subcutaneously. This formulation is designed to provide the flexibility to dose different volumes of liquid glucagon using a range of delivery devices to suit the needs of people with hypoglycemic conditions. We believe our ready-to-use glucagon has the potential to change the paradigm for treatment or prevention of hypoglycemic conditions and improve the lives of people who experience hypoglycemia.

Our Product Candidates

Gvoke HypoPen

Our Gvoke HypoPen offers a ready-to-use, room-temperature stable glucagon that is designed to be administered subcutaneously in a simple two-step process. In our human factors study, 99% of users were able to successfully

 

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administer the full dose with our Gvoke HypoPen. Conversely, in published human factors studies of currently marketed emergency glucagon kits, only 6% to 31% of users were able to successfully administer the full dose. If approved, we believe we can establish our Gvoke HypoPen as the preferred emergency glucagon product and drive greater adoption and penetration of emergency glucagon therapy for patients and caregivers. We have completed three Phase 3 clinical trials for our Gvoke HypoPen and submitted a NDA to the FDA in August 2018, which the FDA has accepted for review and issued a PDUFA action goal date of June 10, 2019. If our NDA is approved at that time, we believe we will have the first ready-to-use, room-temperature stable liquid glucagon formulation that can be administered without any preparation or reconstitution.

Additionally, through our interactions with the EMA regarding our development path in Europe, we have finalized our regulatory plan and initiated a requisite Phase 3 pivotal trial to support our European MAA. We have no current plans to submit our Gvoke HypoPen for regulatory approval in Canada, but we have submitted a clinical trial application to Health Canada to support the inclusion of Canadian clinical research sites in XSGP-301, XSGP-303, XSGP-304, and XSMP-204 clinical trials.

Hypoglycemia Background

Diabetes is a widespread condition that affects an estimated 425 million people worldwide. There are an estimated 20.2 million drug-treated people in the United States. Among people with diabetes in the United States, all of the approximately 1.3 million people with T1D and 4.3 million people with T2D require insulin therapy to lower their blood glucose levels to achieve normal blood sugar levels and avoid hyperglycemia. Conversely, insulin treatment in people with diabetes can also lead to hypoglycemia, a deficiency of glucose in the bloodstream, which is more common in people with diabetes who are treated with insulin or substances that promote production of insulin. In 2014, the U.S. Department of Health and Human Services National Action Plan for Adverse Drug Event Prevention highlighted diabetes agent-associated hypoglycemia as one of its three primary concerns because of the severity and increasing prevalence of the problem. In 2017, the American Diabetes Association, or ADA, stated that hypoglycemia remains the major limiting factor in the glycemic management of T1D and T2D.

Hypoglycemia is categorized by level of severity, expressed as mild, moderate or severe hypoglycemic events. Definitions, symptoms and treatment recommendations for hypoglycemia per the ADA and the American Association of Clinical Endocrinologists, or AACE, are summarized in the figure below:

 

LOGO

Hypoglycemic events of any severity are a daily concern for people with diabetes. Severe hypoglycemic events are extremely frightening for patients and caregivers and can result in cardiovascular disease seizure, coma, and, if left untreated, death. Fear of hypoglycemia and the morbidity and mortality risks associated with it is a constant reality for people with diabetes. According to scientific literature, fear of hypoglycemia is a critical impediment to psychological well-being and quality of life and represents the greatest barrier to optimal glycemic control. Studies have shown that only 14% of those aged 18–25 years and 29% of those aged 26–50 years achieved optimal glycemic control by taking insulin.

The ADA recommends that glucagon be prescribed for all individuals at increased risk of clinically significant hypoglycemia, defined as blood glucose <54 mg/dL, for use in the event of an emergency. Glucagon works to raise the glucose levels in a person’s blood by inducing the liver to convert glycogen, a type of stored sugar in the body, into glucose.

While patients can take preventive measures, hypoglycemic events still occur. On average, people with T1D experience an episode of mild or moderate hypoglycemia twice per week and 30% to 40% of people with T1D

 

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experience one to two episodes of severe hypoglycemia per year. On average, half of people with T2D treated with insulin experience an episode of mild or moderate hypoglycemia twice per month. People with T2D treated with insulin are also at risk of severe hypoglycemia, and approximately 21% of these individuals experience an episode of severe hypoglycemia at least once annually.

Limitations of Existing Products

Because of the urgent nature of severe hypoglycemia, the majority of severe hypoglycemic events are treated on an emergency basis, outside of a healthcare facility. Two emergency glucagon products are currently available to treat severe hypoglycemia: Eli Lilly’s Glucagon Emergency Kit, or GEK, which represents approximately 78% of U.S. sales, and Novo Nordisk’s GlucaGen, which represents approximately 22% of U.S. sales. Each product is sold as a vial of lyophilized, glucagon powder with an exposed needle/syringe that contains a liquid diluent. The glucagon powder must be combined with the liquid diluent at the time of use and drawn into a syringe in accordance with a complex multi-step reconstitution and dose calibration procedure. Long-term storage of the combined solution is impractical because once the lyophilized glucagon is combined with water, the solution becomes unstable and can fibrillate, rendering it inactive and potentially toxic.

The multi-step reconstitution and dose calibration procedure required for current glucagon kits outlined below can be intimidating, particularly in an emergency situation, for likely glucagon kit users, a group that includes caregivers, co-workers, friends, teachers or other bystanders.

 

 

 

   Step-by-Step Instructions for GEK
1.    Flip off the seal from the vial of Glucagon powder.
2.    Remove the needle cover from the syringe. DO NOT REMOVE THE PLASTIC CLIP FROM THE SYRINGE, as this may allow the push rod to come out of the syringe.
3.    Insert the needle into the rubber stopper on the vial, then inject the entire contents of the syringe into the vial of Glucagon powder.
4.    Remove the syringe from the vial, then swirl the vial until the liquid becomes clear. Glucagon should not be used unless the solution is clear and of a water-like consistency.
5.    Insert the same syringe into the vial and slowly withdraw all the liquid. To use on children weighing less than 44 pounds, withdraw half of the liquid (0.5 mark on the syringe).
6.    Cleanse site on buttock, arm or thigh and inject Glucagon immediately after mixing, and then withdraw the needle. Apply light pressure against the injection site.
7.    Turn the person on his/her side. When an unconscious person awakens, he/she may vomit. Call 911 immediately after administering Glucagon. If the person does not awaken within 15 minutes, you may administer a second dose of Glucagon, if previously instructed to do so by a healthcare professional.
8.    As soon as the person is awake and able to swallow, give him/her a fast-acting source of sugar (such as fruit juice), followed by a snack or meal containing both protein and carbohydrates (such as cheese and crackers, or a peanut butter sandwich).
9.    Discard any unused reconstituted Glucagon. Remember to notify your healthcare professional that an episode of severe hypoglycemia has occurred. These are not the complete instructions. Go to “Information for the User” for complete instructions on how to administer Glucagon.

 

 

In 2018, we conducted a quantitative study with 700 caregivers and people with diabetes evaluating the market perceptions of current glucagon kits, which we refer to as our Caregiver and Patient Perceptions Study. In that study, only one third of respondents had a highly favorable opinion of the current kits and only half were confident that a glucagon kit user would be able to correctly administer the current emergency glucagon products. Furthermore, in three published comparative human factors studies with currently marketed kits, only 6% to 31% of users were able to successfully administer the full dose of glucagon. In other words, in these studies, test subjects failed to deliver the full dose of glucagon 69% to 94% of the time. Accordingly, a diabetes patient experiencing a severe hypoglycemic episode who relies on a bystander to administer glucagon may not receive the full dose of glucagon needed to restore their blood glucose levels. Failure to promptly treat severe hypoglycemia leaves the person at critical risk of irreversible brain damage and heart problems, especially in people who already have coronary artery disease. If emergency medical treatment is not successful, the severe hypoglycemic event can be fatal.

 

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Xeris Gvoke HypoPen Key Features and Benefits

Leveraging our patented XeriSol technology, we believe our Gvoke HypoPen offers an important advancement in the treatment of severe hypoglycemia. We are developing the Gvoke HypoPen as a ready-to-use, room-temperature stable liquid glucagon delivered via auto-injector available in 1 mg and 0.5 mg pre-measured doses for adult and pediatric use, respectively. We have designed the Gvoke HypoPen to be easy to administer, as depicted in the figure below.

 

LOGO

The key features of our Gvoke HypoPen are:

 

   

Ready-to-use: With its easy two-step administration process, the user simply pulls off the red cap and pushes the Gvoke HypoPen down on the skin for five seconds, until the window turns red. There is no reconstitution required at the time of emergency.

 

   

Easy-to-use: In our human factors study, 99% of users were able to successfully administer the full dose with our Gvoke HypoPen.

 

   

No dose calibration required: The Gvoke HypoPen will be offered in two pre-measured doses, 0.5 mg for pediatric administration and 1 mg for adolescents and adults.

 

   

No visible needle: The needle in the Gvoke HypoPen is not visible to the user.

 

   

Auto-retraction: The needle auto-retracts after administration for safety.

 

   

Auto-locks: The device auto-locks after use for safety.

 

   

Two-year, room-temperature stability: No refrigeration is required at any time.

 

LOGO

We also intend to offer our ready-to-use glucagon in a pre-filled syringe presentation, Gvoke PFS, which may be preferred by some healthcare professionals.

 

LOGO

 

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In contrast to currently marketed emergency glucagon kits, our Gvoke HypoPen features the following benefits:

 

LOGO

In our Caregiver and Patient Perceptions Study, more than 75% responded that they would prefer our Gvoke HypoPen over currently available glucagon kits. In 2018, we conducted a quantitative study of over 400 healthcare professionals, which we refer to as our Healthcare Professional Perceptions Study. In that study, results indicated that glucagon would be prescribed to more people across all clinically appropriate patient segments if our Gvoke HypoPen were available. Based on this market research, we believe that the glucagon market will become more penetrated and that our Gvoke HypoPen will become the preferred emergency glucagon delivery solution.

Xeris Gvoke HypoPen Market Potential

Based on current market data as well as our Caregiver and Patient and Healthcare Professional Perceptions Studies, we believe that our Gvoke HypoPen, if approved, has the opportunity to increase penetration of the glucagon market in severe hypoglycemia by increasing the number of diabetes patients who have a filled glucagon prescription and by increasing the number of glucagon products they have on hand.

There are approximately 20.2 million drug-treated people with diabetes in the United States, and the compound annual growth rate in incidence of diagnosed and treated people with diabetes is approximately 4% per year. An additional 84 million people in the United States are pre-diabetic and may progress to T2D. The ADA recommends that glucagon be prescribed for all individuals at increased risk of clinically significant hypoglycemia for use in the event of an emergency. Based on our Healthcare Professional Perceptions Study, we believe almost all people with T1D and approximately 50% of people with T2D on insulin are considered clinically appropriate for glucagon. In the United States, there is an estimated 1.3 million people with T1D who are treated with insulin because their bodies do not naturally produce insulin and approximately 4.3 million additional people with T2D who are treated with insulin because their bodies do not use insulin properly. In the aggregate, we estimate that the potential target population for emergency glucagon therapy totals approximately 3.5 million people in the United States. We intend to sell our Gvoke HypoPen in a package of two, based on responses from our market research indicating that potential buyers would purchase, on average, two pens per person. We believe by increasing penetration into the market for emergency glucagon kits and based on the current price of approximately $280 per unit for currently marketed kits, the annual U.S. potential sales opportunity may total up to $2.0 billion.

Despite the risk of experiencing a severe hypoglycemic event, we believe that emergency glucagon therapy is underappreciated, under-evaluated and under-taught, resulting in a market that is under-penetrated. According to a 2015 study published in the journal Endocrine Practice, approximately 50% of people with T1D and approximately 3% of people with T2D with a new insulin prescription had a filled glucagon prescription. We believe that the drawbacks of currently marketed products and the lack of conversations regarding glucagon limit their adoption. Two of the top reasons given by people with diabetes for nonrenewal of glucagon prescriptions were that they were not confident that a caregiver or other person would be able to correctly administer the currently available kit, and their healthcare professional did not discuss the need for a new one with them. In the United States, approximately 662,000 total prescriptions for emergency glucagon kits were written in 2018 in the United States, resulting in the

 

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purchase of approximately 978,000 single-dose kits. In 2018, U.S. sales for emergency glucagon kit totaled approximately $246 million.

In our Healthcare Professional Perceptions Study, results indicated that glucagon would be prescribed to more people across all clinically appropriate patient segments if our Gvoke HypoPen was available. Similarly, in our Caregiver and Patient Perceptions Study, almost two-thirds of people with T1D and T2D who use insulin said they would proactively ask for a prescription for our Gvoke HypoPen if available. Importantly, over half of those same people do not currently have a filled glucagon prescription. During an emergency hypoglycemic event, these individuals would often be required to seek treatment through ambulance calls, hospital admissions or office visits. We believe that these studies show that more people would want to have emergency glucagon on-hand if there was a product that better met their needs. We believe this represents an opportunity for our Gvoke HypoPen, if approved, to shift the site of care from the emergency room or hospital to less costly settings such as the home.

We believe that a relevant market analogue for our Gvoke HypoPen is the epinephrine auto-injector, including EpiPen, for life-threatening allergic reactions. The table below provides a comparison of the severe allergy and hypoglycemia markets.

 

 

 

    

SEVERE ALLERGIC REACTION

(EPINEPHRINE)

  

SEVERE HYPOGLYCEMIA

(GLUCAGON)

Clinically Appropriate Patient Population in the United States

   5.2 million patients    3.5 million patients

No. of Units Sold in the United States (2018)

   ~8.2 million auto-injectors    ~978,000 kits*

 

 

*   Single-dose units of Eli Lilly’s Glucagon Emergency Kits and Novo Nordisk’s GlucaGen

We believe this comparison of the allergy and hypoglycemia markets supports the potential of our Gvoke HypoPen, if approved, to increase both the number of clinically appropriate people who have glucagon, as well as the number of glucagon products they have on hand.

Outside the United States, we estimate that an additional 3.5 million people with diabetes in Europe and an additional 12.5 million people with diabetes in Japan and China are clinically appropriate for glucagon treatment. However, only approximately 733,000 emergency glucagon products were sold in the United Kingdom, Germany, France, Italy and Spain combined, and only approximately 414,000 were sold in Japan and China combined, which we believe indicates that the market for emergency glucagon products is significantly under-penetrated in those regions.

Commercial Strategy

If approved, we will seek to replace currently marketed emergency glucagon kits with our Gvoke HypoPen, increase the number of at-risk people who carry emergency glucagon and promote access to emergency glucagon products. While our sales force and medical teams expect to focus on driving awareness and adoption of our Gvoke HypoPen by healthcare professionals, we believe accelerated growth and expanded uptake will come from targeted direct-to-patient messaging that, because the majority of people with diabetes are concentrated in 15 states, will allow us to efficiently and effectively reach our target audience.

We are preparing to launch our Gvoke HypoPen product as soon as practicable following approval, with our PDUFA action goal date of June 10, 2019. In July 2018, Eli Lilly announced its NDA submission for its intranasal glucagon product candidate. We believe this competing product candidate could receive FDA approval and launch at least two months ahead of our Gvoke HypoPen. Therefore, we plan to accelerate our commercial launch activities. Our plan to execute on our go-to-market strategy for our Gvoke HypoPen includes the following:

 

 

Create awareness and anticipation prior to launch. We plan to use the FDA’s NDA review period to both better understand the market and create excitement and anticipation for our company and our technology. We expect to hire ten regional medical affairs directors prior to commercial launch to establish additional

 

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  relationships with key opinion leaders and gain insight into current practice patterns and burdens. We also plan to begin to raise awareness in the market on the incidence, prevalence and impact of severe hypoglycemic events.

 

 

Drive awareness and adoption of our Gvoke HypoPen. If approved by the FDA, we plan to drive awareness and adoption of our Gvoke HypoPen to replace current emergency glucagon kits in the market.

 

  o

Healthcare Professionals: At launch, our targets will consist of high glucagon prescribing healthcare professionals. Approximately 3,000 healthcare professionals issue 50% of current glucagon prescriptions. We plan to hire 60-70 sales representatives initially to reach these professionals.

 

  o

Patients and Caregivers: We intend to activate patient advocacy organizations and leverage channels such as direct-to-consumer tactics, social media, digital presence, traditional offline channels and press coverage to drive awareness and communicate our value proposition to patients and caregivers. Because we do not anticipate having the first product to market in a competitive landscape, we plan to increase our spend on direct-to-consumer tactics. Because of our earlier than expected action date, we plan to accelerate these activities into late 2019. Epidemiology and census data indicate that 15 states account for almost 60% of people with diabetes, allowing us to be efficient and effective with our promotional activities.

 

 

Penetrate the market. We believe that the Gvoke HypoPen market is currently significantly underpenetrated due to the lack of, and limitations in, current treatment options. We are designing our Gvoke HypoPen to offer healthcare professionals, patients and caregivers a ready-to-use alternative that facilitates administration of the full dose of glucagon every time it is used. We believe this offering, paired with our commercial focus, has the potential to grow the market in two ways:

 

  o

Healthcare Professionals: In addition to the 3,000 healthcare professionals who issue about half of the current glucagon prescriptions, we will target approximately 5,000 healthcare professionals who are high meal time insulin prescribers, but who are under-indexed in prescribing glucagon. We intend to reach these professionals using our initial sales representatives.

 

  o

Patients and Caregivers: We believe there is an opportunity to activate patient and caregiver demand for our Gvoke HypoPen. Our Gvoke HypoPen is designed as an easy-to-use solution for a segment of patients and caregivers who currently lack the confidence in administering current emergency glucagon kits and would rather rely on emergency responders for treatment.

 

 

Promote access: Current emergency glucagon kits have favorable market access, and current trends indicate a relatively low level of management of these products by payors. For example, Eli Lilly’s GEK is covered at or above 94% with unrestricted access across commercial, Medicare, Managed Medicaid and State Medicaid plans. A Diabetes Health Coverage: State Laws and Programs report reviewing state insurance mandated coverage, Medicaid coverage and state-sponsored diabetes programs showed that 46 states and the District of Columbia have a diabetes statutory mandate for coverage, whether as medication or supply. Of our target patient population, approximately 50% are commercially-insured, one-third are covered by Medicare and approximately 15% are covered by Medicaid. However, gaining market access and formulary coverage for new products takes substantial time and resources. As a result, we plan to increase our focus on promoting access to our Gvoke HypoPen. We plan to engage with payors to more fully understand their drivers and barriers and convey the health and pharmacoeconomic value of our Gvoke HypoPen prior to launch.

We plan to establish a distribution channel in the United States for the commercialization of our Gvoke HypoPen. We expect to sell our Gvoke HypoPen to wholesale pharmaceutical distributors, who, in turn, will sell our Gvoke HypoPen to pharmacies and other customers. We expect to use a third-party logistics provider for key services related to logistics, warehousing and inventory management, distribution, contract administration, order management and chargeback processing and accounts receivable management. Outside of the United States, we plan to collaborate with local companies.

Clinical Experience

We have completed three Phase 3 clinical trials for our Gvoke HypoPen and submitted a NDA to the FDA in August 2018. The FDA set June 10, 2019 as the PDUFA action goal date for our NDA. In addition, we have evaluated our Gvoke HypoPen in six preclinical studies, one Phase 1 pharmacokinetic (PK) and pharmacodynamic (PD) study and

 

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two Phase 2 clinical trials. Additionally, through our interactions with the EMA regarding our development path in Europe, we have finalized our regulatory plan and initiated a requisite Phase 3 pivotal trial to support our European MAA for severe hypoglycemia. We expect top-line results from this trial in the first half of 2019. The following table summarizes the completed clinical trials for our Gvoke HypoPen.

 

 

 

PROTOCOL NO./TITLE

 

PHASE OF

DEVELOPMENT

  DESIGN/OBJECTIVES  

STUDY POPULATION

AND DEMOGRAPHICS

 

DOSE (NO. EXPOSED

EACH TREATMENT) AND

DOSAGE FORM/

PRODUCT

CONFIGURATION

Completed

XSGP-302

A Phase 3 Study to Evaluate the Glucose Response of Glucagon Rescue Pen (Glucagon Injection) In Pediatric Patients With Type 1 Diabetes

  Phase 3a   Non-randomized,

open-label, single

dose/efficacy, PD, PK,

safety and tolerability

 

Children

(2<6,

6<12 and

12<18

years) with

T1D

n=31

 

Ages 2<6 years (n=7),

single dose of 0.5mg

Glucagon Rescue Pen; ages 6<12 years

(n=13), single dose of

0.5mg Glucagon

Rescue Pen; ages

12<18 years (n=11),

single dose of 1mg

Glucagon Rescue Pen

followed by single

dose of 0.5mg

Glucagon Rescue Pen

7 to 28 days later/

Rescue Pen

XSGP-301

Glucagon Rescue Pen (Glucagon Injection) Compared To Eli Lilly Glucagon (Glucagon For Injection [rDNA Origin]) For Induced Hypoglycemia Rescue In Adult Patients With T1D: A Phase 3, Randomized, Blinded, 2-Way Crossover Study To Evaluate Efficacy and Safety

  Phase 3a   Double-blind,

randomized, two-way

crossover/efficacy

(return to plasma

glucose >70.0 mg/dL)

of Glucagon Rescue

Pen 1 mg to be non-

inferior to Eli Lilly’s

glucagon; compare

the PD characteristics

of Glucagon Rescue

Pen versus Eli Lilly’s

glucagon; safety and

tolerability; PK.

 

Adult

patients

with T1D

n=80

 

Glucagon Rescue Pen

1mg (n=78), Eli

Lilly’s glucagon 1mg

(n=79)/Rescue Pen

 

 

 

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PROTOCOL NO./TITLE

 

PHASE OF

DEVELOPMENT

  DESIGN/OBJECTIVES  

STUDY POPULATION

AND DEMOGRAPHICS

 

DOSE (NO. EXPOSED

EACH TREATMENT) AND

DOSAGE FORM/

PRODUCT

CONFIGURATION

XSGP-303

Glucagon Rescue Pen (Glucagon Injection) Compared To Eli Lilly Glucagon (Glucagon For Injection [rDNA Origin]) For Induced Hypoglycemia Rescue In Adults With T1D: A Phase 3B Multi-Centered, Randomized, Controlled, Single-Blind, 2-Way Crossover Study To Evaluate Efficacy And Safety

  Phase 3b   Non-inferiority, multi-

centered, randomized

controlled, single-

blind, two-period,

two-way crossover

efficacy and safety

 

T1D adult

male/female

patients

18-75 years

of age

n=81

 

Glucagon Rescue

Pen 1 mg, Eli Lilly’s

glucagon 1 mg/

Rescue Pen

XSGP-202

Glucagon Rescue Pen (Glucagon Injection) For Induced Hypoglycemia Rescue In Adult Patients With T1D: A Phase 2A Pilot Study To Evaluate Protocol Design Issues For An Upcoming Phase 3 Clinical Study

  Phase 2   Open-label

2-way crossover

Explore safety efficacy

in treatment of

insulin-induced

hypoglycemia

 

T1D adult

male/female

patients

18–65 years

of age

n=7

 

Glucagon Rescue

Pen 0.5 mg (n=6)

and 1 mg (n=7),

subcutaneous

injections given one

week apart/Pre-Filled

Syringe

XSGP-201

A Randomized, Phase 2, Double-Blind, 3-Way Crossover Study With Glucagon Rescue Pen (Glucagon For Injection) To Evaluate Safety, Tolerability and Comparative Pharmacokinetics and Pharmacodynamics To Eli Lilly Glucagon (Glucagon For Injection [rDNA Origin]) In Healthy Volunteers

  Phase 2   Double-blind,

Randomized, 3-way

crossover/Safety,

tolerability, PK and

efficacy vs. marketed

comparator

 

Healthy

male/female

volunteers

18–60 years

of age

n=28

 

Subcutaneous

injection of:

Glucagon Rescue

Pen 0.5 mg (n=29)

and 1 mg (n=28); and

Eli Lilly’s glucagon

(rDNA origin) 1 mg/

Pre-Filled Syringe

 

 

 

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PROTOCOL NO./TITLE

 

PHASE OF

DEVELOPMENT

  DESIGN/OBJECTIVES  

STUDY POPULATION

AND DEMOGRAPHICS

 

DOSE (NO. EXPOSED

EACH TREATMENT) AND

DOSAGE FORM/

PRODUCT

CONFIGURATION

XSGP-101

A Two-Way Crossover Comparative PD/PK Study Of Glucagon Rescue Pen (Glucagon Injection) Administered By Auto-Injector And Pre-Filled Syringe

  Phase 1   Two-way crossover

comparative

bioequivalence,

safety, tolerability and

PD/PK of Glucagon

Rescue Pen

administered via auto-

injector vs. pre-filled

syringe

 

Healthy

male/female

volunteers

18-64 years

of age

n=32

 

Glucagon Rescue

Pen 1 mg/Pre-Filled

Syringe 1 mg

 

 

Completed Phase 3 Clinical Trials

XSGP-302: A Phase 3 Study to Evaluate the Glucose Response of Glucagon Rescue Pen (Glucagon Injection) In Pediatric Patients With Type 1 Diabetes

In 2017, we conducted a sequential non-randomized, open-label, single dose efficacy and safety Phase 3 clinical trial in pediatric subjects with T1D. This clinical trial included a total of 31 subjects (seven subjects 2 to <6 years, 13 subjects 6 to <12 years and eleven subjects 12 to <18 years). In this clinical trial, we induced hypoglycemia, defined as plasma glucose <80 mg/dL, with administration of insulin and then treated subjects with our Gvoke HypoPen. The primary endpoint of this clinical trial was to assess the increase in plasma glucose of subjects from baseline to 30 minutes after injection of an age-appropriate dose of our Gvoke HypoPen, defined as 0.5 mg dose for subjects 2 to <12 years and in separate visits both a 0.5 mg and 1.0 mg dose for subjects 12 to <18 years.

All three age groups met the primary endpoint of non-zero glucose response at 30 minutes post-administration of our Gvoke HypoPen. All evaluable subjects achieved a target glucose increase of at least 25 mg/dL. Following administration, plasma glucose levels over time showed similar glucose responses for subjects in each age group and in each dose in the 12 to <18 years age group. Further, in each age group the observed effect was statistically significant with increases from baseline in mean plasma glucose at 30 minutes following administration of an age-appropriate dose of our Gvoke HypoPen. Administration of 0.5 mg of our Gvoke HypoPen in the 12 to <18 years age resulted in a glucose response that was similar to the age-appropriate dose of 1 mg of our Gvoke HypoPen.

Overall, our Gvoke HypoPen was observed to be well-tolerated. All auto-injectors, or AIs, delivered a full dose. There were no discontinuations due to adverse events, or AEs, no severe AEs, no device-related AEs and no serious adverse events, or SAEs. The majority of treatment-emergent AEs observed were gastrointestinal disorders.

The following table summarizes additional trial design parameters and clinical results that we observed from XSGP-302:

 

 

 

GLUCAGON DOSE

  0.5 MG DOSE     1 MG DOSE  

SUBJECT AGES

  2 TO
< 6 YEARS
    6 TO
< 12 YEARS
    12 TO
< 18 YEARS
    12 TO
< 18 YEARS
 

n

    7       13       11       11  

% with >25 mg/dL rise in glucose within 30 minutes

    100       100       100       100  

Glucose Cmax (mg/dL) Mean (SD)

    207.8 (35.9     206.9 (49.6     212.1 (40.6     198.9 (60.0

Glucose Tmax (minutes)

Mean (SD)

    67.7 (11.1     66.4 (15.7     78.2 (11.5     81.8 (15.6

% with nausea

    42.9       53.8       36.4       36.4  

% with emesis

    14.3       23.1       0       18.2  

 

 

 

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XSGP-301: Glucagon Rescue Pen (Glucagon Injection) Compared To Eli Lilly Glucagon (Glucagon For Injection [rDNA Origin]) For Induced Hypoglycemia Rescue In Adult Patients With T1D: A Phase 3, Randomized, Blinded, 2-Way Crossover Study To Evaluate Efficacy and Safety

In 2017, we completed a non-inferiority, prospective, randomized, controlled, double-blinded, two-period, two-way crossover, comparative efficacy and safety Phase 3 pivotal clinical trial in male and female patients aged 18 to 75 years with T1D in an inpatient setting. The trial was conducted across seven locations in the United States and enrolled 80 subjects. The objectives of this clinical trial were to compare the safety, tolerability and efficacy of our Gvoke HypoPen and Eli Lilly’s glucagon, as determined by an increase in plasma glucose concentration from below 50 mg/dL to greater than 70 mg/dL within 30 minutes after receiving glucagon. We also evaluated an additional primary endpoint of plasma glucose > 70 mg/dL or increase by >20 mg/dL within 30 minutes. This additional primary endpoint was defined and pre-specified for analysis prior to unblinding the study. Additional endpoints of interest included plasma glucose of >70 mg/dL or resolution of all induced neuroglycopenic symptoms within 30 minutes of glucagon, relief of hypoglycemia symptoms, global feeling of hypoglycemia and glucose elevation 0-90 minutes post-injection.

In this clinical trial, we induced severe hypoglycemia by an IV infusion of regular insulin followed by initial and subsequent bolus doses if plasma glucose after 30 minutes was > 60 mg/dL. Subjects were also administered an IV infusion of regular insulin based on a subject’s historical use of basal insulin. The investigator adjusted the IV insulin infusion rate if the rate of glucose change after 30 minutes was < 1 mg/dL/minute. Investigators were instructed to avoid any bolus doses or basal infusion rate increases within 20 minutes of blinded study drug administration. Once the initial plasma glucose measurement < 50 mg/dL was achieved, the IV insulin infusion was stopped. Once the confirmatory plasma glucose reading < 50 mg/dL was achieved, subjects were administered blinded study drug via the subcutaneous route in the upper arm, leg or abdomen.

Subjects were randomized to receive glucagon in one of two sequence groups: our Gvoke HypoPen followed by Eli Lilly’s glucagon, or Eli Lilly’s glucagon followed by our Gvoke HypoPen. Following glucagon dosing, plasma glucose was monitored every five minutes until 90 minutes post-dosing. Additional blood samples were collected at regular intervals. Subjects also completed a questionnaire regarding hypoglycemia symptoms at the start of the hypoglycemia induction period and periodically until 45 minutes post-treatment with glucagon. Tolerability was assessed by comparing adverse event reports between the groups. In addition, subjects completed questionnaires concerning injection site discomfort. After a wash-out period of seven to 28 days, subjects returned to the clinic and the study procedures were repeated with each subject crossing over to the other treatment group.

Analyses of the primary endpoints were performed according to pre-specified intent-to-treat, or ITT, modified intent-to-treat, or mITT, and per-protocol methods. The ITT cohort was defined as all subjects randomized to one of the two sequence groups. The mITT cohort was defined as the ITT cohort minus one subject that mistakenly received two doses of Eli Lilly’s glucagon. The per-protocol cohort was defined as the mITT cohort minus any subjects adjudicated for at least one major protocol violation. Criteria for major protocol violations were defined and pre- specified prior to unblinding of the trial. Following adjudication of major protocol violations, two subjects, one in each study arm, who received a clinically significant (20%) increase in basal IV insulin rate during the final 20 minutes of the induction procedure were censored to establish the per-protocol cohort.

For the ITT and mITT analysis, three or fewer response failures were defined as the pre-specified threshold demonstrating non-inferiority of our Gvoke HypoPen. For the primary endpoint of glucose increase >70 mg/dL within 30 minutes, the total difference in response failures was four, representing one more than the pre-specified threshold of three response failures. For the additional primary endpoint of plasma glucose >70 mg/dL or increase by >20 mg/dL within 30 minutes, the total difference in response failures was two and, therefore, ITT analysis of this additional primary endpoint demonstrated that our Gvoke HypoPen was non-inferior to Eli Lilly’s glucagon. The per-protocol analysis of both primary endpoints met the pre-specified threshold. Certain of our analyses may be viewed as post-hoc analyses, and although post-hoc analyses can result in the introduction of bias and may be given less weight by the FDA, we believe that this retrospective analysis can provide additional information regarding results from this trial.

 

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We believe the clinical trial results support the potential of our Gvoke HypoPen to reverse severe hypoglycemia in a reliable manner. In accordance with FDA and International Council for Harmonisation guidance for evaluation of non-inferiority studies, we presented a series of analyses implementing ITT, mITT and per-protocol cohorts for this clinical trial to the FDA at a pre-NDA meeting held in December 2017. In that meeting, the FDA agreed overall that the totality of data for our Gvoke HypoPen is sufficient to support NDA review.

Additionally, a single dose of our Gvoke HypoPen increased plasma glucose and improved clinical symptoms such as cognitive impairment and other neuroglycopenic/neurogenic symptoms that are associated with severe hypoglycemia in 100% of subjects. We also observed comparable increases in plasma glucose concentration from below 50 mg/dL to greater than 70 mg/dL within 30 minutes after receiving our Gvoke HypoPen and comparable resolution of clinical symptoms to Eli Lilly’s glucagon, such as cognitive impairment and other neuroglycopenic/neurogenic symptoms that are associated with severe hypoglycemia, as well as comparable pharmacodynamics.

The following table summarizes the efficacy outcomes for XSGP-301.

 

 

 

CLINICAL COMPARISON

  

mITT RESPONSE RATE

  

GVOKE

HYPOPEN

  

ELI LILLY

GLUCAGON

Subjects successfully rescued from induced hypoglycemia without other rescue therapy (e.g., intravenous dextrose)

   100% (78/78)    100% (79/79)

Plasma glucose >70 mg/dL within 30 minutes of glucagon (primary endpoint)

  

Intent-to-treat†

94.9% (74/78)

  

Intent-to-treat

100% (79/79)

  

Per-protocol

96.1% (74/77)

  

Per-protocol

100% (78/78)

Plasma glucose of >70 mg/dL or ³ 20 mg/dL increase within 30 minutes of glucagon (additional primary endpoint)

  

Intent-to-treat

97.4% (76/78)

  

Intent-to-treat

100% (79/79)

  

Per-protocol

97.4% (75/77)

  

Per-protocol

100% (78/78)

Plasma glucose of >70 mg/dL or resolution of all induced neuroglycopenic symptoms within 30 minutes of glucagon

   100% (78/78)    100% (79/79)

Resolution of hypoglycemia symptoms

   100% (78/78)    100% (79/79)

Global feeling of hypoglycemia improvement pre/post injection

   100% (77/77)    100% (79/79)

Sustained glucose elevation from 0-90 minutes post-injection

   100% (78/78)    100% (79/79)

 

 

    one (1) additional endpoint failure exceeded the non-inferiority threshold of N=3; all other comparisons demonstrate non-inferiority vs. Eli Lilly’s glucagon.

Overall, all treatment regimens were well-tolerated. One SAE of hypoglycemia was reported for a participant treated with Eli Lilly’s glucagon. The SAE was determined by the study investigator not to be related to the study drug and resolved during the trial. The incidence of AEs was low in both groups, and the most commonly reported AE was nausea: 20.5% for our Gvoke HypoPen and 12.7% for Eli Lilly’s glucagon (p=not significant), followed by vomiting and headache. AEs were generally mild or moderate in severity, transient and resolved with no treatment.

XSGP-303: Glucagon Rescue Pen (Glucagon Injection) Compared to Eli Lilly Glucagon (Glucagon For Injection [rDNA Origin]) For Induced Hypoglycemia Rescue in Adult Patients With T1D: A Phase 3b Multi-Centered, Randomized, Controlled, Single Blind, 2-Way Crossover Study To Evaluate Efficacy and Safety.

In the second quarter of 2018, we completed a non-inferiority, prospective, randomized, controlled, single-blinded, two-period, two-way crossover, comparative efficacy and safety Phase 3b clinical trial in male and female patients aged 18 to 75 years with T1D in an inpatient setting. The trial was conducted across six locations in the United States and Canada and enrolled 81 subjects. The objectives of this clinical trial were to compare the safety, tolerability and efficacy of our Gvoke HypoPen and Eli Lilly’s glucagon, as determined by an increase in plasma glucose concentration from below 50 mg/dL to greater than 70 mg/dL within 30 minutes after receiving glucagon. We also evaluated an additional endpoint of plasma glucose > 70 mg/dL or increase by > 20 mg/dL within 30 minutes. Additional endpoints of interest also included plasma glucose of >70 mg/dL or resolution of all induced neuroglycopenic symptoms within 30 minutes of glucagon, relief of hypoglycemia symptoms, global feeling of

 

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hypoglycemia and total elapsed time required from decision to dose and actual time of injection (e.g. preparation time).

Consistent with our XSGP-301 trial, in XSGP-303 we induced severe hypoglycemia by an IV infusion of regular insulin followed by initial and subsequent bolus doses if plasma glucose after 30 minutes was > 60 mg/dL. The subjects’ IV infusion of regular insulin was based upon their historical use of basal insulin. The investigator adjusted the IV insulin infusion rate if the rate of glucose change after 30 minutes was < 1 mg/dL/minute. Investigators were instructed to avoid any bolus doses when a subject’s plasma glucose was < 60 mg/dL. Once the initial plasma glucose measurement < 50 mg/dL was achieved, the IV insulin infusion was stopped. Once the confirmatory plasma glucose reading < 50 mg/dL was achieved, subjects were administered blinded study drug via the subcutaneous route in the abdomen.

Subjects were randomized to receive glucagon in one of two sequence groups: our Gvoke HypoPen followed by Eli Lilly’s glucagon, or Eli Lilly’s glucagon followed by our Gvoke HypoPen. Following glucagon dosing, plasma glucose was monitored every five minutes until 90 minutes post-dosing. Additional blood samples were collected at regular intervals. Subjects also completed a questionnaire regarding hypoglycemia symptoms at the start of the hypoglycemia induction period and periodically until 180 minutes post-treatment with glucagon. Tolerability was assessed by comparing adverse event reports between the groups. In addition, subjects completed questionnaires concerning injection site discomfort. After a wash-out period of seven to 28 days, subjects returned to the clinic and the study procedures were repeated with each subject crossing over to the other treatment group.

Analyses of the primary endpoints were performed according to pre-specified intent-to-treat, or ITT, and per-protocol methods. The ITT cohort was defined as all subjects randomized to one of the two sequence groups. The per-protocol cohort was defined as the ITT cohort minus any subjects adjudicated for at least one major protocol violation.

For the ITT analysis, three or fewer response failures were defined as the pre-specified threshold demonstrating non-inferiority of our Gvoke HypoPen. For the primary endpoint of glucose increase from below 50 mg/dL to >70 mg/dL within 30 minutes, all subjects who received a study drug experienced successful plasma glucose recovery. As there were no treatment failures observed, the ITT analysis of the primary endpoints demonstrated that our Gvoke HypoPen was non-inferior to Eli Lilly’s glucagon.

Criteria for major protocol violations were defined and pre-specified prior to starting the trial. Following adjudication of major protocol violations, two subjects in the Gvoke HypoPen arm were identified who were administered study drug despite not being within a steady state of hypoglycemia. In addition, subjects who did not receive a study drug were considered major protocol violations. These subjects were censored to establish the per-protocol cohort. Despite the major protocol violation in the subjects who received Gvoke HypoPen, plasma glucose recovery was achieved within 30 minutes and the subjects successfully met the study primary endpoint.

We believe the results of XSGP-303 corroborate the outcomes observed in XSGP-301 and further support the potential of our Gvoke HypoPen to reverse severe hypoglycemia in a reliable manner. We incorporated the results of this study into the NDA submission.

The following table summarizes the efficacy outcomes for XSGP-303.

 

Clinical Comparison

  

RESPONSE RATE

    

GVOKE HYPOPEN

  

ELI LILLY GLUCAGON

Subjects successfully rescued from induced hypoglycemia without other rescue therapy (e.g., D50).   

100%

(76/76)

  

100%

(78/78)

Plasma glucose >70 mg/dl in 30 minutes.

(primary endpoint)

  

Intent-to-treat

100%

(76/76)

  

Intent-to-treat

100%

(78/78)

  

Per-protocol

100%

(73/73)

  

Per-protocol

100%

(73/73)

 

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Clinical Comparison

  

RESPONSE RATE

    

GVOKE HYPOPEN

  

ELI LILLY GLUCAGON

Plasma glucose of >70 mg/dl or ³ 20 mg/dl increase within 30 minutes of glucagon.   

Intent-to-treat

100%

(76/76)

  

Intent-to-treat

100%

(78/78)

  

Per-protocol

100%

(73/73)

  

Per-protocol

100%

(73/73)

Plasma glucose of >70 mg/dl or resolution of all induced neuroglycopenic symptoms within 30 minutes of glucagon.   

100%

(76/76)

  

100%

(78/78)

Resolution of hypoglycemia symptoms   

100%

(76/76)

  

100%

(78/78)

Global feeling of hypoglycemia improvement pre/post injection†   

100%

(73/73)

  

100%

(76/76)

Sustained glucose elevation from 0-90 minutes post-injection   

100%

(76/76)

  

100%

(78/78)

 

Population of subjects only includes those reporting hypoglycemic symptoms at baseline.

Overall, all treatment regimens were well-tolerated. There were no reported SAEs. The incidence of AEs was low in both groups and the most commonly reported AE was nausea, followed by vomiting and headache. AEs were generally mild or moderate in severity, transient and resolved with no treatment.

XSGP-101: A Two-Way Crossover Comparative PD/PK Study Of Glucagon Rescue Pen (Glucagon Injection) Administered By Auto-Injector And Pre-Filled Syringe

At our pre-NDA meeting in December 2017, the FDA recommended to us that we address three areas of inquiry regarding our Gvoke PFS: the characterization of PD/PK data to compare changes in serum plasma glucose levels and serum hormone levels when glucagon is administered by an auto-injector versus hand injection, a human factors validation study for this presentation and device reliability testing for this presentation. As a result of this meeting, with respect to the Gvoke PFS, we initiated our XSGP-101 clinical trial in the first quarter of 2018. Based on the results of this trial which, combined with the human factors studies and device reliability testing, we included the Gvoke PFS in our Gvoke HypoPen NDA submission to the FDA.

In the second quarter of 2018, we completed a Phase 1 two-way crossover comparative PD/PK study of glucagon administered by auto-injector versus pre-filled syringe to demonstrate bioequivalence in fasted healthy subjects with low to normal plasma glucose levels. We enrolled 32 healthy male and female subjects, ranging from 19 to 63 years old, with a median age of 46.5 years. Subjects were randomly assigned to a treatment sequence and each received a 1 mg dose of glucagon via auto-injector and another 1 mg dose via pre-filled syringe. Both treatments were administered subcutaneously to the abdomen.

Analysis of the primary PK endpoints of plasma glucagon AUC(0-240min) and Cmax indicated bioequivalence of glucagon whether administered by auto-injector or pre-filled syringe. The PD endpoints of plasma glucose AUC(0-240min), Cmax, and Tmax also demonstrated bioequivalence and PD equivalence between the two devices.

Overall, auto-injector and pre-filled syringe treatments were generally well tolerated and similar AEs were observed between the two treatment groups. The most commonly experienced AEs were nausea, vomiting and headache. All of the AEs were mild or moderate in severity. There were no SAEs or discontinuations due to an AE.

 

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Other Completed Supporting Trials

Phase 2 Clinical Trials

XSGP-201: A Randomized, Phase 2, Double-Blind, 3-Way Crossover Study with Glucagon Rescue Pen (Glucagon For Injection) To Evaluate Safety, Tolerability and Comparative Pharmacokinetics and Pharmacodynamics To Eli Lilly Glucagon (Glucagon For Injection [rDNA Origin]) In Healthy Volunteers

In 2014, we completed a double-blind, randomized, three-way crossover Phase 2 clinical trial of glucagon in 28 healthy male and female subjects 18 to 60 years of age to evaluate the safety, tolerability, PK and efficacy versus Eli Lilly’s glucagon. Subjects were subcutaneously injected with glucagon via a pre-filled syringe in doses of 0.5 and 1 mg and with Eli Lilly’s glucagon for injection in a dose of 1 mg.

Plasma glucose concentration-time curves showed little separation between treatment groups, and there were no substantial differences between our glucagon 1 mg and Eli Lilly’s glucagon for injection 1 mg in terms of glucose area under the curve, maximum concentration, or Cmax, and time to reach maximum concentration, or Tmax.

Results showed that all treatments were well-tolerated and demonstrated a comparable safety profile. No SAEs were observed, and all AEs were transient and consistent with rescue injections of glucagon.

XSGP-202: Glucagon Rescue Pen (Glucagon Injection) For Induced Hypoglycemia Rescue In Adult Patients With T1D: A Phase 2a Pilot Study To Evaluate Protocol Design Issues For An Upcoming Phase 3 Clinical Study

In 2015, we completed an open-label two-way crossover Phase 2 clinical trial to explore the safety and efficacy of glucagon for the treatment of insulin-induced hypoglycemia in seven adult males and females with T1D 18 to 65 years of age. Subjects were given our glucagon injection via the pre-filled syringe 0.5 mg (n=6) and 1 mg (n=7), as subcutaneous injections given one week apart.

All subjects in a state of insulin-induced hypoglycemia experienced objective and subjective response to rescue doses of glucagon with return of glucose to > 70 mg/dL and resolution of all hypoglycemia symptoms within 30 minutes of injection.

Results showed AEs were generally mild and corresponded to known effects of rescue doses of glucagon. Vasovagal syncope, or fainting, was observed in one patient, which met the definition of an SAE as an important medical event but was attributed by the investigator to study procedures.

Ongoing Clinical Trials

XSGP-304: G-Pen Compared to GlucaGen HypoKit for Induced Severe Hypoglycemia Rescue in Adults With Type 1 Diabetes: A Phase 3 Multi-Center Randomized, Controlled, Single Blind, 2-Way Crossover Study to Evaluate Efficacy and Safety

The objectives of this clinical trial were developed following scientific advice from the EMA in support of our planned European MAA. We are comparing the safety, tolerability and efficacy of our glucagon pen and Glucagen Hypokit (Novo Nordisk), as determined by an increase in plasma glucose concentration from below 54 mg/dL to greater than 70 mg/dL within 30 minutes after receiving glucagon or increase by 20 mg/dL within 30 minutes. Additional endpoints of interest include relief of hypoglycemia symptoms, global feeling of hypoglycemia and total elapsed time required from decision to dose and actual time of injection (e.g., preparation time). The trial involves two daytime clinical research center, or CRC, visits with random assignment to receive glucagon pen 1 mg during one period and Glucagen Hypokit 1 mg during the other. Each daytime visit is preceded by an overnight stay in the CRC. In the morning of the inpatient study visit, the subject is brought into a state of severe hypoglycemia through IV administration of regular insulin diluted in normal saline. After a hypoglycemic state with plasma glucose < 54 mg/dL (3 mmol/L) is verified, the subject is administered a dose of glucagon pen or Glucagen Hypokit via subcutaneous injection. Plasma glucose levels are monitored for up to 180 minutes post-dosing, with a value of >70.0 mg/dL (3.89 mmol/L) or an increase of > 20 mg/dL (>1.11 mmol/L) within 30 minutes of glucagon administration indicating a positive response. After 3 hours, the subject is given a meal and discharged when medically stable. After a wash-out period of 7 to 28 days, subjects return to the CRC, and the procedures are repeated with each subject crossed over to the other treatment. A follow-up visit as a safety check is conducted 2-7 days following administration of the final dose of study drug. We initiated this trial in the second half of 2018 to be conducted at six sites in North America and three in Europe. We have a target enrollment of 122 subjects and expect top-line results in the first half of 2019.

 

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Preclinical Studies

Six preclinical studies, consisting of five studies in rats and one study in rabbits, demonstrated that our concentrated, non-aqueous solution of glucagon was safe in animal models. Studies included PK and PD studies, toxicity and potential impurities studies, toxicokinetic evaluations and local tolerance assessment. We conducted these studies during 2010 to 2018. These studies administered glucagon to a total of 206 rats and 8 rabbits.

Human Factors Summative Validation Study

In 2017, we conducted a human factors summative validation study in users, which confirmed that our Gvoke HypoPen can be correctly, safely and effectively used. Of the 75 injections, 74 (99%) were successful. There was a single failure that occurred when an untrained subject prematurely lifted the pen from the injection site within approximately 1.5 seconds of activation, resulting in a partial dose. The subject admitted to not reading the label guide. No mitigation response was needed as the failure was attributed to the participant’s noncompliance with reading the label guide while performing the procedure. After reviewing the label guide, the subject successfully administered the injection during an unaided second attempt. The study concluded that the Gvoke HypoPen dose label, packaging, device and injection procedure, label guide and instructions for use had been successfully validated.

Ready-to-Use Glucagon for Hypoglycemia Associated with Intermittent and Chronic Conditions

We are applying our ready-to-use liquid-stable glucagon formulation to treat five intermittent and chronic conditions with significant unmet medical need. In particular, our formulation may be applied to conditions requiring continuous doses or smaller or mini-doses of glucagon over a longer administration period. We intend to leverage work across our programs to substantially reduce development costs for each indication and enable expanded uses for intermittent and chronic applications of ready-to-use glucagon to follow our Gvoke HypoPen. Aspects include:

 

   

Chemistry, manufacturing and controls, or CMC

 

   

Nonclinical toxicology program

 

   

Clinical supplies manufacturing

For intermittent and chronic hypoglycemic conditions, we intend to leverage our completed preclinical studies across our glucagon portfolio, which consist of two toxicology studies in rats, one toxicology study in pigs, one tolerability study in rabbits, two PK studies in rats and one toxicology and PK study in rats (320 rats, 54 pigs and 8 rabbits). These preclinical studies demonstrated the safety of the ready-to-use glucagon and supported further clinical development. A number of additional toxicology studies are ongoing to support long-term chronic use of ready-to-use glucagon in additional hypoglycemic conditions.

For commercialization in our intermittent and chronic conditions, we expect to target endocrinologists, diabetologists and primary care providers that are currently prescribing glucagon and rapid acting insulin. Many of these physicians, particularly endocrinologists, are also currently treating PBH patients and we believe there is significant overlap between these physicians and those who would prescribe ready-to-use glucagon for HAAF and EIH. Furthermore, because there are few CHI patients and they are primarily treated at a handful of centers of excellence in the United States, we believe we can engage these clinicians with a small group of regional medical affairs directors.

In December 2013, we filed an IND application for the use of ready-to-use glucagon delivered via a wearable patch pump. This IND has supported our clinical development efforts in PBH and HAAF and an assessment in a bi-hormonal artificial pancreas closed-loop system. We are the sponsor of this IND, which is active as of the date of this prospectus.

Ready-to-Use Glucagon for Post-Bariatric Hypoglycemia

We are developing a ready-to-use glucagon formulation for chronic self-administration in PBH, a challenging complication of bariatric surgery that may significantly impair quality of life, but for which there are currently no approved treatments. In January 2018, we received orphan drug designation from the FDA for our ready-to-use glucagon for the treatment of patients with hyperinsulinemic hypoglycemia, of which PBH is a category. In November 2018, we received EU orphan product designation for the treatment of Noninsulinoma Pancreatogenous Hypoglycaemia Syndrome, or NIPHS, which includes patients with PBH.

 

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Post-Bariatric Hypoglycemia Market

Obesity and related comorbidities such as T2D and cardiovascular disease are increasingly recognized as a major threat to individual and public health, with sustained weight loss difficult to achieve. Clinicians and patients alike have embraced the results of recent controlled clinical trials demonstrating the efficacy of surgical procedures performed on the stomach or intestines, known as bariatric surgery, to not only induce sustained weight loss but also to improve or normalize obesity-related comorbidities, including T2D. The number of bariatric surgeries performed in the United States has increased from an estimated 158,000 procedures per year in 2011 to 228,000 in 2017, growing nearly 45% in just six years. While benefits of bariatric surgery are now achieved with a lower risk of surgical complications, longer-term intestinal and nutritional complications can still occur.

One challenging and sometimes severe complication of bariatric surgery is hyperinsulinemic hypoglycemia. Hyperinsulinemic hypoglycemia, and more specifically PBH, is most commonly associated with Roux-en-Y gastric bypass, or RYGB, a procedure in which the small intestine is re-routed to a small resected stomach pouch. However, PBH has also been observed following sleeve gastrectomy, a procedure that reduces the size of the stomach. PBH is defined as documented plasma glucose levels below 70 mg/dL in conjunction with hypoglycemic symptoms and the relief of such symptoms with the normalization of glucose levels. Symptoms include palpitations, lightheadedness and sweating. A subset of post-bariatric patients develops very severe hypoglycemia involving a shortage of glucose in the brain, known as neuroglycopenic symptoms, typically occurring one to three years following bariatric surgery, associated with confusion, decreased attentiveness, seizure and loss of consciousness. For these patients, quality of life can be severely affected as many cannot care for themselves or even be left alone and may ultimately lose their employment due to this disability.

Hypoglycemia typically occurs after meals, particularly those rich in simple carbohydrates. Due to the change in gastric anatomy resulting from bariatric surgery, plasma insulin concentrations are inappropriately high at the time of hypoglycemia in these patients. Treatment of hypoglycemia requires rapid-acting carbohydrates such as glucose tablets, which in PBH patients can contribute to rebound hyperglycemia that triggers further insulin secretion and recurrent hypoglycemia.

There are currently no approved treatments for PBH. Current strategies to manage PBH include dietary modification aimed at reducing intake of high glycemic index carbohydrates. Both diet and off-label administration of pre-meal acarbose, an anti-diabetic drug used to treat T2D, aim to minimize rapid post-meal surges in glucose that trigger insulin secretion. Additional off-label therapies include those aimed at reducing insulin secretion. In severe cases, gastric restriction or banding has been required to slow gastric emptying and gastrostomy tubes have been used to provide the sole source of nutrition. Despite strict adherence to medical nutrition therapy and clinical use of multiple medical options, patients continue to have frequent hypoglycemia. While hypoglycemia most commonly occurs following meals, it can also occur in response to increased activity and emotional stress. Importantly, patient safety is additionally compromised when hypoglycemia unawareness develops with recurrent hypoglycemia. We believe there is an urgent need for therapeutic options to allow optimal nutrition, maintain health and quality of life and improve safety in patients with PBH.

Because episodes of hypoglycemia normally occur in the ambulatory setting, the reported prevalence of PBH varies, but we estimate that roughly 1% to 2% of bariatric surgery patients experience PBH. As bariatric procedures have been performed for over ten years, based on our analysis of market research, we estimate a standing population of approximately 85,000 patients who fail meal time nutritional therapy and experience PBH in the United States and require additional treatment options. A similar size patient population is estimated to exist in Europe. Depending on the severity of their condition, these patients may require chronic episodic administration of glucagon ranging from multiple times a month to multiple times a day.

Xeris Offering–Ready-to-Use Glucagon for PBH

We have developed a ready-to-use glucagon formulation that can be easily and quickly injected or infused subcutaneously from a syringe, pen or pump. Injection of small doses of our liquid-stable glucagon after meals may offer a novel mechanism for PBH patients to treat or prevent hypoglycemia. Importantly, these smaller and more physiologic doses are designed to prevent rebound hyperglycemia associated with glucose tablets, carbohydrate intake and rescue doses of glucagon. Further, small doses of glucagon may offer a direct treatment mechanism for

 

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PBH, as opposed to indirect methods aimed at preventing hypoglycemia that are currently employed using various off-label therapeutic options.

Primary market research has shown endocrinologists are comfortable with glucagon’s mechanism of action and current safety profile and view ready-to-use glucagon as a welcome treatment option for PBH patients. Physicians surveyed reported ready-to-use glucagon utilization of 68% to 97% if the product can prevent half of severe hypoglycemic events in PBH patients.

As there are currently no therapeutic options indicated for treatment of PBH and the condition has been designated a rare disease, we believe that payors will include our ready-to-use glucagon on their formularies, if approved. We intend to conduct additional payor research as product development progresses.

From 2015 to 2017, the NIH National Institute of Diabetes and Digestive and Kidney Diseases awarded us $1.78 million in Fast-Track Small Business Innovation Research, or SBIR, grants to demonstrate the potential benefits of ready-to-use glucagon in these patients. Collaborators on this grant include endocrinologists at the Joslin Diabetes Center and device engineers at the Harvard University John R. Paulson School of Engineering and Applied Science.

Clinical Experience

We have completed seven preclinical studies in multiple species, a proof-of-concept clinical trial and a randomized controlled Phase 2a clinical trial for our ready-to-use glucagon for PBH. A new IND application for self-administration of our ready-to-use glucagon with a vial/syringe went into effect on October 19, 2018. This IND authorized us to initiate a new Phase 2 trial evaluating our ready-to-use, room-temperature stable liquid glucagon formulation for patients who experience hyperinsulinemic hypoglycemia after bariatric surgery. We commenced this clinical trial in the second half of 2018 and expect top-line results in the first half of 2019. We expect the results from this trial will help enable the evaluation of ready-to-use glucagon in a future Phase 3 clinical trial using a vial/syringe in an outpatient setting.

Phase 2 Clinical Trials

XSGO-PB01: A Phase 2 Proof-Of-Concept Study of Sensor Guided, Clinician-Administered Delivery of Glucagon Infusion from a Patch Pump to Prevent Post-Prandial Hypoglycemia in Post-Bariatric Surgery Patients

In 2017, we conducted an iterative design-and-evaluation Phase 2 clinical trial to assess the performance of a novel event-based hypoglycemia prediction algorithm that triggered delivery of mini-doses of ready-to-use glucagon from a patch-pump. For the trial, which was conducted from the first quarter of 2016 through the second quarter of 2017, we recruited seven patients 18 to 65 years of age with a history of RYGB surgery and PBH with neuroglycopenia who were uncontrolled on medical nutrition therapy and medications. In the inpatient setting, subjects received a mixed-meal tolerance test, which is known to cause hypoglycemia in these patients. Upon receipt of an alarm based on continuous glucose monitor data, subjects were given small, subcutaneous infusions of ready-to-use glucagon from a pump, with the aim of preventing hypoglycemia. The primary endpoint of this study was to investigate the ability of the patch-pump to detect and direct timing of glucose administration. The secondary endpoint of this study was to investigate the safety profile of this product candidate.

Ready-to-use glucagon bolus through the infusion pump was observed to rapidly raise serum glucagon levels, and the doses employed were not associated with increased insulin or C-peptide concentrations. Nadir glucose and time spent under 75 mg/dL in the period after the glucagon bolus were reduced progressively with each new stage of protocol development, which involved either earlier hypoglycemia alarms or larger glucagon doses. All seven patients successfully completed nine treatment visits in this trial. Results showed the treatment to be well-tolerated, with discomfort at the infusion site and erythema the most frequent adverse events, and no SAEs.

Since this was the first implementation of the ready-to-use glucagon formulation in mini-doses in PBH, the dosage was chosen with caution to prevent rebound hyperglycemia that has been observed with use of rescue doses of glucagon. Using these results, we determined the dosage required to effectively prevent hypoglycemic events in the postprandial setting. The results of this trial were published in the peer-reviewed journal Diabetes Technology & Therapeutics.

 

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XSGO-PB02: Closed-Loop Glucagon Pump for Treatment of Post-Bariatric Hypoglycemia

Following the positive proof-of-concept outcome of XSGO-PB01, in the fourth quarter of 2017, we initiated a randomized, placebo-controlled, double-blind Phase 2 clinical trial to assess the efficacy of ready-to-use glucagon to prevent and treat hypoglycemia occurring in patients with PBH in response to meals. The primary objective of this trial was to investigate the efficacy of our closed-loop glucagon pump for PBH measured by real-time continuous glucose monitoring, or CGM. Secondary objectives included safety and tolerability. Following a mixed-meal tolerance test, or MTT, subjects were randomized to either placebo or glucagon infusion on the first study visit and crossed-over to the other treatment during the second treatment visit. Investigators were masked to subject assignment. In study visits, a MMT was employed, and then subjects were treated based on CGM based measurements of subject blood glucose. The subject was treated with the study drug (Ready-to-use glucagon or placebo) at a dose of 300 mcg followed by 150 mcg if needed. Of 12 subjects that completed the trial, seven experienced severe hypoglycemia in response to MMT. Ready-to-use glucagon effectively treated hypoglycemia in comparison to placebo (p = 0.0082 glucagon vs. placebo). Rescue glucose was needed in 7 of 7 visits for subjects who received placebo and 0 of 7 visits for subjects who received ready-to-use glucagon. Both treatments were well tolerated with no reported SAEs. An abstract of these study results has been submitted to a clinical diabetes meeting for presentation in the first half of 2019.

This randomized controlled trial data supported the new IND and informed the design of our ongoing Phase 2 clinical trial using a vial/syringe to evaluate ready-to-use glucagon in PBH.

XSGR-PBH-201: A Phase 2, Interventional, Randomized, Double-Blind, Placebo-Controlled Pilot Study of Glucagon RTU in Subjects Who Experience Hyperinsulinemic Hypoglycemia After Bariatric Surgery

Following our IND authorization in October, we initiated a new Phase 2 clinical trial at six clinical research centers in North America. This study is a randomized, placebo-controlled, double-blind, two-treatment, two-period, crossover comparison in a CRC setting followed by a randomized, placebo-controlled, double-blind, two arm parallel comparison in the outpatient setting. The purpose of the trial is to evaluate the logistics of implementing an efficacy and safety study of ready-to-use glucagon, or Glucagon RTU, via vial/syringe to treat symptomatic postprandial hypoglycemia in subjects with PBH. It will also collect safety and efficacy information to help inform a future Phase 3 clinical trial.

During the CRC stage, subjects will undergo two high-carbohydrate, solid/liquid-meal tests. After each meal, subjects will self-administer blinded study drug (Glucagon RTU 300 mcg or placebo) when any postprandial autonomic symptom is experienced or hypoglycemia is confirmed with a blood glucose measurement < 70 mg/dL by blood glucose meter. After CRC study-related procedures are completed, subjects will enter the 12-week outpatient stage. The subjects will be discharged home with their assigned study drug: Glucagon RTU 300 mcg or placebo. Subjects also will be trained to self-administer their assigned study treatment, i.e., dose study drug with the presence of any postprandial autonomic symptoms or a blood glucose measurement < 70 mg/dL. During postprandial hyperinsulinemic hypoglycemia episodes, the trial will evaluate plasma glucose recovery (i.e., blood glucose (BG) ³ 70 mg/dL) at 15 minutes after dosing with Glucagon RTU and placebo. Safety, tolerability and quality-of-life will also be assessed. The trial will comprise 12 evaluable subjects. We expect top-line results from this trial in the first half of 2019.

Ready-to-Use Glucagon for Congenital Hyperinsulinism

We are evaluating our ready-to-use glucagon formulation for chronic management of congenital hyperinsulinism, for which there are currently no approved therapies. In the United States, 80 to 160 infants are born with CHI on an annual basis. We estimate that there are approximately 6,200 patients with CHI in the United States. In September 2014, we received orphan drug designation from the FDA for ready-to-use glucagon for the prevention of chronic, severe hypoglycemia in patients with CHI. In October 2014, we also received orphan drug designation from the EMA for ready-to-use glucagon for the treatment of CHI. We recently concluded a Phase 2 proof-of-concept trial and held an end of Phase 2 meeting with the FDA in December 2018. We plan to incorporate feedback from our meeting with the FDA into our Phase 3 clinical development program.

Congenital Hyperinsulinism Market

CHI is the result of several genetic defects that present as dysregulated increased insulin secretion, causing severe, persistent hypoglycemia in infants and children. CHI often responds poorly or not at all to current medical

 

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approaches and can sometimes lead to surgical removal of the pancreas, or near-total pancreatectomy. In CHI, microscopic abnormalities in the pancreas can result in prolonged severe hypoglycemia which, if untreated, can cause death. Repeated episodes of severe and prolonged hypoglycemia, even if not fatal, can result in permanent neurologic damage, including developmental delay, mental retardation and focal central nervous system deficits.

Management of CHI is aimed at preventing morbidity associated with repeated hypoglycemic episodes, including permanent brain damage, as well as mortality. Currently, there are no approved drugs for CHI. While limited treatment options are available, they have marginal efficacy, are poorly tolerated by patients and negatively impact quality of life. Often, severe cases of CHI are resistant to diazoxide due to the type of genetic mutation. Other drugs, such as octreotide, have been used to reduce insulin secretion but may be ineffective in maintaining normal blood sugar and may cause substantial side effects.

Pancreatectomy is an option if a solitary focal lesion in the pancreas can be identified and surgically removed, typically resulting in a cure without the need for medication or continuous feedings. However, if the disease is not localized, near-total pancreatectomy would be required. Patients who undergo near-total pancreatectomy are at high risk for developing insulin-dependent diabetes later in life. This risk increases with the extent of pancreatic removal, but the risk is significant even with conservative surgical procedures. The use of pancreatectomy oftentimes addresses CHI but creates another chronic condition, insulin-dependent diabetes.

Xeris Offering—Continuous Subcutaneous Infusion of Ready-to-Use Glucagon

If approved, we believe our ready-to-use glucagon would enable safe, continuous administration of glucagon from a pump to manage CHI. IV glucagon is routinely used in the hospital and in conjunction with IV glucose to stabilize blood glucose levels in affected infants, but the IV must be changed every 24 hours or less due to the instability of glucagon in aqueous solution. The use of glucagon has historically been limited due to the lack of a stable formulation and convenient delivery system for long-term administration, especially in the home setting where a central catheter is impractical and a gastronomy-tube is cumbersome.

We believe that the continuous subcutaneous infusion of ready-to-use glucagon, if approved, is superior to the use of off-label drugs because ready-to-use glucagon:

 

   

Offers a direct effect of increasing glucose levels compared to indirect mechanisms of glucose control.

 

   

Enables release of patient’s excess glycogen stores.

 

   

Avoids the side effects related to octreotide, nifedipine and diazoxide.

In addition, we believe that the continuous subcutaneous infusion of ready-to-use glucagon, if approved, is superior to the use of infused glucose because ready-to-use glucagon:

 

   

Provides an approach to wean the patient off a central glucose line, such as an IV, to enable discharge from the hospital.

 

   

Eliminates bloating observed with the high-volume glucose infusions often required to maintain normal blood glucose levels.

Finally, we believe that the continuous subcutaneous infusion of ready-to-use glucagon, if approved, is superior to pancreatectomy, because patients may be able to avoid the development of insulin-resistant diabetes as a lifetime condition. CHI patients who progress to adolescence typically normalize or at least no longer require intensive medical management. We believe that avoiding pancreatectomy is likely the most impactful result of management of CHI with ready-to-use glucagon.

In the short-term inpatient setting, we believe our ready-to-use formulation may enable administration of glucagon from a small, wearable, infusion pump. In the long term, we believe the glucagon pump system may enable outpatient administration of glucagon for prevention of hypoglycemia. We expect most patients that are candidates for ready-to-use glucagon would use the product until mid-adolescence and transition out of the standing patient pool.

There are currently no therapeutic options indicated for treatment of CHI, and current standard of care involves near-total pancreatectomy or use of multiple off-label therapeutics. We believe payors will include our ready-to-use

 

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glucagon on their formularies because CHI is a rare pediatric disease and ready-to-use glucagon has the potential to reduce time spent in the NICU, avoid expensive pancreatectomies, as well as avoid the long-term costs associated with diabetes treatment resulting from pancreatectomy. We intend to conduct additional payor research as product development progresses.

From 2015 to 2017, we were awarded $2.1 million in SBIR grants from the NIH National Institute of Diabetes and Digestive and Kidney Diseases to initiate clinical studies in infant patients with CHI.

Clinical Experience

We recently concluded enrollment in a Phase 2 proof-of-concept randomized controlled clinical trial and previously completed a number of preclinical studies in multiple species that we are leveraging for all of our intermittent and chronic glucagon programs.

XSGO-CH01: A Phase 2 Proof-of-Concept Study of CSI Glucagon (Continuous Subcutaneous Glucagon Infusion) to Prevent Hypoglycemia with Lower Intravenous Glucose Infusion Rates in Children up to One Year of Age with Congenital Hyperinsulinism

XSGO-CH01 was a Phase 2, multi-center, randomized, placebo-controlled, double-blind trial with open-label follow up designed to assess the efficacy of CSI Glucagon delivered with a patch pump as a subcutaneous continuous infusion to prevent hypoglycemia with lower IV glucose infusion rates, or GIRs, in patients less than one year of age with congenital hyperinsulinism. The trial had a target enrollment of 24 subjects, with a built-in interim analysis after 12 subjects. However, only five subjects were enrolled over 23 months. In consultation with the lead study investigator at Cook Children’s Medical Center, we concluded enrollment in September 2018 and analyzed available results. A total of five subjects were screened for inclusion and enrolled in the study (intent-to-treat). Subjects began in a baseline phase to stabilize GIR. Subjects were then randomized into a 2-day blinded treatment period, followed by an open label treatment period for up to 28 days. All subjects completed all three study periods with no adverse events observed. In this trial, CSI Glucagon within the tested dose range was observed to directly reduce GIR to a large and clinically meaningful extent (44%-66%) when used as a sole therapy. A summary of these results is provided in the following table:

Glucose Infusion Rate Response in Study XSGO-CH01

 

 

 

PER PROTOCOL

(4 SUBJECTS)

  

BASELINE
STABILIZATION

   RANDOMIZED BLINDED
TREATMENT

(PLACEBO)
   RANDOMIZED BLINDED
TREATMENT

(CSI GLUCAGON)
   OPEN-LABEL
CSI-GLUCAGON
(CSI GLUCAGON)
Stable GIR    5/5a    0/2    2/2    4/4

GIR Response

(reduction ³ 20% at 24 hrs.)

   N/A    1/2    2/2    N/A

GIR Response

(reduction ³ 33% at 48 hrs.)

   N/A    0/2    2/2    4/4b

GIR change

(range)

   N/A    31% reduction, to
34% increase
   53%-65%
reduction
   44%-66%
reduction

 

 

 

a:   The first enrolled subject, 01-01, was not deemed evaluable for responsive to glucagon based upon prior history of glucagon resistance, per investigator. Selection criteria were changed after this first patient enrollment to exclude glucagon resistance.

 

b:   Treatment time varied from 4-52 hours.

CSI glucagon was well tolerated in this trial. There were no reported AEs, no skin reactions and no other negative treatment effects associated with study drug administration. CSI glucagon was well tolerated within the dose range of 5-20 µg/kg/hr. Furthermore, there were no reports of occlusions, leakage or other pump issues in the trial, or any instances of severe hypoglycemia during pump change-out.

 

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Based on the results generated in this study, we believe CSI Glucagon has the potential to be used in an outpatient setting by caregivers following adequate training, if approved. In XSGO-CH01 CSI Glucagon within the tested dose range was observed to directly reduce GIR to a large and clinically meaningful extent (44%-66%) when used as a sole therapy. Given the distinct mechanism of action from other treatments for CHI, CSI Glucagon has the potential to serve as a complementary therapy with other available therapies. We believe the short-term positive treatment effects observed in the Phase 2 study support our efforts to evaluate CSI Glucagon in the context of a Phase 3 outpatient study, which we are designing in accordance with feedback we received from the FDA during our December 2018 end of Phase 2 meeting.

Ready-to-Use Glucagon for Hypoglycemia-Associated Autonomic Failure

We are evaluating our ready-to-use glucagon for HAAF, a condition for which there are currently no therapeutic options. We have initiated a Phase 2a clinical trial from which we expect to obtain top-line results in the second half of 2019. If clinical development is successful, we expect to submit a NDA under the 505(b)(2) pathway for FDA review.

Hypoglycemia-Associated Autonomic Failure Market

Typically, a decrease in plasma glucose below the normal range triggers defensive counter-regulatory responses that restore blood sugars. However, individuals with HAAF have defects in that counter-regulatory response. These individuals do not experience the physiological symptoms of worsening hypoglycemia and are at risk of being unaware of an impending severe hypoglycemic event. Chronic hypoglycemia is thought to lead to this defective glucose counter-regulation and hypoglycemia unawareness. The lack of awareness of an oncoming hypoglycemic event may result in the inability to treat or prevent it, creating a vicious cycle of recurrent hypoglycemia and possibly leading to the sudden onset of severe hypoglycemia, putting patients at risk for severe hypoglycemia, neuroglycopenia, seizure, coma and, if left untreated, death. As such, hypoglycemia unawareness is a major concern for this subset of people with T1D and T2D and their caregivers.

The figures below depict the effect of hypoglycemic unawareness where symptoms do not signal corresponding blood glucose.

 

LOGO

It has been shown that the autonomic response and awareness of hypoglycemia can be restored with scrupulous avoidance of hypoglycemia for two to three weeks. However, this restoration can currently only be achieved with intensive diet and behavior modification, which we believe results in low participation and success rates.

Based on our research, we estimate that approximately 20% of people with T1D and 14% of people with T2D (primarily those on insulin) have HAAF. In primary market research, physicians indicated approximately half of patients with some form of HAAF are moderately to severely affected. However due to the need for better diagnosis procedures and guidelines for HAAF, the physicians surveyed also reported that they currently expect approximately 40% and 50% under-diagnosis rates of HAAF in people with T1D and T2D, respectively. We believe there is a critical unmet need for a therapeutic treatment for insulin deficient diabetes patients with HAAF.

 

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Xeris Offering—Continuous Subcutaneous Infusion of Ready-to-Use Glucagon

We are developing a novel continuous subcutaneous glucagon infusion system incorporating our ready-to-use, liquid-stable glucagon formulation with an infusion pump. Continuous subcutaneous infusion of ready-to-use glucagon could be used to avoid hypoglycemia during a three- to four-week period to restore autonomic response and hypoglycemia awareness. Combined with patient training, the treatment may result in a significant long-term reduction in hypoglycemia rates post-intervention, particularly of severe hypoglycemia. If approved, we believe our ready-to-use glucagon has the potential to be the first product designed to prevent hypoglycemia for extended periods of time to enable re-establishment of hypoglycemia awareness and treat HAAF. We believe our ready-to-use glucagon, if approved, could provide substantial therapeutic benefit to patients who suffer from severe hypoglycemic events and are taken to the emergency room multiple times per year.

The use of glucagon to treat this condition has been hampered due to the lack of a room-temperature stable liquid glucagon formulation and a convenient delivery system for continuous administration. Attempts at off-label treatment with current emergency glucagon products require reconstitution of freeze-dried glucagon powder, and the drug chamber and infusion set would likely require replacement at least every 24 hours due to the instability of glucagon in aqueous solution.

There are currently no therapeutic treatment options for HAAF. However, since at least some payors currently cover diabetes coaching and training services conducted by certified diabetes educators, which are often used to help treat or manage HAAF, we believe payors will cover ready-to-use glucagon if we can demonstrate reversal of hypoglycemia unawareness. We intend to conduct additional payor research as product development progresses.

Clinical Experience

We have initiated a Phase 2a proof-of-concept randomized controlled clinical trial and have successfully completed a number of preclinical studies in multiple species that we are leveraging in our intermittent and chronic glucagon programs.

Ongoing Phase 2 Clinical Trial

XSGO-AF01: Fixed Rate Continuous Subcutaneous Glucagon Infusion (CSGI) vs Placebo in Type 1 Diabetes Mellitus Patients with Recurrent Severe Hypoglycemia: Effects On Counter Regulatory Responses to Insulin Induced Hypoglycemia

XSGO-AF01 is a prospective, randomized, controlled, double-blind, parallel four-group trial with the primary analysis after four weeks of treatment with continuous subcutaneous glucagon infusion, or CSGI, or placebo. After a one-week qualification on CGM, subjects will have their baseline hypoglycemia counter-regulatory response hormones quantified using a step-wise hypoglycemia induction procedure. Subjects meeting eligibility requirements will be randomized to one of four treatment groups, two glucagon, two placebo. Subjects will receive blinded study drug for four weeks, and they will be followed for an additional 26 weeks post-treatment. Subjects’ counter-regulatory hormone response will be measured at baseline, the end of treatment (four weeks), and 13 and 26 weeks after treatment ends. We are conducting the trial at six sites in the United States and expect top-line results from 48 subjects in the second half of 2019. We expect data from this Phase 2a clinical trial to help outline pivotal study endpoints and inform a discussion with the FDA.

Ready-to-Use Glucagon for Exercise-Induced Hypoglycemia in Diabetes

We are evaluating our ready-to-use glucagon and plan to initiate an additional Phase 2 clinical study in the first half of 2019 for EIH, for which there are currently no approved therapies. Based on these results and previous data, we intend to discuss our registration pathway with FDA in the second half of 2019. In November 2013, we filed an IND application for the use of mini-dose ready-to-use glucagon for EIH. We are the sponsor of this IND, which is active as of the date of this prospectus.

Exercise-Induced Hypoglycemia in Diabetes Market

Exercise-induced hypoglycemia and the complexity of management aimed at its prevention represent major barriers to the adoption of regular physical activity for many individuals with diabetes treated with insulin. Although carbohydrate ingestion, including oral glucose tablets, can help ameliorate hypoglycemia, patients’ carbohydrate requirements can be as high as 1 gram per minute of exercise, which can be counterproductive to weight management. Aerobic exercise, in particular, often results in a significant drop in blood glucose concentrations. Qualitative feedback has shown that the challenges in current exercise management strategies and the need to

 

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consume carbohydrates is frustrating and may lead to minimized or complete omission of exercise for many patients. People with diabetes who use insulin are at risk of EIH. We believe there is a subset of these individuals that exercises at least three times per week per current guidelines, and who could potentially use a mini-dose of ready-to-use glucagon each time they exercised. If approved, our ready-to-use glucagon would represent a significant market opportunity in the treatment for EIH.

Xeris Offering—Mini-doses of Ready-to-Use Glucagon for Treatment of EIH

We are developing a mini-dose of our ready-to-use, liquid-stable glucagon and have observed appropriate dose-dependent PK and PD responses when administered subcutaneously at doses of 75, 150 and 300 µg in adults with T1D. Our previous proof-of-concept study demonstrated that 150 µg of this mini-dose glucagon corrected