Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.05pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.37pp
Lean -
Net-tone change vs last year's 10-K.
MD&A
+0.47pp
Lean +
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adverse+18
failure+12
harm+11
penalties+9
fail+9
Positive rising
profitability+8
successfully+6
successful+6
benefit+6
collaborations+4
Risk Factors (Item 1A)
15,299 words
Item 1A. Risk Factors
This report contains forward-looking statements that involve risks and uncertainties. The occurrence of any of the risks described below and elsewhere in this document could materially adversely affect our business, financial condition, liquidity, operating results or prospects and the trading price of our securities. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also harm our business, financial condition, liquidity, operating results and prospects and the trading price of our securities.
Risk Factor Summary
Risks Related to Our Business
• We are currently a single product company and have limited experience in generating revenue from product sales, and our ability to generate future revenue and achieveprofitability will depend on several factors, including the successful commercialization of VONJO. We expect to continue to incur net losses, and we may never achieveprofitability.
• We depend on a limited number of customers for a significant amount of our revenue, and if we any of our significant customers, our business could be . Further, we are dependent on third-party service providers for a number of operational activities. Any or in these actions by third parties could our business.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
unable+1
termination+1
against+1
force+1
terminated+1
Positive rising
effective+3
satisfy+1
stabilize+1
MD&A (Item 7)
5,431 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, future financial performance, expense levels and liquidity sources, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a commercial biopharmaceutical company focused on the acquisition, development and commercialization of novel targeted therapies for blood-related cancers where there is a significant unmet medical need. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with partners. We have one commercially approved product, VONJO ® (pacritinib), which has received Accelerated Approval in the United States from the U.S. Food and Drug Administration, or the FDA, for the treatment of adult patients with intermediate or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis with a platelet count below 50 x 10 9 /L.
• We face direct and intense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfullyagainst them. Our competitive position and the success of our business also depends on our ability to recruit, retain, integrate and motivate senior management, other key personnel and directors, and on such persons’ ability to perform effectively.
• Failure to comply with regulatory requirements or unanticipatedproblems with VONJO may result in adverse actions such as the suspension or withdrawal of VONJO, closure of a facility or enforcement of substantial penalties or fines.
• We will need to raise additional funds to operate our business, but additional funds may not be available on acceptable terms, or at all. Any inability to raise required capital when needed could harm our liquidity, financial condition, business, operating results and prospects.
• We are party to a loan and security agreement that contains operating and financial covenants that may restrict our business and financing activities and we may be required to repay the outstanding indebtedness in an event of default, which could have a material adverse effect on our business.
• If we are unable to in-license or acquire additional product candidates, our future product portfolio and potential profitability could be harmed. Further, we may incur a variety of costs for, and may never realize the anticipated benefits of, acquisitions, collaborations or other strategic transactions. We may encounter other difficulties in managing our expected growth and in expanding our operations successfully.
• We may in the future have significant inventory levels of drug products, and write-downs related to the impairment of those inventories may adversely impact our profitability.
• We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents or data breaches, could harm us. We are also subject to stringent and evolving obligations related to data privacy and security. Any actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, a disruption of our business operations, reputational harm and other adverse business consequences.
Risks Related to the Development and Commercialization of Our Product Candidates
• If the market opportunities for VONJO are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer. The commercial success of any current or future product will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community. Further, the insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for VONJO or any future products could limit our ability to market those products and decrease our ability to generate revenue.
• If we fail to develop our current and any future product candidates for additional indications, our commercial opportunity will be limited. Further, if development and commercialization collaborations we enter into are not
successful, or if we are unable to enter into additional collaborations, we may not be able to effectively develop and/or commercialize our compounds, which could have a material adverse effect on our business.
• Drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results. We may be required to suspend, repeat or terminate clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive, or the trials are not well-designed. In addition, we are subject to extensive post-approval or authorization regulatory requirements, including labeling and promoting requirements and post-marketing confirmatory trials as a condition of receiving Accelerated Approval for VONJO, and any failure to satisfy such ongoing obligations or unanticipatedproblems with any of our drugs that receive regulatory authorization could negatively affect our business.
• The commercial use of VONJO and any future products may cause unintended side effects or adverse reactions, or incidents of misuse may occur, which could adversely affect our business. We face potential product liability exposure, and if successfulclaims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
• We are subject to numerous laws and regulations related to health care fraud and abuse, falseclaims, anti-bribery and anti-corruption laws, such as the U.S. Anti-Kickback Statute and the FCPA, in which violations of these laws could result in substantial penalties and prosecution.
Risks Related to Our Intellectual Property
• If any of our license agreements for intellectual property underlying our product candidates are terminated, we may lose the right to develop or market that product candidate.
• We hold rights under numerous patents that we have acquired or licensed or that protect inventions originating from our research and development, and the expiration of any of these patents would enable our competitors to use the inventions that are the subject of such patents in competition with us. Further, patent litigation is widespread in the pharmaceutical and biotechnology industry. If we fail to adequately protect our intellectual property, our competitive position and the potential for long-term success could be harmed.
Risks Related to Our Common Stock
• The market price of shares of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of your investment in our securities to sudden decreases.
• Future financing, strategic and other activities may require us to increase the number of authorized shares in our certificate of incorporation. An inability to secure requisite stockholder approval for such increases could materially and adversely impact our ability to fund our operations. Further, raising additional capital could cause you to incur dilution and could cause the market price of our common stock to fall.
General Risk Factors
• Unfavorable global economic conditions, whether brought about by global crises, health epidemics, military conflicts and war, geopolitical and trade disputes or other factors, may have a material adverse effect on our business and financial results.
Risks Related to Our Business
We expect to continue to incur net losses, and we may never achieveprofitability.
We were incorporated in 1991 and have incurred a net operating loss every year since our formation. As of December 31, 2022, we had an accumulated deficit of $2.5 billion, and we expect to continue to incur net losses. As part of our business plan, we must continue to successfully commercialize our one product approved for commercialization, VONJO, continue to conduct research, development, testing and regulatory compliance activities with respect to pacritinib for additional indications and ensure the procurement of manufacturing and drug supply services for our commercial and drug development efforts, the costs of which, together with projected general and administrative expenses, is expected to result in operating losses for the foreseeable future. There can be no assurances that we will ever achieveprofitability.
We are currently a single product company and have limited experience in generating revenue from product sales, and our ability to generate future revenue and achieveprofitability will depend on several factors, including the successful commercialization of VONJO.
We have one product approved for commercial sale, VONJO, which received Accelerated Approval on February 28, 2022 from the FDA in the United States for the treatment of adult patients with intermediate or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis with a platelet count below 50 x 10 9 /L. VONJO is the only product for which we currently receive product revenue, and we expect VONJO to constitute the vast majority of our product revenue for the foreseeable future. Given that we are dependent on a single product, we do not have the ability to spread out risk of commercial fluctuations across a portfolio of products, and VONJO may not remain in the market for a number of reasons, including ineffectiveness, harmful side effects, difficulty in scaling manufacturing, political and legislative changes, or competition from existing or future alternatives. Further, we currently have limited commercialization expertise, including sales, marketing, distribution, or market access and reimbursement capabilities. As a result, our ability to generate significant revenue from product sales and achieveprofitability depends heavily on our success in many areas, including, but not limited to:
• continuing to develop sustainable manufacturing processes for VONJO and maintaining raw material supplies, product supply and manufacturing relationships with third parties that can conduct the processes and provide adequate (in amount and quality) product supply to support market demand for VONJO;
• continuing to successfully commercialize VONJO;
• developing and obtaining regulatory and marketing approvals necessary to commercialize pacritinib for other indications;
• obtaining adequate market share, reimbursement and pricing for VONJO;
• generating and disseminating new data analyses and the consistency of any new data with prior results, whether they support a favorable safety, efficacy and effectiveness profile of our products and any potential impact on our FDA Accelerated Approval status;
• our ability to timely comply with FDA post-marketing requirements and commitments, including through successfully conducting additional studies that confirm clinical efficacy, effectiveness and safety of our products and acceptance of the same by the FDA and medical community, as continued approval may be contingent upon verification of a clinical benefit in confirmatory trials;
• our ability to find patients so they can be diagnosed and begin receiving treatment;
• addressing any competing technological and market developments;
• negotiating favorable terms, including commercial rights, in any collaboration, licensing, or other arrangements into which we may enter, any amendments thereto or extensions thereof;
• maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and
• attracting, hiring, and retaining qualified personnel.
Further, obtaining regulatory approval requires substantial time, effort and financial resources, and without additional financing, we lack sufficient resources to pursue the development of pacritinib. Other than our Credit Agreement with Drug Royalty III LP 2, or DRI, we currently have no commitments or arrangements for any significant additional financing to fund the development of pacritinib for additional indications, and we will need to seek additional funding, which may not be available or may not be available on favorable terms. We could also seek another collaborative partnership for the additional development and commercialization of pacritinib, which may not be available on reasonable terms or at all. If we further partner pacritinib, we may have to relinquishvaluable economic rights and would potentially forgo additional economic benefits that could be realized if we continued the development and commercialization activities alone.
Our costs and expenses associated with commercializing VONJO could increase beyond expectations if we are required by the FDA or other regulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of post-approval studies in addition to those that we currently anticipate. Our revenue from sales of VONJO will be dependent, in part, upon market size, the accepted price for the product, the approved indication(s), and the ability to obtain reimbursement at any price. If the number of our addressable patients is not as significant as we estimate or
the reasonably accepted population for treatment is narrowed by competition, physician choice, or treatment guidelines, we may not generate significant revenue from sales of VONJO. VONJO is the first product that we have launched and commercialized, and there is no guarantee that we will be able to do so successfully. There are numerous examples of unsuccessful product launches and failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than we have.
We depend on a limited number of customers for a significant amount of our revenue, and if we lose any of our significant customers, our business could be harmed.
The majority of our revenue comes from a limited number of specialty distributor and specialty pharmacy companies. We expect that revenue from a limited number of customers will continue to account for a large portion of our revenue in the future. See Part II, Item 8, “Notes to Financial Statements - Note 1. Description of Business and Summary of Significant Accounting Policies - Concentrations of Credit Risk and Uncertainties ” for additional details. The loss by us of any of these customers, or a material reduction in their purchases or their marketing pricing, could harm our business, results of operations, financial condition and prospects. In addition, if any of these customers were to fail to pay us in a timely manner, it could harm our cash flow.
We face direct and intense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfullyagainst them.
Competition in the oncology market is intense and is accentuated by the rapid pace of technological and product development. We anticipate that we will face increased competition in the future as new companies enter the market. Our competitors in the United States and elsewhere are numerous and include, among others, major multinational pharmaceutical companies, specialized biotechnology companies and universities and other research institutions. See “Part I, Item 1, “Competition” in this Annual Report on Form 10-K for information on our specific competitors. In addition to the specific competitive factors discussed above, new anti-cancer drugs or drugs for the treatment of COVID-19 that may be under development or developed and marketed in the future could compete with our various compounds.
Many of our competitors, particularly multinational pharmaceutical companies, either alone or together with their collaborators, have substantially greater financial and technical resources and substantially larger development and marketing teams than us, as well as significantly greater experience than we do in developing, commercializing, manufacturing, marketing and selling products. As a result, products of our competitors might come to market sooner or might prove to be more effective, less expensive, have fewer side effects or be easier to administer than ours. In any such case, sales of any potential future product would likely suffer and we might never recoup the significant investments we have made and will continue to make to develop and market these compounds.
Failure to comply with regulatory requirements or unanticipatedproblems with VONJO may result in various adverse actions such as the suspension or withdrawal of VONJO, closure of a facility or enforcement of substantial penalties or fines.
Regulatory agencies will subject VONJO and any other marketed product(s), as well as the manufacturing facilities, to continual review and periodic inspection. For example, the Accelerated Approval for VONJO was based on efficacy results from our pivotal Phase 3 PERSIST-2 study of VONJO in patients with myelofibrosis (platelet counts less than or equal to 100 x 10 9 /L). VONJO, and any other marketed product(s), will be subject to ongoing FDA requirements governing labeling, packaging, storage, advertising, promotion and recordkeeping, and we are required to submit additional safety, efficacy and other post-marketing information to the FDA.
Under the Accelerated Approval pathway, continued approval may be contingent upon verification of a clinical benefit in confirmatory trials. To fulfill this post-approval requirement for VONJO, we plan to complete the PACIFICA confirmatory trial. These trials are expensive and time-consuming and may not confirm such benefit. If a confirmatory trial does not verify clinical benefit for an indication, we may have to withdraw our Accelerated Approval for that indication. If any of these outcomes occur, either to VONJO or to any future product candidates for which we may seek marketing approval, we may be forced to abandon our development efforts for VONJO or such future product candidates, which could significantly harm our business. These and other post-approval requirements and commitments may not be feasible and/or could impose significant burdens and costs on us; could negatively impact our development, manufacturing and supply of our products; and could negatively impact our financial results. Failure to meet post-approval commitments and requirements, including completion of enrollment and, in particular, any failure to obtain positive safety and efficacy data from our ongoing and planned studies of VONJO and any other marketed product(s), would lead to negative regulatory action from the FDA and/or withdrawal of regulatory approval of VONJO.
Moreover, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. Drug product manufacturers are required to
continuously monitor and report adverse events from clinical trials and commercial use of the product. Further, sponsors of drugs approved under FDA Accelerated Approval provisions also are required to submit to the FDA, at least 30 days before initial use, all promotional materials intended for use after the first 120 days following marketing approval. If we fail to comply with these or any other applicable regulatory approval requirements, such as the requirement to demonstrate a clinical benefit for VONJO in a confirmatory trial, or if previously unknown problems with a product or with regulatory requirements are discovered, such as adverse events of unanticipatedseverity or frequency, serious or unexpected side effects or other safety risks, or problems with a manufacturing process or laboratory facility, a regulatory agency may impose restrictions or penalties on that product or on us. Such restrictions or penalties may include, among other things:
• restrictions on the marketing or manufacturing of the product, the withdrawal of the product from the market or product recalls;
• warning letters or holds on clinical trials;
• refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of approvals;
• product seizure or detention, or refusal to permit the import or export of our product candidates; and
• closure of the facility, enforcement of substantial fines, injunctions, or the imposition of civil or criminalpenalties.
We will need to raise additional funds to operate our business, but additional funds may not be available on acceptable terms, or at all. Any inability to raise required capital when needed could harm our liquidity, financial condition, business, operating results and prospects.
We have substantial operating expenses associated with the commercialization of VONJO and the development of pacritinib in other indications, and we have significant contractual payment obligations under our debt arrangements. In addition, we believe that our present financial resources will be sufficient to fund our operations at least through the fourth quarter of 2023. This raises substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued, and we will need to raise additional capital in the near term in order to fund our operations through and beyond the first quarter of 2024 and to continue as a going concern thereafter. See Part II, Item 8, Notes to Financial Statements, Note 1 of this Annual Report on Form 10-K for additional information on our assessment of our ability to continue as a going concern. Uncertainty regarding our ability to continue as a going concern could also have a material and adverse impact on the price of our common stock, which could negatively impact our ability to raise sufficient funds for our operations and continue as a going concern. In addition, cash forecasts and capital requirements are subject to change as a result of a variety of risks and uncertainties. Developments in and expenses associated with our commercialization activities and with our clinical trials and other research and development activities may consume capital resources earlier than planned. Due to these and other factors, forecasts for any periods in which we indicate that we expect to have sufficient resources to fund our operations, as well as any other operational or business projection we have disclosed, or may disclose, may not be achieved.
We will need to acquire additional funds in order to develop our business, continue the commercialization of VONJO and conduct research and development for pacritinib in other indications. We may seek to raise such capital through public or private equity financings, partnerships, collaborations, joint ventures, disposition of assets, debt financings or restructurings, bank borrowings or other sources of financing. However, our ability to raise capital is subject to a number of risks, uncertainties, constraints and consequences. For these and other reasons, additional funding may not be available on favorable terms or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. If we fail to obtain additional capital when needed, we may be required to delay, scale back or eliminate some or all of our research and development programs, reduce our selling, general and administrative expenses, be unable to attract and retain highly qualified personnel, refrain from making our contractually required payments when due (including debt payments) and/or be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Any of these consequences could harm our business, financial condition, operating results and prospects.
We are dependent on third-party service providers for a number of critical operational activities. Any failure or delay in these actions by third parties could harm our business.
Our business is dependent on the performance by third parties of their responsibilities under contractual relationships. In particular, we rely heavily on third parties for the manufacture and testing of our compounds. We do not have internal analytical laboratory or manufacturing facilities to allow for the testing or production of our compounds in compliance with GLP and cGMP. As a result, we rely on third parties to supply us in a timely manner with manufactured products or product candidates in a manner that is compliant with these standards. We may not be able to adequately manage and oversee the
manufacturers we choose, they may not perform as agreed or they may terminate their agreements with us. In particular, we depend on third-party manufacturers to conduct their operations in compliance with GLP and cGMP or similar standards imposed by U.S. and/or applicable foreign regulatory authorities, including the FDA and EMA. Any of these regulatory authorities may take action against a contract manufacturer who violates GLP and cGMP. Failure of our manufacturers to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance, and could subject us to penalties.
We may not be able to obtain sufficient quantities of our compounds if we are unable to secure manufacturers when needed, or if our designated manufacturers do not have the capacity or otherwise fail to manufacture compounds according to our schedule and specifications or fail to comply with cGMP regulations. In particular, in connection with the transition of the manufacturing of drug supply to successor vendors, we could face logistical, scaling, raw material supply concerns or other challenges that may adversely affect supply. Furthermore, in order to maintain applicable regulatory approvals, any manufacturers we utilize are required to consistently produce the respective compounds in commercial quantities and of specified quality or execute fill-finish services on a repeated basis and document their ability to do so, which is referred to as process validation. There are no guarantees we will be able to supply the quantities necessary to effect a successful commercial launch of VONJO or satisfy ongoing demand. Any shortage could also impair our ability to deliver contractually required supply quantities to applicable collaborators, as well as to complete any additional planned clinical trials.
We also rely on third-party service providers for certain warehousing, transportation, sales, order processing, distribution and cash collection services. With regard to the distribution of our compounds, we depend on third-party distributors to act in accordance with Good Distribution Practices, or GDP, and the distribution process and facilities are subject to continuing regulation by applicable regulatory authorities with respect to the distribution and storage of products.
In addition, we depend on medical institutions and CROs (together with their respective agents) to conduct clinical trials and associated activities in compliance with GCP, and in accordance with our timelines, expectations and requirements. To the extent any such third parties are delayed in achieving or fail to meet our clinical trial enrollment expectations, fail to conduct our trials in accordance with GCP or study protocol or otherwise take actions outside of our control or without our consent, our business may be harmed. Furthermore, we conduct clinical trials in foreign countries, subjecting us to additional risks and challenges, including as a result of the engagement of foreign medical institutions and foreign CROs, who may be less experienced with regard to regulatory matters applicable to us and may have different standards of medical care.
With regard to certain of the foregoing clinical trial operations and stages in the manufacturing and distribution chain of our compounds, we rely on single vendors. We only have one commercial supplier of VONJO. The use of single vendors for core operational activities, such as clinical trial operations, manufacturing and distribution, and the resulting lack of diversification, exposes us to the risk of a material interruption in service related to these single, outside vendors. As a result, our exposure to this concentration risk could harm our business.
Many of our vendors process personal data on our behalf which is subject to the GDPR, or governed by U.S. State privacy, cybersecurity or data breach laws (e.g., the New York Shield Act or the CCPA). Failure of our vendors to adequately secure that data or comply with their and our legal obligations may result in exposure to us, as controller for that data, under the GDPR or any of the U.S. State laws in the form of legal costs associated with investigation, notification, and reporting of such a breach, and any resulting fines or penalties. Any breach of the security or other significant disruptions to our information technology systems or those of our vendors could have significant implications for our ability to continually operate our business, and may cause reputational harm. While we maintain cybersecurity insurance, such insurance may not cover the full extent of any financial, legal, reputational or business losses associated with any breach or disruption including any vendor systems processing our data.
We are party to a loan and security agreement that contains operating and financial covenants that may restrict our business and financing activities and we may be required to repay the outstanding indebtedness in an event of default, which could have a material adverse effect on our business.
In August 2021, we entered into a Credit Agreement with DRI, or the Credit Agreement, the proceeds of which were partially used to repay in full all outstanding indebtedness under our prior loan and security agreement with Silicon Valley Bank.
Borrowings under the Credit Agreement are secured by a first-priority security interest in, subject to certain exceptions, substantially all of our assets. The Credit Agreement subjects us to customary affirmative and negative covenants that limit our
ability to, among other things, grant liens, make investments, incur additional indebtedness, dispose of assets, license certain property, distribute dividends, make certain restricted payments, change the nature of our business, engage in transactions with affiliates and insiders, prepay other indebtedness, or engage in sale and leaseback transactions, subject to certain exceptions. In addition, the Credit Agreement contains a minimum liquidity covenant requiring us to maintain at all times at least $10 million of unrestricted cash and cash equivalents, subject to certain exceptions. As a result of all of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns, unable to compete effectively or to take advantage of new business opportunities or unable to execute our business strategy.
A breach of the covenants under the Credit Agreement could result in an event of default under the Credit Agreement. If any other event of default occurs and is not cured or waived, DRI would be permitted to accelerate repayment of the loans under the Credit Agreement. If we were unable to repay the amounts due and payable under the Credit Agreement upon acceleration, DRI could proceed against the collateral securing the Credit Agreement which could adversely impact our ability to conduct our business.
If we are unable to recruit, retain, integrate and motivate senior management, other key personnel and directors, or if such persons are unable to perform effectively, our business could suffer.
Our future success depends, in part, on our ability to continue to attract and retain senior management, other key personnel and directors to enable the execution of our business plan and to identify and pursue new opportunities. Additionally, our productivity and the quality of our operations are dependent on our ability to integrate and train our new personnel quickly and effectively.
If we are unable to continue to provide directors and officers sufficient liability insurance at affordable rates or at all, or if directors and officers perceive our ability to do so in the future to be limited, it may become increasingly more difficult to attract and retain management and qualified directors to serve on our Board of Directors.
The loss of the services of senior management, other key personnel or directors and/or the inability to timely attract or integrate such persons could significantly delay or prevent the achievement of our development and strategic objectives and may adversely affect our business, financial condition and operating results.
We may encounter difficulties in managing our expected growth and in expanding our operations successfully.
Advancing VONJO through the commercialization process has required, and will continue to require us to develop or expand our development, regulatory, manufacturing, medical affairs, marketing and sales capabilities or contract with third parties to provide these capabilities for us. Maintaining additional relationships and managing our future growth will impose significant added responsibilities on members of our management. We must be able to manage our development efforts and clinical trials effectively, hire, train and integrate additional management, development, medical affairs, administrative and sales and marketing personnel, improve our managerial, development, operational and finance systems, and expand our facilities, all of which may impose a strain on our administrative and operational infrastructure. Our future financial performance will depend, in part, on our ability to manage this growth effectively. We may not be able to accomplish these tasks, which failure could prevent the continued successful commercialization of VONJO.
If we are unable to in-license or acquire additional product candidates, our future product portfolio and potential profitability could be harmed.
One component of our business strategy is the in-licensing and acquisition of drug compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories, such as pacritinib. Competition for new promising compounds and commercial products can be intense. If we are not able to identify future in-licensing or acquisition opportunities and enter into arrangements on acceptable terms, our future product portfolio and potential profitability could be harmed.
We may in the future be subject to proceedings and/or allegations of wrong-doing, which could harm our financial condition and operating results.
We may in the future be subject to regulatory matters and legal claims, including possible securities, derivative, consumer protection and other types of proceedings pursued by individuals, entities or regulatory bodies. Litigation and regulatory proceedings are subject to inherent uncertainties, and we have had and may in the future have unfavorable rulings and settlements. Adverse outcomes may result in significant monetary damages and penalties or injunctive relief against us.
It is possible that our financial condition and operating results could be harmed in any period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable. If an unfavorable ruling were to occur in any of the legal proceedings we are or may be subject to, our business, financial condition, operating results and prospects could be harmed. The ultimate outcome of litigation and other claims is subject to inherent uncertainties, and our view of these matters may change in the future.
In addition, our insurance is subject to high deductibles and there is no guarantee that the insurance will cover any specific claim that we currently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages. In the event of negative publicity resulting from allegations of wrong-doing and/or an adverse outcome under any currently pending or future lawsuit, our business could be materially harmed.
Our net operating losses may not be available to reduce future income tax liability.
We have substantial tax loss carryforwards for U.S. federal income tax purposes, but our ability to use such carryforwards to offset future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as amended, as a result of prior changes in the stock ownership of our company. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income and taxes may be subject to limitations. Moreover, future changes in the ownership of our stock, including those resulting from issuance of shares of our common stock upon exercise of outstanding warrants, may further limit our ability to use our net operating losses.
We could be subject to additional income tax liabilities.
We are subject to income taxes in the United States and certain foreign jurisdictions. We use significant judgment in evaluating our worldwide income-tax provision. During the ordinary course of business, we conduct many transactions for which the ultimate tax determination is uncertain. We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax against us. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income-tax provisions and accruals. The results of an audit or litigation could have a material effect on our operating results or cash flows in the period or periods for which that determination is made.
We may be subject to claims relating to improper handling, storage or disposal of hazardous materials.
Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations, both internationally and domestically, governing the use, manufacture, storage, handlings, treatment, transportation and disposal of such materials and certain waste products and employee safety and health matters. In the event of such an accident, we could be held liable for any damages that result and any such liability not covered by insurance could exceed our resources.
We may incur a variety of costs for, and may never realize the anticipated benefits of, acquisitions, collaborations or other strategic transactions.
We evaluate and undertake acquisitions, collaborations and other strategic transactions from time to time. The process of negotiating these transactions, as well as integrating any acquisitions and implementing any strategic alliances, may result in operating difficulties and expenditures. In addition, these transactions may require significant management attention that would otherwise be available for ongoing development of our business, whether or not any such transaction is ever consummated. These undertakings could also result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to intangible assets, and we may never realize the anticipated benefits.
We may in the future have significant inventory levels of drug products, and write-downs related to the impairment of those inventories may adversely impact or delay our profitability.
We may in the future have significant inventory levels of drug products, and we may increase those inventory levels as we continue to commercialize VONJO. We determine inventory levels of drug products based on a variety of estimates, including timing of regulatory approval of our drug products, market demand for our drug products and those of our competitors, entrance of competing drug products, introduction of new, or changes in interpretations of, pharmaceutical regulations and changes in healthcare provider and insurer reimbursement policies. These estimates are inherently difficult to make and may be inaccurate. We analyze our inventory levels and will write down excess or obsolete inventory. If our
initial estimate of the appropriate inventory levels of drug products is or becomes inaccurate, write-downs of inventory may be required, which would be recorded as cost of product sales and thereby adversely impact or delay our profitability.
Our employees, collaborators and other personnel may engage in misconduct or other improper activities, which could have a material adverse impact on our business.
We are exposed to the risk of fraud or other misconduct by our employees, collaborators, vendors, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentionalfailures to comply with the regulations of the FDA, EMA and other regulators, providing inaccurate or misleading information to the FDA, EMA and other regulators, failure to comply with data privacy and security and healthcare fraud and abuse laws and regulations in the United States and abroad, reporting inaccurate financial information or clinical data or failing to discloseunauthorized activities to us.
Various laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Any misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause seriousharm to our reputation. We have adopted a code of conduct applicable to all of our employees, officers, directors, agents and representatives, including consultants, but it is not always possible to identify and determisconduct, and the precautions we take to detect and prevent misconduct 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 comply with these laws and regulations.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents or data breaches, could harm us.
Our internal computer systems and those of third parties with which we contract may be vulnerable to damage from cyber-attacks, “phishing” attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failuresdespite the implementation of security measures. Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. System failures, accidents or security breaches could cause interruptions in our operations and could result in a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research and development programs and the development of our drug candidates could be delayed.
We are subject to stringent and evolving obligations related to data privacy and security. Any actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, a disruption of our business operations, reputational harm and other adverse business consequences.
We process personal data and other sensitive information (including patient health data, and proprietary and confidential business data), including in connection with our clinical trials. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the processing of personal data by us and by others on our behalf. Data protection has become a significant issue in the United States, China, countries in the EEA and in many other countries in which we may operate.
In the United States, federal, state and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. These privacy laws include, without limitation, the following laws and regulations: Section 5 of the Federal Trade Commission Act, HIPAA (which imposes specific requirements relating to the privacy, security and transmission of individually identifiable health information), the CCPA and CPRA (which imposes specific requirements on covered businesses relating to personal data practices). To the extent we are or become subject to these laws and/or new or amended data privacy laws, the risk of enforcement actions against us could increase because we may be subject to obligations under applicable regulatory frameworks and the number of individuals or entities that could initiate actions against us may increase (including individuals via a private right of action).
These regulatory frameworks may impact our ability to utilize individuals’ personal data, may impose significant penalties for the misuse of personal data and reflect our vulnerability to the evolving regulatory environment related to such data.
Internationally, any operations that we may engage in may become subject to increased scrutiny or attention from foreign data protection authorities. For example, any clinical trial programs and research collaborations that we may conduct outside the United States may implicate foreign data protection laws, including in China and Europe. Many jurisdictions have established, or are in the process of establishing, privacy and data security regulatory frameworks that may require compliance by us or third parties upon whom we rely. For example, European data protection laws, including, without limitation, the EU’s GDPR and the UK’s equivalent impose stringent data protection requirements for processing personal data of individuals located in the EEA and UK. Under the GDPR, government regulators may impose monetary fines for noncompliance of up to €20 million or 4% of a company’s worldwide annual revenues, whichever is greater, and authorizes government regulators to impose penalties for non-compliance (such as bans on personal data processing). Further, individuals may initiate litigation related to our processing of their personal data.
In addition, many jurisdictions, including China, have enacted data localization and cross-border personal data transfer laws. These laws may make it more difficult for us to transfer personal data across jurisdictions, which could impede our business. For example, EU data protection laws, including the GDPR, generally restrict the transfer of personal data from the EU to the United States and most other countries unless the parties to the transfer have implemented specific safeguards designed to protect the relevant personal data. Uncertainties exist with respect to the legality under EU law of such safeguards. As a result, there is a risk that any personal data transfers by us or parties upon which we rely from the EU may not comply with EU data protection laws. Any such noncompliance may increase our exposure to the GDPR’s heightened sanctions, restrict our ability to conduct clinical trials in the EU, require us to increase our personal data processing capabilities in the EU and limit our ability to collaborate with parties that are subject to EU data protection laws. Further, the UK’s decision to leave the EU, often referred to as Brexit, created uncertainty regarding data protection regulation in the UK, leading to further uncertainty and risk of liability.
Our obligations related to data privacy and security are evolving and may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions, including potentially substantial monetary penalties and personal data processing penalties that could require us to change our business practices. Interpretation of these frameworks is likely to remain uncertain and potentially inconsistent for the foreseeable future. This evolution may create uncertainty in our business and that of parties upon whom we rely. Furthermore, this evolution may impact our ability to operate in certain jurisdictions and our ability to collect, store, transfer, use, share or otherwise process personal data; necessitate our accepting more onerous obligations in contracts; as well as result in liability or impose additional costs (including financial and time-related resources) on us. These obligations may necessitate changes to our information technology systems and practices and to those of any third parties that process personal data on our behalf. Despite our efforts to bring our business practices into compliance with these obligations, we may not be successful in our efforts to achieve compliance (for example, due to lack of clarity in the obligations or to internal or external factors such as resource allocation limitations or a lack of cooperation from third parties upon which we rely). Allegednoncompliance could result in proceedings (e.g., investigations, fines, penalties, audits, inspections and similar); litigation (including class-related claims); additional reporting and/or oversight; bans on personal data processing; and orders not to use personal data. Any of these events could have a material adverse effect on our reputation, business and financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including any future commercial launches and clinical trials); inability to process personal data or to operate in certain jurisdictions; limitations in our ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; and revision or restructuring of our operations.
Risks Related to the Development and Commercialization of Our Product Candidates
If the market opportunities for VONJO are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
Our projections of both the number of patients with myelofibrosis, including patients with myelofibrosis with a platelet count below 50 x 10 9 /L who have the potential to benefit from treatment with VONJO are based on our beliefs and estimates. These estimates have been derived from a variety of sources and may prove to be incorrect or new studies may change the estimated incidence or prevalence, and the number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for VONJO may be limited or may not be amenable to treatment with VONJO, and new patients may become increasingly difficult to identify or access, which would adversely affect our results of operations and our business. Even if we obtain significant market share for VONJO, because the potential target populations are small, we may never become or remain profitable nor generate sufficient revenue growth to sustain our business. If we fail to maintain orphan
drug exclusivity, competitors may develop and sell products that compete with VONJO, decreasing projected market opportunities.
If we fail to develop our current and any future product candidates for additional indications, our commercial opportunity will be limited.
Developing, obtaining regulatory approval and commercializing pacritinib for additional indications will require substantial additional funding and is prone to the risks of failure inherent in drug development. We may not be able to successfully advance any of these indications through the development process. Even if we receive regulatory approval to market pacritinib for the treatment of additional indications, if any, any such additional indications may not be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize pacritinib for additional indications, our commercial opportunity will be limited.
The commercial success of any current or future product will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.
Even with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of VONJO and any future products will depend in part on the medical community’s, patients’, and payors’ acceptance of VONJO and any future products as medically useful, cost-effective, and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, payors, and others in the medical community. The degree of market acceptance of VONJO and any future products will depend on a number of factors, including:
• the efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;
• the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
• the clinical indications for which Accelerated Approval is granted;
• relative convenience and ease of administration;
• the cost of treatment, particularly in relation to competing treatments;
• the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
• the effectiveness of our field forces and marketing efforts;
• the strength of marketing and distribution support and timing of market introduction of competitive products;
• publicity concerning our products or competing products and treatments; and
• sufficient third-party insurance coverage and reimbursement.
Even if a potential product displays a favorable efficacy and safety profile in nonclinical and clinical studies, market acceptance of the product will not be fully known until after it is launched. Our efforts to educate the medical community and payors on the benefits of VONJO require significant resources and may never be successful. If VONJO fails to maintain, and any future products fail to achieve an adequate level of acceptance by physicians, patients, payors, and others in the medical community, we will not be able to generate sufficient revenue to become or remain profitable.
The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for VONJO or any future products could limit our ability to market those products and decrease our ability to generate revenue.
Our target patient populations are small, and accordingly the pricing, coverage, and reimbursement of VONJO and other product candidates, if approved, must be adequate to support our commercial infrastructure. Our per-patient prices must be sufficient to recover our development and manufacturing costs and potentially achieveprofitability. The cost of a single administration of VONJO is deemed substantial. Accordingly, the availability and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to afford expensive treatments such as ours. Sales of VONJO
depend substantially, both domestically and abroad, on the extent to which their costs will be paid for by health maintenance, managed care, pharmacy benefit, and similar healthcare management organizations, or reimbursed by government authorities, private health insurers, and other payors. If coverage and reimbursement are not available, are available only to limited levels, or are not available on a timely basis, we may not be able to continue to successfully commercialize VONJO. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to sustain our overall enterprise.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS or private payors will decide with respect to reimbursement for a product such as ours.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries will put pressure on the pricing and usage of VONJO and other product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medicinal products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for VONJO. Accordingly, in markets outside the United States, the reimbursement for VONJO may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for new products and, as a result, they may not cover or provide adequate payment for VONJO. Further federal and state proposals and healthcare reforms are likely, which could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial opportunity. Most recently, the Inflation Reduction Act of 2022, or IRA, includes several measures intended to lower the cost of prescription drugs and related healthcare reforms, including limits on price increases and subjecting an escalating number of drugs to annual price negotiations with CMS. For example, the IRA includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, amongst other changes. We cannot be sure whether additional legislation or rulemaking related to the IRA will be issued or enacted, or what impact, if any, such changes will have on the profitability of VONJO or any other drug candidates if approved for commercial use in the future. There also may be future changes unrelated to the IRA that result in reductions in potential coverage and reimbursement levels for our product candidates, if approved and commercialized, and we cannot predict the scope of any future changes or the impact that those changes would have on our operations.
We expect to experience pricing pressures in connection with the sale of VONJO due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, additional legislative changes, and statements by elected officials. The downward pressure on healthcare costs in general, and with respect to prescription drugs, surgical procedures, and other treatments in particular, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
We may be required to suspend, repeat or terminate clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive, or the trials are not well-designed.
Regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. Clinical trials must be conducted in accordance with GCP or other applicable foreign regulatory authority guidelines. In addition, clinical trials must be conducted with product candidates produced in accordance with applicable cGMPs. Clinical trial data may be rejected by the FDA or foreign regulatory authorities or clinical trials may be suspended by the FDA, foreign regulatory authorities, or us for various reasons.
If we elect or are forced to suspend or terminate a clinical trial of any of our current or future product candidates, the commercial prospects for that product will be harmed and our ability to generate product revenue from that product may be
delayed or eliminated. Furthermore, any of these events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue from the commercialization of these products either by us or by our collaboration partners.
We face potential product liability exposure, and if successfulclaims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
The sale of VONJO and the use of pacritinib in clinical trials expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling VONJO, or clinical trial participants. If we cannot successfullydefend ourselves against these claims, we may incur substantial liabilities. Regardless of merit or eventual outcomes of such claims, product liability claims may result in:
• decreased demand for VONJO;
• impairment of our business reputation;
• withdrawal of clinical trial participants;
• costs of litigation;
• substantial monetary awards to patients or other claimants; and
• loss of revenues.
Our insurance coverage may not be sufficient to reimburse us for all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us againstlosses.
The commercial use of VONJO and any future products may cause unintended side effects or adverse reactions, or incidents of misuse may occur, which could adversely affect our business.
We cannot predict whether any commercial use of VONJO or other product candidates, if any, once approved, will produce undesirable or unintended side effects that have not been evident in clinical trials conducted for such product candidates to date. Additionally, incidents of product misuse may occur. These events, including the reporting of adverse safety events, among others, could result in product recalls, product liability actions related to our products or withdrawals or additional regulatory controls (including additional regulatory scrutiny and requirements for additional labeling), all of which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
We are subject to extensive post-approval or authorization regulatory requirements, including post-marketing confirmatory trials as a condition of receiving Accelerated Approval for VONJO, and any failure to satisfy such ongoing obligations or unanticipatedproblems with any of our drugs that receive regulatory authorization could negatively affect our business.
We are and will continue to be subject to numerous regulatory requirements, including with respect to development, testing, manufacturing, labeling, marketing, reporting, sales, and reimbursement for VONJO. For example, as a condition of receiving Accelerated Approval from the FDA for VONJO for the treatment of adult patients with intermediate or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis with a platelet count below 50 x 10 9 /L, continued approval for this indication is contingent upon verification and description of clinical benefit in post-marketing confirmatory trials. To fulfill this post-marketing requirement, we plan to complete the PACIFICA confirmatory trial. However, if confirmatory trials are unsuccessful for a given indication, VONJO may be subject to withdrawal procedures. If we fail to comply with other regulatory requirements or if we experience unanticipatedproblems with any of our drugs that receive regulatory authorization, it may result in, among other things:
• Regulatory authorities may also impose new restrictions on continued product marketing or may require the withdrawal of a product from the market if adverse events of unanticipatedseverity or frequency are discovered following approval;
• Clinical holds on clinical trials;
• Warning or untitled letters from the FDA;
• Refusal by the FDA, EMA or comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of drug license approvals;
• Drug seizure or detention, or refusal to permit the import or export of drugs; and
• Injunctions or the imposition of civil or criminalpenalties.
Any of these events could negatively affect our business, financial condition, operating results or prospects, generate negative publicity, and require us to expend significant time and resources.
Even if we obtain FDA approval for products in the United States, we may never obtain approval to or successfully commercialize any product candidates outside of the United States, which would limit our ability to realize their full market potential.
In order to develop and market any products outside of the United States, including VONJO, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and effectiveness. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional or different administrative review periods from those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
Seeking foreign regulatory approval could result in difficulties and costs and require additional nonclinical studies or clinical trials which would be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates in those countries. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. While we have one product approved for sale in the United States, we do not have any product candidates approved for sale in international markets. If we fail to obtain or maintain required regulatory approvals from foreign regulatory authorities or to comply with regulatory requirements in international markets, or if regulatory approval in international markets is delayed, our target market will be reduced and our ability to realize the full market potential of our products will be inhibited.
We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for non-FDA-approved, or off-label, uses.
Our business and future growth depend on the development, ultimate sale and use of products that are subject to FDA, EMA and or other regulatory agencies regulation, clearance and approval. Under the FDCA and other laws, we are prohibited from promoting our products for off-label uses, or uses not approved by the FDA. This means that in the United States, we may not make claims about the safety or effectiveness of our products and may not proactively discuss or provide information on the uses of our products that are not approved by the FDA, unless otherwise allowed by the FDA by policy or other guidance.
If our promotional activities are found to be in violation of applicable law or if we agree to a settlement in connection with an enforcement action, we would likely face significant fines and penalties and would likely be required to substantially change our sales, promotion, grant and educational activities.
We are subject to numerous laws and regulations related to health care fraud and abuse, falseclaims, anti-bribery and anti-corruption laws, such as the U.S. Anti-Kickback Statute, the Physician Payments Sunshine Act and the FCPA, and violations of these laws could result in substantial penalties and prosecution.
In the United States, we are subject to various state and federal fraud and abuse laws, including, without limitation, the Physician Payments Sunshine Act, the federal Anti-Kickback Statute and the federal FalseClaims Act. There are similar laws in other countries. These laws may impact, among other things, the sales, marketing and education programs for our products. Any allegation, investigation, or violation of these domestic health care fraud and abuse laws could result in government or
internal investigations, litigation, significant diversion of resources, exclusion from government health care reimbursement programs and the curtailment or restructuring of our operations, or significant fines, penalties, or other financial consequences, any of which may ultimately have a material adverse effect on our business.
For our sales and operations outside the United States, we are similarly subject to various heavily-enforced anti-bribery and anti-corruption laws, such as the FCPA, as amended, U.K. Bribery Act, and similar laws around the world. We face significant risks if we, which includes our third parties, fail to comply with the FCPA and other anti-corruption and anti-bribery laws.
We leverage various third parties to sell our products and conduct our business abroad. We, our commercial partners and our other third-party intermediaries, including collaborators and licensees, may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, partners, collaborators, licensees and agents, even if we do not explicitly authorize such activities.
Any violation of the FCPA, other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severecriminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, business, operating results and prospects. In addition, responding to any enforcement action or related investigation may result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.
If development and commercialization collaborations we enter into are not successful, or if we are unable to enter into additional collaborations, we may not be able to effectively develop and/or commercialize our compounds, which could have a material adverse effect on our business.
Historically, we have entered into development and commercialization collaborations to help advance the development of our product candidates. We evaluate collaborationopportunities from time to time and if we enter into such collaborations in the future, our business may become increasingly dependent on the success of such collaborations. Additionally, if we do not successfully enter into additional collaborations when needed, we may be unable to further develop and commercialize the applicable compounds, generate revenues to sustain or grow our business or achieveprofitability, which would harm our business, financial condition, operating results and prospects.
Drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results.
We are a commercial-stage biopharmaceutical company with additional indications in various stages of clinical development. Clinical testing is expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical study process. The results of preclinical studies and early clinical studies of our product candidates may not be predictive of the results of larger, later-stage controlled clinical studies. Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequent clinical studies. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical studies due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical studies. Moreover, clinical data are often susceptible to varying interpretations and analyses. We do not know whether any Phase 2, Phase 3, or other clinical studies we have conducted or may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed indication for use sufficient to obtain regulatory approval to receive regulatory approval or market our drug candidates.
Risks Related to Our Intellectual Property
If any of our license agreements for intellectual property underlying our product candidates are terminated, we may lose the right to develop or market that product candidate.
We have acquired or licensed intellectual property from third parties, including patent applications and patents relating to VONJO. Some of our product development programs depend on our ability to maintain rights under license agreements relating to this licensed intellectual property. Each licensor of this intellectual property has the power to terminate its agreement with us if we fail to meet our obligations under that agreement. If we default under any of these agreements, we may lose our right to market and sell any products based on the intellectual property licensed under these agreements and may be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Bankruptcy may result in the termination of these agreements.
We hold rights under numerous patents that we have acquired or licensed or that protect inventions originating from our research and development, and the expiration of any of these patents would enable our competitors to use the inventions that are the subject of such patents in competition with us.
We dedicate significant resources to protecting our intellectual property, which is important to our business. We have filed numerous patent applications in the United States and various other countries seeking protection of inventions originating from our research and development, and we have also obtained rights to various patents and patent applications under licenses with third parties and through acquisitions. We have pending patent applications or issued patents in the United States and foreign countries directed to VONJO and other product candidates. Patent coverage for our individual products extends for varying periods according to the date of the patent filing or grant and the legal term of patents in the various countries where we have obtained patent protection.
In addition to our patent rights, we rely, to the extent possible, on trade secret and contractual protections for our know-how and other unpatented technology. Ultimately, to the extent any of our product candidates are not protected by patent rights our competitors would be free to use inventions embodied in our product candidates to which they have access to compete with us.
If we fail to adequately protect our intellectual property, our competitive position and the potential for long-term success could be harmed.
Development and protection of our intellectual property are critical to our business. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies, including the inventions embodied in our product candidates.
The U.S. Patent and Trademark Office, or PTO, has not established a consistent policy regarding the breadth of claims that it will allow in pharmaceutical and biotechnology patents. Patent applications in which we have rights may never issue as patents, and the claims of any issued patents may not afford meaningful protection for our product candidates or technologies. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated, circumvented or found unenforceable. Litigation, interference or derivation proceedings or other governmental proceedings that we may become involved in with respect to our patent rights or our proprietary technologies or the proprietary technologies of others could result in substantial cost to us.
We also rely upon trade secrets to protect our proprietary know-how and continuing technological innovation to enable us to remain competitive. Third parties may independently develop such know-how or innovations or otherwise obtain access to such know-how or technology. While we require our employees, consultants, corporate partners and other third parties with access to our proprietary information to enter into confidentiality agreements, these agreements may not be honored and may be difficult to enforce.
Patent litigation is widespread in the pharmaceutical and biotechnology industry, and any patent litigation in which we become involved could harm our business.
We may not be able to successfullychallenge the validity of third-party patents and could be required to pay substantial damages, possibly including treble damages, for past infringement and attorneys’ fees if it is ultimately determined that our products infringe such patents. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties.
Moreover, third parties may challenge the patents that have been issued or licensed to us. There can be no assurance that our product candidates or technologies will not be found in the future to infringe upon the rights of others or be infringed upon by others. In such a case, others may assert infringementclaimsagainst us, and should we be found to infringe upon their patents, or otherwise impermissibly utilize their intellectual property, we might be forced to pay damages, potentially including treble damages. In addition to any damages we might have to pay, we may be required to obtain licenses from the holders of this intellectual property, enter into royalty agreements or redesign our compounds so as not to utilize this intellectual property, each of which may prove to be uneconomical or otherwise impossible. Conversely, we may not always be able to successfully pursue our claimsagainst others that infringe upon our technology and the technology exclusively licensed from any third parties. Thus, the proprietary nature of our technology or technology licensed by us may not provide adequate protection against competitors.
Furthermore, our employees may be subject to claims that we or these employees have used or disclosed trade secrets or other proprietary information of the former employers. If we are unsuccessful in our defense of such claims, in addition to paying monetary damages, we may lose the right to use valuable intellectual property rights relating to our product candidates or technologies. A loss of key research personnel work product could hamper or prevent our ability to commercialize certain potential products, which could severelyharm our business. Even if such claimsagainst us are without merit, or if we challenge the validity of issued patents that are asserted against us, lawsuits in which such claims could be asserted or challenges could be made take significant time, may, even if resolved in our favor, be expensive and divert management attention from other business activities requiring attention. Uncertainties resulting from the initiation and continuation of any litigation relating to intellectual property could limit our ability to continue our operations.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, enforcing and defending patents on our product or product candidates in all countries throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors may not be able to prevent third parties from practicing our and our licensors’ inventions in all countries outside the United States, or from selling or importing products made using our and our licensors’ inventions in and into the United States or other jurisdictions. Competitors may use our and our licensors’ technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we and our licensors have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product and product candidates and our and our licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Risks Related to Our Common Stock
The market price of shares of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of your investment in our securities to sudden decreases.
The market price for securities of biopharmaceutical and biotechnology companies, including ours, historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. For example, during the 12-month period ended February 21, 2023, our stock price ranged from a low of $1.82 to a high of $7.80. Fluctuations in the market price or liquidity of our common stock may harm the value of your investment in our common stock. The Nasdaq Stock Market , or the Nasdaq, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In addition, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
We may not be able to maintain our listing on the Nasdaq, or trading on the Nasdaq may otherwise be halted or suspended, which may negatively impact the price of our common stock.
We have in the past and may in the future fail to comply with the Nasdaq requirements. If our common stock ceases to be listed for trading on the Nasdaq for any reason, it may harm our stock price, increase the volatility of our stock price, decrease the level of trading activity and make it more difficult for investors to buy or sell shares of our common stock. Our failure to maintain a listing on the Nasdaq may constitute an event of default under our loan and security agreement and any future indebtedness, which would accelerate the maturity date of such debt or trigger other obligations. In addition, certain institutional investors that are not permitted to own securities of non-listed companies may be required to sell their shares adversely affecting the market price of our common stock. If we are not listed on the Nasdaq, our ability to raise capital will be adversely impacted. Additionally, for so long as our non-affiliate public float does not exceed $75 million, the amount of securities that we may sell pursuant to registration statements on Form S-3 will be limited to the equivalent of one-third of our public float, which will limit our ability to file or use shelf registration statements on Form S-3 and further limit our ability to raise capital. We have relied significantly on shelf registration statements on Form S-3 for most of our financings in recent years, so any such limitations may harm our ability to raise the capital we need.
Future financing, strategic and other activities may require us to increase the number of authorized shares in our certificate of incorporation. An inability to secure requisite stockholder approval for such increases could materially and adversely impact our ability to fund our operations.
We have in the past sought and received approval of an amendment to our certificate of incorporation to increase the total number of authorized shares and the total number of authorized shares of our common stock and we may seek approval to increase the number of authorized shares again in the future. Without future additional increases in the number of authorized shares, we may be constrained in our ability to raise capital when needed, and may lose important business opportunities, which could adversely affect our financial performance, growth and ability to continue our operations. Even if we obtain approval to further increase the number of authorized shares, we are required under the Nasdaq Marketplace Rules to obtain stockholder approval for certain issuances of additional equity securities. However, we might not be successful in obtaining the required stockholder approval for any future issuance that requires stockholder approval pursuant to applicable rules and regulations. If we are unable to obtain financing or our financing options are limited due to stockholder approval difficulties, such failure may harm our ability to continue operations.
Anti-takeover provisions in our charter documents, under Delaware law and in other applicable instruments could make removal of incumbent management or an acquisition of us, which may be beneficial to our stockholders, more difficult.
Provisions of our certificate of incorporation and bylaws may have the effect of deterring or delaying attempts by our stockholders to remove or replace management, to commence proxy contests or to effect changes in control. In addition, as a Delaware corporation, we are subject to Delaware’s anti-takeover statute, which imposes restrictions on some transactions between a corporation and certain interested stockholders. Our shareholder rights plan expired pursuant to its terms on December 2, 2018, and was not replaced; however, the Board may, subject to its fiduciary duties under applicable law, choose to implement a similar plan in the future. Likewise, because our principal executive offices are located in Washington, the anti-takeover provisions of the Washington Business Corporation Act may apply to us under certain circumstances now or in the future. These provisions could also have the effect of delaying or preventing a change in control of our company.
Raising additional capital could cause you to incur dilution and could cause the market price of our common stock to fall.
As of December 31, 2022, options to purchase 21,517,244 shares of our common stock with a weighted-average exercise price of $2.94 per share were outstanding. The exercise of any of these options would result in dilution to current stockholders. Further, because we will need to raise additional capital to fund our operations and clinical development programs, we may in the future sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. Pursuant to our equity incentive plans, our compensation committee is authorized to grant equity-based incentive awards to our employees, directors and consultants. Future option grants and issuances of common stock under our share-based compensation plans may have an adverse effect on the market price of our common stock.
These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and any additional shares of common stock issued in connection with acquisitions, if any, may result in further dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.
If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, the market price of our common stock and the trading volume of our common stock could decline.
The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us or our business. If too few securities or industry analysts cover our company, the market price of our common stock would likely be negatively impacted. If securities and industry analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the market price of our common stock would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause the market price of our common stock and the trading volume of our common stock to decline.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
We are subject to the rules and regulations of the SEC, including those rules and regulations mandated by the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to include in their annual report a statement of management’s responsibilities for establishing and maintaining adequate internal control over financial reporting, together with
an assessment of the effectiveness of those internal controls. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
General Risk Factors
Unfavorable global economic conditions, whether brought about by global crises, health epidemics, military conflicts and war, geopolitical and trade disputes or other factors, may have a material adverse effect on our business and financial results.
Our business is sensitive to global economic conditions, which can be adversely affected by public health crises (including the COVID-19 pandemic) and epidemics, political and military conflict, trade and other international disputes, significant natural disasters (including as a result of climate change) or other events that disrupt macroeconomic conditions. Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy or government budget dynamics (particularly in the pharmaceutical and biotech areas), tighter credit, higher interest rates, volatility in financial markets, high unemployment, labor availability constraints, currency fluctuations and other challenges in the global economy have in the past adversely affected, and may in the future adversely affect, us and our business partners and suppliers.
For example, military conflicts or wars (such as the ongoing conflict between Russia and Ukraine) can cause exacerbatedvolatility and disruptions to various aspects of the global economy. The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the potential effects of sanctions and counter-sanctions, or retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and operations, such as worldwide supply chain issues. Additionally, enrollment sites in Russia, Ukraine and Belarus have been indefinitely paused in response to the conflict in the region. We cannot be certain of the overall impact of the conflict between Russia and Ukraine on our ability to conduct and complete our clinical trials as planned, and any interruptions of our clinical trials can result in significant delays or termination of the research, development or commercialization of our drug candidates, which could impair our ability to generate revenues and harm our business and financial condition. It is not possible to predict the short and long-term implications of military conflicts or wars or geopolitical tensions which could include further sanctions, uncertainty about economic and political stability, increases in inflation rate and energy prices, cyber-attacks, supply chain challenges and adverse effects on currency exchange rates and financial markets.
Further, trade policies and geopolitical disputes (including as a result of China-Taiwan relations) and other international conflicts can result in tariffs, sanctions and other measures that restrict international trade, and can materially adversely affect our business. For example, tensions between the United States and China have led to a series of tariffs being imposed by the United States on imports from China mainland, as well as other business restrictions. Countries may also adopt other measures, such as controls on imports or exports of goods, technology or data, that could adversely impact our operations and supply chain.
Additionally, our operations and facilities, as well as operations of our service providers and manufacturers, may be located in areas that are prone to earthquakes and other natural disasters. Such operations and facilities are also subject to the risk of interruption by fire, drought, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks and other hostile acts, ransomware and other cybersecurity attacks, telecommunication failure, labor disputes, public health crises (including the COVID-19 pandemic) and other events beyond our control. Global climate change is resulting in certain types of natural disasters occurring more frequently or with more intense effects. If a natural disaster or other event occurred that prevented us from using all or a significant portion of our headquarters, that damagedcritical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Because we rely on a single or limited sources for the supply and manufacture of many critical components, a business interruption affecting such sources would exacerbate any negative consequences on our business. We may not carry sufficient business interruption insurance to compensate us for all losses that may occur. The disaster recovery and business continuity plans we have in place may not be adequate in the event of a seriousdisaster or similar event. We may incur substantial expenses as a result of a natural disaster or other event, which could have a material adverse effect on our business, and we could potentially losevaluable data and other items. The occurrence of any of the foregoing could have a material adverse effect on our business.
Any public health crises, including the COVID-19 pandemic, may affect our operations and those of third parties on which we rely, including our business partners and suppliers. In the past three years, the COVID-19 pandemic has caused, and likely will continue to cause, significant volatility and uncertainty in U.S. and international markets, disruptions to our business
and delays in our clinical trials and timelines, including as a result of impacts associated with protective health measures that we, other businesses and governments are taking or might have to take again in the future to manage the pandemic. The extent to which the COVID-19 pandemic and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments which are highly uncertain and difficult to predict. These developments include, but are not limited to, future resurgences of the virus and its variants, actions taken to contain the virus or address its impact, and the timing, distribution and efficacy of vaccines and other treatments.
Without limiting the foregoing, we have experienced and/or may in the future experience:
• difficulties enrolling patients in our clinical trials as the patient populations that are eligible for our clinical trials are impacted by COVID-19;
• delays or difficulties in conducting clinical trials, whether due to changing local regulations, supply chain constraints, travel restrictions or other related factors;
• delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources;
• refusal of the FDA to accept data from clinical trials in affected geographies; and
• adverse impacts on our workforce and/or key employees.
Pacritinib is an oral kinase inhibitor with activity against wild type Janus Associated Kinase 2 (JAK2), mutant JAK2 V617F form, IRAK1, ACVR1 (ALK2) and FLT3, which contribute to signaling of a number of cytokines and growth factors that are important for hematopoiesis and immune function. At clinically-relevant concentrations, pacritinib does not inhibit JAK1. The JAK family of enzymes is a central component in signal transduction pathways, which are critical to normal blood cell growth and development, as well as inflammatory cytokine expression and immune responses. Mutations in these kinases have been shown to be directly related to the development of a variety of blood-related cancers, including myeloproliferative neoplasms, leukemia and lymphoma. Myelofibrosis is often associated with dysregulated JAK2 signaling. In addition to myelofibrosis, the kinase profile of pacritinib suggests its potential therapeutic utility in conditions such as acute myeloid leukemia, or AML, myelodysplastic syndrome, or MDS, chronic myelomonocytic leukemia, or CMML, graft versus host disease, or GvHD, and chronic lymphocytic leukemia, or CLL, due to its inhibition of JAK2, IRAK1, FLT3, ACVR1 (ALK2) and CSF1R. We believe pacritinib has the potential to be delivered as a single agent or in combination therapy regimens.
We have historically funded our operations through product sales, the sale of equity securities, debt financing, sale of certain future royalties and funding received from our licensees and collaborators. We do not expect to achieve or sustain profitability for the foreseeable future. We had a net loss of $93.0 million for the year ended December 31, 2022 and an accumulated deficit of $2.5 billion as of December 31, 2022, primarily from expenses incurred in connection with our research programs and from selling, general and administrative costs associated with our operations, partially offset by the commencement of product sales in March 2022.
We have incurred significant operating losses to date and expect to continue to incur significant expenses and operating losses for at least the next 12 to 24 months. We anticipate that our expenses will increase as we:
• continue our commercialization efforts for VONJO;
• continue our research and clinical development of pacritinib;
• seek regulatory and marketing approvals for pacritinib if we successfully complete the remainder of its anticipated clinical development paths; and
• maintain, protect and expand our intellectual property portfolio.
Factors Affecting Performance
Product Sales
Following FDA approval of VONJO on February 28, 2022, we commenced shipping of VONJO to a limited number of specialty distributor customers and specialty pharmacy customers in March 2022. Product sales are recognized upon delivery of
our product to our customers and are recorded net of applicable deductions, including trade discounts, distribution service fees, product returns, chargebacks and discounts, rebates and other incentives such as co-pay assistance. Our realization of product sales will be dependent, in part, upon our continued commercialization efforts and the market acceptance of VONJO among physicians, patients, healthcare payers and the medical community.
Cost of Sales
Cost of sales for the year ended December 31, 2022 primarily consisted of shipping and distribution costs of VONJO, amortization expense for intangible assets and third-party royalty costs. Cost of sales includes only a portion of the costs related to the manufacture of VONJO and related materials, since, prior to FDA approval, these costs were expensed as research and development expenses. We expect to utilize zero cost inventory with respect to VONJO for an extended period of time.
Research and Development
We expect to commit significant time and resources to research and development activities relating to our current and any future product candidates. Pacritinib has received Accelerated Approval for the treatment of adult patients with intermediate or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis with a platelet count below 50 x 10 9 /L and is being marketed as VONJO. However, a confirmatory study, PACIFICA, is ongoing and we expect to continue to devote resources to the completion of this study.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of personnel costs, including related equity-based compensation, expenses for outside consulting and professional services, allocated facilities costs and costs required to support the marketing and sales operations of our commercialized product. We anticipate that selling, general and administrative expenses associated with the commercialization of VONJO, primarily related to our sales force, our marketing, market access and commercial capabilities, will approximate 2022 levels during 2023.
Impact of COVID-19
We continue to evaluate and manage the impact of the global COVID-19 pandemic on our operations and the conduct of our clinical trials, including considerations of the vulnerable nature of the patient population participating in our trials, reduced or halted activities at our clinical trial sites, an increase in fatalities or other adverse events due to medical problems related to the COVID-19 pandemic and the benefits of continued patient access to VONJO.
Financial Summary
Our net product sales reflect sales of VONJO, which was commercially launched in the United States in March 2022 following FDA approval on February 28, 2022. Net product sales were $53.9 million for the year ended December 31, 2022. We did not have any product sales for the year ended December 31, 2021. Loss from operations was $79.8 million and $95.3 million for the years ended December 31, 2022 and 2021, respectively. Results of operations may vary substantially from year to year and from quarter to quarter and, as a result, you should not rely on them as being indicative of our future performance. As of December 31, 2022, our cash, cash equivalents and short-term investments were $79.9 million.
Results of Operations
Years ended December 31, 2022 and 2021
Net product sales. We began recognizing product sales in March 2022 following FDA approval of VONJO on February 28, 2022 and its subsequent commercial launch in the United States. Net product sales were as follows for the years ended December 31, 2022 and 2021 and for each of the quarterly periods therein (in thousands):
December 31, 2022
December 31, 2021
First quarter
Second quarter
Third quarter
Fourth quarter
Total
The activities and ending reserve balances for significant categories of allowances for VONJO (which constitute variable consideration that is deducted from gross product sales) during the year ended December 31, 2022 were as follows (in thousands):
Chargebacks and rebates
Service fees, returns, co-pay assistance and other
Total
Balance, January 1, 2022
Provision related to current year sales
Payments / credits for current year sales
Balance, December 31, 2022
Chargebacks and rebates are expected to be the most significant component of our total gross-to-net deductions. Future gross-to-net deductions will fluctuate based on the volume of purchases eligible for government-mandated discounts and rebates as well as changes in the discount percentage which is impacted by external factors. We anticipate that the overall gross-to-net deduction percentage will begin to stabilize during 2023.
Operating costs and expenses
Cost of sales. During the year ended December 31, 2022, we recorded $3.5 million of cost of sales, which primarily consisted of amortization expense for intangible assets, shipping and distribution costs and third-party royalty costs. We did not have any cost of sales for the year ended December 31, 2021. The manufacturing costs for VONJO incurred prior to FDA approval on February 28, 2022 were not capitalized as inventory but were expensed as research and development costs since product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, cost of sales currently reflects only a portion of the costs related to the manufacture of VONJO and related materials.
The time period over which reduced-cost VONJO inventory is consumed will depend on a number of factors, including the amount of future sales, the ultimate use of this inventory in either commercial sales, clinical development or other research activities, and the ability to utilize inventory prior to its expiration date. At this time, we expect that cost of sales in relation to net product sales will progressively increase towards 2025 as VONJO product manufactured and expensed prior to capitalization is sold.
Research and development expenses. Research and development expenses decreased to $36.9 million for the year ended December 31, 2022 compared to $39.1 million for the year ended December 31, 2021. All of our research and development expenses for the years ended December 31, 2022 and 2021 were related to our pacritinib program. The decrease between periods was attributable to a $3.1 million decrease in the PRE-VENT Phase 3 trial and a $1.8 million decrease in the PACIFICA Phase 3 trial, partially offset by a $2.7 million increase that primarily resulted from additional staffing and personnel costs.
Research and development expenses include external direct costs such as principal investigator fees, charges from contract research organizations, or CROs, and contract manufacturing fees incurred for preclinical, clinical, manufacturing and regulatory activities associated with preparing the compounds for submissions of NDAs or similar regulatory filings to the FDA, the EMA or other regulatory agencies outside the United States and Europe, as well as upfront license fees for acquired technology. Indirect costs include personnel costs, an allocation of overhead costs and other costs not directly charged to development programs. Cumulative to date external direct costs incurred by us through December 31, 2022 were $240.4 million for pacritinib (excluding costs for pacritinib prior to our acquisition of certain assets from S*BIO in May 2012 and $29.1 million of in-process research and development expenses associated with the acquisition of certain assets from S*BIO).
Selling, general and administrative expenses. Selling, general and administrative expenses were $84.8 million for the year ended December 31, 2022 compared to $56.2 million for the year ended December 31, 2021. Substantially all of the increase between periods was attributable to activities associated with the commercialization of VONJO, which consisted of the following: a $23.0 million increase in additional staffing and personnel costs, a $2.4 million increase in professional services, a $2.4 million increase in travel expenses, and a $0.8 million increase in infrastructure and other expenses, including sales-related service agreements.
Other operating expenses . Other operating expenses of $8.5 million for the year ended December 31, 2022 were attributable to a $10.3 million milestone expense relating to resolution of a contingency in the Asset Return and Termination Agreement with Baxalta, which became payable to Takeda Pharmaceutical Company Limited upon FDA approval of VONJO,
as well as a $0.3 million expense relating to the 2003 Italian VAT assessment, partially offset by a $2.1 million income related to the collection of 2011 Italian VAT receivable, which had been previously written off from the balance sheet.
Non-operating expense
Interest expense, net. Interest expense, net was as follows (in thousands):
Interest income was $1.7 million and less than $0.1 million for the years ended December 31, 2022 and 2021, respectively. Interest income primarily relates to our cash equivalent securities and short-term investments. The increase between periods was primarily due to higher interest rates on cash equivalent securities and increases in short-term investments.
Interest expense was $6.1 million and $1.9 million for the years ended December 31, 2022 and 2021, respectively, and was primarily related to the $50.0 million Credit Agreement that we entered into with DRI in August 2021. In addition, interest expense for the year ended December 31, 2022 included a $0.5 million interest expense on the milestone payable to Takeda. The increase between periods primarily resulted from the higher average loan principal balance outstanding and the higher average interest rates during the year ended December 31, 2022 compared to the same period in the prior year.
Imputed interest expense (royalty financing obligation) for the year ended December 31, 2022 was related to non-cash interest expense recognized on the royalty financing obligation for the sale of the right to receive certain royalty payments from us under the Purchase and Sale Agreement entered into in August 2021 with DRI, or the Royalty Financing Agreement. The amount of non-cash interest expense that we recognize in future periods will primarily depend on our net sales of VONJO. See Part II, Item 8, “Notes to Financial Statements, Note 8. Debt Financing Arrangements” for additional information. There was no such expense for the year ended December 31, 2021.
Amortization of debt discount and issuance costs for the year ended December 31, 2022 was related to the Credit Agreement and Royalty Financing Agreement with DRI. Amortization of debt discount and issuance costs for the year ended December 31, 2021 was related to the Credit Agreement with DRI and our term loan with Silicon Valley Bank, which was repaid in full in August 2021.
Other non-operating expenses. Other non-operating expenses of $0.1 million for the year ended December 31, 2022 was related to a foreign exchange loss. Other non-operating expenses of $0.2 million for the year ended December 31, 2021 was primarily related to a loss on extinguishment of debt upon repayment of our secured term loan with Silicon Valley Bank in August 2021.
Liquidity and Capital Resources
Sources of Liquidity
We have historically funded our operations from product sales, proceeds from the sales and the issuance of equity securities, the incurrence of debt, the sale of certain future royalties and payments received pursuant to license and collaboration agreements. As of December 31, 2022, we had $79.9 million in cash, cash equivalents and short-term investments.
Product Sales. We commercially launched VONJO in March 2022 following the Accelerated Approval of VONJO by the FDA on February 28, 2022. We intend to rely on cash flows from product sales as our source of liquidity in the near future as we expand our commercialization efforts with respect to VONJO.
Public Offering of Common Stock and Series X 1 Preferred Stock. In April 2021, we issued 16.4 million shares of our common stock at a $2.50 per share price and 600 shares of our Series X 1 Preferred Stock at a $25,000 per share price, collecting net proceeds of approximately $53.6 million.
Rights Offering. In March 2020, we issued 15.7 million shares of our common stock at a $1.00 per share price and 4,429 shares of our Series X Preferred Stock at a $10,000 per share price, collecting net proceeds of $59.1 million.
At-The-Market Equity Offering. In January 2021, we entered into an Open Market Sale Agreement SM with Jefferies LLC, or the 2021 Sale Agreement, to sell shares of our common stock having aggregate sales proceeds of up to $50.0 million. We sold 0.9 million shares of our common stock under the 2021 Sale Agreement for net proceeds of approximately $2.7 million during the year ended December 31, 2021. For the year ended December 31, 2022, we sold 9.4 million shares of our common stock for net proceeds of approximately $45.5 million under the 2021 Sale Agreement. As of the second quarter of 2022, all $50.0 million of the aggregate sales capacity under the 2021 Sale Agreement was fully utilized. In August 2022, we entered into a new Open Market Sale Agreement SM with Jefferies, or the 2022 Sale Agreement, to sell shares of our common stock having aggregate sales proceeds of up to $100.0 million. The 2021 Sale Agreement was terminated upon entry into the 2022 Sale Agreement. For the year ended December 31, 2022, we sold 1.7 million shares of our common stock for approximately $9.7 million, net of sales agent commission of $0.3 million, under the 2022 Sale Agreement. As of December 31, 2022, the remaining facility under the 2022 Sale Agreement was $90.0 million.
Credit Agreement . In August 2021, we entered into the Credit Agreement with DRI as lender and administrative agent, which provided for a loan in the principal amount of $50 million funded by DRI at closing. As of December 31, 2022, we had an outstanding principal balance under the Credit Agreement of $50.0 million. We are required to pay quarterly interest-only payments until August 25, 2026, or the maturity date, with the unpaid principal amount of the outstanding loan due and payable on the maturity date. The loan bears interest at a rate equal to 8.25% per annum, plus the greater of (i) 1.75% and (ii) the three-month LIBOR rate and requires a back-end fee of $1.0 million. These borrowings are secured by a first priority security interest on substantially all of our assets, subject to certain exceptions. In addition, the Credit Agreement contains a minimum liquidity covenant requiring us to maintain at least $10.0 million of unrestricted cash and cash equivalents, subject to certain exceptions. The Credit Agreement also requires us to comply with restrictive covenants, including those that limit our operating flexibility and ability to borrow additional funds. A failure to make a required payment or an uncured covenant breach could lead to an event of default, and in such case, all amounts then outstanding may become due and payable immediately.
Royalty Financing Agreement . In connection with the Credit Agreement discussed above, we and DRI entered into the Royalty Financing Agreement, pursuant to which we sold to DRI the right to receive certain royalty payments from us for a purchase price of up to $85.0 million in cash. In March 2022, DRI funded the upfront purchase price of $60.0 million following FDA approval of VONJO in February 2022. In January 2023, we received $6.5 million in additional funding in connection with the achievement of a certain minimum VONJO sales threshold. DRI will be required to provide up to $18.5 million of remaining contractual funding if certain minimum VONJO sales thresholds are met by the end of the third quarter of 2023. Under the Royalty Financing Agreement, DRI is entitled to receive tiered, sales-based royalties on net product sales of VONJO in the United States.
Historical Cash Flows
Net cash used in operating activities. Net cash used in operating activities was $81.2 million during the year ended December 31, 2022 compared to $84.9 million for the same period in 2021. The decrease was primarily due to cash receipts from VONJO product sales, partially offset by increases in payments for selling, general and administrative expenses associated with the commercialization of VONJO.
Net cash (used in) provided by investing activities. Net cash used in investing activities was $73.9 million during the year ended December 31, 2022 and was attributable to a $25.0 million milestone payment to S*BIO and purchases and maturities of short-term investments. Net cash provided by investing activities was $12.0 million during the same period in 2021 and was attributable to the maturities of short-term investments.
Net cash provided by financing activities. Net cash provided by financing activities was $120.0 million and $97.9 million during the years ended December 31, 2022 and 2021, respectively. Net cash provided during the year ended December 31, 2022 was primarily attributable to net proceeds from the Royalty Financing Agreement with DRI and the utilization of the at-the-market equity facility. Net cash provided during the year ended December 31, 2021 was primarily attributable to net proceeds from the public offering of common stock and Series X 1 preferred stock in April 2021 and the loan proceeds from DRI.
Capital Resources
We have prepared our financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. However, we believe that, as of the date of the filing of this Annual Report on Form 10-K, our present financial resources, together with expected cash receipts from net product sales of VONJO and the $6.5 million in additional contractual funding received from DRI in January 2023 in connection with the achievement of minimum net product sales of VONJO, will be sufficient to meet our obligations as they come due and to fund our operations at least through the fourth quarter of 2023. This raises substantial doubt about our ability to continue as a going concern and we will need to raise substantial additional capital in the near term in order to fund our operations through and beyond the first quarter of 2024 and to continue as a going concern thereafter. See “Part II, Item 8, Notes to Financial Statements, Note 1. Description of Business and Summary of Significant Accounting Policies - Liquidity ” of this Annual Report on Form 10-K for additional information on our assessment. Further, we have incurred net losses since inception and expect to generate losses for the foreseeable future. We have historically funded our operations through product sales, equity financings, borrowings, sale of certain future royalties and funds obtained under product collaborations, any or all of which may not be available to us in the future. As of December 31, 2022, our available cash, cash equivalents and short-term investments totaled $79.9 million and we had an outstanding principal balance of $50.0 million under our Credit Agreement with DRI.
Financial resource forecasts are subject to change as a result of a variety of risks and uncertainties. Changes in our commercialization efforts, manufacturing, developments in and expenses associated with our clinical trials and the other factors identified under “ Capital Requirements ” below may consume capital resources earlier than planned. Due to these and other factors, the foregoing forecast for the period for which we will have sufficient resources to fund our operations may be inaccurate.
Capital Requirements
We will require additional capital in order to pursue our longer-term strategic objectives. We expect to satisfy our capital needs through existing capital balances, revenues from VONJO and a combination of public or private equity financings, partnerships, collaborations, joint ventures, disposition of assets, debt financings or restructurings, bank borrowings or other sources of financing. However, we have a limited number of authorized shares of common stock available for issuance and additional funding may not be available on favorable terms or at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If we fail to obtain additional capital when needed, our ability to operate as a going concern will be harmed, and we may be required to delay, scale back or eliminate some or all of our research and development programs and commercialization efforts and/or reduce our selling, general and administrative expenses, be unable to attract and retain highly-qualified personnel, be unable to obtain and maintain contracts necessary to continue our operations at affordable rates with competitive terms, be unable to or elect to refrain from making our contractually required payments when due (including debt payments) and/or be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection.
Our future capital requirements will depend on many factors, including: our ability to generate sales of VONJO; the cost of ongoing organization and maintenance of our commercial infrastructure and distribution capabilities; our ability to reach milestones triggering payments to be made or received under certain of our contractual arrangements; the cost of manufacturing VONJO; the cost of manufacturing clinical supplies of our product candidates or of establishing commercial supplies of any products that we may develop in the future; developments in and expenses associated with our research and development activities; our clinical development plans and any changes that we may initiate or that may be requested by the FDA or other regulators as we seek approval for products we may develop in the future; acquisitions or collaborations with respect to compounds or other assets; competitive market developments; disruptions or other delays to our business and clinical trials resulting from ongoing worldwide current events; and other unplanned business developments.
Critical Accounting Estimates
Management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the United States in the preparation of our financial statements. We evaluate our estimates and judgments on an ongoing basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Given the global economic climate, these estimates are becoming more challenging. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following estimates are the most critical to us, in that they are important to the portrayal of our financial statements and require our subjective or complex judgment in the preparation of our financial statements:
Revenue Recognition
Under Accounting Standards Codification 606, Revenue from Contracts with Customers , or ASC 606, we recognize revenue when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. As part of accounting for these arrangements, we make significant judgments in estimating the amount of variable consideration to include in the transaction price as discussed below.
Reserves for Variable Consideration
Revenues from product sales are recorded at the net sales price (i.e., the transaction price discussed in Revenue Recognition above), which includes estimates of variable consideration. We establish reserves for such variable consideration which results from customer credits, service fees, returns, chargebacks, discounts, rebates and co-pay assistance that are offered within contracts between us and our customers and other indirect healthcare entities relating to our product sales. These reserves are based on the amounts earned or to be claimed on the related sales. Where appropriate, our estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical data, current contractual and statutory requirements, specific known market trends and industry data, and forecasted customer purchase and payment patterns. These reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product sales and earnings in the period such variances become known.
Research and Development Expenses
We accrue expenses for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. The significant factors used in estimating accruals include the number of patients enrolled, the number of active clinical sites, clinical milestones achieved, the duration for which the patients have been enrolled in the trial, and other criteria related to the efforts of our vendors. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, review of contractual terms and correspondence with CROs. We base our estimates on the best information available at the time. However, these estimates will be subject to change as additional information becomes available , which will allow us to make a more accurate estimate in future periods. In that event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain. Amounts ultimately incurred in relation to amounts accrued for these services may be substantially higher or lower than our estimates. Depending on the timing of payments to vendors and estimated services provided, we record net prepaid or accrued expenses related to these costs.
Royalty Financing Obligation
The royalty financing obligation is eligible to be repaid based on royalties from net sales of VONJO. Interest expense is accrued using the effective interest rate method over the estimated repayment period of the obligation. This requires us to estimate the total amount of future royalty payments to be generated from VONJO product sales over the life of the agreement. We impute interest on the carrying value of the royalty financing obligation and record interest expense using an imputed
effective interest rate. We will reassess the expected royalty payments at each reporting period and account for any changes through an adjustment to the effective interest rate on a prospective basis. The assumptions used in determining the expected repayment term of the royalty financing obligation require that we make estimates which could impact the carrying value of the liability. A significant increase or decrease in forecasted product sales could materially impact the liability balance, the amount of interest expense and the timing of repayment.
Equity-based Compensation Expense
Equity-based compensation expense for all equity-based payment awards made to employees and directors is recognized and measured based on estimated fair values. For option valuations, we have elected to utilize the Black-Scholes valuation method in order to estimate the fair value of options on the date of grant. The risk-free interest rate is based on the implied yield currently available for United States Treasury securities at maturity with an equivalent term. We have not declared or paid dividends on our common stock and do not currently expect to do so in the future. The expected term of options represents the period that our equity-based awards are expected to be outstanding and was determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised options. Consideration was given to the contractual terms of our equity-based awards, vesting schedules and expectations of future employee behavior. Expected volatility is based on the annualized daily historical volatility, including consideration of the implied volatility and market prices of traded options for comparable entities within our industry. These assumptions underlying the Black-Scholes valuation model involve management’s best estimates. Generally accepted accounting principles for equity-based compensation also require that we recognize compensation expense for only the portion of awards expected to vest. Therefore, we apply an estimated forfeiture rate that we derive from historical employee termination behavior. If the actual number of forfeitures differs from our estimates, adjustments to compensation expense may be required in future periods.
Recently Issued and Adopted Accounting Pronouncements
For a description of recently issued and adopted accounting pronouncements, refer to Part II, Item 8, “Financial Statements and Supplementary Data - Notes to Financial Statements - Note 1. Description of Business and Summary of Significant Accounting Policies,” which is incorporated herein by reference. We do not anticipate any material impact on our results of operations and financial conditions upon adoption of recent accounting pronouncements.
