Item 1A. Risk Factors.
You should carefully consider the risks described below, as well as the other information in this Annual Report, including our audited consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could adversely affect our business, financial condition, results of operations and growth prospects. In such an event, the market price of our Class A ordinary shares could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks Related to Commercialization
We may not be able to continue to commercialize ARCALYST or be successful in commercializing any future products, potentially impairing the commercial potential for our current and future products to generate any revenue.
Since our commercial launch of ARCALYST, we have focused on establishing and expanding our sales, marketing, distribution, access and payor and patient support services capabilities as well as contracting with third parties to perform certain services. Each aspect of commercialization on its own can be complex, expensive and time consuming, and, collectively, the required effort for coordination is intensive. While we have realized revenues from such efforts, there is no guarantee that we will be able to maintain the trajectory of growth or significant and sustained revenues in the future.
In addition, our continued commercialization of ARCALYST or successful commercialization of any of our current or future product candidates, if approved, could be materially adversely impacted by a number of foreseen and unforeseen factors, including:
● any delays in our ability to produce sufficient quantities of ARCALYST, or any of our future products, at an acceptable cost or quality, including delays arising out of quality assurance concerns or changes in regulatory guidance, or those caused by our reliance on our third party manufacturers;
● our inability to recruit, train and retain adequate numbers of effective sales, marketing, access and payor and patient support personnel;
● the inability of sales personnel to obtain access to prescribers and accounts;
● an inadequate number of prescribers or accounts prescribing our current and future products;
● the lack of complementary products to be supported by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
● our inability to equip customer-facing personnel with effective materials, including medical and sales literature to help them educate physicians and other healthcare professionals regarding applicable diseases relevant to ARCALYST or any of our future products;
● an absence or reduction in strong scientific-based relationships to drive disease awareness and education;
● our inability to establish the unmet medical need for a given disease;
● our inability to provide acceptable evidence of safety and efficacy;
● the prevalence and severity of side effects associated with any future product;
● our inability to compete with current or future competitor products and/or biosimilars;
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● the convenience and ease of administration of our products relative to alternative therapies, if any;
● alternative therapies that use the same or different mechanism of action for treating patients with recurrent pericarditis or other indications that our future products may treat;
● our inability or delay in gaining or maintaining reimbursement and broad patient access at a price that reflects the value of ARCALYST or any of our future products;
● limitations on the content or form of the consumer and/or prescriber-facing marketing materials that we may use;
● any delays in the ongoing technology transfer of the process for manufacturing ARCALYST drug substance;
● our inability to provide prescribers and patients adequate support and training to build comfort around the preparation and administration process to initiate and continue to use ARCALYST or any of our future products;
● our inability to develop or sustain robust patient support programs to optimize the patient and customer experience with ARCALYST or any of our future products;
● publications of scientific literature, consensus papers and treatment guidelines unfavorable to the administration of our products and product candidates and/or the positioning of the class of drugs to which each of our products and product candidates belongs;
● our inability to establish and maintain patent and trade secret protection or regulatory exclusivity for our products;
● our inability to enforce and defend our intellectual property rights and claims; and
● unforeseen costs and expenses associated with creating and maintaining a sales, marketing and access organization.
If we experience any such factors that inhibit our efforts to commercialize ARCALYST or any of our product candidates, if approved, our business, results of operations, financial condition and prospects may be materially adversely affected.
We rely on a select network of third party specialty pharmacies to market and sell ARCALYST that may not meet our or our patients’ needs.
We rely on a select network of third party specialty pharmacies to distribute ARCALYST in the United States, which is the only country where it is currently approved for sale. We expect to use a similar strategy to sell and distribute our current and future product candidates, if approved. We rely on such specialty pharmacies to effectively distribute products in a timely manner, provide certain patient support services, manage prescription intake, collect accurate patient and inventory data and collect payments from payors. While we have entered into agreements with each of these specialty pharmacies, they may not perform as agreed, our strategic priorities may change or they may terminate their agreements with us. Further, an inability of our specialty pharmacies to meet our patients’ needs may lead to reputational harm or patient loss. In the event that such network fails to properly meet our or our patients’ needs, we may need to partner with other specialty pharmacies to replace or supplement our current network and there is no guarantee that we will be able to do so on commercially reasonable terms or at all. In addition, there is a risk that patients may discontinue or suspend their ARCALYST treatment in the process of transitioning between specialty pharmacies, and it may take time to re-integrate such patients into our network, if at all. In such an event, our business, results of operations, financial condition and prospects may be materially affected.
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The successful commercialization of our current and future products, if any, will depend in part on the extent to which third party payors, including governmental authorities and private health insurers, provide funding, establish and maintain favorable coverage and pricing policies and set adequate reimbursement levels.
Our ability to continue to commercialize ARCALYST in its approved indications or our future products, if any, particularly in orphan or rare disease indications, will depend in part on the availability of favorable coverage and adequate reimbursement (including affordability of patient cost-sharing obligations) for ARCALYST or the future product and associated treatments from third party payors (e.g., governmental authorities, private health insurers and other organizations). We currently enjoy largely favorable coverage and reimbursement from third party payors for ARCALYST in the approved recurrent pericarditis indication and seek to maintain such favorable coverage and reimbursement. We cannot be certain we will continue to effectively execute our coverage and reimbursement strategy in the markets we pursue, which could limit the future commercial potential of ARCALYST in the approved recurrent pericarditis indication or any of our product candidates, if approved.
Governmental authorities, private health insurers and other third party payors have attempted to control costs through a number of efforts, including by delaying the time to reimbursement; restricting the breadth of coverage; implementing utilization management controls such as requiring prior authorization; limiting the amount of reimbursement for a particular product; restricting the prices that manufacturers may charge for their products and increasing the proportion of the cost for which the patient is responsible. Additional future government action to control costs is likely. There may be significant delays in obtaining reimbursement for newly approved products or product indications; coverage may be limited to a subset of the patient population for which the treatment is approved by the FDA or by similar regulatory authorities outside the United States including health technology assessment bodies in the European Union (the “EU”) and the UK; and reimbursement rates may vary according to the use of the product and the clinical setting in which it is used.
Coverage and reimbursement barriers by payors may materially impact the demand for, or the price at which we can sell, ARCALYST and any product candidate for which we obtain marketing approval, if any. If coverage and reimbursement are not available, or available at limited levels, or if such coverage will require patient out-of-pocket costs that are unacceptably high, our ability to successfully commercialize ARCALYST or any of the product candidates for which we obtain marketing approval may be adversely affected. Moreover, any coverage or reimbursement that may be obtained may be decreased or eliminated in the future. In addition, obtaining and maintaining favorable coverage and adequate reimbursement may require us to offer pricing concessions to third party payors.
We may face significant challenges in satisfying and sustaining favorable coverage and reimbursement for ARCALYST or any of our product candidates, if approved as third-party payors conduct value/benefit assessments. Payors may adopt stricter coverage criteria or select lower-cost clinical comparators, including biosimilars or competitive products (with the same or similar indications), as benchmarks for making value/benefit assessments. These actions could require patients to use alternative therapies before coverage is granted, limit pricing flexibility or even result in the denial or revocation of reimbursement. Even if we demonstrate improved efficacy, safety or convenience, competitive pricing and therapeutic category reviews may trigger aggressive pricing and coverage negotiations. Payors may also consider our products substitutable and agree to only cover the cost of an alternative product, or may remove the product from their formulary. In some cases, new competitors or biosimilars may trigger mandatory price cuts for the innovator product or broader price referencing aimed at lowering reimbursement rates for all treatments in the respective treatment category. These dynamics could significantly reduce our ability to achieve our desired pricing, limit our commercial potential and/or prevent us from realizing an appropriate return on investment. Ultimately, the evolving strategies of third-party payors to control costs and manage therapeutic categories could negatively impact our ability to continue commercializing ARCALYST or successfully launch any of our product candidates, if approved.
It may be difficult for us to realize the benefit of increasing the price of certain of our commercialized products.
We have and may continue to periodically increase the price of ARCALYST and may implement similar pricing practices for future products, if approved, and may be unable to realize commercial benefits from such price increases due to unfavorable actions that third party payors (including governmental authorities and private health insurers) may take in response. Even if price increases lie below contractual price protection clauses, payors may request
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price concessions in exchange for covering our products or may opt to change coverage or reimbursement policies with respect to such products. If we cannot successfully negotiate with such payors, we may be forced to provide significant price concessions or, if we fail to arrive at a satisfactory resolution, lose favorable coverage or reimbursement for patients served by such payor. We are also required to provide discounts or rebates under government healthcare programs or to certain government and private purchases in order to obtain coverage under federal healthcare programs. In addition, price increases that outpace inflation may also trigger additional rebate obligations, including under the Medicaid Drug Rebate Program.
In addition, the current presidential administration has taken and will likely continue to take action to limit or reduce the price of drugs and biologics. The full scope and nature of such actions, and what biopharmaceutical companies must do, remains uncertain, but any future required compliance could impede our ability to implement price increases with certain payors and purchasers.
Any price concessions will reduce our overall revenue generation and may impair the benefit of any price increases we may take. Even comparatively small discounts, if aggregated across payors, may cause materially lower revenue generation in the long-term, which may offset the increased revenue we hoped to realize through a price increase. In the event that we cannot successfully negotiate with payors requesting price concessions in connection with a price increase or otherwise, such payors may choose to end coverage or impose onerous reimbursement policies. We cannot assure you that current payor coverage and reimbursement policies for ARCALYST will continue. The loss of any payor, especially a large payor, or limitations on access to our drugs affecting a sizeable number of patients may materially harm our ability to generate revenue and execute on our commercial strategy.
Some payors, including governmental payors, negotiate drug prices by reference to the prices we have set with other payors. Granting price concessions to one or more payors (including government payors) may limit our ability to negotiate prices with other payors or in other territories. Further, this may limit our ability to secure acceptable prices in potential new territories, which may materially limit our overall commercial growth.
The incidence and prevalence for target patient populations of our products or product candidates have not been established with precision. If the market opportunities for our products and product candidates are smaller than we estimate, or if any approval that we obtain is based on a narrower definition of our targeted patient population, our revenue and ability to sustain profitability may be materially adversely affected.
The precise incidence and prevalence for all the conditions we aim to address with our programs are not known with specificity. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our products and product candidates, if approved, are based largely on our extrapolation from available population studies and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, pharmacy claims analyses, large national surveillance databases or market research, and may prove to be incorrect. Further, new trials and therapeutic options may lead to changes in the estimated incidence or prevalence of these diseases, or relevant subpopulations thereof. As a result, the number of patients who may benefit from our products or product candidates, if approved, may turn out to be lower than expected.
The total addressable market for ARCALYST and any other of our current or future product candidates, if approved, will ultimately depend upon, among other things, the diagnostic criteria and applicable patient population included in the final label for the product or product candidate approved for sale for its indication; the efficacy, safety and tolerability demonstrated by the product candidate in our clinical trials; acceptance by the medical community; and patients, pricing, access and reimbursement. The number of addressable patients in the United States, the country where substantially all ARCALYST sales occur, and other major markets outside of the United States may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Further, even if we obtain significant market share for our product candidates, because the potential target populations are small for many of our approved and targeted indications, we may never achieve significant and sustained profitability.
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Evolving health policy and associated legislative changes related to coverage and reimbursement aimed at lowering healthcare expenditures could impact the commercialization of our product candidates. Pharmaceutical pricing has been, and likely will continue to be, a central component of these efforts.
The regulations that govern regulatory approvals, pricing and reimbursement for new pharmaceutical products vary widely from country to country. In markets of some of the countries we may pursue outside of the United States, our products and product candidates, if approved, may be subject to extensive governmental price control or other price regulations. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country but then be subject to price negotiations that delay our commercial launch of the product candidate in that country, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product candidate in that country.
Net prices for products may be reduced by mandatory discounts or legislated rebates that must be paid in order to participate in government healthcare programs or paid to other third party payors. Mandatory discounts can be legislated at any time in any market. Similarly, some markets currently have pricing legislation that sets the price of a pharmaceutical product in their market by referencing the price of that product in other markets, known as international reference pricing. International reference pricing has the potential to impact price cut decisions in individual countries and the countries that reference the pricing of certain other individual countries.
Within the United States, the current presidential administration has sought and is likely to continue to seek to implement “most favored nation” pricing for drugs and biologics covered under government programs. For example, proposed Medicare Part B and Part D pilot models that, if finalized as proposed, would replace existing inflation-based Medicare rebates with rebates determined on the basis of international prices, for drugs and patients subject to the model. If “most favored nation” pricing is implemented, payment for our products could be adversely affected.
Drug importation and cross-border trade, both sanctioned and unsanctioned, occurs when a pharmaceutical product from a market where the official price is set lower is shipped and made commercially available in a market where the official price is set higher. Any future relaxation of laws that presently restrict or limit drug importation or cross-border trade, including in the United States, could have a material negative impact on our ability to commercialize ARCALYST or any of our product candidates, if approved.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of ARCALYST and any product candidates that we may develop, if approved.
We face an inherent risk of product liability exposure related to the commercialization of ARCALYST and the testing of our product candidates in clinical trials and other research activities. If we cannot successfully defend ourselves against claims that our products or product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
● decreased demand for any approved products;
● injury to our reputation and significant negative media attention;
● regulatory investigations that could require costly recalls or product modifications (or withdrawal of the product from the market);
● difficulty in enrolling participants in clinical trials or withdrawal of clinical trial participants;
● significant costs to defend the related litigation;
● loss of potential revenue;
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● the diversion of management’s attention away from managing our business; and
● the inability to commercialize any product candidates that we may develop, if approved.
Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur and is subject to deductibles and coverage limitations. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. These liabilities could prevent or interfere with our commercialization efforts.
Any future growth outside of the United States would be subject to additional regulatory burdens and other risks and uncertainties.
We are currently only authorized to market ARCALYST, our sole product, for the treatment of recurrent pericarditis in the United States, where we derive substantially all of our revenue. Our future growth may depend, in part, on our ability to commercialize our current and future products in markets outside of the United States either on our own or through collaborations with third parties.
We continue to evaluate the opportunities for the development and commercialization of our product candidates in certain markets outside of the United States, including through our Named Patient Program, Managed Access Program and collaborations with third parties, including Huadong. We and our collaborators are not permitted to market or promote any of our product candidates before we receive regulatory approval from the applicable regulatory authority in that market, and we may never receive such regulatory approval for any of our product candidates. To obtain separate regulatory approval in many other countries, we, or our collaborators, must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials, manufacturing and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions. If we obtain approval, and ultimately commercialize, our product candidates in markets outside of the United States, we would be subject to additional risks and uncertainties, including:
● our ability to obtain reimbursement for our product candidates in such markets;
● price negotiations that delay commercialization;
● our inability to directly control commercial activities because we may rely on third parties;
● the burden of complying with complex and changing regulatory, tax, accounting and legal requirements of such countries;
● exposure to increased regulatory risk, including those arising under the United States Foreign Corrupt Practices Act (the “FCPA”), the UK Economic Crime and Corporate Transparency Act 2023 or similar foreign regulations;
● different medical practices and customs in such countries affecting acceptance in the marketplace;
● import or export licensing requirements;
● tariffs, taxes and other restrictions on international trade;
● longer accounts receivable collection times;
● longer lead times for shipping;
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● language barriers for technical training and the need for language translations;
● reduced protection of intellectual property rights in certain countries;
● the existence of additional potentially relevant third party intellectual property rights; and
● foreign currency exchange rate fluctuations.
In some countries, particularly countries in Europe, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, price negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. To obtain adequate reimbursement or favorable pricing approval in some countries, we may be required to conduct a potentially costly clinical trial that compares our product candidate to other available therapies or in population groups not previously observed. Failure to demonstrate sufficiently desirable results to such parties may result in adverse pricing or reimbursement decisions. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Our business and operations are subject to extensive healthcare regulation and enforcement by various government entities, and our failure to strictly adhere to these regulatory requirements could have a detrimental impact on our business.
We are subject to ongoing regulatory requirements for a number of our activities, including manufacturing, packaging, labeling, storage, distribution, advertising, promotion, sampling, record-keeping, adverse event reporting, conduct of post-marketing trials and submission of safety, efficacy and other post-market information for our products in the United States and abroad. Such obligations, along with continued regulatory review, may result in significant additional expense. We also will be required to report certain adverse reactions, production and quality problems, inadequate efficacy and other issues, if any, to applicable regulatory authorities on an ongoing basis. In addition, the identification of new safety issues could lead to new labeling or restrictions on the patient population or use of our products, diminishing the addressable market or sales or both or removal of the drug from the market. Such conditions, requirements or events may prove to be expensive and burdensome, and the reporting of such may cause the price of our Class A ordinary shares to decrease. See “ Business – Government Regulation”.
If we fail to comply with regulatory requirements; if a regulatory agency discovers previously unknown problems with any of our current or future products, such as adverse events of unanticipated severity or frequency; if problems arise with the facility where a product is manufactured; or if a regulatory agency disagrees with the promotion, marketing or labeling of a product, such regulatory agency may:
● issue warning letters;
● impose civil or criminal penalties;
● suspend or withdraw regulatory approval;
● require us to suspend sales or withdraw a product from the market;
● suspend any of our ongoing clinical trials;
● impose civil, criminal and administrative penalties, damages, disgorgement or monetary fines;
● exclude us from participating in Medicare, Medicaid or other governmental healthcare programs;
● refuse to approve pending applications or supplements to approved applications submitted by us;
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● impose restrictions on our operations, including closing our CDMOs’ facilities;
● require us to withdraw or correct our marketing materials; or
● seize or detain products or require a product recall.
Any government investigation of alleged violations of law and regulations could require us to expend significant time, cost and resources in response, and could generate negative publicity or reputational harm. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.
The policies of the FDA and other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates or require significant changes to the manufacturing, sales and distribution of any of our products. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States, Europe or in other jurisdictions. If we or third parties acting on our behalf are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, we may be subject to potentially significant enforcement actions.
The development and marketing of pharmaceutical products and related arrangements with healthcare professionals, third party payors, patients and other third parties in the healthcare industry are subject to a wide range of healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our current and future products. Given the broad scope, evolving interpretation and unpredictable enforcement of these laws, our business activities could be subject to challenge in the future. For example, investigators for our clinical trials may serve as scientific advisors, speakers, advisory board members or consultants to us from time to time and receive compensation in connection with such services. Regulatory authorities may conclude that a financial relationship between us and a principal investigator or a clinical trial site has created a conflict of interest or otherwise affected interpretation of a study. Regulatory authorities may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized, which could result in a delay in approval, or rejection, of our marketing applications by regulatory authorities and may ultimately lead to the denial of marketing approval of our product candidates. Furthermore, investigators for our clinical trials may become debarred by regulatory authorities, which may impact the integrity of our studies and the utility of the clinical trial itself may be jeopardized.
Further, the development of our marketing and sales capabilities has required, and will continue to require, significant financial and management resources. Our direct sales and marketing efforts may not be successful or may be limited by future government policies or initiatives. For example, the FDA stated in September 2025 that it intends to more aggressively enforce requirements for direct-to-consumer drug advertising and sent a significant number of warning or untitled letters to pharmaceutical companies alleging deceptive prescription drug advertising, which represents a dramatic increase in FDA actions as compared to prior years. The current administration’s focus on pharmaceutical advertising heightens the risk that we may, in the future, receive a warning or enforcement action related to our advertising and marketing practices, which could adversely affect our business.
Risks Related to Product Development
If we are unable to advance our product candidates in clinical development and obtain regulatory approval, or experience significant delays in doing so, our business may be significantly harmed.
Our product candidates are in various stages of clinical development. We base our projections about the future development and potential approval of our product candidates on indirect data from other companies and the results of our preclinical and clinical trials, but ultimate success is uncertain and involves significant risk.
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We cannot be certain that any of our product candidates will be successful in their clinical trials or will receive regulatory approval. Further, we may choose to cease development of a product candidate prior to conducting a pivotal trial for any reason, including capital conservation purposes. We may also choose not to commercialize a product candidate that has completed a pivotal trial or received regulatory approval for a number of reasons, including commercial viability. Such decisions may be for a particular indication or for the product candidate entirely. In the event that a product candidate is unsuccessful in its clinical trials, fails to receive regulatory approval, is deprioritized for strategic reasons or is non-viable for another reason, our business may be materially harmed by limiting our ability to recoup our development expenses through a successful commercial launch.
Each of our product candidates requires substantial preclinical or clinical development and manufacturing support as part of our product development strategy. The clinical success of our current and future product candidates depends upon several factors, including, but not limited to, the following:
● submission to and authorization to proceed with clinical trials by the FDA under INDs and CTAs to applicable authorities outside of the United States;
● successful completion of required nonclinical studies, including toxicology studies, pharmacological and biodistribution studies, as conducted, where applicable, under GLP;
● successful site activation for, enrollment in and completion of clinical trials, including the ability of our CROs to successfully conduct such trials within our planned budget and timing parameters without adversely impacting our trials, and our ability to successfully oversee CRO activities;
● positive data from our clinical programs, including post-marketing trials and those intended to satisfy regulatory commitments or for label expansion, with sufficient quality to support an acceptable risk-benefit profile of our products and product candidates for the targeted indications in the intended populations to the satisfaction of the applicable regulatory authorities;
● timely receipt, if at all, of approvals from applicable regulatory authorities and maintenance of any such approvals;
● as applicable, acceptance of pediatric study plans by regulatory authorities, and the follow through of any pediatric study commitments, such as development of pediatric formulations, if required;
● successful manufacture of sufficient supply of our product candidates within approved specifications for purity, efficacy and cGMP requirements from our facility and from our CDMOs or other sole-source manufacturers in order to meet clinical or commercial demand, as applicable, for ourselves and for our partners;
● continued compliance with any post-marketing requirements imposed by regulatory authorities, including any required post-marketing clinical trial commitments or REMS or similar risk management measures; and
● maintenance of a continued acceptable safety profile of our product candidates before and following approval.
If we do not accomplish one or more of these factors in a timely manner or at all we could experience significant delays in, or an inability to, timely or successfully commercialize our product candidates.
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Clinical drug development is a lengthy and expensive process with uncertain timelines and outcomes. We may encounter substantial delays in our clinical trials, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities. We may therefore be unable to obtain required regulatory approvals and be unable to successfully commercialize our product candidates on a timely basis, if at all.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Commencing a clinical trial is subject to acceptance by the FDA of an IND or IND amendments, acceptance by competent authorities of the EU member states of a CTA under the CTR or acceptance by other applicable regulatory authorities. Clinical testing is expensive, time consuming and uncertain as to the outcome. See “ Business – Government Regulation” for more information on the regulations governing our clinical trials and product development.
Not all of our clinical trials have been conducted as initially planned or completed on our initial projected schedule, and, accordingly, we cannot guarantee that any of our current or future clinical trials will be conducted as initially planned or completed on our initial projected schedule, if at all. Further, even if conducted on time, a clinical trial may result in unfavorable or statistically insignificant results, leading us to abandon our pursuit of a particular indication or the development of a product candidate entirely. Clinical trials are a lengthy process that require the expenditure of significant money and human capital. Failing to achieve desired efficacy or identifying of a novel safety hazard in turn represents an inability to successfully recoup such expense via a potential commercialization of the product candidate, if approved.
A failure of one or more of our current or future clinical trials can occur at any stage of testing, and our clinical trials may not be successful. We have experienced and may continue to experience delays in our ongoing clinical trials, and we do not know whether planned clinical trials will begin on time, be allowed by regulatory authorities, require redesign, have timely site activation and participant enrollment or be completed on schedule, if at all. Factors that have and may in the future delay or prevent commencement or successful completion of clinical development of our product candidates as planned and on schedule, if at all, include but are not limited to:
● insufficient preclinical, toxicology or other data to support initiation of human trials;
● disagreements with regulatory agencies regarding trial design or implementation, including the appropriate dose levels, frequency of dosing, treatment period or endpoints in clinical trials;
● delays or failure in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
● difficulties obtaining IRB or ethics committee approval at each clinical trial site;
● delays or failure in obtaining regulatory approval to commence a clinical trial or the imposition of a clinical hold by regulators;
● difficulties in enrolling suitable participants due to competition from other clinical trials in the particular indication;
● clinical trial protocol amendments impacting study criteria, endpoints or design, including amendments that either we initiate or are requested by regulatory authorities;
● difficulty collaborating with patient groups and/or investigators;
● CROs, clinical trial sites or applicable third parties failing to adhere to clinical trial requirements or comply with applicable law;
● CROs, clinical trial sites or applicable third parties failing to conform to GCPs;
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● participants not completing a clinical trial or not returning for post-treatment follow-up;
● clinical trial sites withdrawing from a trial or being unable to conduct activities or participants withdrawing from clinical trials;
● participants experiencing serious adverse events, undesirable side effects or unacceptable health risks;
● participants failing to experience confirmed pre-specified events during the clinical trial within the expected timeframe, if at all;
● safety concerns outweighing potential benefits;
● regulatory changes requiring protocol amendments or new submissions;
● failure by us, our CROs or other third parties with whom we contract to timely and properly collect, analyze and/or assess clinical data;
● higher than expected clinical trial or clinical product manufacturing costs;
● strategic clinical trial reprioritization;
● errors in collecting, analyzing and assessing clinical data;
● clinical trials producing negative, inconclusive or uncompetitive results;
● failures to replicate safety, efficacy or other data from earlier preclinical studies and clinical trials conducted by us or third parties, including the trials of companies from whom we have licensed or acquired assets;
● the occurrence of unforeseen adverse events;
● trial suspensions or terminations by us, IRBs, DSMBs, DMCs, or regulators;
● insufficient production of product candidates meeting cGMP standards;
● manufacturing or supply chain delays; and
● operational disruptions affecting us, our CROs or our CDMOs and other third parties we rely on to conduct our clinical trials.
Delays in the commencement or completion of our clinical trials have occurred and may occur in the future. Consequences of delays have increased and may in the future increase our costs of developing our product candidates, delay the development and approval of our product candidates or delay or jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, difficulties and delays in the commencement or completion of clinical trials may also lead to the denial of regulatory approval of our product candidates or us deciding to modify or cease development of our product candidates.
Clinical trial delays could also shorten any periods during which we have patent protection or have the exclusive right to commercialize our product candidates, and may allow our competitors to bring products to market before we do, which could impair our ability to obtain orphan exclusivity for our products that potentially qualify for this designation and to successfully commercialize our product candidates.
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Clinical trials must be conducted in accordance with a number of national and international rules and regulations in the jurisdictions where such clinical trials are conducted. See “ Business – Government Regulations ”. Further, conducting global clinical trials , as we do for certain of our product candidates, requires that we coordinate among the legal requirements and guidelines of regulatory authorities across a number of jurisdictions, including the United States, the EU, the UK and countries outside of those jurisdictions, which could require that we amend clinical trial protocols, terminate a trial in one or more jurisdictions or run separate trials in various jurisdictions due to the inability, cost or delay in harmonizing divergent requests from such regulatory authorities, all of which could increase costs.
In addition, clinical trials that are conducted in countries outside the United States, the EU and the UK may subject us to risks associated with the engagement of CROs who are unknown to the FDA, the EMA or the EU national component authorities or the MHRA and may have different standards of diagnosis, screening and medical care. Such trial sites may also incur risks associated with further delays and expenses as a result of increased shipment costs (including as a result of local quality release or in-country testing of a product candidate supply produced in a different jurisdiction for our clinical trials) and political and economic risks relevant to such countries outside the United States, the EU and the UK. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted.
In addition, clinical trial rules and regulations may change. Such changes may require us to dedicate time, resources and capital to comply and, if we are unable to do so effectively or on a timely basis, our development plans may be impacted and our business may suffer material harm.
We may find it difficult to enroll participants in our clinical trials in a timely manner given the limited number of patients who have the diseases for which our product candidates are being studied, our particular enrollment criteria or competing clinical studies in the same patient population.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion, particularly given that many of the conditions for which we are evaluating our current product candidates or may evaluate in the future are in small disease populations. Accordingly, when we encounter difficulties in enrollment, we have experienced and may in the future experience delays, or we may be prevented from completing our clinical trials. Participant enrollment depends on many factors, including:
● the size and nature of the patient population;
● the severity of the disease being studied;
● participant referral practices of prescribers;
● participant eligibility criteria for the clinical trial and evolving standards of care;
● the proximity of participants to clinical sites;
● the complexity of the design and nature of the clinical protocol and trial;
● the fact that our product candidates modulate the immune system and carry unique risks associated with immunosuppression, including the risk of serious infections, potential interference with vaccines and other potential serious health risks;
● the availability and nature of competing clinical trials;
● the availability of standard of care and/or new or existing drugs approved for the indication we are investigating;
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● failure to obtain, maintain and/or timely amend participant consents;
● our ability to recruit clinical trial investigators with applicable competencies and experience;
● participants withdrawing from trials before completing their treatment or follow-up period;
● clinicians’ and participants’ perceptions as to the safety and potential advantages of the product candidate being studied in relation to other available therapies; and
● the occurrence of adverse events or undesirable side effects attributable to our product candidates.
The process of finding and enrolling participants may prove costly, especially since we are looking to identify a subset of the participants eligible for our studies from a relatively small patient population for many of the diseases we are studying. Encountering difficulties in participant enrollment could cause our costs to significantly increase, and our clinical trials may be significantly delayed. Such occurrences may also delay or prevent any potential regulatory approval and commercialization, harming our business, financial condition and prospects significantly.
Undesirable side effects or adverse reactions caused by any of our product candidates may be identified that could delay or prevent their marketing approval or limit their use.
Undesirable side effects or adverse reactions caused by our product candidates could cause our CROs, an IRB or regulatory authorities to interrupt, delay or halt an ongoing clinical trial and could result in the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. Even if approved, such events could lead to restrictions to the product’s label that could materially limit our ability to successfully commercialize the product. For example, many of our assets modulate the immune system and carry risks associated with immunosuppression, such as serious infections or malignancy. In addition, if other molecules in the same or related class being developed or commercialized by third parties show the same or similar side effects as those we observed in our trials but to a greater degree or report new previously-unreported side effects, it could have an impact on the entire class of molecules, and the applicable regulatory authority may modify, suspend, or terminate our clinical trials; not authorize further clinical trials; require post-marketing clinical trial commitments or safety monitoring (e.g., REMS); or even suspend commercialization of any products or product candidates, as applicable, that contain a molecule within such class. The development of our product candidates and, if approved, commercialization of our products for new indications or new patient populations by Regeneron or Huadong (each having certain rights to develop and commercialize ARCALYST) may increase the possibility of uncovering adverse safety results not previously discovered during our own clinical development process or United States commercialization. Compassionate use of our products and product candidates, or evaluation of our products and product candidates by third parties or scientific collaborations could also uncover undesirable side effects or adverse safety results that negatively impact our clinical trials.
If any of our product candidates is associated with undesirable side effects or adverse reactions, we may choose to halt or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or adverse reactions are less prevalent, less severe or more acceptable from a risk-benefit perspective.
In addition, clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of participants and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered when a significantly larger number of patients are exposed to the product. If we or others later identify undesirable side effects caused by our products or product candidates, if approved, a number of potentially significant negative consequences could result, including but not limited to:
● regulatory authorities may withdraw approvals of such product and require us to take it off the market;
● regulatory authorities may require the addition of labeling statements, specific warnings, contraindications or field alerts to prescribers and pharmacies;
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● we may be required to create a registry or a REMS or similar risk management measures;
● we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product; and
● we may be subject to limitations on how we promote the product.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product or product candidate, and could significantly harm our business, results of operations and prospects.
Interim, preliminary and “top-line” data from our clinical trials may differ from final data.
From time to time we may announce or publish interim, topline or preliminary data from our preclinical studies or clinical trials, which are based on an interim or preliminary analysis of the then available data from an in-progress or completed study, as applicable. Such data may be subject to change following a more comprehensive review of the data from the particular clinical trial. Interim data may change, and such change may be material, as participant enrollment continues or patients continue on treatment in the study. For preliminary or topline data, we also make assumptions, estimations, calculations and conclusions as part of our preliminary analyses, and, as a result, such data remain subject to audit and verification procedures that may result in the final data being different from the data we previously announced or published. Interim data should be viewed with caution until final data are available.
Third parties, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate and our business prospects. In addition, the information we announce or publish regarding a particular preclinical study or clinical trial may represent only a portion of extensive information generated from that study or trial, and our shareholders or other third parties may not agree with what we determine is material, important or otherwise appropriate information to include in our disclosure.
If the interim, preliminary or topline data that we report differ materially from final results, or if third parties, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business prospects, operating results or financial condition. Further, announcement of preliminary, interim or top-line data by us or differences between that data and the final data could result in volatility in the price of our Class A ordinary shares.
Risks Related to Marketing Approval and Regulatory Matters
Regulatory approval processes are lengthy, time consuming and inherently unpredictable. If we cannot obtain, or if there are delays in obtaining, required regulatory approvals for our current or future product candidates or if we fail or otherwise cease to advance their development, we will be delayed in commercializing, or will not be able to commercialize, our current or future product candidates.
Before commercializing any product, we must obtain marketing approval from regulatory authorities to sell the applicable product. We may not be able to receive approval to market any of our current or future product candidates from regulatory authorities in our desired indications in any jurisdiction, and it is possible that none of our product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Approval requires the submission of extensive preclinical and clinical data and supporting information to demonstrate safety and efficacy, plus detailed manufacturing information and facility inspections. Biologic manufacturing involves living systems and highly specialized processes that are very complex and obtaining approval for such facilities is uncertain. Authorities may deny approval based on these submissions or inspections. Further, our product candidates may prove ineffective, only moderately effective or exhibit side effects or toxicities or other characteristics that may preclude our obtaining marketing approval or that prevent approval or limit commercial use. Regulatory agencies have broad discretion in the approval process and may determine our data are insufficient or request additional information or conduct additional inspections. Even trial results that we believe are promising may not meet approval standards, and
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generating extra data could be difficult to generate or provide and require significant additional expense. Following approval of a product for sale, the FDA may inspect manufacturing facilities and suspend manufacturing if deficiencies are found, requiring alternative approved sites. These risks could significantly delay or prevent commercialization.
We may seek regulatory approval for our product candidates outside the United States. While requirements are similar across jurisdictions, obtaining approval in multiple countries requires compliance with varying regulatory requirements for safety, efficacy, clinical trials, sales, pricing and distribution, and success cannot be assured.
The approval process in the United States and in other jurisdictions is lengthy, costly and uncertain, often taking years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Legislative or policy changes may delay submissions or approvals. Regulatory authorities have broad discretion in the approval process and may reject applications, deem data insufficient or require additional or clinical studies. Delays or failures in obtaining regulatory approval may occur for reasons including:
● disagreements on trial design or implementation;
● inability to demonstrate to the regulatory authorities safety or efficacy or that the clinical benefits of the product outweigh its safety risks;
● regulatory authorities requiring additional data or clinical trials, including trials to compare our products to other therapies;
● adverse safety signals or side effects from approved therapeutics or therapeutics in development in the same or related class as our products or product candidates, could require us to collect additional data or conduct additional clinical trials;
● negative or inconclusive or uncompetitive trial results, resulting in us deciding to, or regulatory authorities requiring us to, conduct additional clinical trials or to modify or cease development programs;
● clinical trials failing to meet their applicable primary or secondary endpoints, or the level of statistical significance required by regulatory authorities;
● regulatory authorities disagreeing with our interpretation of data from our preclinical studies or clinical trials;
● clinical trials generating insufficient data to support BLA, sBLA, New Drug Application, MAA or other filings;
● inability to recruit and retain sufficient numbers of suitable participants for our clinical trials;
● CRO noncompliance with data or regulatory requirements;
● regulatory authorities determine we have not sufficiently demonstrated our ability to manufacture our candidates to the requisite level of quality standards;
● regulatory authorities may conclude that on-site inspections and data audits have not sufficiently demonstrated the quality and integrity of the clinical trial conduct and of data submitted to regulatory authorities in support of our new marketing applications;
● inadequate supply or quality of trial materials;
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● undesirable side effects, toxicities or unexpected characteristics, causing trial suspension or termination by us, site investigators, IRBs or regulatory authorities; and
● regulatory policy changes.
Even if a product candidate is approved, regulatory authorities may limit indications or the patient populations approved to use the drug, impose postmarketing requirements, reject proposed pricing, make approval contingent on the performance of costly postmarketing clinical trials, approve a label that does not include the labeling claims necessary or desirable for the successful commercialization of our product or otherwise impose restrictions or requirements that may require significant additional expense or create substantial limitations on our product candidates’ commercial potential.
Our products, current product candidates and any of our future product candidates regulated as biologics in the United States may face biosimilar competition sooner than anticipated.
In the United States, the BPCIA created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first approved under a BLA by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12 year period of exclusivity, another company may still market a competing version of the reference product for the same therapeutic indication if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty.
For example, although ARCALYST was approved as a biological product under a BLA for the treatment of CAPS in February 2008, and we believe it qualified for the 12 year period of exclusivity against any biosimilars, such 12 year period of exclusivity has lapsed. The FDA approved ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and children 12 years of age and older in March 2021. However, the 12 year exclusivity period does not attach to the approval of an sBLA, potentially creating the opportunity for biosimilar competition, subject to any Orphan Drug exclusivity under the United States Orphan Drug Act. If we obtain FDA approval for any of our other biological product candidates, we expect any such product candidates to qualify for the 12 year period of exclusivity under the BPCIA (such period may be shortened due to future regulatory changes). In addition, the FDA may not consider any of our approved product candidates to be reference products for competing products that were submitted for regulatory approval. If any competitor products were to enter the market, the sales of our approved products may be negatively impacted.
If we obtain marketing authorization of our current or future product candidates in a major pharmaceutical market, we may not seek or obtain approval or commercialize our current products or product candidates in other markets, which would limit our ability to realize their full market potential.
In order to market any products in a country or territory, we must establish and comply with numerous and varying regulatory requirements of such country or territory regarding safety and efficacy. Regulatory requirements can vary widely from country to country, and clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Further, regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation, additional administrative review periods and additional preclinical studies or clinical trials, which would be costly and time consuming and could delay or prevent the introduction of our current or future product candidates, or ARCALYST, in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries.
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We may seek Orphan Drug designation for our product candidates in the United States, as well as for any of our product candidates in the EU, and we may be unsuccessful, or may be unable to maintain the benefits associated with Orphan Drug designation, including the potential for market exclusivity, for any product candidate for which we obtain Orphan Drug designation.
Regulatory authorities in some jurisdictions, including the United States and the EU, may designate drugs or biologics intended to treat small patient populations as Orphan Drug products, which are subject to a number of region-specific (e.g., tax credits, user fee exemptions and potential market exclusivity) rules and regulations. See “ Business – Government Regulation ” for more information on applicable rules and regulations.
We have received Orphan Drug exclusivity in the United States for ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and pediatric patients 12 years and older. We have received Orphan Drug designation in the United States for KPL-387 for the treatment of recurrent pericarditis. In addition, we have received Orphan Drug designation in the EU for ARCALYST for the treatment of idiopathic pericarditis. In the future, we may seek Orphan Drug designation for certain of our other product candidates in the United States or the EU. We may be unsuccessful in obtaining such designation for any of our other product candidates or unable to maintain the associated benefits for any of our other current or future product candidates that are granted Orphan Drug designation, if any. Even if we obtain Orphan Drug designation for certain product candidates for a particular orphan indication in the United States or the EU, we may not be the first to obtain marketing approval for such orphan indication due to the uncertainties associated with developing pharmaceutical products. In such cases, subject to applicable laws in those jurisdictions, Orphan Drug exclusivity may no longer be available for our product candidates, if approved, unless we can show a significant safety or efficacy advantage over the already approved orphan drug. Moreover, in the event our drug is deemed similar to the first approved orphan drug, we may be denied regulatory approval for our drug in such orphan indication for the duration of the Orphan Drug exclusivity period. Further, in order to maintain Orphan Drug exclusivity in the EU, we must demonstrate that our product or product candidate has a significant benefit over other satisfactory methods. If we are unable to do so, Orphan Drug exclusivity can be withdrawn.
In connection with the FDA’s approval of ARCALYST in the recurrent pericarditis indication, we received seven years of Orphan Drug exclusivity for ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and pediatric patients 12 years and older. We may also receive seven years of Orphan Drug exclusivity for KPL-387 in the same indication, should we receive FDA approval to market and commercialize the drug and satisfy the other requirements for such exclusivity. Even if Orphan Drug exclusivity is obtained, that exclusivity may not effectively protect those product candidates from competition because different drugs can be approved for the same disease or condition. Even after an Orphan Drug is approved, the FDA can subsequently approve a later application for the same drug for the same disease or condition if the FDA concludes that the later drug is clinically superior because of safety, efficacy or some other contribution to patient care. In addition, a designated Orphan Drug may not receive Orphan Drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, Orphan Drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to manufacture sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Foreign regulatory authorities may also make the same determination. Orphan Drug designation also neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
We may seek Breakthrough Therapy designation or Fast Track designation by the FDA, for one or more of our product candidates, which we may not receive. Such designation may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.
We may seek Breakthrough Therapy or Fast Track designation for one or more of our product candidates, which, if granted, offers the potential for a rolling review of a BLA if a number of conditions are met, which would allow data to be submitted and reviewed as they become available rather than waiting for the full data package to become available to be submitted. Rolling review is often faster than the FDA’s standard review process. The FDA has broad discretion whether or not to grant Fast Track and Breakthrough Therapy designations, and even if we believe a particular product candidate is eligible for such designations, we cannot be certain that the FDA would decide to grant
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them. Even if we obtain such designations for one or more of our product candidates, we may not experience a faster development process, review or approval compared to non-expedited FDA review procedures. In addition, the FDA may withdraw Fast Track or Breakthrough Therapy designations if it believes that such designations are no longer supported. Although product candidates receiving Fast Track and Breakthrough Therapy designation are generally eligible for the FDA’s priority review procedures, receiving such designations does not guarantee that the BLA for such product candidates will receive priority review. See “ Business – Government Regulation ” for more information on applicable rules and regulations.
We may seek a PRIME designation from the EMA, a conditional MA or other designations, schemes or tools for one or more of our product candidates, which we may not receive. Such designations may not lead to a faster development or regulatory review or approval process and do not increase the likelihood that our product candidates will receive marketing authorization.
We may seek a PRIME (Priority Medicines) designation from the EMA, a conditional MA or other designations, schemes or tools for one or more of our product candidates, each of which offer incentives similar to a United States Breakthrough Therapy designation. See “ Business – Government Regulation ” for more information on the applicable rules and regulations.
Even if we believe one of our product candidates is eligible for PRIME, the EMA may disagree and instead determine not to make such designation. The PRIME scheme or other schemes, designations or tools, even if obtained or used for any of our product candidates may not lead to a faster development, regulatory review or approval process compared to therapies considered for approval under conventional procedures and do not assure ultimate approval. In addition, even if one or more of our product candidates is eligible to the PRIME scheme, the EMA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for review or approval will not be shortened.
The regulatory authorities in the EU have broad discretion whether to grant such an accelerated assessment, conditional marketing authorization or marketing authorization under exceptional circumstances, and, even if such assessment or authorization is granted, we may not experience a faster development process, review or authorization compared to conventional procedures. Moreover, the removal or threat of removal of such marketing authorizations may create uncertainty or delay in our clinical development plans or threaten our product candidates’ commercial prospects. Such an occurrence could materially impact our business, financial condition and results of operations.
We face substantial uncertainty regarding potential regulatory developments in the United States that may adversely affect our business.
The current presidential administration and federal government could adopt legislation, regulation orders or policies that adversely affect our business, including by making it more difficult to continue to market ARCALYST or by creating a more challenging and costly environment to pursue the development and commercialization of our current or future product candidates. For example, the federal government, including the FDA, may implement legislative, regulatory or policy changes regarding the standards for approving biologic products that we may be unable to satisfy or changes regarding the marketing of approved biologics that may limit or prohibit the advertising and promotion of ARCALYST and, if approved, our current or future product candidates. The impending uncertainty could present new challenges or potential opportunities as we navigate the clinical development and approval process for our product candidates.
The current presidential administration has also undertaken significant efforts to reduce the size and spending of the federal government, including at the FDA. A significant reduction in the FDA’s workforce or the FDA’s budget, or other disruptions at the FDA, could materially impact the FDA’s ability to engage in a variety of activities that may affect our business, including routine regulatory and oversight activities. The current administration has substantially reduced the FDA’s workforce and may make further reductions, which may lead to disruptions and delays in the FDA’s review and oversight of our product candidates and impact the FDA’s ability to provide timely feedback on our development programs. Further, reductions in workforce in divisions of the FDA responsible for overseeing the importation of pharmaceutical goods may delay our manufacturing timelines. Additionally, reductions in the FDA’s
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review or inspection divisions could extend review timelines, delay or prevent pre-approval inspections and limit opportunities for FDA feedback on pending applications. Any of these actions may delay or limit our ability to obtain FDA approval and commercialize our product candidates, including our ability to obtain regulatory approval for the technology transfer of ARCALYST drug substance manufacturing to Samsung.
Furthermore, the current administration has discussed several changes to the reach and oversight of the FDA, which could affect its relationship with the pharmaceutical industry, transparency in decision making and ultimately the cost and availability of prescription drugs.
Risks Related to Manufacturing and Our Reliance on Third Parties
We contract with third parties for manufacturing our commercial supply of ARCALYST and clinical supply for our product candidates and for certain research and other preclinical development. This reliance on third parties increases the risk that we may not have sufficient quantities of ARCALYST or our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our research and development or commercialization efforts.
We rely, and expect to continue to rely, on third parties for the manufacture of our late-stage product candidates and certain early-stage product candidates for the majority of our clinical development efforts; the commercial manufacture of our current and future products; and labeling and packaging activities for our current and future products. We rely on these third parties to produce, package and ship our products and product candidates at sufficient quality and quantity and in a timely manner in order to support our and our collaboration partners’ commercialization and research and development efforts.
The manufacture of our current and future products and product candidates is highly regulated, complex and difficult, requiring a multi-step and controlled process, and even minor problems or deviations could result in failed batches, reduced process yields or products that do not meet quality and specification requirements. As a result, we and our third party providers may be unable to manufacture sufficient supply of ARCALYST or our product candidates despite our and our CDMOs’ best efforts. Failure to produce sufficient quantities of our products and product candidates that comply with all specifications could delay their development, result in supply shortages for our patients, result in lost revenue and diminish our potential profitability. This may lead to lawsuits or delay the introduction of our product candidates to the market.
Our reliance on third-party CDMOs increases the risk that we will have insufficient quantities of ARCALYST and our product candidates, or that such products may not be produced at acceptable cost, quality or in a timely manner due to, for example, deviations in operations or manufacturing facility control, or production interruptions caused by equipment failure and an inability to source adequate replacement parts and equipment. Any of these could impair commercialization or clinical development efforts. From time to time, we have identified events in the ARCALYST manufacturing process that have prevented the distribution of ARCALYST material as planned, though these events have not materially impacted our ability to supply ARCALYST. If we cannot source sufficient quality finished material in the future, we may stock out, fail to meet patient demand or be forced to effect a recall, any which could adversely affect our business and financial condition. Further, equipment used in the ARCALYST manufacturing process may no longer be supported by vendors in the event of equipment failure. Such equipment may also not be repaired, replaced or qualified in a timely manner. Reagents for analytical testing have and may in the future become outdated and may require qualification before new reagents may be used. These risks may increase with higher clinical or commercial demand or if we expand ARCALYST to new indications or territories.
Regeneron is the sole manufacturer of ARCALYST drug substance and will remain so until we complete the technology transfer of the manufacturing process for ARCALYST drug substance to Samsung. Regeneron not obligated to accept our forecasts or purchase orders in certain circumstances and Regeneron may not have sufficient manufacturing capacity to meet our commercial or clinical demand for ARCALYST (including increased demand arising from our need to replace material lost to manufacturing issues). Regeneron, in turn, relies upon other third parties to conduct fill/finish operations for ARCALYST. In the event that a particular batch of ARCALYST fails to meet specifications, whatever the cause, we are nonetheless obligated to pay for such material pursuant to the terms of the
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Supply Agreement. Further, we rely on a third party CDMO to package and label ARCALYST. Our reliance on Regeneron (including its respective CDMOs) and our other CDMOs as our sole manufacturers and/or service providers means that we do not have direct control over ARCALYST manufacturing operations and scheduling, which may impact our ability to meet commercial or clinical demand for ARCALYST. We may also be subject to unexpected costs arising from any manufacturing or supply chain disruptions. Many of these risks may still be present after successful completion of the technology transfer of ARCALYST drug substance manufacturing to Samsung and there is no guarantee that such technology transfer will materially diminish our ARCALYST manufacturing risk profile.
In addition, given the lead times we must provide to Regeneron and Samsung with respect to the commercial supply of ARCALYST, we must place purchase orders in advance based on projected demand. Such projections involve risks and uncertainties. We, Regeneron or Samsung may be unable to swiftly accommodate for unforeseen increases in commercial demand due to manufacturing capacity limitations. We may also be required to estimate and order safety stock as part of our planned technology transfer of the manufacturing process for ARCALYST drug substance, which will be subject to a number of the same risks and uncertainties. As a result, we may have too little ARCALYST inventory to meet actual demand or may pay for ARCALYST supply that we will be unable to sell.
We have also contracted with CDMOs to produce our clinical product candidates. While we have manufacturing capabilities to support early development for our product candidates, we and our CDMOs may not be able to produce sufficient quantities of our product candidates or produce them at an acceptable quality, including as a result of global supply chain issues, which could delay, prevent or impair our development or commercialization efforts and increase costs.
We are party to a collaboration agreement with Huadong for ARCALYST. Until such time as Huadong is able to manufacture ARCALYST, either on its own or through a third party CDMO, we are its only source of drug supply. If our current supplier of drug substance and drug product for ARCALYST cannot produce sufficient quantities to satisfy our needs and Huadong’s needs, then this may have an adverse impact on our and Huadong’s business and operations. A failure by our CDMOs to supply sufficient quantities of drug supply may cause us to breach our contractual obligations, triggering potential penalties, including termination of the agreement, if we fail to adequately cure such breach.
If we make manufacturing or formulation changes to our products or product candidates or change manufacturers or manufacturing processes, we may be unsuccessful in producing products or product candidates comparable to existing commercial supply or those used in prior clinical trials. Therefore, we may need to conduct additional process development or additional clinical trials to bridge our prior clinical results to those resulting from the new manufacturing process or new manufacturers, which could impact the timing and subsequent success of our planned commercial supply or clinical trials. In addition, as we plan to produce clinical trial and commercial material at a CDMO, the CDMO may be required to adopt different manufacturing protocols or processes. With respect to ARCALYST, Samsung will utilize a modified manufacturing process from that used by Regeneron, which could require lengthy development, regulatory review and approval.
Facilities used by our CDMOs to manufacture, label and package ARCALYST and our product candidates may be inspected by regulatory authorities in connection with MA submissions or based on work for other sponsors. While we oversee these CDMO activities, we do not control their manufacturing operations and rely entirely on CDMOs for compliance with cGMP and other regulatory requirements in connection with manufacturing, labeling and packaging operations. If our CDMOs fail to meet product specifications or regulatory standards, they will not be able to secure or maintain regulatory approval to operate their facilities. Although we have the contractual right to review compliance history and audit their performance, we lack direct control over CDMO operations, quality systems and personnel. Failure to obtain facility approval or the subsequent loss or withdrawal of facility approval could require us to identify alternative CDMOs, significantly impacting development timelines, regulatory approval outcomes or commercialization ability. Failure by us or CDMOs to comply with regulations could result in sanctions, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures, recalls, operating restrictions or criminal penalties, any of which could materially affect our business and product supply.
Other factors that may adversely affect manufacturing operations include natural disasters; accidents; boycotts; labor disputes; political and economic instability, such as acts of terrorism or war; changes in importation or exportation
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requirements and policy; increased tariffs and/or taxes; disruptions at relevant government agencies, including the FDA, overseeing the importation of goods; or an epidemic, pandemic or other outbreak of disease. The occurrence of any such event could adversely affect our clinical and commercial supply, which would result in additional costs, impair our ability to generate revenue or otherwise harm our business, financial condition and prospects significantly.
Supply chain issues related to important ancillary products may also adversely affect our business. For example, we contract with a select network of specialty pharmacies who distribute ARCALYST as well as peripheral supplies that are required to reconstitute and self-administer ARCALYST, such as sterile water for injection, syringes and needles. A delay or shortage in the supply or the distribution of the peripheral supplies required to administer ARCALYST may impact patient access to ARCALYST and could cause us to lose potential revenue, reduce our potential profitability and damage our reputation.
We also contract with third parties to source specialized placebo for use in our clinical trials which cannot be easily replaced as it must be nearly indistinguishable from our product candidates to ensure proper clinical trial blinding. If we encounter shortages of such placebo, our clinical trials may be substantially delayed unless and until we can source suitable replacements.
Our products and product candidates may also compete with other product candidates and approved products for access to and capacity within the limited number of cGMP-compliant CDMOs that operate manufacturing, packaging and labeling facilities. For our product candidates, we may wait to reserve capacity until we can be informed by data from the clinical trials of our product candidates, which may take several months. Any significant delay in the supply of clinical materials could considerably delay our clinical development efforts. Furthermore, given the limited capacity at many CDMOs and the long lead times needed to reserve capacity, CDMOs may require monetary commitments in connection with such reservations as well as fees for changes or cancellations or expedited operations.
Any CDMO manufacturing failure could delay or prevent, as applicable, clinical development, marketing approval or commercialization efforts for our current and future products. If our current CDMOs cannot perform as agreed, we may be required to replace them. Although we believe that there are several potential alternative CDMOs, we may incur added costs and delays in identifying and qualifying any such replacement. In addition, we may not be able to establish new agreements on acceptable terms, if at all, with such alternative manufacturers. Further, establishing replacement CDMOs for ARCALYST or our product candidates, if required, is unlikely to be accomplished in a timely or cost-effective manner, if at all. Failing to procure a replacement CDMO on commercially reasonable terms could have a material adverse impact upon our business, results of operations and financial condition.
We are conducting a technology transfer with respect to the manufacturing process of ARCALYST drug substance from Regeneron to Samsung and the analytical testing methods of ARCALYST drug substance and drug product to new CTLs. Such technology transfer will be subject to significant risks and uncertainties.
In March 2023, Regeneron, our sole supplier of ARCALYST drug substance, initiated a technology transfer related to the manufacturing process of ARCALYST drug substance and the analytical testing methods of ARCALYST drug substance and drug product. Since then, we have worked to qualify Samsung as the new manufacturer of ARCALYST drug substance, and new CTLs who will serve as the new testing labs of ARCALYST drug substance and drug product. We have also contracted with Samsung to document the technology transfer and enable commercial manufacturing, if successful.
Pharmaceutical development, manufacture and analytical testing requires significant expertise and capital investment, and the manufacture and testing of biologics, in particular, can be complex and difficult. While we have selected Samsung as our replacement CDMO and have selected replacement CTLs, we are still in the technology transfer process, which is a time-consuming and difficult task that may require significant time and focus from our management and technical teams. Further, because of the complexities of this process, the technology transfer may be subject to substantial delay. We have yet to receive final regulatory approval to proceed. Such final approval may be substantially delayed due to the complexity of the technology transfer and related processes, an inability to successfully complete validating Samsung as a CDMO and our new CTLs, disruptions at the FDA and other factors. Such a delay could materially harm our business and operations.
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In addition to the need to successfully complete the technology transfer of ARCALYST drug substance manufacturing to Samsung, the facility at which Samsung will manufacture ARCALYST will require approval by the FDA prior to the sale of ARCALYST manufactured at such facility. The FDA generally requires that any replacement CDMO be able to manufacture drug substance at sufficient levels of comparability with the materials produced by the original manufacturer. Failure to provide sufficient evidence of comparability may result in the FDA requesting a bioequivalence or pharmacokinetic study, which would delay our expected technology transfer timeline. We cannot guarantee that the FDA will approve the Samsung facility. Further, because the Samsung manufacturing facility is located in South Korea, unlike Regeneron’s United States-based manufacturing facility, we may face new risks arising from tariffs, import/export restrictions, customs proceedings, product being lost or damaged during international shipping, differing regulations, supply chain interruptions and other risks inherent to international operations. These risks, should they occur, could increase our costs and affect our ability to meet clinical and commercial demand for ARCALYST, which could materially impact our business, financial condition and results of operations.
Regeneron is contractually obligated to continue manufacturing ARCALYST drug substance for at least a portion of the time that it will take us to qualify Samsung as a replacement CDMO. During such time, Regeneron will remain subject to many of the risks described elsewhere in this “ Risk Factors ” section, including the risk that it is unable to manufacture sufficient quantities of ARCALYST and at sufficient quality to meet ours and our patients’ and collaborators’ needs. Further, because we expect the timeline for any successful technology transfer to extend beyond Regeneron’s contractual obligations, meeting patient demand will depend significantly on securing sufficient safety stock from Regeneron, negotiating continued ARCALYST drug substance manufacture by Regeneron beyond its contractual obligations or some combination thereof. Purchasing safety stock requires significant upfront investment and such stock may expire or run out before completion of the technology transfer. Regeneron may also disagree with our forecasted safety stock requirements and manufacture less ARCALYST drug substance than we request, exposing us to risks if the technology transfer process is significantly delayed. Any arrangement that we negotiate with Regeneron to manufacture ARCALYST beyond their contractual obligations may not be on as favorable terms as our current relationship, which could materially increase our costs. A failure to secure sufficient safety stock or negotiate satisfactory manufacturing terms with Regeneron could result in supply shortages for our patients and collaborators while we work to complete the technology transfer.
A failure to either complete our planned technology transfer on our expected timeline or at an acceptable cost and/or secure sufficient supply of ARCALYST through the technology transfer process would have a material impact on our business, financial condition and results of operations.
The third parties upon whom we rely for the supply of our products and product candidates are our sole source of supply, and the loss of any of these suppliers could significantly harm our business or the business of our partners.
The drug substance and drug product used in ARCALYST and KPL-387 are supplied to us from single-source suppliers, and we obtain the drug substance and drug product used in abiprubart from a limited number of sources. For KPL-1161, we plan to manufacture drug substance in our in-house manufacturing facility and use a single supplier to manufacture drug product. While our in-house manufacturing capabilities have the limited capabilities to produce pre-clinical and early-stage clinical drug supply, we lack internal large-scale manufacturing capabilities necessary to support commercial requirements. Regeneron is currently our sole source manufacturer of ARCALYST drug substance and will remain so until we qualify Samsung as a replacement CDMO. We expect that Samsung will be our sole source manufacturer of ARCALYST drug substance following such qualification. We do not currently have arrangements in place for a redundant or second-source manufacturer of ARCALYST drug substance or drug product, or a redundant or second-source packager and labeler, in the event any of our current vendors cease or have a substantial delay in their operations or stop offering us sufficient quantities of these materials for any reason, as applicable. In addition to manufacturing our products and product candidates in the quantities that we believe would be required to meet anticipated market demand, our third party manufacturers may need to increase manufacturing capacity and, in some cases, alternative sources of commercial supply may need to be secured, which could involve significant challenges and may require additional regulatory approvals. In addition, the development of commercial
Moreover, our ability to progress our preclinical and clinical programs or successfully commercialize our products could be materially and adversely impacted if any of the third party suppliers upon which we rely for raw
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materials and preclinical and clinical stage product candidate and commercial stage product supply were to experience a significant business challenge, disruption or failure due to issues such as financial difficulties or bankruptcy, issues relating to other customers such as regulatory or quality compliance issues, or other financial, legal, regulatory or reputational issues. Additionally, any damage to or destruction of our manufacturing facilities or equipment or those of our third party manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to manufacture our products and product candidates on a timely basis.
Establishing additional or replacement suppliers for the drug substance and drug product used in ARCALYST or our product candidates, if required, is unlikely to be accomplished quickly and can take several years, if at all. Furthermore, despite our efforts, we may be unable to procure a replacement supplier or do so on commercially reasonable terms, which could have a material adverse impact upon our business. Certain of the materials required in the manufacture and the formulation of our products and product candidates are derived from biological sources. Such materials are difficult to procure and may be subject to contamination or recall. Access to and supply of sufficient quantities of raw materials which meet the technical specifications for the production process is challenging and often limited to single
Our business involves the use of hazardous materials, and we and our third party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our business involves the controlled storage, use and disposal of hazardous materials owned by us. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ and suppliers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly cleanup and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that our safety procedures and the safety procedures utilized by our third party manufacturers and suppliers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources, and state, federal or other applicable authorities may curtail our use of certain materials or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.
We rely, and expect to continue to rely, on third parties to support our research activities, preclinical studies, clinical trials and other trials for our product candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates, and our business could be substantially harmed.
We rely and expect to continue to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct research, activate sites, conduct or otherwise support our preclinical studies and clinical trials for our product candidates. While we have certain contractual rights to oversee, review and audit our CROs, we have no direct control over their activities and performance. Our CROs play a significant role in the conduct of our studies and trials and the subsequent collection and analysis of data. Except for restrictions imposed by our contracts with such third parties, we have limited ability to control their conduct and compliance with applicable protocol, legal and regulatory requirements. For any violations of laws and regulations during the conduct of our preclinical studies or clinical trials, we could be subject to warning letters or enforcement actions that may include civil penalties and criminal prosecution.
We and our CROs are required to comply with regulations, including GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial participants are adequately informed of the potential risks of participating in clinical trials and their rights are protected. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our
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clinical trials may be deemed unreliable, and regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product candidates produced under cGMPs. Although CROs may perform the services we request, we are responsible for ensuring that our CROs comply with GCPs or other regulatory requirements in providing their services and will be responsible for failing to meet these requirements. Failure to comply with applicable regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action.
Although we design the clinical trials for our product candidates, we rely on CROs to activate sites and conduct and oversee such trials. As a result, many important aspects of our development programs for our product candidates, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to activate sites and conduct future clinical trials will also result in less direct control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with CROs can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. CROs may:
● have staffing difficulties;
● have disruptions to their business and operations, including as a result of the impact from a pandemic or other outbreak of disease or as the result of war, conflict or terrorism;
● fail to comply with contractual obligations;
● have difficulty controlling the performance of their subcontractors;
● experience regulatory compliance issues;
● undergo changes in priorities or become financially distressed; or
● form relationships with other entities, some of which may be our competitors.
These factors may materially adversely affect the willingness or ability of third parties to activate sites and conduct and oversee our clinical trials. If the CROs, their subcontractors or the clinical trial sites do not perform clinical trials in a satisfactory manner, do not devote sufficient resources to a trial, breach their obligations to us or fail to comply with regulatory requirements, the development, regulatory approval and commercialization of our product candidates may be delayed or unsuccessful.
If the third parties conducting our preclinical studies or our clinical trials do not perform their contractual duties, encounter any of the risks discussed above or choose to terminate their agreements with us, we may need to enter into new arrangements with alternative third parties. This could be difficult, costly or impossible, and our preclinical studies or clinical trials may need to be extended, delayed, terminated or repeated. As a result, we may not be able to obtain regulatory approval in a timely fashion, or at all, for the applicable product candidate, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Risks Related to Competition, Executing our Strategy and Managing Growth
We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more successfully than we do.
The development and commercialization of new drugs and biologics is highly competitive. ARCALYST currently faces competition in its CAPS and DIRA indications and is facing potential future competition in its recurrent pericarditis indication. KPL-387 is being developed for recurrent pericarditis and we believe, if commercialized, would likely face additional competition from drugs that may offer, among other things, more convenient dosing methods or frequencies than what is currently available. We have not yet announced an indication(s) for KPL-1161, but expect that
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it will compete with a number of drugs that inhibit IL-1 or other mechanisms. Competition may come from a range of pharmaceutical and biotechnology companies, each of whom may market and sell drugs or biologics or pursue the development of therapies in the fields in which we are interested. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. See “ Business – Competition ” for a list of our principal competition.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may further concentrate resources among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our competitors may also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites, trial participant enrollment and technologies complementary to our programs.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, are more effective, have fewer or less severe side effects, are more convenient or are less expensive than ours. Clinical trials in a rare disease indication for which we market a product may reduce the number of patients on our commercial therapy by recruiting such patients to be trial participants. Our competitors also may obtain FDA or other regulatory approval and/or marketing exclusivity for their products before us, establishing a strong market position before we are able to enter the market. Further, our clinical trials may need to compete for participants and trial sites against other drugs in clinical development for the same indication. We believe the key competitive factors affecting the success of ARCALYST and any product candidates that we successfully develop and commercialize, are their efficacy, safety, convenience, price, the effectiveness of companion diagnostics (if any) in guiding the use of related products, market acceptance by prescribers and patients, the level of biosimilar competition and the availability of reimbursement from government and other third party payors.
We may not be successful in executing our growth strategy to identify, discover, develop, in-license or acquire additional product candidates or technologies, and our growth strategy may not deliver the anticipated results or we may refine or otherwise alter our growth strategy. We may seek to acquire businesses or undertake business combinations, collaborations or other strategic transactions which may not be successful or on favorable terms, if at all, and we may not realize the intended benefits of such transactions.
We have acquired or in-licensed certain of our existing product candidates, and as part of our strategy we plan to identify new product candidates or technologies that we believe are complementary to our existing portfolio. We may do this through our internal discovery program, or by acquiring the rights to product candidates and technologies from third-parties. We cannot be certain that we will be successful in such efforts, and even if we are successful in such efforts, we cannot be certain that such discovery or transaction will be on favorable terms, or that, following any such discovery or transaction, we will be able to realize the intended benefits of it.
Research programs and business development efforts to identify new product candidates and technologies require substantial technical, financial and human resources. We may focus our efforts and resources on potential product candidates, technologies or businesses that ultimately prove to be unsuccessful. In-licensing and acquisitions of product candidates, technology or businesses often require significant payments and expenses and consume additional resources. We will need to continue to devote a substantial amount of time and personnel to research, develop and commercialize any such in-licensed or acquired product candidate or technology, or integrate any new business, and we may decide to reprioritize our efforts even after having expended resources on a particular prospect. Our research programs and business development efforts may fail to yield additional complementary or successful product candidates for clinical development and commercialization for a number of reasons, including:
● we may be unsuccessful in identifying potential product candidates or businesses with a high probability of success for development progression;
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● insufficient resources or expertise to capitalize on opportunities;
● failure to agree to acceptable terms with potential licensors, partners or acquisition targets;
● incurring substantial liabilities as part of a transaction that outweigh the benefits or synergies we hope to realize; and
● being unable to leverage our expertise and development and commercial infrastructure as initially expected.
If any of these events occurs, we may not be successful in executing our growth strategy. Our growth strategy or strategic transactions may not deliver the anticipated results or we may need to spend significant resources to refine or otherwise alter our strategy.
The consummation or performance of any acquisition, business combination, collaboration or other strategic transaction in furtherance of our growth strategy may involve additional risks, such as difficulties in assimilating different workplace cultures; retaining personnel and integrating operations, which may be geographically dispersed; increased costs; exposure to liabilities; incurrence of indebtedness; use of a substantial portion of our available cash for all or a portion of the consideration; or causing dilution to our existing shareholders if we issue equity securities for all or a portion of the consideration. If any of these events occurs or we are unable to meet our strategic objectives for any such transaction, we may not be able to achieve the expected benefits from the transaction, and our business may be materially harmed.
We have entered into and may seek to enter into collaboration, licensing or other strategic transactions or arrangements to further develop, commercialize or otherwise attempt to realize value from our products and product candidates, and any such transactions or arrangements that we enter into may not be successful or be on favorable terms, which could adversely affect our ability to develop, commercialize or attempt to realize value from our products and product candidates.
We have entered into and may seek to enter into collaboration, licensing or other strategic transactions or arrangements to further develop, commercialize or otherwise attempt to realize value from one or more of our products and product candidates instead of developing or commercializing our products and product candidates ourselves. We have granted Huadong exclusive rights to develop and commercialize ARCALYST in the Huadong Territory and we have entered into a license agreement with Genentech where we granted exclusive worldwide rights to develop and commercialize vixarelimab. To the extent that we decide to enter into additional transactions or arrangements, we must spend time and resources to identify appropriate collaborators, licensees or other strategic partners. Moreover, these transactions and arrangements are complex and time consuming to negotiate, document, implement and close. Further, the terms of any such transactions or arrangements that we may establish may have unfavorable tax consequences for our shareholders in the United States. Granting territory-specific rights for our products and product candidates may also reduce their attractiveness for subsequent business development activity. In addition, our right to grant a sublicense of intellectual property licensed to us under certain of our current agreements requires the consent of the applicable licensor, which may be difficult to obtain.
Any current or future collaborations, licenses or other strategic transactions or arrangements that we enter into may not be successful. Their success may depend heavily on the efforts and activities of our collaborators, sublicensees or other strategic partners. We have experienced collaboration failure in the past and may experience similar failures in the future. Collaborations, licenses or other strategic transactions or arrangements are subject to numerous risks, which may include risks that the collaborator, licensee or other strategic partner, as applicable:
● may choose not to pursue or continue development and commercialization of licensed drugs due to clinical trial results, changes in their strategic focus due to their acquisition of competitive products or product candidates or their internal development of competitive products competing priorities, or assets or funding constraints;
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● raise disputes with respect to the ownership or inventorship of intellectual property developed pursuant to our collaborations or licenses;
● fail to properly prosecute, maintain or defend our intellectual property rights, or misuse them in ways that gives rise to litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to liability;
● develop intellectual property that is not properly prepared, prosecuted, maintained or defended in a way that could impact that patentability of the intellectual property or validity for any granted patent, which could shorten the term during which we are owed royalties;
● may own, co-own or develop intellectual property covering products that results from our arrangement with them without granting us exclusive rights, requiring us to negotiate licenses with milestone, royalty or other payment obligations (which we may be unable to negotiate on acceptable terms or at all);
● fail to achieve development, regulatory or commercial milestones, materially reducing expected collaboration revenue;
● raise disputes that cause the delay or termination of the research, development or commercialization of current or future products and product candidates or that results in costly litigation or arbitration;
● cause us to be named defendants in lawsuits due to their improper use of licensed intellectual property and not indemnify us against losses in such lawsuits;
● enforce licensed intellectual property against third parties that lead such third parties to challenge the validity or enforceability of the licensed intellectual property, potentially invalidating it or rendering it unenforceable;
● fail to maintain licensed patents that are under their control, or prosecute licensed patent applications in ways that diminish their value;
● delay or refuse to pay milestone and royalty payments, which may impact our ability to satisfy upstream payment obligations, if applicable; and
● conduct sales, marketing or other operations that may not comply with applicable laws, resulting in civil or criminal proceedings.
In addition, disputes may arise with respect to the ownership of any intellectual property developed pursuant to these arrangements. These arrangements may also be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization on our own or with another collaborator.
Risks Related to Intellectual Property
If we are unable to adequately protect our proprietary technology or obtain and maintain patent protection for our technology and products, if the scope of the patent protection obtained is not sufficiently broad or if the terms of our patents are insufficient to protect our product candidates for an adequate amount of time, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be materially impaired.
Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection for our products and product candidates. We seek to do this by, among other methods, filing patent applications in the United States and abroad related to our proprietary technology, inventions and improvements that are
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important to our business. We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain our proprietary or intellectual property position.
We acquire, in-license and file patent applications directed to our products and product candidates in an effort to establish intellectual property positions directed to their compositions of matter and manufacture as well as uses of these products and product candidates in the treatment of diseases. Our intellectual property rights include patents and patent applications that we both own and have in-licensed. For example, we have a field-specific exclusive license under a license agreement with Regeneron to patent applications and patents relating to ARCALYST and an exclusive license under our license agreement with BIDMC to patent applications and patents related to abiprubart.
Certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We or our licensors have not pursued or maintained, and we or our licensees may not pursue or maintain in the future, patent protection for our products or product candidates in every country or territory in which we may seek to commercialize our portfolio. In addition, we cannot be sure that any of our pending patent applications or pending trademark applications will issue or that, if issued, they will be in a form that is advantageous to us. The United States Patent and Trademark Office (the “USPTO”), international patent offices or judicial bodies may deny or significantly narrow claims made under our patent applications and our issued patents may be successfully challenged or may be of insufficient scope to provide protection for our commercial products. Additionally, if a patent is granted in one jurisdiction, that does not mean that such a patent, or the claims set forth in that patent, will be granted in a different jurisdiction. Further, the USPTO, international trademark offices or judicial bodies may deny our trademark applications and, even if published or registered, these trademarks may not effectively protect our brand and goodwill. As with patents, trademarks also may be successfully opposed or challenged.
The patent position of biotechnology and pharmaceutical companies is highly uncertain, involves complex legal and factual issues, and has been the subject of much litigation. The degree of patent protection we require to commercialize our products may be unavailable or limited, failing to protect our rights or provide any competitive advantage. We cannot provide any assurances that our owned or in-licensed patents, or pending applications that mature into patents, will have claims broad enough to protect our current and future products and product candidates. A United States patent covering ARCALYST as a composition of matter expired in 2020 and relevant composition of matter patents issued outside of the United States expired in October 2023. A United States patent covering methods of using ARCALYST in the treatment of recurrent pericarditis was issued in June 2021 and has a statutory term that expires in 2038, not including any patent term adjustment. We are unable to obtain composition of matter patents for KPL-387’s amino acid or nucleic acid sequences. We own a pending patent application covering methods of using KPL-387 in the treatment of recurrent pericarditis, which, if issued, would expire in 2046, not including any patent term extensions or adjustments. We also own additional patent applications covering various technologies related to our KPL-387 program. Additionally, we expect to rely on regulatory exclusivity, such as data exclusivity and orphan exclusivity as applicable, for KPL-387. For example, in the United States, a new biologic product receives 12 years of data exclusivity upon receiving regulatory approval. In the EU, a new product generally receives eight years of data exclusivity and an additional two years of market exclusivity upon regulatory approval. See “ Business – Government Regulation ” above for additional information on regulatory exclusivities.
In the United States, the natural (i.e., statutory) expiration of a patent is generally 20 years from the earliest filing date of a non-provisional patent application. Various extensions and adjustments may be available; however, the life of a patent, and the protection it affords, is limited. The actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of patent term extensions and adjustments, the availability of legal remedies in a particular country and the validity and enforceability of the patent. Furthermore, the type, scope and duration of any regulatory exclusivities will vary on a country-by-country basis depending on the jurisdiction in which a product candidate is approved and the particular regulatory exclusivity for which the product is eligible as of the time of approval in such
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jurisdiction. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier expiring patent. Limited patent term extensions may be available in the United States under the Drug Price Competition and Patent Term Restoration Act of 1984 (referred to as the Hatch-Waxman Act) and under similar laws in the EU and Japan. In certain countries, the term of a patent that covers a drug product may be eligible for patent term extension when regulatory approval is granted, provided that the legal requirements are met. We may not receive an extension if we or our licensees fail to apply within applicable deadlines or fail or are unable to apply prior to expiration of relevant patents. In addition, the laws of other countries may not protect our rights to the same extent as the laws of the United States. If we or our licensees are unable to obtain patent term extension or the term of any such extension is less than requested, the period during which our patent rights can be enforced for that product will be shortened and competitors may obtain approval to market competing products sooner, impacting our revenue.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized, thereby limiting protection such patent would afford the respective product and any competitive advantage such patent may provide. In such cases, regulatory exclusivity, such as data exclusivity or orphan exclusivity (if available) as applicable, is expected to be relied upon for our or our licensees’ products. The expiration date of regulatory exclusivity is determined on a country-by country-basis if the applicable product is approved in such country and if any applicable regulatory exclusivity applies and is granted. The actual expiration date of any such regulatory exclusivity, however, is subject to significant uncertainty. For instance, the applicable regulatory exclusivity period is often triggered by the date a product candidate obtains regulatory approval, and we cannot predict with any certainty whether and if so, when, the applicable product would receive regulatory approval in any given jurisdiction. Furthermore, the type, scope and duration of such exclusivities will vary on a country-by-country basis depending on the jurisdictions in which a product candidate is approved and the particular regulatory exclusivity for which the product is eligible as of the time of approval.
Other parties may have developed or may develop technologies that may be related or competitive to our own, and such parties may have filed or may file patent applications, or may have received or may receive patents, claiming inventions that may overlap or conflict with those claimed in our patent applications or issued patents, with respect to either the same methods or formulations or the same subject matter, in either case, that we may rely upon to protect our patent position in the market. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights cannot be predicted with any certainty.
In addition, the patent prosecution process is expensive and time consuming, and we or our licensees may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Patent prosecution is a lengthy process and the scope of the claims initially submitted for examination may be significantly narrowed by the time they issue, if at all, potentially losing any competitive advantage we hope to achieve. Further, it is possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents covering technology that we in-license from, or out-license to, third parties. As a result, we may need to coordinate prosecution, enforcement or maintenance with another party, and even then, the other party could prosecute, enforce or maintain the patents in a manner adverse to our interests or otherwise put the patents at risk of invalidation.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. Patent applications we own or license may not result in issued patents in the United States or in other countries. Even if we acquire patent protection expected to provide a competitive advantage, third parties may challenge the validity, enforceability or scope thereof, potentially narrowing, invalidating or rendering our patents unenforceable. Issuance of a patent is not conclusive as to its inventorship, scope, validity, enforceability or term, and our owned and licensed patents may be challenged in courts or patent offices, in the United States and abroad. For
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example, United States patents may face challenges such as derivation, reexamination, interference, post-grant review, or inter partes review proceedings, while European patents may be challenged by any person in an opposition proceeding within nine months from the publication of the grant. Similar proceedings exist in other jurisdictions, and in some jurisdictions, third parties can raise questions of validity with a patent office even before a patent has granted. Competitors may claim that they invented the inventions claimed in our issued patents or patent applications prior to the date our inventions were invented, or may file patent applications earlier than us or our licensees, requiring us or our licensees to engage in interference or derivation proceedings at the USPTO or similar opposition actions in Europe or other regions regarding our intellectual property rights for our products, product candidates and technology to determine which party is entitled to the patent on the disputed invention. Such proceedings can be expensive, time consuming and may divert the efforts of our technical and managerial personnel, which could in turn harm our business, whether or not we receive a determination favorable to us or our licensees. Since patent applications are confidential for a period of time after filing, we cannot be certain that we, our licensees or our licensors were the first to file any patent application related to our product and product candidates. Competitors may also contest our patents, if issued, by showing the patent examiner that the invention was not original, was not novel or was obvious. If a court agrees, rights to those challenged patents may be diminished or lost.
We may also face future claims from former employees or consultants of ours, our licensees or licensors asserting an ownership right in our patents or patent applications based on work they performed on our or their behalf. Although we generally require employees, consultants and collaborators with access to proprietary information to assign invention rights to us, we cannot be certain that we, our licensees’ or our licensors have executed such agreements with all parties who may have contributed to our intellectual property, nor can we be certain that these agreements will withstand challenges or that they will not be breached, for which remedies may be inadequate.
An adverse determination in any such proceeding may result in loss of exclusivity or freedom to operate, or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our or our licensees’ ability to prevent others from using or commercializing similar or identical technology and products, without payment to us, shorten patent protection periods for our technology, products and product candidates or reduce the period of time during which our licensees are obligated to make royalty payments to us. Such challenges may also result in our inability to manufacture or commercialize our product and product candidates without infringing third party patent rights. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our assets. Under any such license, if granted, we would most likely be subject to various payment obligations. However, we may be unable to secure such license to the third party’s intellectual property on acceptable terms Even if we are successful against any contests or other claims of infringement, we may spend significant time and resources to do so. Further, if the scope or strength of our patents and patent applications is threatened, it could deter companies from collaborating with us to license, develop or commercialize current or future product candidates since they may view our intellectual property as having reduced commercial value. Further, any public announcement about the start, progress or outcome of any patent or exclusivity disputes or proceedings, in any country, may trigger significant volatility in our stock price.
Even if unchallenged, issued patents may not provide any meaningful protection or prevent competitors from designing around the patent claims by developing similar or alternative non-infringing technologies or products. For example, a competitor could create a drug that provides benefits similar to our product, or one or more of our product candidates, but has a different composition that falls outside the scope of our patent protection. If our patents lack sufficient breadth or term, or are successfully challenged, commercialization of our products could be negatively affected, harming our business.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. If we breach any of the agreements related to our product or product candidates, we could lose the ability to continue the development and commercialization of the related product or product candidate. Additionally, our current licensing and acquisition agreements contain limitations and restrictions that could limit or adversely affect our ability to develop and commercialize other products in the future.
We are party to agreements granting us the rights to develop and commercialize certain of our products and product candidates, including ARCALYST. Each of these agreements requires us to use commercially reasonable efforts
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to develop and commercialize such drugs, make timely milestone and other payments, provide certain information regarding our activities with respect to such drugs and indemnify the other party with respect to our development and commercialization activities, among others. Disputes may arise between us and any of these counterparties regarding obligations under, or the intellectual property subject to, such agreements, including:
● our diligence obligations to develop and commercialize the licensed technology, and what activities satisfy those diligence obligations;
● the scope of rights granted under the agreement and other interpretation-related issues;
● whether our use of the licensed technology is within the scope of the rights granted to us or otherwise consistent with the agreement;
● milestone, royalty or other payment obligations;
● other parties’ performance being maintained under these agreements;
● whether and the extent to which our technology and processes infringe on intellectual property of the licensor not subject to the agreement;
● our right to sublicense patents and other rights to third parties;
● the ownership of inventions, know-how and other intellectual property, including intellectual property rights resulting from the joint creation or use of intellectual property by us and our licensors, licensees, partners or collaborators;
● our right to transfer or assign the license; and
● the effects of termination.
These or other disputes over our obligations or intellectual property that we have in-licensed, out-licensed or acquired may prevent or impair our ability to maintain our current arrangements on acceptable terms, or may impair the value of the arrangement to us. If we or our sublicensees materially fail to meet our obligations under our agreements, licensors may terminate the respective agreement, requiring us to return licensed technology and possibly grant rights to our intellectual property controlled by us and developed during the period the agreement was in force that relate to the applicable licensed technology. This means that the licensor/seller for each of these agreements could effectively take control of the development and commercialization of our assets following an uncured, material breach of the agreement by us. This would also be the case if we voluntarily elected to terminate the relevant agreement, which we have the right to do under each of these agreements. While we would expect to exercise our rights and remedies available to us in the event we fail, or our sublicensees cause us to fail, to meet our obligations under these agreements in any material respect, including seeking to cure any breach by us or our sublicensees, and otherwise seek to preserve our rights under the technology licensed to or acquired by us, we may not be able to do so in a timely manner, at an acceptable cost or at all. Any uncured, material breach could result in loss of exclusivity and termination of product development and commercialization efforts for our product and each of our product candidates, harming our business and prospects.
Additionally, under the Regeneron Agreement, Regeneron retains worldwide rights to develop and commercialize ARCALYST for local administration to the eye and ear and oncology. The development of ARCALYST in other fields could increase the possibility of identifying adverse safety results that may impact the commercialization of ARCALYST for the treatment of recurrent pericarditis in our territory. We have also granted sub-licenses for others to develop ARCALYST and vixarelimab. Licensees must develop and commercialize drugs, make timely milestone and royalty payments, share information and indemnify us.
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Finally, certain of our agreements may limit or delay our ability to consummate certain transactions, may impact the value of those transactions, or may limit our ability to pursue certain activities. For example, under the Regeneron Agreement, Regeneron has a right of first negotiation over the assignment or sale of our rights to any product we develop under the Regeneron Agreement to third parties and we must obtain Regeneron’s prior consent to assign or sublicense our rights under such agreement to a third party.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability and the ability of our sublicensees to develop, manufacture, market and sell our products and product candidates, if approved, and use our proprietary technologies without infringing the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical industries are characterized by extensive and frequent litigation regarding patents and other intellectual property rights. We cannot assure you that our products, product candidates or any future product candidates, including methods of making or using these product candidates, will not infringe existing or future third party patents. We may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our products and product candidates and technology, including contested proceedings before the USPTO. Our competitors or other third parties may assert infringement claims against us, alleging that our products are covered by their patents.
Given the vast number of patents in our field of technology, we cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. Many companies have filed, and continue to file, patent applications related to immunomodulation and antibody-related technologies. Some of these patent applications have already been allowed or issued, and others may issue in the future. For example, we are aware of third party patents that contain claims potentially relevant to abiprubart. If the claims of any of these patents are asserted against us, we do not believe our proposed activities related to abiprubart would be found to infringe any valid claim of these patents. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, there may be applications of third parties now pending which may later result in issued patents that may be infringed by the manufacture, use or sale of our products or product candidates. Regardless of when filed, we may fail to identify relevant third party patents or patent applications, or we may incorrectly conclude that a third party patent is invalid or not infringed by our product candidates or activities. If a patent holder believes our products or product candidate infringes its patent, the patent holder may sue us even if we have received patent protection for our technology. Moreover, we may face patent infringement claims from non-practicing entities that have no relevant drug revenue and against whom our own patent portfolio may thus have no deterrent effect. If a patent infringement suit were threatened or brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product candidate that is the subject of the actual or threatened suit. Contested proceedings challenging the validity of third party patents may be unsuccessful, and courts or patent offices in the United States and abroad could uphold the validity of any such patent.
In order to avoid infringing third party patents, we may find it necessary or prudent to obtain licenses to such patents from such third party intellectual property holders. However, we may be unable to secure such licenses or otherwise acquire or in-license any intellectual property rights from third parties that we identify as necessary for our current or future product candidates. The licensing or acquisition of third party intellectual property rights is a competitive area, and several more established companies may also pursue strategies to license or acquire third party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. Without such a license, we may cease developing or commercializing the infringing technology, product or product candidate, or be forced to redesign it and/or to cease some aspect of our business operations, which could have a material adverse effect on our business.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our product candidates and technology. Under any such
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license, we would most likely be required to pay various types of fees, milestones, royalties or other amounts. However, we may not be able to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain such a license, it could be granted on non-exclusive terms, thereby providing our competitors and other third parties access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed such third party patent rights. We may be required to indemnify collaborators or contractors against such claims. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Even if we are successful in defending against such claims, litigation can be expensive and time consuming and would divert management’s attention from our core business. Any of these events could harm our business significantly.
We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights.
Competitors and other third parties may infringe, misappropriate or otherwise violate our patents and other intellectual property rights, whether owned or in-licensed. To counter infringement or unauthorized use, we or our current or future licensees may be required to file infringement claims against these infringers. A court may disagree with our allegations, however, and may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the third party technology in question. Further, such third parties could counterclaim that we infringe their intellectual property or that a patent we or our licensees have asserted against them is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims challenging the infringement, validity, enforceability or scope of asserted patents are commonplace. In addition, third parties may initiate legal proceedings against us or our licensees to assert such challenges to our intellectual property rights. The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or foreign equivalents thereof. Patents may be unenforceable if someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. It is possible that prior art of which we or our licensors and the patent examiner were unaware during prosecution exists, which could render our patents invalid. Moreover, it is also possible that prior art may exist that we are aware of but do not believe is relevant to our current or future patents, but that could nevertheless be determined to render our patents invalid or unenforceable.
Some of our competitors may be able to devote significantly more resources to intellectual property litigation, and may have significantly broader patent portfolios to assert against us if we or our licensees assert our rights against them. Further, because of the substantial discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be disclosed or otherwise compromised during litigation.
An adverse result in any litigation proceeding could put one or more of our patents, whether owned or in-licensed, at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering our product or one of our product candidates, we or our licensees would lose at least part, and perhaps all, of the patent protection covering such product candidate. Competing products may also be sold in other countries in which our patent coverage might not exist or be as strong. If we or our licensees lose a patent lawsuit outside of the United States, alleging our infringement of a competitor’s patents, we or our licensees could be prevented from marketing our current or future products and product candidates in one or more such countries. Any of these outcomes would have a materially adverse effect on our business.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our
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Class A ordinary shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.
We or our licensees may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we or our licensees may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements .
The USPTO and various governmental patent agencies outside of the United States require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and patent agencies outside of the United States over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensees fail to appropriately file and prosecute patent applications covering the licensed products, product candidate or technologies, and maintain any patent issuing from such patent applications, we or our licensees may not be able to stop a competitor from marketing products that are the same as or similar to the licensed products, product candidates or technologies, which would have a material adverse effect on our business. In addition, if we or our licensees fail to apply for applicable patent term extensions or adjustments, we will have a more limited time during which we can enforce our granted patents, or receive royalties from a licensee. In addition, if we are responsible for patent prosecution and maintenance of patent rights in-licensed to us, any of the foregoing could expose us to liability to the applicable patent owner.
We may not be able to effectively enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive. Patentability requirements vary by country, especially in developing regions. Our ability to protect and enforce intellectual property may be adversely affected by changes in foreign intellectual property laws, which often provide less protection than United States intellectual property law. Many companies face significant challenges in protecting and defending intellectual property outside the United States. Further, some countries’ legal systems do not favor the enforcement of patents and other intellectual property rights, particularly for United States-based companies, making it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, compulsory licensing laws in many countries require patent owners to grant licenses to third-parties, and some jurisdictions limit enforceability against certain parties, including government agencies or government contractors. As a result, we or our licensees may be unable to prevent third parties from practicing inventions covered by our patents abroad in countries outside the United States. Competitors may use our technologies to develop competing products in jurisdictions where we have not obtained patent protection, or where we have obtained patent protection, but such jurisdictions do not favor the enforcement of patents, or other intellectual property rights. In such cases, our intellectual property rights may not be effective or sufficient to prevent them from competing with us, impacting our results of operation and financial condition.
Proceedings to enforce our patent rights, even if successful, can be expensive and time-consuming. Furthermore, we cannot ensure that we or our licensees will be able to initiate or maintain protective actions in all jurisdictions in which we or they may wish to commercialize products. In addition, changes in the law and legal
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decisions by courts in the United States and other countries may affect the ability to obtain and enforce adequate intellectual property protection for our technology.
In addition, geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future licensors and the maintenance, enforcement or defense of our issued patents or those of any current or future licensors. For example, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees from the United States without consent or compensation. Consequently, we would not be able to prevent third parties from practicing our inventions in Russia or from selling or importing products made using our inventions in and into Russia. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
Changes to patent laws in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our product or our current or future product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Current and proposed patent reform in the United States and other countries may contribute to those uncertainties and costs.
The Supreme Court of the United States has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition, future actions by the United States Congress, the United States Courts, the USPTO and relevant law-making bodies in other countries could impact our or our licensees’ ability to obtain or maintain patent protection for our or our out-licensed proprietary technology or our or their ability to enforce our or our out-licensed proprietary technology, respectively. For example, with respect to patent term adjustment, the Federal Circuit’s recent holding in In re Cellect, LLC , 81 F.4th 1216 (Fed. Cir. 2023), that obviousness-type double patent analysis for a patent that has received patent term adjustment must be based on the expiration date of the patent after the patent term adjustment has been added, may negatively impact the term of certain United States patents.
Finally , Europe’s Unitary Patent system and Unified Patent Court (the “UPC”) and European Patent Package regulations (the “EU Patent Package”) may present uncertainties for our ability to protect and enforce our patent rights against competitors in Europe. The UPC provides our competitors with a new forum to centrally revoke our European patents and allow for the possibility of a competitor to obtain pan-European injunctions. Under the EU Patent Package we will have the right to opt our patents out of the UPC for a limited time, but doing so may preclude us from realizing the benefits of the new unified court.
Depending on future actions by governmental authorities, including legislative bodies, administrative authorities and court systems, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents, or may weaken the patent rights of existing patents in certain situations or to enforce our existing patents and patents that we might obtain in the future. If such an event were to occur, our business, financial condition, results of operations and future prospects may be adversely affected.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.
In addition to patent protection, we may rely on trade secrets, know-how or technological innovation to develop and maintain our competitive position. We seek to protect proprietary technology through confidentiality and invention assignment agreements with collaborators, advisors, contractors, employees and consultants, as applicable, but unauthorized disclosure or use of our technical knowhow or other trade secrets may still occur. Further, we cannot guarantee such agreements exist with every party who had access to our confidential information or proprietary technology. We also seek to protect our proprietary information and technologies by maintaining physical security of our premises and physical and electronic security of our information technology systems. Monitoring unauthorized use and disclosure is difficult, and we cannot guarantee that the steps we have taken to protect our proprietary technologies will
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be effective. We may lack adequate remedies to address any violation of these agreements or our security, especially in jurisdictions that do not favor the enforcement of intellectual property rights, resulting in loss of exclusivity. Moreover, if confidential information licensed or disclosed to us by our partners, collaborators or others is inadvertently disclosed or subject to a breach or violation, we may face liability to the owner of such information.
We cannot be certain that the steps we have taken will prevent unauthorized use or unauthorized reverse engineering of our technology. Monitoring unauthorized use of our intellectual property is difficult and costly. We may be unable to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. The steps we have taken to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property.
Detecting the disclosure or misappropriation of confidential information and enforcing a claim that a party illegally disclosed or misappropriated confidential information is difficult, expensive and time consuming, and the outcome is unpredictable. Further, we may be unable to obtain adequate remedies for any breach. In addition, our confidential information may otherwise become known or be independently discovered by competitors, in which case we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. We may in the future rely on trade secret protection, which would be subject to the risks identified above with respect to confidential information, particularly outside the United States where courts may be less willing to protect trade secrets.
Our trade secrets could otherwise become known or be independently discovered by our competitors. Competitors could purchase our product or product candidates and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If our trade secrets are not adequately protected so as to protect our market against competitors’ products, our competitive position could be adversely affected, as could our business.
If our trademarks and trade names are not adequately protected, then we may be unable to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may be unable to protect our rights to these trademarks and trade names in the United States or jurisdictions outside of the United States, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.
General Risk Factors
We have a history of operating losses and may require substantial additional financing in the future.
Biopharmaceutical product development is highly speculative and involves significant risk. Generating sufficient product revenue to sustain our organization will depend on a number of factors, including the continued ARCALYST commercialization, the development, approval and eventual commercialization of one or more of our current or future product candidates and the management of our costs consistent with our current operating plan. Future
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capital expenditure s are expected to b e substantial, and we may incur operating losses in the future if expenses exceed expectations as we:
● support product development, sales, marketing and distribution capabilities, infrastructure and organization to commercialize ARCALYST and any future approved products;
● conduct research and development activities, including our Phase 2/3 clinical trial of KPL-387 in recurrent pericarditis, our ongoing Phase 1 clinical trial of KPL-387 in normal healthy volunteers, our pre-clinical investigations of KPL-1161 and prepare for our planned Phase 1 clinical trial of KPL-1161 in normal healthy volunteers;
● manufacture products and product candidates for clinical or commercial use, expand our manufacturing capabilities, identify and qualify additional or alternative manufacturers and suppliers and manage the technology transfer for ARCALYST drug substance manufacturing;
● seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any;
● make milestone or other payments under any current or future license, acquisition, collaboration or other strategic transaction agreements;
● seek to identify, assess and study new or expanded indications for our products or product candidates, new or alternative dosing levels and frequency for our products or product candidates or new or alternative administration of our products or product candidates, including method, mode or delivery device;
● seek to identify, assess, acquire or develop additional product candidates;
● address any litigation, including product liability suits, employment-relate disputes, intellectual property disputes and disputes arising out of our collaboration and license agreements;
● enter into licensing, acquisition, collaboration or other strategic transaction agreements;
● seek to maintain, protect and expand our intellectual property portfolio;
● seek to attract and retain skilled personnel; and
● manage delays or issues with the foregoing, such as failed trials, complex or inconclusive results, safety concerns, regulatory challenges that require longer follow-up of existing trials, additional major trials, additional supportive trials in order to pursue marketing approval, pandemics or economic disruptions.
Further, our financial results may fluctuate significantly from quarter-to-quarter and year-to-year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. Corporate profitability may not be sustained in subsequent periods.
If we are unable to fund our operations through commercial ARCALYST revenue, we may need to obtain substantial additional funding to progress our operating plans via accessing capital markets. If we are unable to raise capital when needed on acceptable terms, if at all, we may be forced to delay, limit, reduce or cease one or more of our product development plans, research and development programs for our product candidates or commercialization efforts. We also may be unable to expand our operations or otherwise capitalize on our business opportunities or may be required to relinquish rights to our product candidates or products. Any of these occurrences could materially affect our business, financial condition and results of operations.
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Financing our operations and activities also carries risk. The sale of additional equity or convertible securities would dilute all of our shareholders. Further, new investors could gain rights superior to our existing shareholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Obtaining funds through licensing, collaboration or other strategic transactions or arrangements may require us to relinquish rights to some of our technologies, product candidates or future revenue streams, or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. If we raise funds through research grants, we may be subject to certain requirements, which may limit our ability to use the funds or require us to share information from our research and development.
If we fail to comply with reporting and payment obligations under the MDRP or other governmental pricing and price reporting programs, we could be subject to additional reimbursement requirements and penalties or sanctions, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
In the United States, we participate in and/or report pricing and other data in connection with the Medicaid Drug Rebate Program (the “MDRP”), Medicare Part B, the Federal Supply Schedule (the “FSS”), the PHS 340B Drug Pricing Program and a number of other federal and state government programs. For example, we have certain price and data reporting obligations under the MDRP and we have obligations to report the average sales price under the Medicare program. Under the MDRP, we are required to pay a rebate to each state Medicaid program for quantities of our products that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our products under Medicaid and for payment to be available for our products under Medicare Part B. Those rebates are based on pricing data reported by us on a monthly and quarterly basis to CMS. If we are found to have violated the requirements of such programs, we may become subject to penalties or other enforcement mechanisms, which could have a material adverse effect on our business.
Pricing and rebate calculations vary across products and programs, are complex, and are often subject to interpretation by us, governmental or regulatory agencies and the courts, which can change and evolve over time. For example, starting in 2026, “average sales price” regulatory changes related to “bona fide service fees” and the mandatory submission of reasonable assumptions may increase the complexity and compliance burden around Medicare Part B reporting. In addition, as the result of the Inflation Reduction Act of 2022, the “average manufacturer prices” we report under the MDRP will also be used to compute rebates under Medicare Part D triggered by price increases that outpace inflation. Such pricing calculations and reporting, along with any necessary restatements and recalculations, could increase our costs for complying with the laws and regulations governing the MDRP and other governmental programs, our rebate liability or the ceiling price at which we are required to offer products under the 340B program. Civil monetary penalties can be applied if we are found to have knowingly submitted any false price or product information to the government, if we fail to submit the required price data on a timely basis, or if we are found to have charged 340B covered entities more than the statutorily mandated ceiling price. The Centers for Medicare & Medicaid Services could also terminate our Medicaid drug rebate agreement, in which case federal payments may not be available under Medicaid or Medicare Part B, if applicable, for our covered outpatient drugs. We cannot assure you that our submissions will not be found to be incomplete or incorrect.
In addition, potential future legislative, regulatory or policy changes by the current presidential administration may introduce additional uncertainty for our business. These could include changes to the level of scrutiny applied by the Health Resources and Services Administration to enforce non-compliance with the 340B Drug Pricing Program, new price restrictions or price reporting requirements on products we sell to Medicaid, Medicare or other government purchasers, or other regulatory changes impacting reimbursement or competitive dynamics in multisource markets. For example, federal agencies are developing new drug pricing pilot programs under Medicare Part B and Part D that, if finalized as proposed, would replace existing inflation-based Medicare rebates with rebates determined on the basis of international prices, for drugs and patients subject to the model. Any such changes could significantly impact our business and operations.
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Increasingly, states are enacting legislation requiring manufacturers to report drug pricing information. States, however, have not always clearly defined their reporting requirements, which may result in manufacturers inadvertently failing to properly disclose the required pricing information. Complying with federal and state programs and future changes to these programs can be complex and cost-and resource-intensive, and could have a material adverse effect on our business, prospects, operating results and financial condition.
Current and future healthcare legislation or executive or administrative action may have a material adverse effect on our business and results of operations.
In the United States, the UK, the EU and other jurisdictions, there have been and we expect there will continue to be a number of executive, legislative and regulatory initiatives and proposed changes to healthcare systems, drug pricing and reimbursement policies that could affect our operations.
Within the United States, federal and state governments have been active in proposing and implementing health care reform. Drug pricing and payment reform has been an ongoing focus for reform. Recent examples include federal legislation that eliminated a statutory cap on Medicaid drug rebate program rebates effective January 1, 2024. As another example, the IRA includes a number of changes intended to address rising prescription drug prices in Medicare Parts B and D, with varying implementation dates. These changes include caps on Medicare Part D out-of-pocket costs, Medicare Part B and Part D drug price inflation rebates, a new Medicare Part D manufacturer discount drug program (replacing the prior Medicare Part D coverage gap discount program) and a drug price negotiation program for certain high spend Medicare Part B and D drugs (with the first set of negotiated Medicare maximum fair prices going into effect in 2026). The IRA has had a significant impact on the pharmaceutical industry and that impact is anticipated to continue.
Beyond the IRA, changes to Medicaid effective in 2024 eliminated the Medicaid rebate cap and changes to certain Medicare price reporting requirements for drugs beginning in 2026 will likely increase the administrative and compliance burden for manufacturers. In addition, recent legislation expanded the orphan drug exclusion in Medicare drug price negotiation program.
Under the current United States presidential administration, there have been significant and wide-ranging reforms to federal policy and the federal government. Drug pricing and reimbursement reform have been a particular area of focus. For example, an Executive Order was issued in April 2025 with multiple directives aimed at lowering drug prices, including refining the Medicare drug price negotiation program established by the IRA; accelerating competition for high-cost prescription drugs by accelerating approval of generics and biosimilars and facilitating the process for re-classifying prescription drugs as over-the-counter drugs, and increasing drug importation. In May 2025, another Executive Order was issued that directed government agencies and officials to identify most-favored nation pricing targets for prescription drugs (and looked to pharmaceutical manufacturers to make significant progress towards delivering target prices to patients), prevent foreign countries from disproportionately shifting the cost of global pharmaceutical research and development to the United States and facilitate direct-to-consumer purchasing programs for pharmaceutical manufacturers to sell their products to patients at the most-favored-nation price. In the wake of the Executive Orders and related executive initiatives, a number of pharmaceutical manufacturers have announced direct-to-consumer offerings with discounted prices and/or reached agreement with the federal government regarding pricing for drugs, including prices for Medicaid drugs and newly launched products. A website sponsored by the federal government has also been launched to offer pharmaceutical direct-to-consumer channels. Federal agencies are developing new drug pricing pilot programs, such as a Medicaid model which would authorize the federal government to negotiate Medicaid supplemental rebates with participating manufacturers on behalf of state Medicaid programs, in exchange for standardized coverage criteria for participating manufacturer drugs, and the proposed Medicare Part B and Part D pilot models that, if finalized as proposed would replace existing inflation-based Medicare rebates with rebates determined on the basis of international prices, for drugs and patients subject to the model.
Other healthcare reform efforts or actions may affect access to healthcare coverage or the funding of health care benefits, although the full impact of such efforts or actions cannot be predicted with certainty. For example, the Congressional Budget Office has estimated that Medicaid provisions in the 2025 budget reconciliation legislation, including restrictions in eligibility and funding for Medicaid, as well as changes to the healthcare marketplace such as the elimination of certain subsidies, will increase the number of uninsured patients.
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Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug and biologic pricing, reduce the cost of prescription drugs and biologics under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs and biologics.
Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price constraints, restrictions on copayment assistance by pharmaceutical manufacturers, value-based pricing, marketing cost disclosure and other transparency measures, and, in some cases, measures designed to encourage importation from other countries and bulk purchasing.
Healthcare reform efforts have been and may continue to be subject to scrutiny, legal challenge and subsequent amendment, creating further uncertainty.
Other government actions could have an adverse effect upon, and could prevent, our products’ commercial success. For example, the current presidential administration’s announced tariff on branded or patented drugs may increase the cost of drug products that are imported from abroad or manufactured using products or materials imported from abroad. The timeline for implementation of this tariff has not yet been finalized. As another example, the Budget Control Act of 2011, as amended, resulted in the imposition of reductions in Medicare (but not Medicaid) payments to providers in 2013 and remains in effect through 2032 unless additional Congressional action is taken. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented and/or any significant taxes or fees that may be imposed on us could have an adverse impact on our results of operations.
The nature and extent of future healthcare or other reforms remain unpredictable. There is ongoing uncertainty regarding the nature and impact of executive, administrative or congressional actions and potential litigation. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or executive or administrative action, either in the United States, the UK, EU or elsewhere. Government policies and regulations may change, affecting our operations and business, including clinical trials, regulatory approval, pharmaceutical pricing and reimbursement. If we or third parties upon whom we rely fail to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third party are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained which may have a material impact on our business and operations.
Our information technology systems, or those of our third party CDMOs, CROs, specialty pharmacies, third party logistics providers and other contractors, consultants and service providers, may fail or suffer cyberattacks or security incidents, which could result in a material disruption of our or such third party’s business or operations, impede our development programs for our product candidates or materially impact our ability to commercialize our products.
Despite the implementation of security measures, our information technology systems and those of our third-party CDMOs, CROs, specialty pharmacies, logistics providers and other contractors, consultants and service providers remain vulnerable to attack, damage or interruption from malware (e.g., ransomware), viruses, theft, natural disasters, terrorism, war, telecommunication and power failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, employee misuse, human error, fraud, denial or degradation of service attacks, nation-state and nation-state-supported actors or unauthorized access or use by persons within our organization, or persons with access to systems inside our organization. Attacks upon information technology systems are increasing in frequency, persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. Technologies such as artificial intelligence and machine learning are additionally being used to create more sophisticated attacks on targets, including targeted social engineering attempts. We may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees, such as our commercial field force, who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Employees may fail to follow cybersecurity protocols, exposing us to vulnerabilities or undermining the safeguards we have put in place. Techniques to gain unauthorized access to, or to sabotage, systems
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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. In addition, because we have outsourced elements of our information technology infrastructure to vendors, such vendors may or could have access to our confidential information. A cyberattack on a CDMO, CRO, contractor, consultant, service provider or other third party could also increase exposure by allowing criminals to exploit our relationship with such persons. Such security incidents may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or cyberattacks due to attackers increasingly using tools and techniques that are designed to circumvent controls, avoid detection and remove or obfuscate forensic evidence.
We and certain of our service providers experience periodic cyberattacks and security incidents. While we do not believe that we have experienced any current or past significant system failure, accident or security incident that has materially affected or would be reasonably likely to materially affect us, a significant event could disrupt our operations or if such an event were to occur and cause interruptions in our business and operations or those of our third party CDMOs, CROs, specialty pharmacies, third party logistics providers and other contractors, consultants and service providers, the costs associated with the investigation, remediation and potential notification of a cyberattack to counter-parties and data subjects could be material. A cyberattack could result in a material disruption of our or such third party’s business or operations. For example, the loss of clinical trial data could delay regulatory approvals and significantly increase costs necessary to recover or reproduce the data. To the extent that any disruption or security incident results in a loss of or damage to, inappropriate disclosure of or theft of confidential or proprietary information, the further development of our product candidates could be delayed and such proprietary information may be made available to other parties and thereby decrease the value of such information. Further, disruptions to our or our third party providers’ infrastructure may inhibit our ability to commercialize ARCALYST through, among other things, interruptions in our logistics fulfillment, loss of patient and prescriber information, interruptions in our ability to communicate with the third party providers upon which we rely and impairments in our ability to service our patients and address their concerns. Any such event could adversely affect our business and revenue. Although we maintain cybersecurity insurance, coverage may be inadequate and subject to deductibles and limitations.
Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations and financial condition.
We are subject to data privacy and protection laws, regulations, policies and contractual obligations governing the collection, transmission, storage, processing and use of personal information and data. The global regulatory framework for data privacy and security is evolving, and interpretation and enforcement practices are likely to remain uncertain. This evolution may affect our ability to operate in certain jurisdictions; impede our ability to collect, store, transfer, use and share personal information; necessitate the acceptance of more onerous obligations in our contracts; result in liability; or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with applicable laws, internal policies or contractual obligations with respect to processing personal information could result in negative publicity, government investigations, enforcement actions, third-party claims and reputational harm, any of which could materially affect our business, results of operations and financial condition.
In the United States, most healthcare professionals and research institutions from which we obtain patient health information are subject to HIPAA. We may obtain health information from third parties, such as research institutions with which we collaborate, that are subject to privacy and security requirements under HIPAA. While we are generally not directly subject to HIPAA, other than potentially with respect to providing certain employee benefits, we could be subject to criminal penalties for knowingly obtaining or disclosing protected health information maintained by a HIPAA covered entity in a manner noncompliant with HIPAA. In the event that we are subject to or affected by HIPAA, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
The United States Federal Trade Commission (“FTC”) and many state Attorneys General continue to enforce federal and state consumer protection laws governing the collection, use, dissemination and security practices of personal information as it considers failing to appropriately secure consumers’ personal information to be unfair acts or practices under the Federal Trade Commission Act. The FTC expects a company’s data security measures to be
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reasonable and appropriate in light of the sensitivity and volume of consumer information held by the company, the size and complexity of its business and the cost to improve security and reduce vulnerabilities.
Our clinical trial programs and other operations outside the United States may implicate international data protection laws, including the European Union General Data Protection Regulation 2016/679 (“GDPR”), the UK GDPR and the Swiss Federal Act on Data Protection (the “DPA”). The GDPR imposes strict requirements for processing EEA residents’ personal data within the EEA and considers some of the personal data we process in respect of clinical trial participant personal data to fall under special categories requiring additional compliance obligations and to local law derogations. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines. GDPR noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater. In addition to fines, a breach of the GDPR may also result in regulatory investigations, reputational damage, orders to cease or change our data processing activities, enforcement notices, audits and/ or civil claims (including class actions). The UK maintains similar legislation known as the UK GDPR.
The GDPR regulates transfers of personal data subject to the GDPR to third countries with inadequate personal data protection, including the United States. Because we operate clinical trials in the EU and our operations are substantially centered into the United States, we face additional risk when transferring personal data. Case law from the Court of Justice of the European Union (“CJEU”) states that reliance on the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism) alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. We currently rely on standard contractual clauses to transfer personal data outside the EEA and the UK, including to the United States, with respect to both intragroup and third party transfers. We expect the regulatory guidance and enforcement landscape to continue to develop and may need to make certain operational changes (including revised standard contractual clauses and other relevant documentation for existing data transfers that are necessary to run our organization.
Failure or perceived failure to comply with the GDPR, the UK GDPR, the DPA and other countries’ privacy or data security-related laws, rules or regulations could result in significant regulatory penalties and fines, affect our compliance with contracts entered into with our partners and collaborators, and could have an adverse effect on our reputation, business and financial condition.
In addition to the above, we are also subject to other laws and regulations, such as health privacy laws, data breach notification laws, consumer protection laws and genetic testing laws that may apply directly to our operations or those of our collaborators and may impose restrictions on our collection, use and dissemination of individuals’ health information. Moreover, patients about whom we or our collaborators obtain health information, as well as the providers who share this information with us, may have statutory or contractual rights that limit our ability to use and disclose the information. Compliance will require significant expenditures of capital and time and any claims that we have violated individuals’ privacy rights or breached our contractual obligations or applicable law could result in expensive and time-consuming litigation.
Although we work to comply with our legal and contractual obligations, these requirements may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. In addition, we make public statements about our use, collection, disclosure and other processing of personal data through our privacy policies and information provided on our website. We or our third party-contractors may fail or be alleged to have failed to comply with such statements or any other obligations we have with respect to personal information, privacy or data protection. Such failures or alleged failures could result in government investigations or enforcement actions, litigation, claims or other proceedings that could generate adverse publicity, harm our reputation, negatively impact our ability to commercialize and market products and product candidates, result in significant liability and require that we devote substantial resources that could otherwise be used in other aspects of our business.
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Our future success depends on our ability to retain key executives and senior management; attract, retain and motivate qualified personnel; and implement succession planning efforts to ensure our long-term success.
We are highly dependent on the research and development, clinical, medical, regulatory, manufacturing, commercial and business development expertise of members of our executive and senior management teams, as well as the other members of our management, scientific and clinical teams. Although we have entered into employment agreements with our executive officers and certain members of senior management, each of them or we may terminate their employment with us at any time. An executive terminating their employment or taking an extended leave of absence without sufficient notice may leave a gap in the organization that we may be unable to fill on a timely basis, if at all. We do not maintain “key person” insurance for any of our executives, senior management or other employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
Recruiting and retaining qualified corporate, scientific, clinical, regulatory, manufacturing and sales and marketing personnel is also critical to our success. The failure to recruit, or the loss of the services of our executive officers, senior management or other key employees could impede the achievement of our research, development and commercialization objectives, which would adversely impact our ability to implement our business strategy and operate our business. Furthermore, replacing executive officers, senior management and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Changes in our senior management may be disruptive to our business, especially if we are unable to manage an orderly transition of responsibilities. Further, we may be unable to hire, train, retain or motivate these key personnel on acceptable terms due to intense competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of corporate, scientific, sales, marketing and clinical personnel from other pharmaceutical companies, universities and research institutions, as applicable. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific and clinical personnel. In addition, laws and regulations may restrict our ability to attract, motivate and retain the required level of qualified personnel. For example, our business operations may rely on foreign personnel who require work permits. Any changes in immigration policies, work permit regulations or visa requirements (including the cost to obtain visas) could adversely affect our ability to retain skilled employees. If work permits are denied, revoked or not renewed, we may face disruptions in our operations, increased costs for hiring and training replacements, and potential delays in project execution. If we are not able to continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or growth.
Effective succession planning is also important to our long-term success and ability to operate as a generational company. As we encounter employee turnover, including turnover of key personnel, we may be unable to timely train or locate replacement personnel in a way that does not delay our strategic planning and clinical and commercial execution.
Our employees, principal investigators, CROs, consultants and other third party service providers may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.
Our employees, principal investigators, CROs, consultants and other third party service providers may engage in fraudulent conduct or other illegal activity, including intentional, reckless or negligent conduct that violates the regulations of the FDA and other regulatory authorities, including laws related to disclosure of true, complete and accurate information to such authorities; reporting of clinical data; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, including
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off-label promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation.
It is not always possible to identify and deter misconduct by employees and other third parties. The precautions we take to detect and prevent this activity may not effectively control such conduct, whether unknown or unmanaged risks or losses or in protecting us from governmental investigations, lawsuits or other adverse actions stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Changes in United States trade policy, including tariffs imposed by the United States and any reciprocal tariffs imposed in response, could materially impact our business and results of operations.
Changes to United States trade policy, including tariffs imposed by the United States on imported goods, as well as reciprocal tariffs that may be imposed by foreign governments, may adversely affect our business and the global macroeconomic environment. The current presidential administration has imposed or is considering imposing baseline tariffs on all other countries, reciprocal tariffs with certain countries and particularized tariffs on certain types of foreign goods, including pharmaceutical products and components manufactured outside of the United States. Such tariffs are expected to increase the price of goods imported into the United States, including pharmaceutical products and important products that are ancillary to the administration, processing or testing of pharmaceutical products.
There is substantial uncertainty with respect to what extent new (or modified) tariffs will be imposed in the long-term in the United States and other countries, or the ultimate impact such tariffs will have on us, our industry and the patients we seek to serve. Further, it is unclear to what extent subsequent trade negotiations between the United States and other countries will reduce or remove previously announced tariffs. Such unpredictability creates substantial uncertainty and poses significant planning challenges for our operations and our CDMOs’ long term capital investment plans. Unlike consumer goods, pharmaceuticals face unique regulatory, technology and capacity constraints that make rapid supply chain adjustments particularly difficult and costly. Should current tariffs hold or be increased we may be unable to identify and qualify alternative sources of supply and our business may be materially and adversely affected. ARCALYST is currently manufactured in the United States, and we are in the process of moving ARCALYST drug substance manufacturing to Samsung in South Korea. While we do not expect that the current tariffs will result in a material impact to our overall business, financial condition or results of operations, a significant increase to tariffs on pharmaceutical products imported from South Korea may have a material effect on our business following the completion of such technology transfer.
Unfavorable global economic or operational conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and disruptions in global financial markets. These disruptions could adversely affect our ability to manufacture, market and sell ARCALYST, and satisfy the required supply for any of our product candidates or successfully complete preclinical and clinical development of our product candidates, which could require us to incur additional costs, and impair our ability to obtain regulatory approval of our product candidates and generate revenue. Doing business internationally involves a number of other risks, including but not limited to:
● multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, employment laws, regulatory requirements, permits and export and import restrictions;
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● failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;
● additional potentially relevant third-party patent rights;
● difficulties in staffing and managing operations outside of the United States;
● complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
● limits in our ability to penetrate international markets;
● financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;
● natural disasters, political and economic instability such as war, terrorism, political unrest, outbreak of disease, labor disputes and boycotts;
● imposition of tariffs, curtailment of trade and other business restrictions;
● certain expenses including, among others, expenses for travel, translation and insurance; and
● regulatory and compliance risks that relate to maintaining accurate information and control over clinical activities, sales and other functions that may fall within the purview of the FCPA, its books and records provisions or its antibribery provisions and the application of anti-corruption and anti-bribery laws in applicable jurisdictions.
Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current global economic climate and financial markets conditions could adversely impact our business.
Climate change, and related regulation, may result in increased costs or otherwise negatively impact our operations and harm our business.
The impacts of climate change on the global economy and our industry are rapidly evolving. Physical impacts of climate change (including but not limited to floods, hurricanes, droughts, more frequent and/or intense storms and wildfires), could negatively impact our business and operations, as well as the business and operations of our third party CDMOs and CROs upon whom we rely. Such events may result in damage or loss of our products and product candidates during their manufacture and shipment, cause delays in clinical development due to trial site disasters or result in losses of critical data, any of which may adversely impact our operations. An evolving climate may also result in uncertain and potentially onerous regulatory requirements as agencies and governmental authorities adjust, such as new or changed emissions reporting and auditing requirements. Failure to comply with such requirements in a timely manner may adversely affect our reputation, business or financial performance.
Risks Related to Ownership of Our Ordinary Shares
The concentration of ownership of our Class B ordinary shares among our senior management, and the conversion rights of our Class A1 and B1 ordinary shares, which are held entirely by entities affiliated with certain of our directors, means that certain matters submitted to our shareholders for approval may be influenced by such persons, which may have an adverse effect on the price of our Class A ordinary shares and may result in our Class A ordinary shares being undervalued.
Each Class A ordinary share is entitled to one vote per Class A ordinary share and each Class B ordinary share is entitled to ten votes per Class B ordinary share. Our Class A1 ordinary shares and Class B1 ordinary shares have no
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voting rights. As a result, all matters submitted to our shareholders are decided by the vote of holders of our Class A ordinary shares and Class B ordinary shares. As a result of the multi-class voting structure of our ordinary shares, our executive officers and certain other members of our senior management collectively control a substantial amount of the voting power of our ordinary shares and therefore are able to control the outcome of certain matters submitted to our shareholders for approval. As of December 31, 2025, the holders of Class A ordinary shares accounted for approximately 72% of our aggregate voting power and the holders of Class B ordinary shares accounted for approximately 28% of our aggregate voting power. Our executive officers and certain other members of our senior management hold Class A ordinary shares and Class B ordinary shares representing approximately 25% of our aggregate voting power as of December 31, 2025 and may have the ability to influence the outcome of certain matters submitted to our shareholders for approval.
However, this percentage may change depending on any conversion of our Class B ordinary shares, Class A1 ordinary shares or Class B1 ordinary shares as set forth in our articles of association. For example, as of December 31, 2025, entities affiliated with certain members of our directors could convert their Class A1 ordinary shares and Class B1 ordinary shares upon 61-days’ prior written notice into Class A ordinary shares and Class B ordinary shares, respectively, which in the aggregate would result in such entities holding approximately 74% of our aggregate voting power and having the ability to control the outcome of certain matters submitted to our shareholders for approval . D ue to these conversion rights, holders of our Class A1 ordinary shares and our Class B1 ordinary shares could, at any time with appropriate advance notice to us, significantly increase their voting control of us, which could result in their ability to significantly influence or control matters submitted to our shareholders for approval and significantly decrease the voting power of our currently outstanding Class A ordinary shares.
These conversion rights as well as concentrated control that limit certain shareholders’ ability to influence corporate matters may have an adverse effect on the price of our Class A ordinary shares. Holders of our Class B ordinary shares, which have ten votes per share on most matters, may have significant control over the outcome of certain matters submitted to our shareholders for approval, including the election of directors. Due to the conversion rights of the holders of our Class A1 and B1 ordinary shares, entities affiliated with certain of our directors could significantly increase their voting control of us. This concentration of control might adversely affect certain corporate actions that some of our shareholders may view as beneficial, for example, by:
● delaying, deferring or preventing a change of control of us;
● impeding a merger, consolidation, takeover or other business combination involving us; or
● discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
The price of our Class A ordinary shares may be volatile and fluctuate substantially, which could result in substantial losses for holders of our Class A ordinary shares.
Our share price may be subject to change as a result of volatility in the stock market driven by events often unrelated to our operating performance. As a result of this volatility, our shareholders may not be able to sell their Class A ordinary shares at or above the price they paid for their shares. The market price for our Class A ordinary shares may be influenced by many factors, as further discussed throughout this “ Risk Factors ” section.
Market conditions are often difficult to predict and there can be no assurance as to the performance of our Class A ordinary shares or that we will not experience any adverse effects that may be material to our consolidated cash flows, results of operations, financial position or our ability to access capital. In the past, following periods of volatility in the market, securities class action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business and financial condition.
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If securities or industry analysts cease publishing about us or publish unfavorable research or reports about us, our business or our market, our share price and trading volume could decline .
The trading market for our Class A ordinary shares is influenced by the research and reports that equity research analysts publish about us and our business. We do not have any control over the analysts or the content and opinions included in their reports. The price of our Class A ordinary shares could decline if one or more equity research analysts downgrades our shares or issues other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our Class A ordinary shares could decrease, which in turn could cause the price of our Class A ordinary shares or its trading volume to decline.
Sales of a number of our Class A ordinary shares in the public market, including Class A ordinary shares issuable upon conversion of our Class B, Class A1 and Class B1 ordinary shares, could cause the share price of our Class A ordinary shares to fall.
A significant number of our Class A ordinary shares are issuable upon conversion of our Class B, Class A1 and Class B1 ordinary shares, subject to certain limitations on conversion. As of December 31, 2025, approximately 2.1 million Class A ordinary shares directly held by our executive officers and directors, inclusive of Class A ordinary shares issuable upon conversion of our Class B, Class A1 and Class B1 ordinary shares, were eligible for resale in the public market to the extent permitted by the provisions of Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and such rule, Rule 144. In addition, as of December 31, 2025, there were approximately 12.2 million Class A ordinary shares subject to outstanding share options, PSOs, RSUs and PSUs under our equity incentive plans that may become eligible for sale in the public market to the extent permitted by the provisions of applicable vesting schedules and Rule 144 and Rule 701 under the Securities Act.
A majority of our ordinary shares are held by our executive officers and other members of our senior management team, together with entities affiliated with certain of our directors. As of December 31, 2025, on an as-converted to Class A ordinary shares basis, these shareholders collectively held approximately 33.9 million of our Class A ordinary shares. If any of these shareholders sell, convert or transfer or indicate an intention to sell, convert or transfer, a substantial amount of their ordinary shares (after certain restrictions on conversion or resale lapse), the market price of our Class A ordinary shares could decline.
Pursuant to our amended and restated investor rights agreement (our “Investors Rights Agreement”), certain shareholders are entitled to certain registration rights with respect our Class A ordinary shares, including Class A ordinary shares issuable upon conversions of our Class B, Class A1 and Class B1 ordinary shares and upon the exercise of certain rights to acquire Class A ordinary shares, or collectively registerable securities, under the Securities Act. As of December 31, 2025, on an as-converted to Class A ordinary shares basis, we have registered approximately 31.8 million Class A ordinary shares held by certain holders affiliated with certain of our directors as well as certain other shareholders pursuant to our investor rights agreement, which are freely tradable without restriction under the Securities Act, to the extent permitted by Rule 144. Further, pursuant to the Investors Rights Agreement (a) the holders affiliated with certain of our directors are entitled to certain registration rights under the Securities Act with respect to registrable securities they may own now or in the future and (b) our executive officers are also entitled to certain registration rights under the Securities Act with respect to registrable securities they may own now or in the future, including, on an as-converted to Class A ordinary shares basis, approximately 1.7 million Class A ordinary shares held by certain of our executive officers as of December 31, 2025. If any of these Class A ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our Class A ordinary shares could decline.
We have anti-takeover provisions in our articles of association that may discourage a change of control.
Our articles of association contain provisions that could make it more difficult for a third party to acquire us. These provisions provide for:
● a classified board of directors with staggered three-year terms;
● directors only to be removed for a limited number of reasons;
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● limitations on the acquisition of more than 30% or more of our voting rights, except through certain defined permitted acquisitions;
● our multiclass ordinary share structure, which provides our holders of Class B ordinary shares with the ability to significantly influence the outcome of matters requiring shareholder approval, even if they own less than a majority of our outstanding Class A ordinary shares; and
● restrictions on the time period in which directors may be nominated.
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company and may prevent our shareholders from receiving the benefit from any premium to the market price of our Class A ordinary shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our Class A ordinary shares if the provisions are viewed as discouraging takeover attempts in the future. These provisions could also discourage proxy contests, make it more difficult for our shareholders to elect directors of their choosing and cause us to take corporate actions other than those our shareholders desire.
Because we do not anticipate paying any cash dividends on our shares in the foreseeable future, capital appreciation, if any, will be the sole source of gain for our shareholders.
We have never declared or paid cash dividends on our shares. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. Additionally, the proposal to pay future dividends to shareholders will effectively be at the sole discretion of our board of directors after considering various factors our board of directors deems relevant, including our business prospects, capital requirements, financial performance and new product development. As a result, capital appreciation, if any, of our Class A ordinary shares will be the sole source of gain for our shareholders for the foreseeable future.
Risks Related to Our Jurisdiction of Incorporation and Certain Tax Risks
As a result of increased shareholder voting requirements in the UK relative to the United States, we will have less flexibility with respect to our ability to issue new shares.
Under English law, our shareholders must authorize an allotment of share capital which can be issued by our board of directors without further shareholder approval, but this authorization must be approved by our shareholders via an ordinary resolution from time to time (i.e., approval from shareholders holding more than 50% of the voting rights), with such authority capable of applying in respect of any period specified in such resolution up to a maximum of five years. At our annual meeting of shareholders in June 2025, our shareholders authorized us to issue new ordinary or preferred shares (up to a maximum of 35% of our outstanding shares on the record date for our 2025 annual meeting) for a period of five years from the date of such meeting. However, there is no guarantee that any subsequent authorizations will be approved. In the event that we do not receive such authorization, we would face significant impediments to our business and operations as we would be unable to raise capital through the issuance of equity, use equity as consideration in business development deals or honor our outstanding employee equity awards without seeking shareholder approval in each case. Such a scenario would materially harm our business due to the administrative and financial costs related thereto.
Additionally, subject to specified exceptions, English law grants statutory preemptive rights to existing shareholders to subscribe for new issuances of shares for cash. English law requires that this opt-out must be renewed by the shareholders at least every five years, and we cannot guarantee that the opt-out of preemptive rights will always be approved. A waiver of pre-emption rights under English law requires approval of the shareholders holding at least 75% of the voting rights in an English company. At our annual meeting of shareholders in June 2025, our shareholders voted to approve such a waiver for a period of five years from the date of such meeting. If, in the future, we do not receive such a waiver, this would cause a material adverse effect due to the administrative and financial costs related thereto, as a waiver of preemption rights would need to be sought from shareholders in respect of each new issuance of shares, including each instance that an employee would seek to exercise their share options.
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While both the general authority to allot and waiver of pre-emption rights could be approved on an annual (or multi-year) basis by shareholders at the annual general meeting, it cannot be guaranteed.
The rights afforded to our shareholders are governed by English law. Not all rights available to shareholders under United States law will be available to holders of our ordinary shares.
Our parent company is organized under the laws of England and Wales. The rights of holders of our ordinary shares are governed by English law and our articles of association, and these may not provide the same rights as shares offered by American companies.
In addition, English law may be subject to change in the future in ways that are disadvantageous to United States-based shareholders, which could adversely affect the rights of our investors. Rights afforded to shareholders under English law differ in certain respects from the rights of shareholders in companies incorporated in the United States. In particular, English law currently significantly limits the circumstances in which the shareholders of English companies may bring derivative actions (i.e., legal actions brought by a shareholder on behalf of a company against a third party). Under English law, in most cases, only Kiniksa International may be the proper plaintiff for the purposes of maintaining proceedings in respect of wrongful acts committed against it and, generally, neither an individual shareholder, nor any group of shareholders, has any right of action in such circumstances. In addition, English law does not afford appraisal rights to dissenting shareholders in the form typically available to shareholders in an American company.
Investors in the United States may find it difficult to enforce their civil liabilities against us.
It may be difficult for United States investors to bring and/or effectively enforce suits against us outside of the United States. We are a public limited company incorporated in England and Wales. If a judgment is obtained in the United States courts based on civil liability provisions of the United States federal securities laws against us or our directors or officers, it may, depending on the jurisdiction, be difficult to enforce the judgment in the non-United States courts against us. Accordingly, United States shareholders may be forced to bring legal proceedings against us under English law and in the English courts in order to enforce any claims that they may have against us or our directors and officers. The enforceability of a United States judgment in the UK will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and the UK do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Nevertheless, it may be difficult for United States shareholders to bring an original action in the English courts to enforce liabilities based on the United States federal securities laws against us.
We may become subject to unanticipated tax liabilities, including liabilities arising from the reallocation of our taxable income among our subsidiaries.
Although we are incorporated under the laws of England and Wales, we may become subject to income, withholding or other taxes in certain other jurisdictions by reason of our activities and operations, including the movement of assets to and between one or more foreign subsidiaries. It is also possible that taxing authorities in any such jurisdictions could assert that we are subject to greater taxation than we currently anticipate. Any such tax liability could materially adversely affect our results of operations.
For example, we are currently incorporated under the laws of England and Wales and have subsidiaries in the United States, the UK, Switzerland, Germany and France. If we succeed in growing our business, we expect to conduct increased operations through our subsidiaries in various tax jurisdictions subject to transfer pricing arrangements between us and such subsidiaries. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally will require that transfer prices be the same as those between unrelated companies dealing at arms’ length and that appropriate documentation is maintained to support the transfer prices. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities.
If tax authorities in any of these countries were to successfully challenge our transfer prices as not reflecting arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect
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these revised transfer prices, which could result in a higher tax liability to us. In addition, if the country from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, resulting in double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it would increase our consolidated tax liability, which could adversely affect our financial condition, results of operations and cash flows.
Changes and uncertainties in the tax system in the countries in which we have operations, could materially adversely affect our financial condition and results of operations, and reduce net returns to our shareholders.
We are unable to predict what tax reform may be proposed or enacted in the future by the United States, UK, Switzerland or the OECD or what effect such changes would have on our business and results of operations. Changes in tax rates, laws, practices, treaties, policies or regulations, or the change in interpretation thereof, could increase our effective tax rate or otherwise affect our financial position, results of operations and financial condition and/or increase the complexity, burden and cost of tax compliance.
We may be treated as a passive foreign investment company (“PFIC”) for United States federal income tax purposes. If we were to be classified a PFIC, this could result in adverse United States federal income tax consequences to United States Holders.
We completed an analysis of the Company’s and its subsidiaries sources of income and character of their assets for United States federal income tax purposes and determined that neither the Company nor any of its subsidiaries would be classified as a PFIC for the taxable year ending December 31, 2025. Although we believe that we were not a PFIC for 2025 and do not expect to become a PFIC in 2026, there can be no guarantee that we, or our subsidiaries, will not be treated as a PFIC for any taxable period. In this regard, the determination of PFIC classification is not made until after the close of the year and it depends on the amount and character of our annual income and assets, which in turn can depend on the interpretation of regulations and authorities, the application of which can be unclear. A non-United States company will generally be considered as a PFIC for any taxable year if (i) at least 75% of its gross income is passive (including interest income), or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. If we, or our subsidiaries, are classified as a PFIC in any year with respect to which a beneficial owner of our Class A ordinary shares who is (a) an individual who is a citizen of the United States, (b) a corporation organized under the laws of the United States or any state, district or territory thereof, (c) an estate taxable with income subject to United States federal income tax or (d) certain trusts (each, a “United States Holder”) owns our Class A ordinary shares, we will continue to be treated as a PFIC with respect to such United States Holder in all succeeding years during which the United States Holder owns the Class A ordinary shares, regardless of whether we continue to meet the PFIC test described above, unless we cease to be a PFIC and the United States Holder made a “qualified electing fund” election or “mark-to-market” election for (a) the first taxable year the United States Holder was treated as owning our shares while we were a PFIC or (b) for the taxable year in which we were a PFIC and the United States Holder made a “deemed sale” election or was qualified to and made a “deemed dividend” election.
If we, or our subsidiaries, are classified as a PFIC for any taxable year during which a United States Holder holds our Class A ordinary shares, certain adverse United States federal income tax consequences could apply to such United States Holder, including (i) the treatment as ordinary income of any gain realized on a disposition of our shares and distributions on our shares not being qualified dividend income, (ii) the application of a deferred interest charge on the tax on such gain and distributions, and (iii) the obligation to comply with certain reporting requirements.
If a United States Holder is treated as owning at least 10% of our shares, by vote or by value, such holder may be subject to adverse United States federal income tax consequences.
We believe we will likely be classified as a “controlled foreign corporation” (as such term is defined in the Code) for the taxable year ended December 31, 2025. Even if we were not classified as a controlled foreign corporation, certain of our non-United States subsidiaries could be treated as controlled foreign corporations because our group includes one or more United States subsidiaries. If a United States Holder is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our shares, such United States Holder may be treated as a
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“United States shareholder” (as such term is defined in the Code) with respect to us (if we are classified as a controlled foreign corporation) and each controlled foreign corporation in our group (if any). A United States shareholder of a controlled foreign corporation may be required to annually report and include in its United States taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in United States property by such controlled foreign corporation, regardless of whether such corporation makes any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a United States corporation. Failure to comply with these reporting obligations or income inclusions may subject such shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s United States federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether such investor is treated as a United States shareholder with respect to us or any of our non-United States subsidiaries. Further, we cannot provide any assurances that we will furnish to any United States shareholders information that may be necessary to comply with the reporting and tax paying obligations discussed above. United States Holders should consult their tax advisors regarding the potential application of these rules to any investment in our Class A ordinary shares.
