Item 1A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. If any of the events described in the following risk factors occurs, our business, operating results and financial condition could be seriously harmed. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Annual Report on Form 10-K.
Risks Related to Our Products, Product Candidates and Research and Development
Our success depends on our ability to effectively commercialize our products. If we and our collaborators are unable to effectively commercialize our products and to expand their utilization, our ability to generate significant revenue and our prospects for profitability will be adversely affected.
Our ability to generate revenue from product sales and our prospects for profitability are substantially dependent on our and our collaborators' ability to effectively commercialize our products and expand their utilization. We may not be able to fully realize the commercial potential of our products, and/or commercial sales of our products may be lower than our projections, for a number of reasons, including:
• we and our collaborators may be unable to effectively launch, market and commercialize our products, including in any new markets or in any new indications;
• we and our collaborators may not be able to establish or demonstrate to the medical community the efficacy, safety and value of our products and their potential advantages compared to existing and future therapeutics in their approved indications;
• we and our collaborators may not be able to obtain and maintain regulatory and other required governmental approvals to market our products in any additional territories or for any additional indications;
• new competitive therapies in the approved indications for our products have been approved by regulatory authorities or may be approved or submitted to regulatory authorities for approval in the near term;
• there may continue to be new adverse results, adverse events or safety concerns reported in connection with the use of our products, including in clinical trials;
• there may be additional changes to the labeling for our products that further restrict how we market and sell our products, including as a result of data collected from clinical trials and/or as a result of the use of our products;
• the incidence rate of new patients or the duration of therapy in the approved indications for our products may be lower than our projections;
• we may experience further or more severe negative impacts related to the COVID-19 pandemic, including potential future impacts on cancer diagnosis rates;
• negative impacts related to global economic instability and inflationary pressures;
• we may encounter challenges in joint decision making and joint execution with our collaborators that adversely affect product sales;
• co-promotion arrangements, such as the joint commercialization of PADCEV with Astellas in the U.S. and the joint commercialization of TIVDAK with Genmab in the U.S., may not be successful;
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• our products may be impacted by adverse reimbursement and coverage policies from government and private payors such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators, or may be subject to pricing pressures enacted by industry organizations or state and federal governments, including as a result of increased scrutiny over pharmaceutical pricing, the cost of alternative treatment options or otherwise;
• we and our collaborators may not be able to obtain favorable pricing and reimbursement approvals in additional territories in a timely manner or at all;
• physicians may be reluctant to prescribe our products due to side effects associated with their use or until longer term efficacy and safety data exist;
• regulatory restrictions may change or increase;
• we and our collaborators may not have adequate financial or other resources to effectively commercialize our products; and
• we and our collaborators may not be able to accurately predict demand for our products and obtain adequate commercial supplies of our products to meet demand at an acceptable cost.
Our ability to grow our product sales in future periods is also dependent on price increases, and we periodically increase the price of our products. Price increases on our products, as well as negative publicity regarding drug pricing and increases in drug prices generally, whether on our products or products distributed by other pharmaceutical companies, could negatively affect market acceptance of, and sales of, our products. In any event, we cannot assure you that price increases we have taken or may take in the future will not negatively affect our future product sales.
If we and our collaborators are unable to successfully commercialize our products or if sales of a product do not reach the levels we expect, then our business, results of operation, financial condition and growth prospects could be adversely affected.
Our success also depends on our ability to obtain regulatory approvals for our product candidates and for our current products in additional territories, as well as our ability to expand the labeled indications of use for our current products. Our inability to do so could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
We and our collaborators are required to obtain marketing approvals from applicable regulatory authorities in order to market our products or to expand the labeled indications of use for our current marketed products. However, regulatory review is a lengthy and expensive process, and approval is highly uncertain.
The U.S. Food and Drug Administration, or FDA, and other regulatory agencies have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained. Clinical trial data are subject to differing interpretations. Even if we believe data are promising, regulatory authorities may disagree and may require additional data, limit the scope of the approval or deny approval altogether. For example, although we and Astellas announced positive initial results from the dose escalation/Cohort A, and positive data from Cohort K, of the EV-103 trial and the FDA accepted a supplemental Biologics License Application, or sBLA, based on these results, the FDA or its advisors may disagree with our interpretation of the data from this trial. We cannot be certain the sBLA submitted for PADCEV in October 2022 will be approved in a timely manner or at all. It is possible that PADCEV may never be approved for use in any first-line setting or any other additional indications. In addition, the approval of a product candidate by one regulatory agency does not mean that other regulatory agencies will also approve such product candidate.
Any approval that a product does receive may be more restricted than anticipated. For example, regulatory authorities may approve a product for fewer indications or narrower indications than requested. Further, regulatory agencies may impose post-marketing testing, safety monitoring, educational requirements or risk evaluation and mitigation strategies, or REMS. Regulatory authorities may also fail to approve the facilities or processes used to manufacture a product candidate or the dosing or delivery methods.
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The regulatory review process may also take significantly longer than expected, which may delay or eliminate any potential revenues from sales of the affected product or product candidate. Target action dates and regulatory timelines may be subject to substantial delays. For example, although the FDA set a target action date for the sBLA we and Astellas submitted for PADCEV based on certain results from the EV-103 trial, the FDA does not always meet its target action dates. In addition, although the FDA and EMA have programs to facilitate expedited development and accelerated approval processes, these programs may not result in faster development, review or approval than conventional procedures and do not assure ultimate approval. For example, although the FDA granted Breakthrough Therapy designation to each of PADCEV and disitamab vedotin in a specified treatment setting and granted Priority Review to the sBLA we and Astellas submitted for PADCEV based on certain results from the EV-103 trial, these designations do not provide any assurance that PADCEV or disitamab vedotin will receive marketing approval in the specified settings or in any other settings in a timely manner or at all. Disruptions at the FDA and other agencies due to reduced funding levels, government shutdowns, impacts associated with the COVID-19 pandemic or other factors, may also lead to delays in the regulatory review process. These disruptions may also slow our other interactions with regulatory agencies, which may slow our other product development efforts.
If a product candidate fails to receive regulatory approvals, we will not have the anticipated revenues from that product candidate to fund our operations, and we may not recoup or receive any return on our investment in that product candidate. Similarly, if regulatory authorities do not approve product labeling that is necessary or desirable for the successful commercialization of an approved product, or if they do not approve an application to expand a product's labeled indications of use or market the product in a new territory, then our anticipated revenue from that product may be adversely affected. Any of these events could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
Even if regulatory approval is achieved, the launch of a new product or of an existing product in a new indication or territory is subject to a number of risks and uncertainties and may not be successful.
Sales of a new product and sales of an existing product in a new indication or territory are subject to significant risks and uncertainties and can be particularly difficult to predict. For example, the commercialization of TIVDAK is at an early stage and may not be successful. A proposed launch, including the launch of PADCEV and TUKYSA in countries where they have not yet launched, could also be delayed or impaired due to a variety of factors, including supply constraints, delays in arranging a commercial infrastructure, delays in obtaining or failure to obtain pricing and reimbursement approvals, or other factors. These risks could be heightened by impacts related to the COVID-19 pandemic. Delays or other difficulties due to any of these factors could negatively impact anticipated revenue from the affected product. In addition, prior to TUKYSA, we had no prior experience as an organization launching or commercializing a product outside the U.S. and Canada, which could adversely affect our ability to maximize the commercial potential of TUKYSA. If we and our collaborators are unable to successfully launch and commercialize any newly approved products and/or to successfully launch and commercialize our existing products in new indications or territories, then our business, results of operation, financial condition and growth prospects could be adversely affected.
Reports of adverse events or safety concerns involving our products or product candidates could delay or prevent us from obtaining or maintaining regulatory approvals or could negatively impact sales of our products or the prospects for our product candidates.
Reports of adverse events or safety concerns involving our products and product candidates could result in the limitation, denial or withdrawal of regulatory approval by the FDA or other regulatory authorities for any or all indications, the need to conduct additional trials, implementation of a REMS or the inclusion of unfavorable information in our product labeling and, in turn, could delay or prevent us from commercializing the applicable product or product candidate. There are no assurances that patients receiving our products will not experience serious adverse events, including fatal events, in the future, whether the serious adverse events are disclosed in the prescribing information or are newly reported. Further, there are no assurances that patients receiving our products with co-morbid diseases not previously studied, such as autoimmune diseases, will not experience new or different serious adverse events in the future.
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The prescribing information for each of our products includes warnings and precautions for various toxicities and reactions, including certain fatal reactions. The prescribing information for ADCETRIS also includes a boxed warning related to the risk that JC virus infection resulting in progressive multifocal leukoencephalopathy and death can occur in patients receiving ADCETRIS. The prescribing information for PADCEV also includes a boxed warning related to the risk that severe and fatal cutaneous adverse reactions, including Stevens-Johnson syndrome and toxic epidermal necrolysis, may occur in patients receiving PADCEV. The prescribing information for TIVDAK also includes a boxed warning related to the risk that ocular toxicity may occur in patients receiving TIVDAK, and the boxed warning includes requirements for ophthalmic exams at baseline, prior to each dose, and as clinically indicated, as well as premedication and eye care. We have updated the prescribing information for our products from time to time in the past, based on reports of adverse events or safety concerns, and we may be required to further update the prescribing information for our products, including boxed warnings, limitations of use, contraindications, warnings and precautions, and adverse reactions, or to implement a REMS in the future. Side effects and toxicities associated with our products, as well as the warnings, precautions and requirements listed in the prescribing information for our products, could affect the willingness of physicians to prescribe, and patients to utilize, our products and thus harm commercial sales of our products. Implementation of a REMS could advantage products that compete with ours or make it more difficult or expensive for us to distribute our products.
Likewise, reports of adverse events or safety concerns involving our products and product candidates could interrupt, delay or halt clinical trials of our products and product candidates, including the post-approval confirmatory studies that regulatory agencies have required us or our collaborators to complete. There have been serious side effects and, in some cases, deaths in clinical trials for our products and product candidates that were deemed to be treatment-related by the investigators in those trials, and additional and/or unexpected side effects may be observed in these or other trials in the future. In addition, in response to prior safety events observed in our clinical trials, including serious side effects and patient deaths, we have in the past, and may in the future, institute additional precautionary safety measures such as dosing caps and delays, enhanced monitoring for side effects, and modified patient inclusion and exclusion criteria. Additional and/or unexpected safety events could be observed in these or other trials that could delay or prevent us from advancing the clinical development of, or obtaining regulatory approvals for, our products and product candidates, could require us to alter the approved labeling of our products, may cause a trial to be redone or terminated, may affect patient recruitment or may affect the ability of enrolled patients to complete a trial. As a result, such safety events could adversely affect our business, results of operations, financial condition and growth prospects.
Clinical trials and product development are expensive, time consuming and uncertain, may take longer than we expect and may not be successful. Our failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
Our long-term success will depend upon the successful development of new products, as well as developing our existing products for new indications. However, only a small number of development programs result in the commercialization of a product. It is possible that none of our product candidates will ever become commercial products and that none of our existing products will obtain regulatory approval in any additional indications or territories. We and our collaborators are currently conducting multiple clinical trials for our products and product candidates, and we plan to commence additional trials in the future. Each of these trials requires the investment of substantial expense and time. However, there can be no assurance that the design or conduct of these trials, or any data collected from them, will be sufficient to support advancement to the next stage of development, any regulatory approvals or commercial viability.
Many of our clinical trials were initiated based on limited data. Encouraging preclinical, preliminary or interim data, and/or positive early-stage clinical trial results do not ensure that full, larger scale, later stage or confirmatory trials will be successful or that regulatory approval will be obtained. For example, despite the positive initial results we and Astellas reported from the dose escalation/Cohort A of the EV-103 trial and the positive results we and Astellas announced from Cohort K of the EV-103 trial, we cannot be certain that PADCEV will demonstrate sufficient efficacy or a favorable safety profile in other trials, including the EV-302 trial. Many companies in the pharmaceutical and biotechnology industries, including us, have suffered significant setbacks in late-stage clinical trials after achieving encouraging or positive results in early-stage development. We cannot be certain that we will not face similar setbacks in our ongoing or planned clinical trials, including ongoing pivotal and confirmatory trials.
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There may still be important facts about the safety, efficacy, and risk versus benefit of our products and product candidates, as single agents or in combination with other agents, that are not known to us at this time and that may negatively impact our ability to develop and commercialize them. Safety events or concerns, or negative or inconclusive trial results, could adversely affect the development timeline and the regulatory approval and commercialization prospects for our products and product candidates, or cause us to cease further development of a product or product candidate, any of which may materially and adversely affect our business, results of operations, financial condition and growth prospects. In addition, we may make a strategic decision to discontinue development if, for example, we believe commercialization will be difficult relative to the standard of care or we prefer to prioritize other opportunities in our pipeline. We also face intense competition, and it is possible that a clinical trial may meet its safety and efficacy endpoints but we may choose not to advance the development of a product or product due to changes in the competitive environment.
From time to time, the commencement, continuation and completion of our clinical trials have been subject to delays, and we are likely to experience additional delays in the future. Factors that could lead to the delay, suspension, termination or need to modify clinical trials of our products and product candidates include:
• adverse medical events or side effects, including fatalities, in treated patients or other safety issues or concerns;
• deficiencies in the conduct of the clinical trial, including failure to conduct the clinical trial in accordance with regulatory requirements, Good Clinical Practice, or GCP, or study protocols;
• problems, errors or other deficiencies with respect to data collection, data processing and analysis;
• action by competent authorities to place a clinical hold or partial clinical hold on a trial or compound;
• the time required to determine efficacy may be longer than expected;
• unfavorable scientific results or insufficient data to support safety and effectiveness;
• inadequate supply or deficient quality of the applicable product or product candidate or of other materials necessary to complete the trials;
• inability to reach agreement on acceptable terms with prospective trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different trial sites;
• delay or failure to obtain institutional review board, or IRB, or ethics committee approval to conduct a clinical trial at a prospective site;
• decisions by competent authorities, IRBs, ethics committees, our collaborators or us, or recommendation by a data monitoring committee, to suspend or terminate a clinical trial for safety issues, futility or any other reason or to demand variations in the protocols or conduct of clinical trials;
• changes in governmental regulations or administrative actions that adversely affect the ability to continue to conduct or to complete a clinical trial;
• budgetary constraints or prohibitively high clinical trial costs;
• difficulties in identifying and enrolling patients who meet trial eligibility criteria;
• lower than anticipated retention rates for patients who have initiated a clinical trial;
• the risks and evolving effects of the COVID-19 pandemic; and
• risks related to the ongoing military conflict between Russia and Ukraine, and sanctions imposed against Russia by the international community.
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Additionally, patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials, perceived side effects and the availability of alternative or new treatments. We have experienced enrollment-related delays in clinical trials in the past, and we will likely continue to experience similar delays in our current and future trials. Many of our future and ongoing clinical trials are being or will be coordinated or conducted with collaborators. If we and these collaborators fail to collaborate effectively, we may experience delays or adverse effects on the commencement, continuation or completion of these trials. In addition, our collaborators have operational control over some of the studies we conduct jointly and we do not have full visibility into these studies run by our collaborators. We also conduct clinical trials in countries outside the U.S., which may subject us to additional expenses, regulatory requirements and potential delays, as well as risks associated with different standards of medical care.
If a product candidate or a potential new indication fails at any stage of development, or if we or our collaborators otherwise discontinue development of a product candidate or indication for any reason, we will not have the anticipated revenues from that product candidate or indication to fund our operations and we may not recoup or receive any return on our investment in that product candidate or indication. Failure to effectively advance our development programs in a timely manner or at all could have a material adverse effect on our business, results of operations, financial condition and prospects.
The successful commercialization of our products will depend, in part, on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies.
Successful sales of our current and any future approved products will depend, in part, on the extent to which coverage and reimbursement for our products will be available from government and health administration authorities, private health insurers and other third-party payors. To manage healthcare costs, many governments and third-party payors increasingly scrutinize the pricing of new products and require increasing levels of evidence of favorable clinical outcomes and cost-effectiveness before extending coverage. In light of this pricing scrutiny, we cannot be sure that we and our collaborators will achieve and maintain coverage for our products and any product candidates that we or our collaborators commercialize and, if available, that the reimbursement rates will be adequate and grant access to all eligible patients. If we or our collaborators are unable to obtain and maintain coverage and adequate levels of reimbursement for our current and any future approved products that we or our collaborators commercialize, their marketability will be negatively and materially impacted. For example, we cannot be certain that third-party payors will provide coverage and adequate reimbursement for PADCEV, TUKYSA or TIVDAK based on their relative price and perceived benefits as compared to alternative treatment options or otherwise, which may materially harm our and our collaborators' ability to successfully commercialize PADCEV, TUKYSA and TIVDAK in our respective designated territories. In addition, gross-to-net deduction rates are dependent on market and site of care dynamics that may continue to evolve throughout the lifecycle of each of our products. These gross-to-net deduction rates also vary by product. We have experienced fluctuations in gross-to-net deductions in the past and may experience additional fluctuations in gross-to-net deductions for one or more of our products in the future.
In many jurisdictions, including many countries in Europe, the proposed pricing for a drug must be approved in an individual country before it may be lawfully marketed, which could delay entry of a product into a market or, if pricing is not approved, may prevent us or our collaborators from selling a product in a country where it has received regulatory approval. In European countries where TUKYSA and PADCEV have obtained regulatory approval, we will seek additional pricing and reimbursement agreements for TUKYSA, and work with Astellas to seek additional pricing and reimbursement agreements for PADCEV, in accordance with local timelines. Further, authorities in Europe have substantial discretion in the pricing and reimbursement approval process and in determining when or whether coverage will be available for a product in its initial indication or for any additional indications or in additional territories. In addition, in some cases, they may lower the price for a medicine after the price has been established. If we or our collaborators are unable to obtain favorable pricing and reimbursement approvals in the countries that represent significant potential markets, our anticipated revenue from and growth prospects for PADCEV and/or TUKYSA in those regions would be negatively affected.
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Eligibility for coverage and reimbursement does not imply that payors will pay for a drug in all cases or at a rate that (i) captures the value delivered to patients, payors and the overall healthcare system; (ii) allows for continued investment in innovative treatments for cancer patients; or (iii) covers our costs, including research, development, manufacture, sale and distribution. In addition, obtaining and maintaining adequate coverage and reimbursement status is time-consuming and costly. Third-party payors may deny coverage and reimbursement status altogether for a given product, or they may cover the product but establish prices at levels that are too low to enable us to realize an appropriate return on our investment in product development or limit access to select patient populations, reducing revenue potential. Further, in the U.S., there is no uniform policy of coverage and reimbursement among third-party payors. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided is made on a payor-by-payor basis. One payor's determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Because the rules and regulations regarding coverage and reimbursement change frequently, in some cases at short notice, even when there is favorable coverage and reimbursement, future changes may occur that adversely impact the favorable status.
The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of our current and any future approved products and the future revenues we may expect to receive from those products. Further, in the event that our product candidates rely upon in vitro companion diagnostics for use in selecting the patients that we believe will respond to our therapeutics, we or our collaborators may be required to obtain coverage and reimbursement separate and apart from the coverage and reimbursement we may seek for our product candidates. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be upheld or enacted in the future, or what effect such legislation or regulation would have on our business. Continuing negative publicity regarding pharmaceutical pricing practices and ongoing governmental and societal scrutiny create significant uncertainty regarding regulation of the healthcare industry and third-party coverage and reimbursement in the U.S. and other jurisdictions. If additional healthcare policies or reforms intended to curb healthcare costs are implemented or if we experience negative publicity with respect to pricing of our products or the pricing of pharmaceutical products generally, the prices that we charge for our current and any future approved products may be limited, and our revenues from sales of our current and any future approved products may be negatively impacted.
The successful commercialization of our products will also depend, in part, on the acceptance of our products by the medical community, patients and third-party payors.
The degree of market acceptance among patients, physicians, and third-party payors is important to our ability to successfully commercialize our current and any future approved products. The degree of acceptance will depend on a number of factors including the clinical benefits of our products, the effectiveness of our marketing, sales and distribution strategy and operations, the perceived advantages and relative cost, safety and efficacy of alternative treatments, and the acceptance and degree of adoption of our products by institutional treatment pathways and institutional, local, and national clinical guidelines. In the U.S., many oncology practices and healthcare providers rely on the National Comprehensive Cancer Network, or NCCN, Clinical Practice Guidelines in Oncology or other institutional practice pathways in decisions related to treatment of patients and utilization of medicines. To the extent that our current or any future approved products are not included or positioned favorably in such treatment guidelines and pathways, the full utilization potential of our products may not be reached, which may harm our ability to successfully commercialize our current or any future approved products.
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Any failures or setbacks in our ADC development program or our other platform technologies could negatively affect our business and financial position.
ADCETRIS, PADCEV, TIVDAK and our ladiratuzumab vedotin and disitamab vedotin product candidates are all based on antibody-drug conjugate, or ADC, technology, which utilizes proprietary stable linkers and potent cell-killing synthetic agents. Our ADC technology is also the basis of our license agreements with AbbVie Biotechnology Ltd., Astellas, Genentech, Inc., a member of the Roche Group, or Genentech, and GlaxoSmithKline LLC and our collaboration agreements with Takeda, Astellas, Genmab, Merck and Zai Lab. Any failures or setbacks in our ADC development program or with respect to our additional proprietary technologies, including adverse effects resulting from the use of this technology in human clinical trials and/or the imposition of clinical holds on our trials of our product candidates, could have a detrimental impact on the continued commercialization of our products in their current or any potential future approved indications and on our product candidate pipeline, as well as our ability to maintain and/or enter into new corporate collaborations regarding our ADC technology, which would negatively affect our business and financial position.
We face intense competition and rapid technological change, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies and intense competition. Many third parties compete with us in developing various approaches to treating cancer. They include pharmaceutical companies, biotechnology companies, academic institutions and other research organizations. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approval and marketing than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
With respect to ADCETRIS, there are several other FDA approved drugs for its approved indications. Bristol-Myers Squibb's, or BMS's, nivolumab and Merck's pembrolizumab are approved for the treatment of certain patients with relapsed or refractory classical Hodgkin lymphoma, and Acrotech Biopharma's pralatrexate and belinostat are approved for relapsed or refractory systemic anaplastic large cell lymphoma, or sALCL, among other T-cell lymphomas. BMS's romidepsin is approved for cutaneous T-cell lymphoma. Kyowa Kirin's mogamulizumab is approved for adult patients with relapsed or refractory mycosis fungoides or Sézary syndrome. The competition ADCETRIS faces from these and other therapies is intensifying. Additionally, Merck conducted a phase 3 clinical trial in relapsed or refractory classical Hodgkin lymphoma comparing pembrolizumab to ADCETRIS. An interim analysis of this clinical trial demonstrated a statistically significant improvement in progression-free survival for pembrolizumab compared with ADCETRIS, resulting in a label expansion to an earlier line of therapy, and pembrolizumab is now competing with ADCETRIS in this indication. We are also aware of multiple investigational agents currently being studied that, if successful, may compete with ADCETRIS in the future, such as camidanlumab tesirine, which is in a phase 2 study in relapsed/refractory classical Hodgkin lymphoma. Nivolumab, with or without chemotherapy, in a phase 2 investigator initiated trial, has demonstrated significant objective response rate in the salvage setting. In the frontline classical Hodgkin lymphoma setting, nivolumab in combination with chemotherapy and pembrolizumab in combination with chemotherapy are each being studied and if proven beneficial, could compete with ADCETRIS in that setting. Data have also been presented on several developing technologies, including bispecific antibodies and CAR modified T-cell therapies that may compete with ADCETRIS in the future. Further, there are many competing approaches used in the treatment of patients in ADCETRIS' approved indications, including autologous hematopoietic stem cell transplant, allogeneic hematopoietic stem cell transplant and chemotherapy, in addition to clinical trials with experimental agents.
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With respect to PADCEV, other treatments in pretreated metastatic urothelial cancer include sacituzumab govitecan (a Trop-2-directed antibody and topoisomerase inhibitor conjugate), checkpoint inhibitor monotherapy, generic chemotherapy and, for patients with select FGFR genetic alterations, Janssen's erdafitinib. Front line metastatic urothelial cancer was traditionally treated with chemotherapy alone but is evolving to include checkpoint inhibitors for cisplatin-ineligible patients with high PD-L1 expression in addition to patients who are ineligible for platinum therapy. Avelumab is used for frontline maintenance therapy, and several trials of investigational agents in combination with chemotherapy or other novel agents are ongoing. Continued development of PD-(L)1 targeted therapies across early-stage bladder cancer and in metastatic bladder cancer in frontline combinations with chemotherapy, in frontline maintenance, and in pretreated disease, could potentially impact PADCEV usage and enrollment in PADCEV clinical trials.
With respect to TUKYSA, there are multiple marketed products which target HER2, including the antibodies trastuzumab and pertuzumab and the antibody drug conjugate T-DM1. In addition, lapatinib is an EGFR/HER2 oral kinase inhibitor for the treatment of metastatic breast cancer, and neratinib is an irreversible pan-HER kinase inhibitor indicated for extended adjuvant treatment and treatment of metastatic breast cancer in patients who received two or more prior anti-HER2-based regimens. Daiichi Sankyo and AstraZeneca have fam-trastuzumab deruxtecan-nxki, which was approved by the FDA for patients who have received one or more prior anti-HER2-based regimens in the metastatic breast cancer setting and in the HER2-positive gastric cancer setting post-trastuzumab-based therapy. The agent was also granted conditional marketing authorization by the EMA for the treatment of adult patients with unresectable or metastatic HER2-positive breast cancer who have received one or more prior anti-HER2-based regimens. We believe that the sequence of therapies patients receive for HER2-positive breast cancer is likely to continue to change in both the U.S. and EU, with greater fam-trastuzumab deruxtecan-nxki use in second line. This has resulted and is expected to continue to result in increased competition for TUKYSA, which is approved by the FDA for patients who have received one or more prior anti-HER2-based regimens in the metastatic breast cancer setting, including in patients with brain metastases. MacroGenics has a HER2 targeted, Fc-optimized antibody, margetuximab, which is approved by the FDA for patients who have received at least two previous anti-HER2 regimens. Additionally, Byondis released results from a pivotal trial of its antibody drug conjugate, SYD985, in metastatic breast cancer patients treated with multiple anti-HER2-based regimens and the FDA accepted a regulatory submission based on these results with a target action date in May 2023. Fam-trastuzumab deruxtecan-nxki is also recommended by NCCN for use as part of a combination therapy in HER2-positive metastatic colorectal cancer.
With respect to TIVDAK, Merck's pembrolizumab is approved by the FDA and EC in first line in combination with chemotherapy, with or without bevacizumab, for the treatment of recurrent or metastatic cervical cancer whose tumors express PD-L1 and is approved by the FDA in second line as a monotherapy for recurrent or metastatic cervical cancer patients with disease progression on or after chemotherapy in patients whose tumors express PD-L1. In September 2022, pembrolizumab was approved in Japan as first-line therapy in combination with chemotherapy, with or without bevacizumab, for patients with recurrent or metastatic cervical cancer who are not amenable to curative treatment. We are also aware of other companies that currently have products in development for the treatment of late-stage cervical cancer which could be competitive with TIVDAK, including Agenus, BMS, Iovance Biotherapeutics, Merck, Regeneron Pharmaceuticals, Sanofi and Roche. Cemiplimab is being reviewed in several countries outside the U.S. for the treatment of patients with recurrent or metastatic cervical cancer following progression on platinum-based chemotherapy. A supplemental Biologics License Application for cemiplimab was withdrawn in the U.S. in January 2022. Cemiplimab received Canadian approval in March 2022, EC approval in November 2022 and Japanese approval in December 2022, which will likely impact the potential future opportunity for TIVDAK in that geography.
Many other pharmaceutical and biotechnology companies are developing and/or marketing therapies for the same types of cancer that our product candidates are designed and being developed to treat. In addition, we are aware of a number of other companies that have ADC and other technologies that may be competitive with ours. We are also aware of a number of companies developing monoclonal antibodies directed at the same antigen targets or for the treatment of the same diseases as our product candidates. In addition, our ADC collaborators may develop compounds utilizing our technology that may compete with product candidates that we are developing.
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The risk of biosimilar or generic challenges has also been increasing in our industry. In the U.S. and the EU, after a period of exclusivity for an innovator's approved biological product or branded drug has passed, there are abbreviated pathways for approval of biosimilar products or generic drugs. In addition, it is not possible to predict changes in law that might reduce regulatory exclusivity. As a result, and due to uncertainties regarding patent protection, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. Absent patent protection or regulatory exclusivity for our products, it is possible, both in the United States and elsewhere, that biosimilar, interchangeable or generic versions of those products may be approved and marketed, which would likely result in substantial and rapid reductions in revenues from sales of those products.
It is also possible that our competitors will succeed in developing technologies that are more effective than our products and product candidates or that would render our technology obsolete or noncompetitive, or will succeed in developing biosimilar, interchangeable or generic products for our products and product candidates. We anticipate that we will continue to face increasing competition in the future as new companies enter our market and scientific developments surrounding biosimilars and other cancer therapies continue to accelerate. We cannot predict to what extent the entry of biosimilars or other competing products will impact potential future sales of our products and product candidates.
Risks Related to Regulatory Oversight, and Other Legal Compliance Matters
Our products and any future approved products remain subject to extensive ongoing regulatory obligations and oversight, including post-approval requirements, that could result in penalties and significant additional expense and could negatively impact our and our collaborators' ability to commercialize our current and any future approved products.
Any product that has received regulatory approval remains subject to extensive ongoing obligations and continued review from applicable regulatory agencies. These obligations include, among other things, drug safety reporting and surveillance, submission of other post-marketing information and reports, pre-clearance of certain promotional materials, manufacturing processes and practices, product labeling, confirmatory or post-approval clinical research, import and export requirements and record keeping. These obligations may result in significant expense and limit our and our collaborators' ability to commercialize our current and any future approved products. Any violation of ongoing regulatory obligations could result in restrictions on the applicable product, including the withdrawal of the applicable product from the market.
If FDA approval is granted via the accelerated approval pathway or a product receives conditional marketing authorization from another comparable regulatory agency, we and our collaborators may be required to conduct a post-marketing confirmatory trial in support of full approval and to comply with other additional requirements. For example, in connection with ADCETRIS's conditional marketing authorization in relapsed Hodgkin lymphoma, relapsed cutaneous T-cell lymphoma, and both relapsed and frontline sALCL in the EU, Takeda is subject to certain post-approval requirements, including the requirement to conduct clinical trials to confirm clinical benefit. The FDA's accelerated approval of TIVDAK and of TUKYSA in its colorectal cancer indication also included requirements for confirmatory trials. An unsuccessful post-marketing study or failure to complete such a study with due diligence could result in the withdrawal of marketing approval. Post-marketing studies may also suggest unfavorable safety information that could require us to update the product's prescribing information or limit or prevent the product's widespread use. In addition, the labeling, advertising and promotion of products that have received accelerated approval from the FDA, including TUKYSA and TIVDAK, are subject to additional regulatory requirements, which entail significant expense and could negatively impact the product's commercialization. Recent legislation has given the FDA additional authority to require accountability and enforce the post-marketing requirements and commitments associated with accelerated approval.
Regulatory authorities may also impose additional post-marketing commitments, including requirements for companion diagnostics. For example, the FDA's approval of ADCETRIS in the frontline peripheral T-cell lymphoma indication included a post-marketing commitment to develop an in-vitro diagnostic device for the selection of patients with CD30-expressing PTCL, not including SALCL, for treatment with ADCETRIS in this indication. We and Takeda have a collaboration with Ventana Medical Systems, Inc., or Ventana, under which Ventana is working to develop such a diagnostic device.
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We and the manufacturers of our current and any future approved products are also required, or will be required, to comply with current Good Manufacturing Practices, or cGMP, regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture our products and product candidates, and these facilities are subject to ongoing regulatory inspections. In addition, any approved product, its manufacturer and the manufacturer's facilities are subject to continual regulatory review and inspections, including periodic unannounced inspections. Failure to comply with applicable FDA and other regulatory requirements may subject us to administrative or judicially imposed sanctions and other consequences, including:
• issuance of Form FDA 483 notices or Warning Letters by the FDA or other regulatory agencies;
• imposition of fines and other civil penalties;
• criminal prosecutions;
• injunctions, suspensions or revocations of regulatory approvals;
• suspension of any ongoing clinical trials;
• total or partial suspension of manufacturing;
• delays in regulatory approvals and commercialization;
• refusal by the FDA to approve pending applications or supplements to approved applications submitted by us;
• refusals to permit drugs to be imported into or exported from the U.S.;
• restrictions on operations, including costly new manufacturing requirements;
• product recalls or seizures or withdrawal of the affected product from the market; and
• reputational harm.
The policies of the FDA and other regulatory agencies may change and additional laws and regulations may be enacted that could prevent or delay regulatory approval of our product candidates or of our products in any additional indications or territories, or further restrict or regulate post-approval activities. Any problems with a product or any violation of ongoing regulatory obligations could result in restrictions on the applicable product, including the withdrawal of the applicable product from the market. If we are not able to maintain regulatory compliance, we or our collaborators might not be permitted to commercialize our current or any future approved products and our business would suffer.
Healthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products.
In recent years, there have been a number of legislative and regulatory actions and executive orders that have made reforms to the U.S. healthcare system. The implementation of certain of these policy changes has decreased our revenues and increased our costs, and federal and state legislatures, governments in countries outside the U.S., health agencies and third-party payors continue to focus on containing the cost of healthcare. Further legislative and regulatory changes, and increasing pressure from social sources, are likely to further influence the manner in which our products are priced, reimbursed, prescribed and purchased. Such additional reforms could result in further reductions in coverage and levels of reimbursement for our products, expansion of U.S. government rebate and discount programs, increases in the rebates and discounts payable under these programs, requests for additional or supplemental rebates, and additional downward pressure on the prices that we and our collaborators receive for our products.
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The federal government has implemented reforms to government healthcare programs in the U.S., including changes to the methods for, and amounts of, Medicare reimbursement and changes to the Medicaid Drug Rebate Program. For example, in March 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug's average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In November 2021, President Biden signed the Infrastructure Investment and Jobs Act, which included changes to the Medicare Part B program requiring rebates for some discarded drug products that are expected to increase future rebates for ADCETRIS, TIVDAK and possibly PADCEV with an implementation date in the first quarter of 2023. The Biden administration also announced an Executive Order that includes initiatives to support the implementation of Canadian drug importation and reduce drug prices. In response to President Biden's Executive Order, on September 9, 2021, the U.S. Department of Health and Human Services, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated "maximum fair price" under the law; (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize drug price increases that outpace inflation; and (iii) redesigns the Medicare Part D program, increasing manufacturer rebates within the catastrophic coverage phase. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions will take effect progressively beginning in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be effectuated but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report within 90 days on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries. It is unclear whether this executive order or similar policy initiatives will be implemented in the future.
Some states are also considering legislation, or have passed laws, that would control the prices and coverage and reimbursement levels of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the U.S. and laws intended to impose price controls on state drug purchases.
In addition, governments in countries outside the U.S. control the costs of pharmaceuticals. Many European countries and Canada have established pricing and reimbursement policies that contain costs by referencing the price of the same or similar products in other countries. In these instances, if coverage or the level of reimbursement is reduced, limited or eliminated in one or more countries, we may be unable to obtain or maintain anticipated pricing or reimbursement in other countries or in new markets. This may create the opportunity for third-party cross-border trade or may influence our decision whether to sell a product in one or more countries, thus adversely affecting our geographic expansion plans.
It is also possible that governments may take additional action to reform the healthcare system in response to the evolving effects of the COVID-19 pandemic.
We cannot assure you as to the ultimate content, timing, or effect of future healthcare law and policy changes, nor is it possible at this time to estimate the impact of any such potential changes; however, such changes or the ultimate impact of changes could materially and adversely affect our revenue or sales of our current and or potential future products, as well as those of our collaborators.
We are subject to various state, federal and international laws and regulations, including healthcare laws and regulations, that may impact our business and could subject us to significant fines and penalties or other negative consequences.
Our operations may be directly or indirectly subject to various healthcare laws, including, without limitation, the federal Anti-Kickback Statute, federal civil and criminal false claims laws, regulations prohibiting off-label promotions and federal transparency requirements. These laws may impact, among other things, the sales, marketing and education programs for our products and any future approved products. In addition, the number and complexity of healthcare laws and regulations applicable to our business continue to increase.
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The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as the Medicare and Medicaid programs. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration not intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a criminal conviction for violation of the federal Anti-Kickback Statute requires mandatory exclusion from participation in federal healthcare programs.
The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit, among other things, persons or entities from knowingly presenting, or causing to be presented, a false claim to, or the knowing use of false statements to obtain payment from or approval by, the federal government, including the Medicare and Medicaid programs, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim or to avoid, decrease, or conceal an obligation to pay money to the federal government. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial settlements with the federal government under the civil False Claims Act for a variety of alleged improper marketing, promotion or other activities.
The FDA and other governmental authorities also actively investigate allegations of off-label promotion activities in order to enforce regulations prohibiting these types of activities. In recent years, private whistleblowers have also pursued False Claims Act cases against a number of pharmaceutical companies for causing false claims to be submitted as a result of off-label promotion. If we are found to have promoted an approved product for off-label uses, we may be subject to significant liability, including significant civil and administrative financial penalties and other remedies as well as criminal penalties and other sanctions. Even when a company is not determined to have engaged in off-label promotion, the allegation from government authorities or market participants that a company has engaged in such activities could have a significant impact on the company's sales, business and financial condition. The U.S. government has also required companies to enter into complex corporate integrity agreements, deferred prosecution agreements and/or non-prosecution agreements that impose significant reporting and other burdens on the affected companies.
The federal transparency requirements under the Physician Payments Sunshine Act require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children's Health Insurance Program to annually report information related to certain payments or other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals, and to report annually certain ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year plus up to an aggregate of $1 million per year for "knowing failures," as adjusted for inflation.
In addition, there has been increased scrutiny of company-sponsored patient assistance programs, including co-pay assistance programs, and donations to third-party charities that provide such assistance. There has also been enhanced scrutiny by governments of reimbursement support offerings, clinical education programs and promotional speaker programs. If we or our vendors are deemed to fail to comply with laws or regulations in the operation of these programs, we could be subject to damages, fines, penalties or other criminal, civil or administrative sanctions or enforcement actions. Further, in connection with civil settlements related to these laws and regulations, the U.S. government has and may in the future require companies to enter into complex corporate integrity agreements that impost significant reporting and other requirements.
Other healthcare laws and regulations that may affect our ability to operate include, among others, the federal civil monetary penalties statute and the healthcare fraud provisions of the federal Health Insurance Portability and Accountability Act, or HIPAA. In addition, many states and jurisdictions outside the U.S. have similar laws and regulations, such as anti-kickback, anti-bribery and corruption, false claims and transparency, to which we are currently and/or may in the future, be subject. Additional information about these requirements is provided under "Business—Government Regulation—Healthcare Regulation" in Part I Item 1 of this Annual Report on Form 10-K.
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We are also subject to numerous other laws and regulations that while not specific to the healthcare industry, do apply to the healthcare industry in important ways. For example, we are subject to antitrust regulations with respect to interactions with other participants in the markets we currently serve or may serve in the future. These antitrust laws are vigorously enforced in the U.S. and in other jurisdictions in which we operate.
In an effort to comply with applicable laws and regulations, we have implemented a compliance program designed to actively identify, prevent and mitigate risk by implementing policies and systems and promoting a culture of compliance. We also actively work to revise and evolve our compliance program in an effort to keep pace with evolving compliance risks and the growing scale of our business. However, we cannot guarantee that our compliance program will be sufficient or effective, that we will be able to integrate the operations of newly formed affiliates or acquired businesses into our compliance program effectively or on a timely basis, that our employees will comply with our policies, that our employees will notify us of any violation of our policies, that we will have the ability to take appropriate and timely corrective action in response to any such violation, or that we will make decisions and take actions that will limit or avoid liability for whistleblower claims or actions by governmental authorities. If we are found to be in violation of any of the laws and regulations described above or other applicable laws, we may be subject to penalties, including significant civil, criminal and administrative penalties, damages, fines, disgorgement, contractual damages, reputational harm, administrative burdens, imprisonment, diminished profits and future earnings, exclusion from government healthcare reimbursement programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and/or the curtailment or restructuring of our operations. Any of these outcomes could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Regardless of whether we have complied with the law, a government investigation could negatively impact our business practices, harm our reputation, divert the attention of management and increase our expenses. Moreover, achieving and sustaining compliance with applicable federal, state and healthcare laws outside the U.S. is costly and time-consuming for our management.
We are subject to stringent and changing obligations related to data privacy and information security. Our actual or perceived failure to comply with such obligations could lead to governmental investigations or actions, litigation, fines and penalties, a disruption of our business operations, reputational harm and other adverse business impacts.
We are subject to numerous privacy and data protection laws and regulations governing personal information, including healthcare information. In addition, the legislative and regulatory landscape for privacy and data protection continues to evolve.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data security and breach notification laws, personal data privacy laws, and consumer protection laws. The laws are not consistent, and states frequently amend existing laws, requiring attention to constantly changing regulatory requirements. For example, the California Consumer Privacy Act, or CCPA, became effective on January 1, 2020, and the California Privacy Rights Act, or CPRA, took effect January 1, 2023. The CPRA significantly modifies the CCPA, including by expanding individual rights, especially with respect to certain sensitive personal information. We may also be subject to additional U.S. state privacy regulations in the future. In addition, at the federal level, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations impose additional obligations on certain types of individuals and entities with respect to the security, privacy and transmission of individually identifiable health information.
EU member countries and other jurisdictions, including Switzerland, the United Kingdom, or the U.K., and Canada, have also adopted data protection laws and regulations which impose significant compliance obligations. For example, the EU's General Data Protection Regulation, or GDPR, imposes a range of requirements relating to the collection, use, handling and protection of personal data. Violations of the GDPR can result in significant penalties, including potential fines of up to €20 million or 4% of the annual global revenues of the non-compliant company, whichever is greater. The GDPR has increased our responsibility and potential liability in relation to all types of personal data that we process or that is processed on our behalf, including data from clinical trials, employees, collaborators and vendors. In addition, local data protection authorities can have different interpretations of the GDPR, leading to compliance challenges as a result of potential inconsistencies amongst various EU member states.
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Among other requirements, the GDPR regulates transfers of personal data to countries that have not been found to provide adequate protection to such personal data, including the U.S. This includes transfers between us and our subsidiaries. In July 2020, the Court of Justice of the EU, or the CJEU, invalidated one of the primary safeguards enabling U.S. companies to import personal information from Europe, the EU-U.S. Privacy Shield. The same decision also raised questions about whether one of the primary alternatives to the EU-U.S. Privacy Shield, namely, the EC's Standard Contractual Clauses, or SCCs, provide sufficient protection for personal data transfers without analyzing each transfer and implementing supplementary measures to protect the data. As a result of the CJEU's decision, the EC issued new SCCs in June 2021 that repeal and replace the previous clauses. Following recommendations from the European Data Protection Board, we review personal data transfers from the EU and add the new SCCs and supplementary measures, when required. Since local data protection authorities can interpret GDPR and the CJEU's decision differently, there is no definitive set of controls that can ensure GDPR compliance across our business operations. In addition, authorities in Switzerland and the U.K., whose data protection laws are similar to those of the EU, have followed the EU's approach and CJEU decision. Additional compliance efforts may be needed to respond to evolving regulatory guidance. If our compliance solutions are found to be insufficient, we could face substantial fines under European data protection laws as well as injunctions against processing and/or transferring personal information from Europe. The inability to import personal information from Europe could restrict our clinical trial activities in Europe, limit our ability to collaborate with contract research organizations, service providers, contractors and other companies subject to European data protection laws, interfere with our ability to hire employees in Europe and require us to increase our data processing capabilities in Europe at significant expense.
In addition, we may be subject to other foreign data privacy and security laws. For example, China's Personal Information Protection Law, or PIPL, which took effect in November 2021, imposes various requirements related to personal information processing, similar to the GDPR and CCPA. In particular, the PIPL sets out personal information localization requirements, along with rules regarding the transfer of personal information outside of China. Such transfers may require assessment and/or approval by China's Cyberspace Administration, certification by professional institutions or entering into contracts with and supervising overseas recipients. Violations of the PIPL may lead to an administrative fine of up to RMB 50 million or 5% of turnover in the last year.
Any failure or alleged failure to comply with legal or contractual obligations, policies and industry standards relating to personal information, and any incident resulting in the unauthorized access to, or acquisition, release or transfer of, personal information, may result in governmental investigations or enforcement actions, litigation, fines, penalties, damage to our reputation and other adverse consequences. In addition, we expect that laws, regulations, policies and industry standards relating to privacy and data protection will continue to evolve. These changes may require us to modify our practices and may increase our costs of doing business. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these standards, even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs.
Product liability and product recalls could harm our business, and we may not be able to obtain adequate insurance to protect us against product liability losses.
The testing, manufacturing, marketing, and sale of products and product candidates expose us to product liability claims. As a result, it is possible that we may be named as a defendant in product liability suits that may allege that drug products we manufactured resulted in injury to patients. While we have obtained product liability insurance, it may not provide adequate coverage against all potential liabilities. In addition, we may not be able to maintain insurance coverage on acceptable terms or at all. If a product liability claim or series of claims is brought against us, we may experience substantial financial losses, including uninsured liabilities or liabilities in excess of insured amounts, and may be required to limit further development and commercialization of our products, either of which could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Additionally, product liability claims, regardless of their merits, could be costly, could divert management's attention and could adversely affect our reputation and the demand for our products.
Product recalls may be issued at our discretion, or at the discretion of government agencies and other entities that have regulatory authority for pharmaceutical sales. Any recall of our products could materially adversely affect our business by rendering us unable to sell our products for some time and by adversely affecting our reputation.
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Our operations involve hazardous materials and are subject to environmental, health and safety laws and regulations.
We are subject to environmental, health and safety laws and regulations, including those governing the use and disposal of hazardous materials, and we spend considerable time complying with such laws and regulations. Our business activities involve the controlled use of hazardous materials, and although we take precautions to prevent accidental contamination or injury from these materials, we cannot completely eliminate the risk of using these materials. In this regard, with respect to our manufacturing facility, we may incur substantial costs to comply with environmental laws and regulations and may become subject to the risk of accidental contamination or injury from the use of hazardous materials in our manufacturing process. It is also possible that our manufacturing facility may expose us to environmental liabilities associated with historical site conditions that we are not currently aware of and did not cause. Some environmental laws impose liability for contamination on current owners or operators of affected sites, regardless of fault. In the event of an accident or environmental discharge, or new or previously unknown contamination is discovered or new cleanup obligations are otherwise imposed in connection with any of our currently or previously owned or operated facilities, we may be held liable for remediation obligations, damages or fines, which may exceed our insurance coverage and materially harm our business, financial condition and results of operations. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.
Risks Related to Our Reliance on Third Parties
Our collaborators and licensees may not perform as expected, which may negatively affect our ability to develop and commercialize our products and product candidates and/or generate revenues through technology licensing, and may otherwise negatively affect our business.
We have established collaborations with third parties to develop and market each of our products and some of our current and potential future product candidates. These include our collaborations with Takeda for ADCETRIS, with Astellas for PADCEV, with Merck for TUKYSA, and with Genmab and Zai Lab for TIVDAK. We also have established clinical trial collaborations to develop certain of our products or product candidates in combination with the products or product candidates of third parties. Our dependence on these collaboration and licensing arrangements subjects us to a number of risks, including:
• we are not able to control the amount or timing of resources our collaborators and licensees devote to the development or commercialization of our programs, products or product candidates;
• the interests of our collaborators may not always be aligned with our interests, and such parties may not pursue regulatory approvals or market a product in the same manner or to the same extent that we would, which could adversely affect our revenue, or may adopt tax strategies that could have an adverse effect on our business, results of operations or financial condition;
• with respect to products or product candidates under joint control, we may encounter challenges in joint decision making and joint execution, including with respect to any joint development or commercialization plans or co-promotion activities, which may delay or otherwise harm the research, development, launch or commercialization of the applicable products and product candidates;
• disputes may arise between us and our collaborators or licensees, including with respect to the achievement and payment of milestones or ownership of rights to technology developed, that could result in litigation or arbitration;
• any failure on the part of our collaborators to comply with applicable laws, including tax laws, regulatory requirements and/or applicable contractual obligations or to fulfill any responsibilities they may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenue as well as involve us in possible legal proceedings;
• any improper conduct or actions on the part of our collaborators, licensees or other third parties could subject us to civil or criminal investigations and monetary penalties and injunctions, impact the accuracy and timing of our financial reporting and/or adversely impact our ability to conduct business, our operating results and our reputation;
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• business combinations or significant changes in a collaborator's business strategy may adversely affect such party's willingness or ability to complete its obligations under any arrangement;
• a collaborator could independently move forward with competing products, therapeutic approaches or technologies, either independently or in collaboration with others, including with our competitors; and
• our collaboration agreements may be terminated, breached or allowed to expire, or our collaborators may reduce the scope of our agreements with them.
If our collaborative and license arrangements are not successful, then our ability to advance the development and commercialization of the applicable products and product candidates, or to otherwise generate revenue from these arrangements, will be adversely affected, and our business and business prospects may be materially harmed. If any of our collaborators terminates our collaboration or opts out of their obligations, we may have to engage another collaborator, or we may have to complete the development process and undertake commercializing the applicable product or product candidate in our collaborator's current territories ourselves. This could significantly disrupt or delay the development and commercialization of the applicable product or product candidate and substantially increase our costs. Any of these events could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
A substantial portion of our revenue results from payments made under agreements with our collaborators. The loss of any of our collaborators, changes in product development or business strategies of our collaborators, or the failure of our collaborators to perform their obligations under their agreements with us for any reason, including paying license or technology fees, milestone payments, royalties or reimbursements, could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Payments under our existing and potential future collaboration agreements are also subject to significant fluctuations in both timing and amount, which could cause our revenue to fall below the expectations of securities analysts and investors and cause a decrease in our stock price.
In addition to collaboration agreements, we also have ADC license agreements that allow our licensees to use our proprietary ADC technology. Our ADC licensees conduct all research, product development, manufacturing and commercialization of any product candidates under these agreements. Any delay or termination of the development and commercialization of a licensed product or product candidate by the licensee could adversely affect our business, results of operations, financial condition and growth prospects by reducing or eliminating the potential for us to receive applicable milestones and royalties.
We currently rely on third-party manufacturers and other third parties for production of our drug products, and our dependence on these third parties may impair the continued development and commercialization of our products and product candidates.
We own a biologics manufacturing facility located in Bothell, Washington, which we use to support our clinical supply needs, as well as for commercial production of PADCEV antibody, for which the facility was recently approved by the FDA. We have also signed a lease for a site in Everett, Washington, where we are constructing a new manufacturing facility that we intend to use for future biologics manufacturing. We have made and plan to continue to make investments in these facilities with no assurance that these investments will be recouped. We may experience cost overruns, delays or other difficulties in construction, obtaining regulatory approvals and permits or in otherwise bringing the Everett facility online. In addition, we rely and expect to continue to rely on collaborators, contract manufacturers and other third parties to produce and store sufficient quantities of drug product for both our clinical and commercial programs. In some cases, we rely on contract manufacturers and other third parties that are single-source suppliers to complete steps in the manufacturing process. If any of the parties in our supply chain cease or interrupt production or otherwise fail to deliver materials, products or services on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacements or to develop our own manufacturing capabilities, we may bear costly losses or be required to delay or suspend clinical trials or otherwise delay or discontinue development, production and sale of our products. As a result, our business, results of operations, financial condition and growth prospects could be materially and adversely affected.
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There are a limited number of facilities in which each of our products and product candidates can be produced. Any interruption of the operation of those facilities, due to equipment malfunction or failure, damage to the facility, natural disasters, regulatory actions, contractual disputes or other events, could result in delays, cancellation of shipments, loss of product in the manufacturing process, or a shortfall in supply. Further, we and our collaborators depend on outside vendors for the supply of raw materials used to produce our products and product candidates. If these suppliers were to cease production or otherwise fail to supply quality raw materials and we or our collaborators were unable to contract with alternative suppliers for these raw materials on acceptable terms, our ability to have our products manufactured to meet clinical and commercial requirements would be adversely affected. In addition, if any of the parties in our supply chain are adversely impacted by the evolving effects of the COVID-19 pandemic, such as staffing shortages, productions slowdowns and/or disruptions in delivery systems, there could be disruptions and delays in the manufacturing and supply of our products and product candidates.
While we believe that the existing supplies of our products and our and our collaborators' contract manufacturing relationships will be sufficient to accommodate current clinical and commercial needs, we or our collaborators may need to obtain additional manufacturing arrangements or increase manufacturing capability to meet potential future commercial needs, which could require additional capital investment or cause delays. We cannot assure you that we can enter into additional manufacturing arrangements on commercially reasonable terms or at all. Forecasting demand for a new product or for a newly-approved territory or indication for an existing product can be challenging. If demand for a product exceeds our estimates or if our commercial manufacturers are unable or unwilling to increase production capacity commensurate with demand, our commercialization of the affected product could be negatively impacted by short-term product supply challenges. Supply challenges would adversely impact our revenues and could negatively affect our relationships with patients and healthcare professionals. In addition, any failures or delays in manufacturing adequate product supplies and in putting in place or expanding our manufacturing and supply infrastructure could delay or impede our and collaborators' ability to launch and commercialize our products, including PADCEV and TUKYSA, in additional markets where they have obtained regulatory approval.
In order to obtain regulatory approval of any product candidate or regulatory approval of any product in a new jurisdiction, the suppliers for that product or product candidate must obtain approval to manufacture and supply product. In addition, the facilities utilized to manufacture the product or product candidate will be subject to pre-approval regulatory inspections. Any delay or failure in generating the chemistry, manufacturing and control data required in connection with any application for regulatory approval, or challenges in the regulatory inspection process, could negatively impact our ability to meet our anticipated regulatory submission dates, delay any approval decisions and/or negatively affect our ability to obtain regulatory approval at all. Any failure of us, our collaborators or a manufacturer to obtain approval to manufacture and supply product in a jurisdiction, or to obtain and distribute adequate supplies of the product, on a timely basis or in accordance with applicable specifications and local requirements could negatively impact our ability to successfully launch and commercialize the applicable product in that jurisdiction and to generate sales of that product at the levels we expect. We or our collaborators may also encounter difficulties in meeting the regulatory requirements applicable to the manufacturing process for these agents, in managing the additional complexity of manufacturing for a number of markets outside the U.S. or in responding to changes in the amount or timing of supply needs. Any failures or delays in meeting these requirements could substantially delay or impede our ability to obtain regulatory approvals for and to market these agents, which could negatively impact our operating results and adversely affect our business.
We are dependent upon a small number of distributors for a significant portion of our net sales, and the loss of, or significant reduction or cancellation in sales to, any one of these distributors could adversely affect our revenues and increase our costs.
We sell ADCETRIS, PADCEV and TIVDAK through a limited number of specialty distributors. Healthcare providers order ADCETRIS, PADCEV and TIVDAK through these distributors. We receive orders from distributors and generally ship product directly to the healthcare provider. We sell TUKYSA through a distribution network of specialty pharmacies, integrated delivery network hospitals and practices that dispense in the office. These distributors and distribution network partners do not set or determine demand for our products; however, our ability to effectively commercialize our products will depend, in part, on their performance. If we lost a major distributor or partner, revenue during any period of disruption could suffer and we might incur additional costs. In addition, business disruptions arising from the COVID-19 pandemic could negatively affect the ability of some of our distributors or distribution network partners to pay amounts owed to us in a timely manner or at all.
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We are dependent on third parties such as contract research organizations, medical institutions and clinical investigators to assist with the design, review, management and conduct of our clinical trials and other activities.
We depend on third parties such as contract research organizations, medical institutions and clinical investigators to assist with the design, review, management and conduct of our clinical trials and other activities. Our reliance on these third parties reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with regulatory requirements, GCP and study protocols. To the extent these third parties fail to successfully carry out their contractual duties or meet expected deadlines, our clinical trials and regulatory filings may be negatively impacted including possible impacts to data, results, or conclusions, increased costs, and delays to regulatory timelines, which may harm our reputation and business.
Risks Related to Intellectual Property and Litigation
If we are unable to enforce our intellectual property rights or if we fail to sustain and further procure additional intellectual property rights, we may not be able to successfully commercialize our products or any future products and competitors may be able to develop competing therapies.
Our success depends, in part, on obtaining and maintaining patent protection and successfully enforcing these patents and defending them against third-party challenges in the U.S. and other countries. We own multiple U.S. and foreign patents and pending patent applications for our technologies. We also have rights to issued U.S. patents, patent applications, and their foreign counterparts, relating to our monoclonal antibody, linker and drug-based technologies. Our rights to these patents and patent applications are derived in part from worldwide licenses from third parties.
The standards that the U.S. Patent and Trademark Office, or USPTO, and patent offices in other countries use to grant patents are not always applied predictably or uniformly and can change. Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the type and extent of patent claims that will be adequate to conduct our business as planned. Additionally, patents may have a shorter patent term than expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our products. Similarly, the standards that courts use to interpret patents are not always applied predictably or uniformly and may evolve, particularly as new technologies develop. For example, the U.S. Federal Circuit Court of Appeals and the U.S. Supreme Court have modified some legal standards applied by the USPTO in examination of U.S. patent applications, which may decrease the likelihood that we will be able to obtain patents and may increase the likelihood of challenges to patents we obtain or license. These changes and any future changes to the patent system in the U.S. or in other countries could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, results of operations, financial condition and growth prospects. In addition, changes to patent laws may be applied retroactively to affect the validity, enforceability, or term of our patents. Patent protection outside the U.S. is particularly uncertain and costly. The laws of some countries may not protect our intellectual property rights to the same extent as U.S. laws, and many companies in our industry have encountered significant difficulties in protecting and defending such rights in these jurisdictions.
We rely on external agents to perform certain activities to maintain our patents. Although we carefully select and oversee these agents, the failure of an agent to properly perform these maintenance activities, whether through mistake or otherwise, could adversely affect our intellectual property rights. Additionally, if we do not control all of the intellectual property rights in-licensed to us with respect to a drug candidate and the entity that controls the intellectual property rights does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize the in-licensed drug candidate.
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We rely on trade secrets and other proprietary information where we believe patent protection is not appropriate or obtainable. However, trade secrets and other proprietary information are difficult to protect. We have taken measures to protect our unpatented trade secrets and know-how, including the use of confidentiality and assignment of inventions agreements with our employees, consultants and certain contractors. It is possible, however, that these persons may breach the agreements or that our competitors may independently develop or otherwise discover our trade secrets or other proprietary information. Our research collaborators may also publish confidential data or other restricted information to which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or protect our proprietary information may be impaired. In addition, under proposed or adopted policies in the EU, information related to clinical trials and clinical trial data that historically were considered confidential are now increasingly subject to public disclosure. The move toward public disclosure of this information could adversely affect our business in many ways, such as by requiring the disclosure of confidential methodologies for product development, preventing us from obtaining intellectual property right protection for innovations, requiring significant resources to prevent others from violating our intellectual property rights, adding complexity to compliance with applicable data privacy regulations, and enabling competitors to use our data to gain approvals for their own products.
We may incur substantial costs and lose important rights or may not be able to continue to commercialize our products or to commercialize any of our product candidates that may be approved for commercial sale as a result of litigation or other proceedings relating to patent and other intellectual property rights, and we may be required to obtain patent and other intellectual property rights from others.
We may face potential lawsuits by companies, academic institutions or others alleging infringement of their intellectual property. Due to the amount of intellectual property in our field, we cannot be certain that we do not infringe intellectual property rights of competitors or that we will not infringe intellectual property rights of competitors granted or created in the future. In addition, we are monitoring the progress of multiple pending patent applications of other organizations that, if granted, may require us to license or challenge their enforceability in order to continue commercializing our products or to commercialize our product candidates that may be approved for commercial sale. Our challenges to patents of other organizations may not be successful, which may affect our ability to commercialize our products or product candidates. If it is ultimately determined that our products infringe a third-party's intellectual property rights, we may be required to pay substantial damages, including lost profits, royalties, treble damages, attorneys' fees and costs. Even if infringement claims against us are without merit, the results may be unpredictable. In addition, defending lawsuits takes significant time, may be expensive and may divert management's attention from other business concerns. Further, we may be stopped from developing, manufacturing or selling our products unless and until we obtain a license from the owner of the relevant technology or other intellectual property rights, or we may be forced to undertake costly design-arounds, if feasible. If such a license is available at all, it may require us to pay substantial royalties or other fees.
We are or may be from time to time involved in the defense and enforcement of our patent or other intellectual property rights in a court of law, USPTO interference, inter partes review, or IPR, post-grant review or reexamination proceeding, foreign opposition proceeding or related legal and administrative proceeding in the U.S. and elsewhere. For example, see the risk factor below titled, "We have been and may in the future be subject to litigation, which could result in substantial expenses and damages and may divert management's time and attention from our business," for information on certain disputes with Daiichi Sanyko Co. Ltd, or Daiichi Sankyo. In addition, if we choose to go to court to stop a third party from infringing our patents, that third party has the right to ask the court to rule that these patents are invalid, not infringed and/or should not be enforced. Under the America Invents Act, a third party may also have the option to challenge the validity of certain patents at the Patent Trial and Appeal Board, or PTAB, of the USPTO whether they are accused of infringing our patents or not, and certain entities associated with hedge funds, pharmaceutical companies and other entities have challenged valuable pharmaceutical patents through the IPR process. These lawsuits and administrative proceedings are expensive and consume time and other resources, and we may not be successful in these proceedings or in stopping infringement. In addition, there is a risk that a court will decide that these patents are not valid or not infringed or otherwise not enforceable, or that the PTAB will decide that certain patents are not valid, and that we do not have the right to stop a third party from using the patented subject matter. Successful challenges to our patent or other intellectual property rights through these proceedings could result in a loss of rights in the relevant jurisdiction and may allow third parties to use our proprietary technologies without a license from us or our collaborators, which may also result in loss of future royalty payments. Furthermore, if such challenges to our rights are
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not resolved promptly in our favor, our existing business relationships may be jeopardized and we could be delayed or prevented from entering into new collaborations or from commercializing potential products, which could adversely affect our business, results of operations, financial condition and growth prospects. In addition, we may challenge the patent or other intellectual property rights of third parties and if we are unsuccessful in actions we bring against the rights of such parties, through litigation or otherwise, and it is determined that we infringe the intellectual property rights of such parties, we may be prevented from commercializing potential products in the relevant jurisdiction, or may be required to obtain licenses to those rights or develop or obtain alternative technologies, any of which could harm our business.
We and our collaborators rely on license agreements for certain aspects of our products and product candidates and technologies such as our ADC technology. Failure to maintain these license agreements or to secure any required new licenses could prevent us from continuing to develop and commercialize our products and product candidates.
We have entered into agreements with third-party commercial and academic institutions to license technology for use in ADCETRIS, TUKYSA, our product candidates and technologies such as our ADC technology. These agreements include our license agreement with Array BioPharma, Inc., among others. In addition to royalty provisions and other payment obligations, some of these license agreements contain diligence and milestone-based termination provisions, in which case our failure to meet any agreed upon royalty or diligence requirements or milestones may allow the licensor to terminate the agreement. Many of our license agreements grant us exclusive licenses to the underlying technologies. In addition, Astellas has agreements to license technology for use in PADCEV. We rely on Astellas to maintain these license agreements. If Astellas fails to maintain these license agreements, if our licensors terminate our license agreements or if we or our collaborators are unable to maintain the exclusivity of our exclusive license agreements, we may be unable to continue to develop and commercialize our products or product candidates. Further, we have had in the past, and we or our collaborators may in the future have, disputes with our licensors, which may impact our ability to develop and commercialize our products or product candidates or require us to enter into additional licenses. An adverse result in potential future disputes with our or our collaborators' licensors may impact our ability to develop and commercialize our products and product candidates, or may require us to enter into additional licenses or to incur additional costs in litigation or settlement. In addition, continued development and commercialization of our products and product candidates will likely require us to secure licenses to additional technologies. We may not be able to secure these licenses on commercially reasonable terms, if at all.
We have been and may in the future be subject to litigation, which could result in substantial expenses and damages and may divert management's time and attention from our business.
We are engaged in multiple legal disputes with Daiichi Sankyo. We have been in a dispute with Daiichi Sankyo regarding the ownership of certain technology used by Daiichi Sankyo in its cancer drug Enhertu® (fam-trastuzumab deruxtecan-nxki) and certain product candidates. On August 12, 2022, the arbitrator in this dispute ruled in favor of Daiichi Sankyo, citing statute of limitations and disagreement with us on the interpretation of the contract. On September 14, 2022, Daiichi Sankyo submitted a petition for approximately $58 million for reimbursement of its legal fees and costs associated with the arbitration. We filed an opposition to Daiichi Sankyo's request on October 12, 2022. On November 10, 2022, we filed a motion to vacate the arbitration award in the U.S. District Court for the Western District of Washington. In addition, in October 2020, we filed a complaint in the U.S. District Court for the Eastern District of Texas to commence an action for infringement of our U.S. Patent No. 10,808,039, or the '039 Patent, by Daiichi Sankyo's importation into, offer for sale, sale, and use in the U.S. of Enhertu. Daiichi Sankyo (as well as Daiichi Sankyo, Inc. and AstraZeneca Pharmaceuticals, LP, or AstraZeneca) subsequently filed an action in the U.S. District Court for the District of Delaware seeking a declaratory judgment that Enhertu does not infringe the '039 Patent. The Delaware action has been stayed by court order. Daiichi Sankyo, Inc. and AstraZeneca also filed two petitions for post-grant review with the USPTO seeking to have claims of the '039 Patent cancelled as unpatentable. On June 24, 2021, the USPTO issued a decision denying both petitions for post-grant review. On April 7, 2022, the USPTO granted a request on rehearing and instituted two post-grant review proceedings, but on July 15, 2022, the USPTO issued a new decision denying post-grant review of the claims asserted in the patent infringement action. On February 7, 2023, in response to Daiichi Sankyo and AstraZeneca’s second request for rehearing of the denial of the post-grant review to the USPTO and for Precedential Opinion Panel, or POP, review, the Precedential Opinion Panel issued an order denying the request for POP review but directing the USPTO panel evaluating the second rehearing request to make an explicit finding using its own discretion as to whether the post-grant review petition presents a “compelling” showing of invalidity as part of its ruling on the
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pending second rehearing request. The panel was also directed to rule on the second rehearing request within two weeks from the POP order. On February 14, 2023, the panel decided to institute the post-grant review of the claims of the ‘039 Patent asserted in the patent infringement action. On April 8, 2022, a jury in the U.S. District Court for the Eastern District of Texas found that Daiichi Sankyo willfully infringed the asserted claims of the '039 Patent with its Enhertu product, and also found that the asserted claims were not invalid. The U.S. District Court for the Eastern District of Texas also denied Daiichi Sankyo's claim that the '039 Patent should be unenforceable under the equitable theory of prosecution laches, entered judgment in favor of us based on the jury's verdict that Daiichi Sankyo willfully infringed the '039 Patent consisting of pre-trial damages in the sum of $41.8 million, and awarded us pre- and post-trial interest and costs. We have requested a royalty in the range of 10-12% on Daiichi Sankyo's future sales of Enhertu in the United States through November 5, 2024, the current expiration date of the '039 Patent, as well as $12 million for reimbursement of our reasonable attorneys' fees. As a result of these disputes, we have incurred and will continue to incur litigation expenses. In addition, from time to time, we may become involved in other lawsuits, claims and proceedings relating to the conduct of our business, including those pertaining to the defense and enforcement of our patent or other intellectual property rights and our contractual rights.
These and other potential future litigations are subject to inherent uncertainties, and the actual costs to be incurred relating to litigations may be impacted by unknown factors. The outcome of litigation is necessarily uncertain, and we could be forced to expend significant resources in the course of these and potential future litigations, we may be subject to additional claims and counterclaims that may result in liabilities or require us to take or refrain from certain actions, and we may not prevail. Monitoring, defending against and pursuing legal actions can be time-consuming for our management and detract from our ability to fully focus our internal resources on our business activities, which could result in delays of our clinical trials or our development and commercialization efforts. In addition, we may incur substantial legal fees and costs in connection with these and potential future litigations. Decisions adverse to our interests in these and potential future litigations could result in the payment of substantial damages, or possibly fines, or affect our intellectual property rights and could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Successful challenges to our patent or other intellectual property rights could result in a loss of rights in the relevant jurisdiction and may allow third parties to use our proprietary technologies without a license from us or our collaborators. In addition, the uncertainty associated with litigation could lead to increased volatility in our stock price.
Risks Related to Our Operations, Managing Our Growth and Other Risks
The evolving effects of the COVID-19 pandemic and associated global economic instability could have further adverse effects on our business, including our commercialization efforts, supply chain, regulatory activities, clinical development activities and other business operations.
Our business is currently being adversely affected and could be materially and adversely affected in the future by the evolving effects of the COVID-19 pandemic. Our ongoing increased reliance on personnel working from home may present operational and workplace culture challenges, negatively impact productivity or disrupt, delay or otherwise adversely impact our business. This could also increase our cybersecurity risk, create data accessibility concerns and make us more susceptible to communication disruptions, any of which could adversely impact our business operations. In addition, the evolving effects of the COVID-19 pandemic appear to have negatively affected our product sales in the past and could affect product sales in the future. In this regard, impacts associated with the COVID-19 pandemic appear to have led to a reduction in diagnosis rates for the ADCETRIS frontline indications earlier in the pandemic and, while we believe these diagnosis rates have returned to pre-pandemic levels, these impacts may have adversely affected diagnosis rates of other cancers, and may adversely affect rates of cancer diagnoses or patient access to healthcare settings in the future . As we resume more travel and in-person interactions after pauses earlier in the pandemic, we may subsequently decide or be forced to resume a more restrictive remote work model, whether as a result of further spikes or surges in COVID-19 infection or hospitalization rates, COVID-19 variants, government actions, restrictions at healthcare institutions, or otherwise. Future COVID-19 related restrictions could negatively impact research and development activities or sales and marketing efforts, or could present product distribution challenges.
Some of the sites participating in our clinical trials are affected by site closings, reduced capacity, staffing shortages or other effects of the COVID-19 pandemic. At some sites, we are experiencing impacts to our ability to monitor patients, activate sites, screen and enroll patients, complete site monitoring and manage samples. The extent of the impact on a particular clinical trial depends on the current stage of activities at a given site, for example study start up
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versus post-enrollment, and the number of impacted sites participating in that trial. Impacts on diagnosis rates associated with the COVID-19 pandemic may also negatively impact enrollment. While we do not at this time anticipate the need to revise our publicly reported projected clinical milestone dates as a result of the effects of the COVID-19 pandemic, there may continue to be adverse impacts to our clinical study timelines, which, depending upon the duration and severity of the evolving effects of the COVID-19 pandemic, could ultimately delay data availability. Due to the suspension of data monitoring activities at sites that do not currently allow remote monitoring, as well as impacts on the ability to monitor patients, maintain patient treatment according to the trial protocols and manage samples, there is also the potential for negative impacts on data quality. While we are actively utilizing digital monitoring measures and other mitigations designed to prevent negative data quality impacts, if there were in fact a negative impact on data quality, we or our collaborators could be required to repeat, extend the duration of, or increase the size of clinical trials, which could significantly delay potential commercialization and require greater expenditures. We expect that similar factors will impact clinical studies operationalized by our collaborators.
The effects of the COVID-19 pandemic have increased market volatility and could result in a significant long-term disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, economic instability resulting from the effects of the COVID-19 pandemic could materially affect our business and the value of our common stock.
The extent to which the evolving effects of the COVID-19 pandemic (or any future pandemic) impact our business will depend on future developments that are highly uncertain, such as virus variants that may prove to be especially contagious or virulent, the ultimate duration and severity of the pandemic, government actions, such as travel restrictions, quarantines and social distancing requirements in the U.S. and in other countries, business closures or business disruptions and the effectiveness of vaccine programs and other actions taken to contain and treat the disease. Accordingly, we do not yet know the full extent of potential effects from the pandemic. However, these effects could materially and adversely affect our business, results of operations, financial condition and growth prospects. In addition, the evolving effects of the COVID-19 pandemic may also heighten many of the other risks described elsewhere in this “Risk Factors" section. It is also possible that future global pandemics could occur and materially and adversely affect our business, results of operations, financial condition and growth prospects.
If we are unable to manage our growth, our business, results of operations, financial condition and growth prospects may be adversely affected.
We have experienced and expect to continue to experience significant growth in the number of our employees and in the scope and complexity of our operations. This rapid growth and additional complexity places significant demands on our management and other personnel, our operational and financial resources and our third party suppliers. Our current and planned personnel, operational and financial systems, procedures, controls and suppliers may not be adequate to support our growth, and we may experience operating inefficiencies, delays, control deficiencies, compliance issues or other problems. In addition, we may not be able to achieve any necessary growth objectives in a timely or cost-effective manner, or at all, and may not realize a positive return on our investment. If we are unable to manage our growth effectively, our business, results of operations, financial condition and growth prospects may be adversely affected.
Risks associated with our expanding operations in countries outside the U.S. could materially adversely affect our business.
We have operations outside the U.S., and we plan to continue expanding our operations internationally. Consequently, we are, and will increasingly be, subject to risks and complexities related to operating internationally, including:
• the increased complexity and costs inherent in managing international operations, including in geographically disparate locations;
• diverse clinical, drug safety, drug quality, drug supply, healthcare compliance and other pharmaceutical regulatory regimes, and any future changes to such requirements, in the countries and regions where we are located or do business;
• multiple, differing and changing laws and regulations such as tax laws, privacy regulations, tariffs, trade restrictions, export and import restrictions, employment, immigration and labor laws, corporate laws, and other governmental approvals, permits and licenses;
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• differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;
• adverse tax consequences, including changes in applicable tax laws and regulations;
• political tensions, economic weakness, including inflation, or political or economic instability in particular economies and markets;
• currency fluctuations, which could result in increased operating expenses or reduced revenues;
• challenges inherent in efficiently managing employees in diverse geographies and different languages;
• challenges in adapting systems, policies, benefits and compliance programs for different countries;
• reliance on vendors who are located far from our headquarters and with whom we have not worked previously; and
• workforce uncertainty in countries where labor unrest is more common.
For example, the U.S. government and other nations have imposed sanctions, including significant restrictions on most companies' ability to do business in Russia, as a result of the ongoing military conflict between Russia and Ukraine. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates, the price and availability of energy, and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to continue expanding our operations internationally and to otherwise generate revenues and develop our product candidates internationally. In addition, a significant escalation or expansion of economic disruption or the conflict's current scope could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Recent strengthening of the U.S. dollar as compared to other currencies, including currencies in jurisdictions where we and our licensees sell products, has adversely affected royalty revenues and TUKYSA net product sales in Europe and could further adversely affect these sources of revenues.
Additionally, the U.S. Foreign Corrupt Practices Act, or FCPA, and the anti-bribery laws and regulations of other countries are extensive and far-reaching. We must ensure that accurate records and controls required by the FCPA are maintained with respect to the activities of our employees, distributors and service providers in all of the countries where we operate. In the course of conducting operations internationally, we interact with regulatory authorities, as well as with healthcare professionals who are often employed by governments and may be deemed to be foreign officials under the FCPA. Any interactions with any such third parties that are found to be in violation of relevant laws could result in substantial fines and penalties and could materially harm our business. Emerging-market countries may be especially vulnerable to periods of political, legal, and financial instability and may have a higher risk of corrupt business practices. As we expand our international operations, we continue to supplement and expand our global compliance program, controls, policies and procedures. However, there can be no assurance that such measures will work effectively at all times or protect us against liability. There is a risk that acts committed by our employees, agents, distributors, collaborators or third-party providers might violate the FCPA and other anti-corruption laws and that we might be held responsible. Furthermore, any finding of a violation under one country's laws may increase the likelihood that we will be prosecuted and be found to have violated another country's laws. Our failure, or the failure of others who we engage to act on our behalf, to comply with the laws and regulations of the countries in which we operate, or will operate in the future, could result in criminal and civil penalties, other remedial measures and reputational damage, all of which could materially harm our business, financial condition, results of operations, and prospects. As we continue to expand our footprint and activities internationally, our exposure to compliance risks under the FCPA and other similar laws will likewise increase.
As a business, we do not have significant experience conducting operations outside of the U.S. and Canada. We might not be successful in establishing and conducting commercial and other operations in these regions and may not realize a positive return on our investment. Our failure to successfully do so could have a material adverse effect on our business, results of operations, financial condition and growth prospects. These and other risks associated with expanding our international operations, as described elsewhere in these risk factors, could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
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We have engaged in, and may in the future engage in, strategic transactions that increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.
We actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, product candidates, technologies or businesses. We may spend significant amounts, issue dilutive securities and/or assume or incur significant debt obligations in connection with these transactions. In addition, these transactions, including our in-license of development and commercialization rights to disitamab vedotin and LAVA-1223, also known as SGN-EGFRd2, and any potential future acquisitions or licensing transactions entail numerous risks, including:
• risks associated with satisfying the closing conditions relating to such transactions and realizing their anticipated benefits;
• increased operating expenses and cash requirements;
• difficulty integrating acquired technologies, products, operations, compliance programs and personnel with our existing business;
• acquired or licensed products, product candidates or technologies, such as disitamab vedotin and SGN-EGFRd2, may not perform as expected and may not result in regulatory approvals;
• failure to successfully develop and commercialize acquired or licensed products, product candidates or technologies or to achieve other strategic objectives;
• the potential disruption of our historical core business;
• diversion of management's attention in connection with both negotiating the acquisition or license and integrating the business, technology or product;
• retention of key employees;
• uncertainties in our ability to maintain key business relationships of any acquired companies;
• difficulty implementing and maintaining effective internal control over financial reporting of businesses that we acquire;
• exposure to unanticipated liabilities of acquired companies or companies in which we invest;
• the potential need to write down assets or recognize impairment charges or significant amortization expenses; and
• potential costly and time-consuming litigation, including stockholder lawsuits.
As a result of these or other problems and risks, businesses, technologies or products we acquire or invest in or obtain licenses to may not produce the revenues, earnings, business synergies or other benefits that we anticipated, within the expected timeframe or at all. As a result, we may incur higher costs and realize lower revenues than we had anticipated. We cannot assure you that any acquisitions or investments we have made or may make in the future will be completed or that, if completed, the acquired business, licenses, investments, products, or technologies will generate sufficient revenue to offset the costs or other negative effects on our business. Further, while we seek to mitigate risks and liabilities of potential acquisitions and in-licensing transactions through, among other things, due diligence, there may be risks and liabilities that we fail to discover, that are not disclosed to us, or that we inadequately assess. Any failure in identifying and managing these risks, liabilities and uncertainties effectively, including in connection with our in-license of development and commercialization rights to disitamab vedotin and SGN-EGFRd2, could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Moreover, we may not be able to identify, negotiate and close strategic acquisition or in-licensing opportunities in the future, and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business. Other pharmaceutical companies, many of which may have substantially greater resources, compete with us for these opportunities. Failure to effectively advance our business strategy and manage our operations through acquisitions or in-licensing transactions could have a material adverse effect on our business, results of operations, financial condition, and growth prospects.
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If we lose our key personnel or are unable to attract and retain additional qualified personnel, our future growth and ability to compete would suffer.
We are highly dependent on the efforts and abilities of the principal members of our senior management and other key personnel. For example, we have scientific personnel with significant and unique expertise in monoclonal antibodies, ADCs and related technologies, and our products and product candidates. The loss of the services of any one of the principal members of our managerial, scientific or other key staff may prevent us from achieving our business objectives. For example, in May 2022, Clay B. Siegall resigned as our President and Chief Executive Officer and as a member of our Board of Directors, and Roger Dansey, M.D., our Chief Medical Officer, was appointed as our Interim Chief Executive Officer. In November 2022, David R. Epstein was appointed as Chief Executive Officer and as a member of our Board of Directors, and Dr. Dansey was appointed President, Research and Development and Chief Medical Officer. Changes to company strategy, which can often times occur with the appointment of new executive leadership, can create uncertainty. Failure to ensure a smooth transition and successfully implement our strategy could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
In addition, the competition for qualified personnel in the biotechnology field is intense, and our future success depends upon our ability to attract, retain and motivate highly skilled biotechnology employees. In order to continue to commercialize our products, and advance the development and commercialization of our product candidates, we will be required to expand our workforce and management team, particularly in the areas of manufacturing, clinical trials, regulatory affairs, business development, sales and marketing, both in the U.S. and in Europe. We continue to face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, as well as academic and other research institutions, and with increasing reliance on remote work arrangements, the geographic market in which we compete for talent is expanding. Our ability to attract and retain talent in this competitive environment may be further complicated by evolving employment trends arising from the COVID-19 pandemic, including an increased preference for remote, alternative or flexible work arrangements. Our failure to effectively compete for and retain talent could negatively affect our ability to achieve our business objectives and have a material adverse effect on our business, results of operations, financial condition and growth prospects.
If our information technology systems or data are or were compromised, we could experience interruptions to our operations, legal claims, liability, harm to our reputation, a loss of sales and other adverse impacts.
We and our collaborators, suppliers and service providers rely on information technology systems to keep financial and other records, capture laboratory and clinical trial data, support internal and external communications and operate other critical functions. Despite our security measures, these systems are potentially vulnerable to malware, cyber-attacks, security breaches, natural disasters, terrorism, software and hardware failures, telecommunication and electrical failures, and similar issues. If such an event were to occur, it could result in material interruptions to our operations, loss of data or applications, loss of sales, significant extra expenses to restore data or systems, reputational harm and diversion of funds. For example, the loss of preclinical study or clinical trial data could result in delays in our product development or regulatory approval efforts and significantly increase our costs in order to recover or reproduce the data. The effects of the COVID-19 pandemic and the transition to more remote and hybrid work schedules have intensified our dependence on information technology systems as many of our critical business activities are being conducted remotely, and our increased reliance on personnel working from home could increase our cybersecurity risk. In addition, our cybersecurity risk could be increased as a result of the ongoing military conflict between Russia and Ukraine and the related sanctions imposed against Russia.
In addition to traditional computer "hackers" and threat actors, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). Ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe. To alleviate the financial, operational and reputational impact of a ransomware attack, it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws or regulations prohibit such payments). Similarly, supply chain attacks have increased in frequency and severity. We cannot guarantee that third parties and infrastructure in our supply chain have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us.
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Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Although, to our knowledge, we have not experienced any material security breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. While we have taken steps to protect the security of the personal data and other sensitive information that we handle, there can be no assurance that any security measures will be effective against current or future security threats. Any unauthorized or accidental access to, or disclosure, modification, misuse, or loss of, personal or other data could result in legal claims or proceedings, liability, significant regulatory penalties, and loss of trade secrets or other intellectual property. In addition, such an event could disrupt our operations, damage our reputation and delay development of our product candidates.
Risks Related to Our Operating Results, Financial Condition and Capital Requirements
Our operating results are difficult to predict and may fluctuate. If our operating results are below the expectations of securities analysts or investors, the trading price of our stock could decline.
Our operating results are difficult to predict and may fluctuate significantly from quarter to quarter and year to year. We believe that our quarterly and annual results of operations may be affected by a variety of factors, including:
• customer ordering patterns for our products, which may vary significantly from period to period;
• the overall level of demand for our products, including the impact of any competitive or biosimilar products;
• the extent to which coverage and adequate reimbursement for our products is available from government and other third-party payors;
• changes in the amount of deductions from gross sales, including government-mandated rebates, chargebacks and discounts that can vary because of changes to the government discount percentage, including increases in the discount percentage resulting from price increases, or due to different levels of utilization by entities entitled to government rebates and discounts and changes in patient demographics;
• increases in the scope of eligibility for customers to purchase our products at the discounted government price or to obtain government-mandated rebates on purchases of our products;
• the timing, receipt and amount of development funding and milestone, royalty and other payments under collaboration and license arrangements, which may vary significantly from quarter to quarter;
• entry into new strategic transactions, such as collaborations, license agreements or acquisitions of products, technologies or businesses;
• changes in our cost of sales due to potential new product launches, royalties owed under technology license agreements or write-offs of inventory;
• the incidence rate of new patients in the approved indications for our products;
• the evolving effects of the COVID-19 pandemic, including those leading to past and potential future reductions in rates of cancer diagnoses;
• the timing, cost and level of investment in our sales and marketing efforts to support our products sales;
• the timing, cost and level of investment in clinical trials, research and development, pre-commercialization, manufacturing and other activities by us or our collaborators; and
• expenditures to develop and/or commercialize any additional products, product candidates, or technologies that we may develop, in-license, or acquire.
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Sales of a newly-approved product, or sales of an existing product in a newly-approved indication or territory, are particularly difficult to predict. Sales results or trends for such products, indications or territories in any period may not necessarily be indicative of future performance. Changes in our operations, such as new or expanding pipeline programs, the continued expansion or our international operations, additional business activities, or entry into strategic transactions, including potential future acquisitions of products, technologies or businesses, may cause significant fluctuations in our expenses. In addition, stock-based compensation expense may vary significantly from period to period. The variables we use for valuing these awards, including our underlying stock price, change over time. Additionally, from time to time, we have granted performance-based equity awards to eligible employees with vesting of the awards contingent upon the achievement of certain regulatory milestones. Costs of performance-based compensation for these awards are not recorded as an expense until the achievement of the applicable milestones is deemed probable, which may result in large fluctuations to the expense we must recognize in any particular period.
For these and other reasons, it is difficult for us to accurately forecast future sales of our current or any future approved products, collaboration and license agreement revenues, royalty revenues, operating expenses or future profits or losses. In addition, although we provide financial guidance from time to time, such guidance is based on assumptions that may be incorrect or that may change from quarter to quarter. You also should not rely on operating results in any period as being indicative of future performance. Our operating results have on occasion been, and in in future periods may also be, below prior period results, our own guidance and/or the expectations of securities analysts or investors. Such results could cause the trading price of our common stock to decline, perhaps substantially.
We have a history of net losses. We expect to continue to incur net losses and may not achieve future sustained profitability for some time, if at all.
We have incurred substantial net losses in each of our years of operation, other than the year ended December 31, 2020. We have incurred these losses principally from costs incurred in our research and development programs and from our selling, general and administrative expenses. We expect to continue to spend substantial amounts on research and development, including amounts for conducting clinical trials of our products and product candidates. In addition, we expect to make substantial expenditures to commercialize our products and potentially commercialize our product candidates. For example, in connection with our in-license of development and commercialization rights to disitamab vedotin, we have incurred and expect to continue to incur substantial expenses, including to further develop and potentially commercialize disitamab vedotin. We may also pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. Accordingly, we expect to continue to incur net losses in the future and may not achieve sustained profitability for some time, if at all. Although we recognize revenue from product sales and we continue to earn amounts under our collaboration agreements, our revenue and profit potential is unproven and our future operating results are difficult to predict. Even if we do achieve profitability in the future, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.
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We may need to raise additional capital that may not be available to us.
We expect to make additional capital outlays and to increase operating expenditures over the next several years as we hire additional employees, support our development and commercialization activities, invest in our facilities, and expand globally, which may require us to raise additional capital. In addition, we may pursue new operations or continue the expansion of our existing operations, including with respect to the continued development of our commercial infrastructure in Europe and our plans to otherwise continue to expand our operations internationally. Our commitment of resources to the continuing development, regulatory and commercialization activities for our products, the continued research, development and manufacturing of our product candidates, our pursuit of regulatory approvals for and preparing to potentially launch and commercialize our product candidates, and the anticipated expansion of our pipeline and operations may require us to raise additional capital. Further, we actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, technologies or businesses, and we may require significant additional capital in order to complete or otherwise provide funding for such transactions. We may seek additional capital through some or all of the following methods: corporate collaborations, licensing arrangements and public or private debt or equity financings. We do not know whether additional capital will be available when needed, or that, if available, we will obtain financing on terms favorable to us or our stockholders. If we are unable to raise additional funds when we need them, we may be required to scale back our operations, delay, reduce the scope of, or eliminate development programs, enter into collaboration or license agreements on terms that are not favorable to us, sell or relinquish rights to certain assets, proprietary technologies or product candidates or forego strategic opportunities. Our future capital requirements will depend upon a number of factors, including:
• the level of sales of our products and any future approved products;
• the time and costs involved in pursuing regulatory approvals and the timing of any approvals;
• the costs, timing, progress and results of our research and development, including preclinical testing and clinical trials;
• the timing, receipt and amount of royalty revenue generated from commercial sales by our collaborators and licensees, as well as development funding, milestone payments and other payments under collaboration and license arrangements;
• the cost of establishing and maintaining clinical supplies of our products and product candidates and commercial supplies of our current and any future approved products;
• the extent of our investment in development, manufacturing and commercialization outside the U.S.;
• the costs associated with past and potential future strategic transactions, including acquisitions or licenses of additional technologies, products or businesses as well as licenses we may need to commercialize our current or any future approved products;
• the terms and timing of any future collaboration, licensing and other arrangements;
• expenses associated with current or future litigation;
• the potential costs associated with international, state and federal taxes; and
• competing technological and market developments.
In addition, changes in our spending rate may occur that would consume available capital resources sooner, such as increased development, manufacturing and clinical trial expenses in connection with our expanding pipeline programs or our undertaking of additional programs, business activities or entry into additional strategic transactions, including potential future acquisitions of products, technologies or businesses. Moreover, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to pay dividends or other distributions on our common stock or incur further indebtedness. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.
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During the past several years, domestic and international financial markets have experienced, and they may continue to experience, extreme disruption from time to time, including, among other things, high volatility, significant declines in stock prices and severely diminished liquidity and credit availability for both borrowers and investors. Such adverse capital and credit market conditions could make it more difficult to obtain additional capital on favorable terms, or at all, which could have a material adverse effect on our business and growth prospects. For example, our ability to raise additional capital may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the U.S. and worldwide resulting from the evolving effects of the COVID-19 pandemic, inflationary pressures, rising interest rates, the ongoing military conflict between Russian and Ukraine and related sanctions imposed against Russia and otherwise.
The potential future impairment of intangible assets and goodwill may negatively affect our results of operations and financial position.
As of December 31, 2022, we carried $512.2 million of intangible assets, net and goodwill on our consolidated balance sheet. Our intangible assets and goodwill are subject to an impairment analysis whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Additionally, goodwill and indefinite-lived assets are subject to an impairment test at least annually. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted. Our results of operations and financial position in future periods could be negatively impacted should future impairments of intangible assets or goodwill occur.
Risks Related to Our Common Stock
Our stock price is volatile and our shares may suffer a decline in value.
The market price of our stock has been, and is likely to continue to be, volatile. As a result of fluctuations in the price of our common stock, you may be unable to sell your shares at or above the price you paid for them. The market price of our common stock may be subject to substantial volatility in response to many risk factors listed in this section, and others beyond our control, including:
• the levels of product sales;
• regulatory approval or non-approval of our products or product candidates, specific label indications for or restrictions, warnings or limitations in their use, or delays in the regulatory review process;
• clinical trial results;
• announcements regarding the results of discovery efforts, product development and commercial activities by us, our collaborators or our competitors;
• announcements regarding, or negative publicity concerning, adverse events or safety concerns associated with the use of our products or product candidates;
• issuance of new or changed analysts' reports and recommendations regarding us or our competitors;
• termination of or changes in our existing collaborations or licensing arrangements, or establishment of new collaborations or licensing arrangements;
• our failure to achieve the perceived benefits of our strategic transactions, including our in-license of development and commercialization rights to disitamab vedotin, as rapidly or to the extent anticipated by financial analysts or investors;
• our entry into additional material strategic transactions including licensing or acquisition of products, businesses or technologies;
• regulatory actions with respect to our products, product candidates, clinical trials or regulatory filings;
• our raising of additional capital and the terms upon which we may raise any additional capital;
• developments or disputes concerning our proprietary rights, including with respect to our disputes with Daiichi Sankyo;
• developments regarding any litigation or potential litigation;
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• the evolving effects of the COVID-19 pandemic;
• share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
• changes in laws, regulations or government policies, including with respect to pricing and reimbursement;
• market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular; and
• other economic, social or political conditions.
The stock markets in general, and the markets for biotechnology and pharmaceutical stocks in particular, have historically experienced significant volatility that has often been unrelated or disproportionate to the operating performance of particular companies. In the past, companies whose securities have experienced periods of volatility in market price have been subjected to securities class action or derivative litigation. In this regard, we have been, and may in the future again become, subject to claims and litigation alleging violations of the securities laws or other related claims. Lawsuits brought against us could result in substantial costs, which would hurt our financial condition and results of operations and divert management's attention and resources.
Substantial future sales or issuances of shares of our common stock or equity-related securities could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock, and sales by members of our management or board of directors or entities affiliated with such members, could occur at any time. In addition, in December 2020, pursuant to a ten-year registration rights agreement we entered into with certain entities affiliated with Baker Bros. Advisors LP, or the Baker Entities, we registered up to 47,366,602 shares of our common stock for resale by the Baker Entities, and we may be required to register the resale of additional shares held by the Baker Entities from time to time in the future. Sales by our management, our directors, their affiliates, or significant shareholders like the Baker Entities, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock, perhaps substantially, and could impair our ability to raise capital through the sale of additional equity or equity-related securities. In addition, we may issue a substantial number of shares of our common stock or equity-related securities, including convertible debt, to meet our capital needs, including in connection with funding potential future acquisition or licensing opportunities, capital expenditures or product development costs. These issuances could be substantially dilutive and could adversely affect the market price of our common stock. Likewise, future issuances of our common stock upon the exercise, conversion or settlement of equity-based awards or other equity-related securities would dilute existing stockholders' ownership interest in our company.
Our existing stockholders have significant control of our management and affairs.
Based on information available to us as of December 31, 2022, the Baker Entities collectively beneficially owned approximately 25% of our common stock. In addition, based solely on the most recent Schedules 13G and 13D filed with the SEC, reports filed with the SEC under Section 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and our outstanding shares of common stock as of December 31, 2022, our executive officers and directors and holders of greater than five percent of our outstanding common stock beneficially owned approximately 52% of our voting power as of December 31, 2022. As a result, these stockholders are able to exert substantial influence over our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may result in our taking corporate actions that other stockholders may not consider to be in their best interest. For example, it may have the effect of delaying, deferring or preventing a change in control, including a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control, which might affect the market price of our common stock.
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Anti-takeover provisions could make it more difficult for a third party to acquire us.
Our Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the terms of those shares, including voting rights, without any further action by the stockholders. The rights of the holders of common stock may be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of Seagen. Further, certain provisions of our charter documents, including provisions eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of Seagen, which could have an adverse effect on the market price of our stock. In addition, our charter documents provide for a classified board, which may make it more difficult for a third party to gain control of our Board of Directors. Similarly, state laws in Delaware and Washington related to corporate takeovers may prevent or delay a change of control of Seagen.
Our disclosures related to environmental, social and governance, or ESG, matters expose us to various risks, including risks to our reputation and stock price.
Investors are increasingly likely to factor ESG disclosures into their investment decisions. We have elevated the degree to which we manage, track and report on our ESG efforts and goals. Where provided, goal statements are aspirational, are subject to a number of risks, many of which are beyond our control, and are not guarantees. Our processes and operations may not always conform to various frameworks for identifying, measuring and reporting ESG metrics, and ESG reporting standards may change over time, either of which could result in significant revisions to reported metrics. In addition, our interpretation of reporting standards may differ from those of others. Any failure or perceived failure to pursue or fulfill our goals or to satisfy various reporting standards could have negative impacts on our reputation and stock price and expose us to litigation or government actions. Moreover, the SEC has recently proposed certain mandated ESG reporting requirements, such as the SEC's proposed rules designed to enhance and standardize climate-related disclosures, which, if finally approved, would significantly increase our compliance and reporting costs and may also result in disclosures that certain investors or other stakeholders may deem to negatively impact our reputation and/or that harm our stock price.
General Risk Factors
Changes in tax laws or regulations may have a material adverse effect on our business, results of operations, financial condition or growth prospects.
Due to economic and political conditions, various countries have made or are actively considering changes to existing tax laws, which could adversely affect our business operations and financial performance, and we cannot predict the form or timing of such changes. For example, beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures in the year incurred, requiring amortization in accordance with IRC Section 174. If this requirement is not repealed or otherwise modified, it will reduce our operating cash flows. In addition, the current U.S. presidential administration continues to pursue numerous corporate tax reform proposals to increase taxation of international business operations. Further, organizations such as the Organization for Economic Cooperation and Development have published actions plans that, if adopted by countries where we do business, could increase our tax obligations in those countries. Changes in corporate tax rates or in rules applicable to the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings or the deductibility of expenses could have a material impact on the value of our deferred tax assets, result in significant one-time charges, increase our future tax expense or otherwise have a material adverse effect on our business, results of operations, financial condition or growth prospects.
If our facilities are damaged or our research and development, manufacturing or other business processes are interrupted, our business could be seriously harmed.
We conduct most of our business in a limited number of facilities. Damage or extended periods of interruption to these facilities due to fire, natural disaster, severe weather, power loss, communications failure, unauthorized entry or other events could cause significant disruption and/or delays in our research and development, manufacturing and commercial activities and could cause us to incur large expenses to repair or replace the facilities. Although we maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under such circumstances and our business may be seriously harmed by such disruption, delays and costs.
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Legislative actions and new accounting pronouncements are likely to impact our future financial position or results of operations.
Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and are expected to occur again in the future. As a result we may be required to make changes in our accounting policies that could adversely affect our reported revenues and expenses, future profitability or financial position. The application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and costs, could have a significant impact on our reported results.
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