vtgn20230331_10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
For the fiscal year ended: March 31, 2023
or
Commission file number: 001-37761
Vistagen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
343 Allerton Avenue
South San Francisco, California94080
(650)577-3600
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Securities registered pursuant to Section12(b) of the Act
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share VTGN The Nasdaq Capital Market
Securities registered pursuant to Section12(g) of the Act
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on September 30, 2022, the last business day of the registrant’s second fiscal quarter, was: $31,202,662.
As of June 27, 2023, there were 7,872,479 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
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TABLE OF CONTENTS
Item No. Page No.
PART I
1. Business 1
1A. Risk Factors 38
1B. Unresolved Staff Comments 77
2. Properties 78
3. Legal Proceedings 78
4. Mine Safety Disclosures 78
PART II
6. Selected Financial Data 79
7A. Quantitative and Qualitative Disclosures About Market Risk 102
8. Financial Statements and Supplementary Data 103
9A. Controls and Procedures 140
9B. Other Information 140
PART III
10. Directors, Executive Officers and Corporate Governance 141
11. Executive Compensation 141
14. Principal Accounting Fees and Services 141
PART IV
15. Exhibits and Financial Statement Schedules 142
EXHIBIT INDEX 142
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Forward-Looking Statements
This Annual Report on Form 10-K (Annual Report or Report) contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this Annual Report other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:
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These forward-looking statements are only predictions. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, so you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in one or more of our forward-looking statements we make in this Annual Report. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We have included important factors in the cautionary statements included in this Annual Report, particularly in Part I, Item 1A, titled “Risk Factors,” that could cause actual future results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements in this Annual Report do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Annual Report and the documents that we have filed as exhibits to this Annual Report with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statement in this Annual Report, whether as a result of new information, future events or otherwise, except as required by applicable law.
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PARTI
All brand names or trademarks appearing in this Annual Report are the property of their respective holders. Unless the context requires otherwise, references in this report to “Vistagen,” the “Company,”“we,”“us,” and “our” refer to Vistagen Therapeutics, Inc., a Nevada corporation. All references to future quarters and years in this Annual Report refer to calendar quarters and calendar years, unless reference is made otherwise.
Item 1. Business
Overview
We are a late clinical-stage biopharmaceutical company aiming to transform the treatment landscape for individuals living with anxiety, depression and other central nervous system (CNS) disorders. We are advancing therapeutics with the potential to be faster-acting, and with fewer side effects and safety concerns, than those currently available for treating anxiety, depression and multiple CNS disorders. Our pipeline includes six clinical-stage product candidates, including five investigational agents belonging to a new class of neuroactive drugs known as pherines, in addition to AV-101, an oral prodrug of an antagonist of the glycine site of the N-methyl-D-aspartate receptor (NMDAR). Pherines, which are administered as nasal sprays, are designed with an innovative rapid-onset mechanism of action that activates chemosensory neurons in the nasal cavity and can selectively and beneficially impact key neural circuits in the brain without requiring systemic uptake or direct activity on CNS neurons. AV-101 inhibits the activity of the ion channel of the NMDAR but does not block it, unlike some approved NMDAR antagonists having significant side effects.
Our CNS product candidates are set forth below. Each has an innovative potential mechanism of action (MOA), has been safe and well-tolerated in all clinical studies to date, and has therapeutic potential in multiple CNS markets.
Our goal is to develop and commercialize, on our own and with multiple global and regional strategic partners, innovative therapies for anxiety, depression, and other CNS indications where current treatment options are inadequate to meet the needs of millions of patients in the U.S. and worldwide. First and foremost, we are passionate about transforming mental health care and redefining what is possible in the treatment of anxiety and depression disorders – One Mind at a TimeTM.
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Our Product Candidates
Pherine Product Candidates
Five of our product candidates – fasedienol (PH94B), itruvone (PH10), PH15, PH80 and PH284 – belong to a new class of synthetic neuroactive steroids referred to as pherines. Pherines, administered in ultra-low microgram level doses as odorless and tasteless nasal sprays, are designed to selectively engage chemosensory neurons in the nasal cavity and induce rapid-onset pharmacologic and behavioral benefits. Specifically, each of our pherine product candidates is a distinct chemical entity that selectively modulates particular areas of the brain, such as the limbic amygdala (the main fear and anxiety center of the brain), the hypothalamus, the hippocampus, the locus ceruleus, and the prefrontal cortex. We believe each of our pherine product candidates has the potential to be a fast-acting therapy for one or more CNS disorders, including social anxiety disorder (fasedienol), major depressive disorder (itruvone), cognitive impairment (PH15), vasomotor syndrome (hot flashes) due to menopause, as well as migraine headaches (PH80) and disorders related to appetite loss (cachexia) (PH284), all without requiring apparent systemic uptake or binding to classic abuse liability receptors or steroidal hormone receptors.
Fasedienol Nasal Spray
Fasedienol (PH94B) is a synthetic investigational pherine from the androstane family in Phase 3 clinical development in the U.S. for treatment of social anxiety disorder (SAD). When administered intranasally in microgram doses, fasedienol activates receptors of peripheral nasal chemosensory neurons connected to subsets of neurons in the olfactory bulbs that, in turn, connect to neurons in the limbic amygdala involved in the pathophysiology of SAD and potentially other anxiety and mood disorders. Fasedienol is pharmacologically active without requiring apparent systemic uptake and distribution of the compound to the brain to achieve its rapid-onset and short duration of anxiolytic effects.
Social Anxiety Disorder (SAD).Based on the 2021 National Health and Wellness Survey, over 25 million adults or 10% of the adult population in the U.S. have experienced SAD. SAD can be viewed as a series of acute, socially stressful events in which patients exhibit excessive fear of embarrassment, humiliation, scrutiny, evaluation, or rejection by others (Liebowitz, Gorman, Fyer, & Klein, 1985). The avoidance, fear, or anxious anticipation of these situations interferes significantly with the person’s daily routine, having a marked impact on occupational functioning and social life. The disorder has a lifetime prevalence estimated at up to 13%, with onset typically in the mid-teens or earlier, and is diagnosed slightly more frequently in females than males. In the absence of anxiety-provoking social or performance events, generally, patients with SAD are asymptomatic.
SAD typically does not resolve naturally, oftentimes leading to alcohol use disorder and major depressive disorder (MDD) as sequalae. A key psychotherapy mechanism by which individuals with SAD overcome this condition, or lessen their symptoms, is believed to be by exposing themselves to feared or avoided situations. This is the basis of cognitive-behavioral treatment (CBT) for SAD. However, it is difficult for most individuals with SAD to even consider entering stressful, anxiety‐provoking social or performance situations, preventing initiation of CBT as a psychotherapeutic approach with its gradual increase in exposure to stress, which is necessary for successful CBT.
The three antidepressants currently FDA-approved for treatment of SAD exert their therapeutic effect by gradually and over time reducing the anxiety and physical symptoms that SAD patients experience when they find themselves in feared or avoided situations. Once these products begin to produce a clinical therapeutic benefit, usually at least three to six weeks following the start of daily systemic dosing, the approved treatments for SAD may work by controlling anxiety when SAD patients enter stressful, anxiety-provoking situations. However, these products require long-term daily maintenance dosing, regardless of whether the patient actually experiences social anxiety on a given day, and chronic treatment is typically associated with a range of bothersome side effects, such as gastrointestinal symptoms, agitation, sleep disturbances, weight changes, and sexual dysfunction.
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Fasedienol and SAD.We believe fasedienol allows individuals affected by SAD to enter stressful or previously avoided social or performance situations with fewer or less severe symptoms when they have been pre-treated with fasedienol. A key and substantial difference between fasedienol and each of the three antidepressants approved by the FDA for the treatment of SAD is that fasedienol is used only on an as-needed basis prior to or during a socially stressful situation because of its rapid-onset pharmacological effect. Nor does fasedienol require systemic uptake and chronic daily maintenance dosing. Hence, fasedienol has the potential to reduce the wave of anxiety usually experienced by SAD patients when in a feared situation and is designed to be used on an as-needed basis prior to or during these stressful or often-avoided social or performance situations. Through more frequent exposure to socially stressful events, SAD subjects gain new insight about their social and performance situations and begin to cognitively separate the negative physiological symptoms of anxiety from specific anxiety-provoking events. By engaging in new situations previously avoided as a result of less severe and frequent waves of anxiety following treatment, subjects experience increased confidence, leading to an overall reduction in SAD illness severity, decreased burden of disease, improved workplace productivity, educational attainment, and satisfaction with social life.
Fasedienol does not exert effects on certain cellular receptors that are associated with known drug abuse potential (for example, dopamine, nicotinic, and opiate receptors) when activated by some other pharmaceutical compounds. It also does not produce agonistic or antagonistic effects on GABAA α1/β2/γ2 ion channels. Fasedienol is pharmacologically active without requiring apparent systemic uptake and distribution to achieve its rapid-onset and short duration of anxiolytic effects. The U.S. Food and Drug Administration (FDA) has designated fasedienol as a Fast Track product candidate, and we are currently developing fasedienol for the treatment of anxiety symptoms in adult subjects with SAD.
Fasedienol’s MOA via Olfactory-Amygdala Circuit
The proposed MOA of fasedienol is fundamentally differentiated from all currently approved anti-anxiety medications, including the three antidepressants approved by the FDA for the treatment of SAD, as well as all benzodiazepines and beta blockers, which, although not FDA-approved for the treatment of SAD, are prescribed for treatment of SAD on an off-label basis. Pre-clinical and Phase 2 clinical studies completed to date suggest that fasedienol has the potential to achieve rapid-onset anti-anxiety effects without systemic uptake or transport into the brain, significantly reducing the risk of side effects and other safety concerns such as potential drug-drug interactions, abuse, misuse and addiction associated with certain other systemic pharmaceuticals that act directly on the CNS and are sometimes prescribed for anxiety disorders.
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SAD Phase 1 Studies.Fasedienol’s rapid-onset and short-acting properties are supported by Phase 1 clinical trials conducted in healthy male and female subjects. In these trials, fasedienol was intranasally administered to subjects via a noninvasive nasal spray device, and changes in bioelectric transmucosal potentials of the nasal septum chemosensory epithelium were measured. These trials demonstrated that: (i) the nasal chemosensory epithelium has receptors that are selective for fasedienol, and (ii) fasedienol produces an immediate local electrogram response (i.e., EVG or EGNR), as illustrated by electrograms recorded from the surface of the sensory neuroepithelial lining of the vomeronasal organ. Additional studies evaluated the effect of fasedienol on the EVG amplitude and duration. Collectively, these studies show that fasedienol produces a short-duration electrogram response at the level of the peripheral receptor sites.Systemic exposure to fasedienol was evaluated following escalating doses of fasedienol in healthy female subjects. No measurable plasma concentrations of fasedienol were observed in the blood samples taken following the two highest single intranasal doses of 4.8 and 19.2 μg. In all samples (taken at 15 minutes, 30 minutes, and one hour after dosing), the levels were below the level of detection of 0.1 ng/mL. For exploration, a more sensitive research bioanalytical method (non-validated) was used on a selection of samples. Using this method, with a limit of quantitation of 0.025 ng/mL, no fasedienol could be detected. A study was conducted in human subjects to establish the bioavailability of fasedienol administered intranasally and repeatedly with the maximal therapeutic dose. However, it was not possible to characterize the actual bioavailability of fasedienol due to the absence of quantifiable concentrations of fasedienol in plasma. With respect to fasedienol’s safety profile, the totality of nonclinical data and clinical data in over 800 human subjects exposed to fasedienol to date continue to demonstrate that fasedienol appears to be safe and is well-tolerated, as well as the lack of abuse potential of fasedienol.
SAD Phase 2 Studies
Positive Phase 2 Results in Public Speaking and Social Interaction-Induced Stressors in a Clinical Setting. Phase 2 development of fasedienol began with a two-part public speaking and social interaction challenge study. In this published randomized, double-blind, placebo-controlled Phase 2 clinical trial (n=91) conducted at three clinical sites, 91 adult female subjects diagnosed with SAD underwent a placebo-only baseline public speaking and social interaction challenges in a clinical setting followed a week later by a randomized placebo-controlled treatment period and intranasal administration of fasedienol. Fasedienol (1.6 μg) was administered intranasally 15 minutes prior to both the public speaking and social interaction challenge simulations. The two challenges were separated by a 30-minute rest period. The primary outcome measure was the Subjective Units of Distress Scale (SUDS). Peer-reviewed results published in the American Journal of Psychiatry (Monti, et al., Am. J. Psychiatry (2014) 171:675-682) showed statistically significant results for reducing anxiety during a public speaking performance and during social interactions in a clinical setting. During the public speaking challenge, subjects randomized to treatment with fasedienol (n = 45) showed a 26.7-point improvement in mean SUDS scores following the treatment visit with fasedienol as compared to the SUDS scores during the baseline visit (placebo treatment). In comparison, subjects randomized to treatment with placebo (n = 46) showed an improvement of only 14.0 points in mean SUDS scores compared to baseline. The fasedienol treatment group’s improvement in the public speaking challenge significantly exceeded that of the placebo group’s improvement (t = 3.16, p = 0.002).
Mild or moderate adverse events were infrequent and did not differ significantly between the fasedienol and placebo groups. No severe or serious adverse events were reported.
Positive Phase 2 Results in a Real-World Setting.A second peer-reviewed Phase 2 study of fasedienol in SAD was published in the Journal of Depression and Anxiety (Monti, et al., Depress Anxiety (2016); 33: 1081–1089). In the randomized, double-blind, placebo-controlled crossover study that included both adult males and females 18 to 65 years of age, subjects self-administered fasedienol or placebo nasal spray on an as-needed basis, just prior to stressful, anxiety-provoking encounters in their daily lives, up to four times a day. Following two weeks of treatment, the subjects were crossed over to the other nasal spray for another two weeks. The primary efficacy measure in the study was the SUDS and the secondary efficacy measure was the Liebowitz Social Anxiety Scale (LSAS). The LSAS was created by Dr. Michael Liebowitz and was the primary efficacy endpoint in all Phase 3 registration trials for the three antidepressants approved by the FDA for treatment of SAD. Dr. Liebowitz was the Principal Investigator of this Phase 2 study of fasedienol.
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The change from baseline SUDS scores was significantly greater for all subjects while taking fasedienol compared with the placebo group. The average change from baseline SUDS score was 15.6 points for all subjects while on PH94B and 8.3 points while on placebo (paired t-test = 3.09; p = 0.006; effect size 0.658). The LSAS was recorded at weekly visits. Looking between groups at just the group treated first with fasedienol for two weeks, fasedienol showed a positive trend in the LSAS scores (p = 0.07, Cohen’s d = 0.812, change from baseline 23.3 vs 8.2 points fasedienol vs placebo, respectively). Interestingly, subjects receiving fasedienol first also had a significantly greater decrease in their avoidance score on the LSAS as compared to those who received placebo first (p = 0.02, Cohen’s d = 1.078). After the crossover, fasedienol showed less of an effect as compared to placebo, likely due to a confidence carryover effect from treatment with fasedienol during the previous two weeks. Importantly, self-administration of fasedienol on an as‐needed basis prior to anxiety-provoking encounters in a real-world setting was accompanied by a persistent change in overall SAD symptoms, reduction in fear and anxiety, and less frequent avoidance, as measured by the LSAS over the course of fasedienol usage. Notably, the amount of separation between fasedienol and placebo at the end of the first two weeks on the LSAS in this study was comparable to what was observed in the registration trials for the current FDA-approved antidepressants after 12 weeks. A large effect size (0.78) and trend to significance (p = 0.083) in favor of fasedienol also was observed when comparing overall the Clinical Global Impression (CGI) score means for fasedienol and placebo during the first two weeks of treatment. Patient Global Impression of Change (PGI-C) ratings also showed improvement for fasedienol after two weeks of treatment (p = 0.024).
No drug-related serious adverse events (SAEs) were reported during the study. All adverse events (AEs) were mild or moderate and the frequencies of their occurrence did not differ meaningfully between active and placebo treatments.
We believe this multiple-administration, placebo-controlled assessment Phase 2 study conducted in a real-world setting outside a clinical environment indicates the potential for cumulative functional improvement with longer use of fasedienol, while still being used on an as-needed basis, as subjects are increasingly able to engage in previously difficult social and performance situations in their daily lives more frequently and with less fear and anxiety.
SAD Phase 3 Studies
PALISADE-1. In May 2021, we initiated our PALISADE Phase 3 Program for fasedienol in SAD with PALISADE-1, a single-administration assessment Phase 3 public speaking challenge clinical study of fasedienol for the acute treatment of anxiety in adults with SAD. Following discussions with the FDA in mid-2020 during the acute phase of the COVID-19 pandemic, we agreed to design PALISADE-1 in a manner substantially similar to the single-administration assessment Phase 2 public speaking challenge study of fasedienol, which involved self-administration of only a single dose of fasedienol by subjects randomized to the treatment arm. All subjects were given an anxiety-provoking public speaking challenge, conducted only in a clinical setting, and their change in a Subjective Units of Distress Scale (SUDS) score was determined.
In July 2022, we announced top line results from PALISADE-1. Although the safety and tolerability of fasedienol in PALISADE-1 were favorable and consistent with previously reported results from previous clinical trials, PALISADE-1 did not achieve its primary efficacy endpoint, as measured by change from baseline using the SUDS as compared to placebo. We believe the following hypotheses are potential explanations for the unexpected outcome in PALISADE-1: (i) the study was conducted during the acute phase of the COVID-19 pandemic, introducing significant systemic variability in terms of changing social dynamics, subject stress, study site and contract research organization (CRO) personnel turnover and mask wearing regulations; (ii) given the foregoing, the public speaking challenge study design may not have been scalable to a large Phase 3 study, particularly during the acute phase of the COVID-19 pandemic; and (iii) some subjects in the study may have had reduced potential to respond to fasedienol due to impaired olfactory cell function potentially caused by the COVID-19 virus, nasal swab testing for COVID-19, respiratory syncytial virus (RSV) or influenza, and/or heavy cannabis use, smoking or vaping.
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PALISADE-2.In October 2021, near the end of the acute phase of the COVID-19 pandemic, we initiated PALISADE-2, which involved the same clinic-based, single-administration assessment public speaking challenge study design and use of the SUDS as the primary efficacy endpoint as PALISADE-1. In July 2022, after receiving top line results from PALISADE-1, we paused recruitment and enrollment in PALISADE-2 to allow independent third-party biostatisticians to conduct an interim analysis of available data from subjects randomized in PALISADE-2 up to the date we paused the study. In September 2022, based on their review of unblinded data from the 140 subjects who had completed PALISADE-2, the independent third-party biostatisticians recommended that we continue PALISADE-2 as planned, without revealing the underlying data to us.
Although the results of the interim analysis of PALISADE-2 indicated that continuation of the study would not be futile, after considering the expense, time, and challenges associated with PALISADE-1, as well as the potential methodological complexities involved in resuming PALISADE-2, we closed the PALISADE-2 study. Topline results from the 140 subjects who completed PALISADE-2 are expected in the second half of 2023.
PALISADE Open Label Study. The PALISADE Open Label Study (OLS) was a Phase 3, open-label safety trial designed to evaluate the safety and tolerability of multiple, as-needed administrations (up to four times a day) of fasedienol in adults with SAD. The PALISADE OLS also evaluated the change from baseline in monthly standard clinical measurements and behavioral assessment scales (LSAS, Clinician Global Impression of Improvement scale (CGI-I) and Patient Global Impression of Change scale (PGI-C)) in response to anxiety-provoking social situations in daily‐life after the administration of fasedienol. The key exploratory efficacy endpoint in the study included evaluation of the change from baseline on the LSAS, which measures SAD patients’ response to anxiety-provoking social and performance situations experienced in their daily lives. Following the completion of PALISADE-1, we terminated the PALISADE OLS early, solely for strategic business reasons, and not due to any safety concerns with fasedienol.
Safety and tolerability of fasedienol were assessed and summarized during monthly visits from baseline to end of treatment in AEs, laboratory values, 12‐lead electrocardiograms (ECGs), physical examinations, and vital sign assessments following exposure to fasedienol. Long-term administration of 3.2 μg of fasedienol, as-needed up to four times per day, was safe and well-tolerated, with no new safety findings or trends identified, regardless of the number of doses administered by each subject (safety population: n=481). Headache was the most common treatment-emergent adverse event (TEAE) (17.0%), and, except for COVID-19 TEAEs (11.4%) which were not considered related to fasedienol, no other TEAE occurred in more than 5.0% of subjects. Over 30,000 doses of fasedienol were administered by patients during the study, with a mean duration of four months and a maximum study duration of over ten months.
The final data set from PALISADE OLS demonstrates clinically meaningful functional improvement, as measured by the LSAS, and total LSAS scores, in both men and women, continued to decline in consecutive months during the study, as follows:
● After 1 month, the mean reduction on the LSAS was 16 points (n=385);
● After 2 months, the mean reduction on the LSAS was 20 points (n=324); and
● After 3 months, the mean reduction on the LSAS was 24 points (n=218).
For subjects who continued in the study, total LSAS scores continued to decline from baseline, with improvements observed each month on the LSAS through nine months. The continued improvement in LSAS scores is indicative of the therapeutic potential of multiple, patient-tailored, as-needed administrations of fasedienol over time to help patients build confidence to engage in anxiety-provoking social and performance situations in their daily lives more frequently and with less fear and anxiety.
In addition, the CGI-I results indicated 43% of the 218 patients assessed after three months were “much” or “very much” improved, and PGI-C results indicated 44% of the 218 patients assessed after three months considered themselves “much” or “very much” improved.
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FDA Feedback on Path Forward; FEARLESS-1.We believe data from approximately 400 subjects in the PALISADE OLS over a period of one month and beyond, combined with the data from the previous Phase 2 randomized, double-blind, placebo-controlled, crossover study of fasedienol after two weeks of use, as discussed above, demonstrate the potential for fasedienol to achieve robust overall reduction in symptoms of SAD and improvement in severity of the disorder over time, as measured by the LSAS. These data also appear to suggest that studies involving multiple administrations of fasedienol over time on an as-needed basis, up to four times per day, when subjects experience daily, real-life, socially stressful situations may most accurately reflect the true efficacy of fasedienol in patients with SAD and represent the actual way in which they would use fasedienol, if approved. Utilizing the LSAS as the primary efficacy outcome measure in our next Phase 3 study is consistent with the pivotal registration trials for all three currently approved treatments for SAD. As those studies indicate, the LSAS is capable of measuring a drug’s efficacy in patients with SAD due to its ability to capture patient feedback on fear and anxiety regarding various social situations, as well avoidance of such situations. Hence, we believe using the LSAS as the primary efficacy endpoint for our further Phase 3 development of fasedienol has the potential to demonstrate its efficacy and true impact on patients’ lives.
In the first quarter of calendar 2023, we met with the FDA to discuss next steps in our Phase 3 development plan for fasedienol in SAD, which plan includes, among other things, conducting, on our own or with collaborators, a multiple-assessment, randomized, double-blind, placebo-controlled Phase 3 study of fasedienol in adults in a real-world setting, using the LSAS as the primary efficacy outcome measure to evaluate the efficacy of fasedienol over time in patients with SAD to support a potential fasedienol New Drug Application (NDA). Positive feedback from the FDA at this meeting confirmed the acceptable use of the LSAS as a primary efficacy endpoint. Accordingly, we are positioned to finalize key components of FEARLESS, our potential NDA-enabling Phase 3 development program for fasedienol for treatment of SAD.
Unlike the PALISADE Phase 3 studies, which involved assessment of only a single, self- administered dose of fasedienol in a clinic-based public speaking challenge using the SUDS as the primary outcome measure, our FEARLESS program will assess multiple administrations of fasedienol, on a patient-tailored as-needed basis, up to six times per day, in a real-world setting over a multiple week period, with the LSAS as the primary efficacy endpoint, consistent with the FDA’s three precedent-setting approvals of antidepressants for treatment of SAD. Dr. Michael R. Liebowitz, a Columbia University psychiatrist, former director and founder of the Anxiety Disorders Clinic at the New York State Psychiatric Institute and current Managing Director of The Medical Research Network LLC in New York City, is the innovator of the LSAS and will be the Principal Investigator for our FEARLESS program in SAD.
Exploratory Phase 2A Study in AjDA and Future Development Opportunities.During the acute phase of the COVID-19 pandemic, we conducted a small exploratory Phase 2A clinical study of fasedienol designed to assess its therapeutic potential in adults experiencing adjustment disorder with anxiety (AjDA). Adjustment disorder (AjD) occurs within three months of exposure to a stressor as evidenced by marked distress that is out of proportion to the socially or culturally expected reactions to the stressor, or that represents significant impairment in social, occupational or other important areas of daily functioning. Our small exploratory study in AjDA is believed to be the first ever randomized, double-blind, placebo-controlled Phase 2A study in the U.S. aimed at exploring the pharmacological treatment of AjDA, and the first clinical trial that evaluated the effects of a fixed dosing regimen of fasedienol, involving intranasal administration of 3.2 μg of fasedienol four times per day over four weeks. A total of 71 subjects were screened for the study, 41 were randomized, 7 discontinued, and 34 completed four weeks of treatment. The study, which was not designed to achieve statistical significance, did not demonstrate a clinically significant difference between fasedienol and placebo as measured on the clinician-rated Hamilton Anxiety Scale (HAM-A). Site variances and both a high drug response rate and high placebo response rate were observed, likely related to the various aspects of AjDA that make it a challenging indication to study. The study of AjDA is complicated because the disorder is, by definition, temporary and self-resolving, making it difficult to identify the cause of clinical improvement or whether placebo played a role in any improvement observed. AjDA is a temporary stress reaction. The stress reaction typically starts within three months of an identifiable stressful situation, but because the disorder is directly linked to a stressor, once the stressor ends, the anxiety reaction may also end, with or without treatment.
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Fixed dosing of fasedienol four times per day, over four weeks, was well tolerated, with no appreciable differences in TEAEs between fasedienol and placebo. All reported TEAEs were of mild or moderate severity, with no severe or serious TEAEs reported during the study. Headache was the most commonly reported TEAE, reported by 3 subjects (15.8%) on fasedienol and 2 subjects (9.1%) on placebo.
Despite the methodological challenges inherent in the exploratory Phase 2A study in AjDA, we believe fasedienol builds resilience against anxiety and reduces the cognitive and physical paralysis that occurs during moments of heightened anxiety and stressful situations. Results of the AjDA study may provide support for an as-needed fasedienol dosing approach over time as the preferred mode of treatment.
We may also have potential opportunities to explore the development of fasedienol for other anxiety-related disorders, including postpartum anxiety, post-traumatic stress disorder, panic disorder, and procedural anxiety.
Itruvone Nasal Spray
Itruvone (PH10) is an odorless, tasteless synthetic investigational pherine from the pregnane family with a novel, rapid-onset potential MOA that is fundamentally differentiated from the MOA of all currently approved treatments for depression disorders. Itruvone, which is administered as a nasal spray at microgram-level doses, is designed to engage and activate chemosensory neurons in the nasal cavity, which are connected to neural circuits in the brain that produce antidepressant effects. Specifically, in a manner similar to fasedienol, itruvone’s proposed MOA involves the regulation of the olfactory-amygdala neural circuits believed to increase activity of the limbic-hypothalamic sympathetic nervous system and increase the release of catecholamines. Importantly, unlike all currently approved oral antidepressants (ADs) and rapid-onset ketamine-based therapy, including both intravenous ketamine and intranasal ketamine (esketamine), we believe itruvone does not require systemic uptake and distribution of the compound to the brain to produce rapid-onset of antidepressant effects. In all clinical studies completed to date, itruvone has been well-tolerated and has not caused psychological side effects (such as dissociation and hallucinations) or other safety concerns that may be associated with ketamine-based therapy.
Major Depressive Disorder. Depression is a serious medical illness and a global public health concern that can occur at any time over a person's life. According to the World Health Organization (WHO), depression is the leading cause of disability worldwide, affecting over 250 million people. Statistics reported by the U.S. National Institute of Health (NIMH) indicate that approximately 21 million adults in the U.S., or approximately 8.4% of all adults in the U.S., had at least one major depressive episode in 2020. While most people will experience a depressed mood at some point during their lifetime, MDD is different. MDD is the chronic, pervasive feeling of utter unhappiness and suffering, which impairs daily functioning. In typical depressive episodes, an individual experiences depressed mood, loss of interest and enjoyment, and reduced energy leading to diminished activity and impaired daily functioning for at least two weeks and often much longer. Symptoms of MDD also may include diminished pleasure in activities, changes in appetite that result in weight changes, insomnia or oversleeping, psychomotor agitation, loss of energy or increased fatigue, feelings of worthlessness or inappropriate guilt, difficulty thinking, concentrating or making decisions, and thoughts of death or suicide and attempts at suicide. MDD is the psychiatric diagnosis most commonly associated with suicide.
For many people, depression cannot be controlled for any length of time without treatment. Current oral antidepressants have modest efficacy, substantial lag of onset of action, and considerable side effects. Approximately two out of every three depression sufferers do not receive adequate therapeutic benefits from their initial treatment with a standard antidepressant, and the likelihood of achieving remission of depressive symptoms declines with each successive treatment attempt. Even after multiple treatment attempts with current antidepressants, approximately one-third of depression sufferers still fail to find an adequately effective therapy. In addition, this trial and error process and the systemic effects of the various antidepressants involved may increase the risk of patient tolerability issues and serious side effects, including suicidal thoughts and behaviors in certain groups. Inadequate response to current treatments is among the key reasons MDD is one of the leading public health concerns in the United States, creating a significant unmet medical need for new agents with fundamentally different mechanisms of action and safety profiles.
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MDD Clinical Studies. In a peer-reviewed, published exploratory Phase 2A clinical study (n=30), itruvone, self-administered at a daily dose of 6.4 micrograms, was well-tolerated and demonstrated significant (p=0.022) rapid-onset antidepressant effects, which were sustained over an 8-week period, as measured by the Hamilton Depression Rating Scale-17 (HAM-D-17), without side effects or safety concerns that may be caused by certain oral antidepressants or intravenous or intranasal ketamine-based therapy. With its potential for rapid-onset activity at a 6.4 microgram-level dose that we believe does not require systemic uptake to achieve sustained antidepressant effects, as well as a safety profile in studies completed to date that is differentiated from current therapeutics, we believe itruvone has transformative potential an innovative stand-alone treatment for MDD and potential opportunities for development in multiple additional depression disorders, including postpartum depression, treatment-resistant depression, and suicidal ideation.
In January 2023, we launched a small U.S. single center, randomized, double-blinded, placebo-controlled Phase 1 study to investigate the safety and tolerability of itruvone in healthy adult subjects (n=12). The study was designed to confirm the favorable safety profile of itruvone established in three previous clinical studies conducted in Mexico, including the Phase 2 study noted above, as well as facilitate our plans for Phase 2B development of itruvone in the U.S. as a fast-acting stand-alone treatment for MDD. In June 2023, we announced positive data from this study. There were no reported SAEs or discontinuations due to adverse events in the trial. Two AEs were reported during the treatment period, fatigue and headache, which occurred in the same subject. Both AEs resolved without sequelae and were mild in severity. Following itruvone administration, there were no clinically significant findings in ECGs, vital signs, and laboratory parameters. Overall, itruvone was well-tolerated and continued to demonstrate a favorable safety profile.
The FDA has granted Fast Track designation for development of itruvone as a potential adjunctive treatment for MDD.
PH80 Nasal Spray
PH80 is an odorless, tasteless synthetic investigational pherine with a novel, rapid-onset potential MOA that is fundamentally differentiated from the MOA of all currently approved treatments for both vasomotor symptoms (hot flashes) due to menopause and migraine headaches. PH80, which is administered as a nasal spray at microgram-level doses, engages and activates chemosensory neurons in the nasal cavity, which are connected to neural circuits in the brain that modulate neural circuits in the basal forebrain associated with the control of body temperature, as well as premonitory and aura symptoms of migraines.
PH80 for Acute Management of Vasomotor Symptoms (Hot Flashes) due to Menopause. Approximately 60% to 80% of women entering menopause suffer from hot flashes and associated symptoms lasting up to ten years, according to the Massachusetts General Hospital Center for Women’s Mental Health. Menopausal symptoms are triggered by hormonal fluctuations that develop at the onset of menopause and affect areas of the brain involved in the control of core body temperature. Sudden changes in core body temperature result in hot flashes, sweating, reddening of the face and upper thorax, rapid heartbeat and general feelings of discomfort that can have an impact on the quality of life.
In a small exploratory Phase 2A clinical study (n=36), PH80 showed a profile compatible with the acute management of menopausal hot flashes. The randomized, double-blind, placebo-controlled exploratory Phase 2A study was designed to explore the efficacy, safety, and tolerability of intranasal administration of PH80 for the acute management of vasomotor symptoms hot flashes due to menopause. In the study, PH80 nasal spray containing PH80 in a dose of 0.8 micrograms/50 microliters (0.8 μg/50 μL) was self-administered by subjects intranasally, two sprays in each nostril (total dose = 3.2μg) up to four times daily, as-needed for four consecutive weeks. One additional dose was allowed at night if subjects were awakened by hot flashes. Through the course of the study, subjects recorded the number, severity, disruption in function, and sweating related to hot flashes. PH80 was well-tolerated with no serious adverse events, and the adverse event profiles were comparable between PH80 and placebo. All 36 subjects completed four weeks of treatment and no subject discontinued participation in the study as a result of TEAEs.
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PH80 induced significant reduction in the daily number of hot flashes compared to placebo at the end of the first week of treatment, and the improvement was maintained through each treatment week until the end of the four-week treatment period. At baseline, subjects reported a mean daily number of hot flashes of 7.7 (PH80, n=18) and 8.0 (placebo, n=18). After one week of treatment, the number of hot flashes dropped to 2.8 (PH80) and 6.4 (placebo) (p<.001), and after four weeks of treatment the number of hot flashes dropped to 1.5 (PH80) and 5.1 (placebo) (p<.001). PH80 treatment also significantly reduced the severity, disruption in function, and sweating related to hot flashes during the treatment period as compared with placebo.
We are currently preparing, on our own or with collaborators, to submit an U.S. IND for a Phase 2B clinical study of PH80 as a treatment for hot flashes due to menopause.
PH80 for Acute Treatment of Migraine Headaches. Migraine headaches are a common and debilitating neurological disorder experienced by approximately 4% to 9% of men and 11% to 25% of women, according to the American Headache Society. A migraine is characterized by unilateral, pulsating headaches of moderate to severe intensity lasting four to 72 hours. Symptoms are aggravated by routine physical activity and are associated with nausea, photophobia and phonophobia. Usually, migraine headaches are preceded by premonitory symptoms (fatigue neck discomfort, gastrointestinal symptoms and mood changes, and these are followed by an aura of sensory and language disturbance (Headache, 58: 4-16, 2018. American Headache Society).
PH80 initiates neural impulses in the olfactory bulb transmitted by pathways that rapidly affect the function of multiple structures in the brain, including the amygdala and hypothalamus that have been linked to the pathology of migraine. Due to its MOA and a small proof of concept study, we believe PH80 may have therapeutic potential to relieve premonitory and aura symptoms of migraines.
PH15 Nasal Spray
Cognitive impairment has many potential causes, including mental fatigue, and is often associated with hypersomnia or excessive daytime sleepiness (EDS). EDS is commonly caused by sleep-related disorders such as sleep apnea, circadian rhythm disorder, or narcolepsy but may also be caused by psychiatric disorders, neurological conditions, or medications. In the U.S., it is estimated that 12.7% of adults, or approximately 30 million people suffer from EDS (Ford et al, 2015).
PH15 is an odorless, tasteless synthetic investigational pherine with a novel, rapid-onset potential MOA that is fundamentally differentiated from the MOA of all currently approved treatments to improve cognitive impairment caused by mental fatigue and potentially other disorders. Early functional MRI studies in human volunteers at Stanford University revealed that intranasal administration of PH15 induced rapid activation of brain areas related to cognition (Sobel et al, Brain, 1999). In a small double blind, placebo-controlled study Phase 2 study of human subjects who were sleep deprived to induce mental fatigue, intranasal PH15 showed rapid and significant improvement in cognitive and psychomotor performance and improvement of reaction time that was better than the effect of a placebo and 400 mg of oral caffeine. We are currently evaluating the path forward to submitting an U.S. IND for a Phase 2 clinical study, on our own or with collaborators, and the appropriate indication for demonstrating improvement of cognitive function.
PH284 Nasal Spray
PH284 is an odorless, tasteless synthetic investigational pherine with a novel, rapid-onset potential MOA that is fundamentally differentiated from the MOA of all currently approved treatments for the loss of appetite associated with chronic disorders such as cancer. Cachexia is a serious but under recognized consequence of many chronic diseases with body mass loss of >10% and a prevalence of 5 to 15 %. We believe PH284 may have therapeutic potential for improving subjective feelings of hunger in patients with cachexia. We are currently evaluating the path forward to submitting an U.S. IND for cachexia, on our own or with collaborators, and the appropriate patient populations for demonstrating increase in appetite and weight gain in a second Phase 2 study.
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AV-101
AV-101 (4-Cl-KYN) is a novel, oral prodrug that targets the NMDAR (N-methyl-D-aspartate receptor), an ionotropic glutamate receptor in the brain. Abnormal NMDAR function is associated with numerous CNS diseases and disorders. The active metabolite of AV-101, 7-chloro-kynurenic acid (7-Cl-KYNA), is a potent and selective full antagonist of the glycine binding site of the NMDAR that inhibits the function of the NMDAR. Unlike ketamine and many other NMDAR antagonists, 7-Cl-KYNA is not an ion channel blocker. In clinical and nonclinical testing completed to date, AV-101 has demonstrated good oral bioavailability and an excellent pharmacokinetic (PK) profile. No binding of AV-101 or 7-Cl-KYNA to off-site targets was identified by an extensive receptor screening study. Moreover, in all clinical trials completed to date, AV-101 has been safe and very well-tolerated with no psychological side effects or safety concerns and no treatment-related serious adverse events that are often observed with classic channel-blocking NMDAR antagonists such as ketamine and amantadine. Nonclinical results also indicate that chronic administration of 4-Cl-KYN induces hippocampal neurogenesis, a hallmark of drugs that have antidepressive effects, and increases endogenous levels of KYNA, which also is a functional NMDAR glycine site antagonist.
Based on observations and findings from preclinical studies, we believe AV-101 has the potential to become a new oral treatment alternative for multiple CNS disorders. We are currently preparing for Phase 2A development of AV-101, on our own or with collaborators, as a treatment for one or more neurological disorders involving the NMDAR receptor. Multiple studies have shown AV-101 to be safe and well-tolerated, and a range of preclinical studies indicate potential in multiple indications, including levodopa-induced dyskinesia, neuropathic pain, seizures, MDD, and suicidal ideation.
The FDA has granted Fast Track designation for development of AV-101 as a potential adjunctive treatment for MDD and as a non-opioid treatment for neuropathic pain.
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Intellectual Property
We strive to protect the proprietary know-how and technology that we believe is important to our business, including seeking and maintaining patents intended to cover our product candidates and related pharmaceutical compositions, their therapeutic methods of use, including treatment and prognostic methods, as well as processes for their manufacture, and any other aspects of our discoveries and inventions that are commercially important to the development of our business.
We may also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We also utilize know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position. We seek to obtain domestic and international patent protection in appropriate markets, and endeavor to timely file patent applications for new commercially valuable inventions.
To protect our rights to our proprietary technology, we require all employees, as well as our external collaborators, consultants and CROs when feasible, to enter into agreements that require disclosure and assignment to us of ideas, developments, discoveries and inventions made by these employees, consultants, and CROs in the course of their service to us.
We plan to continue to expand our intellectual property estate by filing patent applications directed to pharmaceutical compositions, methods of use, including treatment and patient selection, formulations, nasal administration devices, and manufacturing processes created or identified from the ongoing development of our product candidates.
Patents
We own and have licensed granted patents and pending patent applications in the U.S. and in certain foreign countries. These patent properties include, but are not limited to:
Fasedienol (PH94B) for the treatment of social anxiety disorder:
The granted U.S. patents related to fasedienol to treat social anxiety disorder will nominally expire either in 2025 or 2028, respectively, and foreign patents will nominally expire in 2026, subject to patent term extensions that may be available on a country-by-country basis, including in the U.S.
Fasedienol (PH94B) for the treatment of adjustment disorder:
Patents that may be granted on these applications related to fasedienol to treat adjustment disorder will nominally expire in 2041, subject to patent term extensions that may be available on a country-by-country basis, including in the U.S.
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Itruvone (PH10) for the treatment of depression:
The U.S. and foreign patents related to itruvone to treat depression nominally expire in 2033, subject to extensions that may be available on a country-by-country basis, including in the U.S.
PH80 for the treatment of menopausal hot flashes:
Granted U.S. patent and corresponding foreign patents related to the treatment of menopausal hot flashes. The U.S. and foreign patents related to PH80 to treat menopausal hot flashes nominally expire in 2029, subject to extensions that may be available on a country-by-country basis, including in the U.S.
PH80 for the treatment of migraine:
The U.S. and foreign patents that may be granted on these patent applications related to PH80 to treat migraine nominally expire in 2040, subject to extensions that may be available on a country-by-country basis, including in the U.S.
PH15 for the improvement of psychomotor and cognitive performance:
U.S. and foreign patents that may be granted on these applications related to PH15 to improve psychomotor and cognitive performance will nominally expire in 2044, subject to extensions that may be available on a country-by-country basis, including in the U.S.
AV-101
The U.S. and foreign patents related to AV-101 nominally expire between 2034 and 2040, depending on the particular subject matter claimed in each patent, subject to extensions that may be available on a country-by-country basis, including in the U.S.
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Patent Term
The base term of a U.S. patent is 20 years from the filing date of the earliest-filed non-provisional patent application from which the patent claims priority. The term of a U.S. patent can be lengthened by patent term adjustment, which compensates the owner of the patent for administrative delays at the U.S. Patent and Trademark Office (PTO). In some cases, the term of a U.S. patent is shortened by a terminal disclaimer that reduces its term to align with that of a related patent.
Depending upon the timing, duration and specifics of the FDA approval of our drug candidates, if any, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA (testing phase), plus the time between the submission date of an NDA and the approval of that application (approval phase). The FDA may reduce this patent term restoration period if it finds that an applicant did not act with due diligence during the testing phase or the approval phase. Only one patent related to an approved drug is eligible for the extension, and an application for the extension must be submitted prior to the expiration of the patent. The U.S. PTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, if circumstances permit, we intend to apply for extension or restoration of patent term for our applicable patents, if any, to extend patent life beyond their base expiration dates depending on the length of the clinical trials and other factors involved in the filing of the relevant NDA.
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Some foreign jurisdictions, including Europe and Japan, also have patent term extension provisions, which allow for extension of the term of a patent that covers a drug approved by the applicable foreign regulatory agency. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extension on patents covering those products, their methods of use, and/or methods of manufacture.
Data Exclusivity
Some of our products may also be entitled to certain data exclusivity (that is not patent-related) under the Federal Food, Drug and Cosmetic Act (FDCA) and its related regulations. The FDCA provides a five-year period of non-patent data exclusivity within the U.S. to the first applicant to obtain approval for an NDA for a new chemical entity (NCE). An NCE is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule responsible for the pharmacological action of the drug substance. During the data exclusivity period, an abbreviated new drug application (ANDA), or a 505(b)(2) NDA submitted by another company may not be approved by the FDA for another drug containing the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant does not own or have a legal right of reference to all the data that served as the basis of granting the original NDA.
However, an ANDA or a 505(b)(2) NDA application may be submitted to the FDA for evaluation after four years from the original NDA approval if the innovator NDA holder does not have a patent covering the product listed with the FDA Orange Book or if the application contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA Orange Book. The FDCA also provides three years of data exclusivity for a full NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. Three-year exclusivity prevents the FDA from approving ANDAs and 505(b)(2) applications that rely on the information that served as the basis of granting the new full or supplemental NDA. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active moiety for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.
Trade Secrets
In addition to patents, we may rely on trade secrets to develop and maintain our competitive position. We protect trade secrets, if any, and also know-how, by establishing confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and partners. These agreements provide that all confidential information developed or made known during the course of an individual’s or entity’s employment or other contractual relationship with us must be kept confidential during and after the relationship. These agreements also generally provide that all relevant inventions resulting from work performed for us or relating to our business and conceived or completed during the period of employment or assignment, as applicable, shall be our exclusive property. In addition, we take other appropriate precautions, such as physical and technological security measures, to guard against misappropriation of our proprietary information by third parties.
Trademarks
The Company also owns a registered trademark in the U.S. for “VISTAGEN,” for “biotechnology services” in international class 42, which was renewed in 2021. We have a U.S. registration application pending for VISTAGEN in international class 10 for “human and veterinary preparations for medical uses.”
Strategic Transactions and Relationships
Given the depth of clinical development across our CNS pipeline, as well as new potential to elevate additional preclinical candidates from our pherine platform, we are pursuing multiple strategic development and commercialization partnerships, both global and regional, across our clinical-stage pipeline to efficiently unlock the full value of our product candidate portfolio. We believe regional and global partnerships designed to amplify our internal activities can efficiently accelerate key development timelines and regulatory milestones for our product candidates.
In addition, we believe that our highly selective outsourcing of certain research, development, legal, manufacturing and regulatory activities gives us flexible access to a broad range of capabilities and expertise at a lower overall cost than developing and maintaining such capabilities and expertise internally on a full-time basis. In particular, we retain third parties for certain legal, accounting, manufacturing, nonclinical development, clinical development and regulatory affairs support.
We have entered into, and plan to seek multiple additional global and regional strategic collaborations and relationships focused on development and/or commercialization of our product candidates in key pharmaceutical markets worldwide, including the U.S.
Commercial Agreements
We have customary clinical supply agreements with multiple contract development and manufacturing organizations (CDMOs) and customary agreements with multiple CROs to assist us with advancement and management of our nonclinical, including manufacturing, and clinical development programs. Each of our commercial agreements is non‐exclusive, and we have no material contractual obligations under such agreements, except to the extent we order supplies or request services to be performed under specific work orders that we generate with such third-parties from time to time.
Material License Agreements
Exclusive License and Collaboration Agreement with AffaMed Therapeutics, Inc. (formerly EverInsight Therapeutics, Inc.)
In June 2020, we entered into a license and collaboration agreement (the EverInsight License Agreement) with EverInsight Therapeutics Inc., a company incorporated under the laws of the British Virgin Islands (EverInsight), pursuant to which we granted EverInsight an exclusive license to develop, manufacture and commercialize PH94B for multiple anxiety-related disorders in Greater China (Mainland China, Hong Kong, Macau and Taiwan), South Korea and Southeast Asia (Indonesia, Malaysia, Philippines, Thailand and Vietnam) (collectively, the Territory). Subsequent to entering into the EverInsight License Agreement, in October 2020, EverInsight merged with AffaMed Therapeutics, Inc., which as a combined, complementary entity is focusing on developing and commercializing therapeutics to address ophthalmologic and CNS disorders in Greater China and beyond. Accordingly, we refer to EverInsight and the EverInsight License Agreement as AffaMed and the AffaMed Agreement, respectively. We retained development, manufacturing and commercialization rights for fasedienol in the rest of the world.
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Under the terms of the AffaMed Agreement, we received an upfront payment of $5.0 million in August 2020. We may also receive up to an additional $172 million in milestone payments upon AffaMed’s achievement of certain developmental, regulatory and sales milestone events related to PH94B. In addition, we are entitled to receive certain royalties on net sales, if any, of fasedienol in the Territory following receipt of any required regulatory approval. However, AffaMed’s, achievement of any of such developmental, regulatory and sales milestone events, or commercial sales of fasedienol in the Territory, cannot be guaranteed. AffaMed has the right to sublicense to affiliates and third parties in the Territory. AffaMed is responsible for all costs related to developing, obtaining regulatory approval of and commercializing fasedienol in the Territory. A joint development committee has been established between the Company and AffaMed to coordinate and review the development, manufacturing and commercialization plans with respect to PH94B in the Territory. Unless earlier terminated due to certain material breaches of the contract, or otherwise, the AffaMed Agreement will expire on a jurisdiction-by-jurisdiction basis until the latest to occur of expiration of the last valid claim under a licensed patent of fasedienol in such jurisdiction, the expiration of regulatory exclusivity in such jurisdiction or ten years after the first commercial sale of fasedienol in such jurisdiction.
Manufacturing and Supply
Manufacturing of the drug substance and drug product for our product candidates is performed by CMOs who must comply with current good manufacturing practice (cGMP) regulations. Our product candidates are comprised of synthetic small molecules that are manufactured through a series of organic chemistry steps starting with commercially available organic chemical raw materials. We do not currently own or operate, nor do we plan to own or operate, manufacturing facilities for the production of our drug substance and drug product candidates for nonclinical, clinical or commercial use. We conduct manufacturing and analytical testing activities under individual project work orders with independent CMOs to supply all of our nonclinical and clinical trial needs. We conduct periodic quality audits of each of the CMO’s facilities to ensure that they are fully compliant with cGMPs. We believe that all of our existing CMOs are, or will be, capable of providing sufficient quantities of both drug substance and drug product to meet our nonclinical and clinical development needs. New CMOs may be added to our supply chain strategy in the future to ensure that our nonclinical, clinical and, subject to NDA approval, commercial manufacturing and testing needs are met.
By design, we do not currently have any fixed contractual arrangements in place with any CMOs, for either long-term supply or redundant supply, of drug substance or drug product for our drug product candidates. If our product candidates are approved for commercial distribution, we intend to execute long-term commercial supply agreement(s) with our CMOs to produce our future commercial supplies on our behalf. We plan to mitigate potential commercial supply risks for any products that are approved in the future through inventory management and through exploring additional back-up manufacturers, both in the U.S. and outside the U.S., to provide drug substance and/or drug product.
Competition
Our industry is highly competitive and subject to rapid and significant technological change. The large size and expanding scope of the CNS markets, especially the high unmet need in large and growing global markets for anxiety and depression disorders, make them attractive therapeutic areas for biopharmaceutical businesses. While we believe that our employees and consultants, scientific knowledge, technology, and development experience provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical, and biotechnology companies, academic institutions and governmental agencies, and public and private research institutions. Several of these entities have robust drug pipelines, readily available capital, and large and established research and development and commercial organizations. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Small or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, tolerability, convenience, price, the level of branded and generic competition, and the availability of reimbursement from government and other third‐party payers.
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Currently there is no FDA-approved acute treatment of anxiety for adults with SAD with the proposed mechanism of action of fasedienol, and we are aware of no company developing a potential treatment of anxiety for adults with SAD that is a nasal spray and involves the same mechanism of pharmacological action as fasedienol. We are aware of several companies that are developing therapies targeting acute treatment in the SAD market, including, among others, Bionomics, Vanda Pharmaceuticals, and Receptor Life Sciences, Ananda Scientific, EmpowerPharm and PureTech. In addition, we may face competition to fasedienol for treatment of anxiety in adult and adolescent patients with SAD from generic antidepressants as well as off-label use of generic benzodiazepines and generic beta blockers even though no drug in either of such generic drug classes has been systematically developed for treatment of SAD and thus no drug in either of such generic drug classes has been FDA-approved for the treatment of anxiety in adults with SAD. Although there are three oral antidepressants approved by the FDA for the treatment of SAD, such drugs do not achieve rapid-onset therapeutic effects and are associated with undesirable side effects. Cognitive behavioral therapy is also an important treatment approach to SAD that may be used along with or instead of pharmacological treatments, including antidepressants, benzodiazepines, beta blockers, fasedienol and other drug candidates in clinical development.
Patients with MDD are typically treated with a variety of oral antidepressant medications or oral atypical antipsychotics. These treatments often include generic antidepressants such as: fluoxetine (Prozac), previously marketed by Eli Lilly and Company; sertraline (Zoloft) and venlaxafine (Effexor), both previously marketed by Pfizer, Inc.; and paroxetine (Paxil) and bupropion (Wellbutrin), both previously marketed by GlaxoSmithKline (now GSK). Treatments may also include currently marketed proprietary branded medications indicated for MDD such as: Trintellix, which is marketed by Takeda Pharmaceuticals America, Inc and H. Lundbeck A/S; Viibryd and Vraylar, which are marketed by Abbvie; and Rexulti which is marketed by Otsuka America. Although currently there are no FDA-approved therapies for MDD with the mechanism of pharmacological action of itruvone, we are aware of numerous companies that are developing and commercializing therapies targeting the MDD market, including, among others, Axsome Therapeutics, Sage Therapeutics, Relmada Therapeutics, Xenon, Intra-Cellular Therapies, Johnson & Johnson, Usona Institute, Boehringer Ingelheim, and Sirtsei Pharmaceuticals. Additionally, with respect to MDD, we expect that PH10 and AV-101 will have to compete with a variety of non-pharmacological alternatives for treatment of MDD, such as psychotherapy and electroconvulsive therapy.
We are still assessing our competition for PH80 for the treatment of hot flashes due to menopause and for migraine headaches, PH15 to improve cognitive impairment and PH284 for the loss of appetite.
Government Regulation and Product Approval
Government authorities in the U.S., at the federal, state, and local level, and in other countries and supranational regions, extensively regulate, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import, and export of pharmaceutical products such as those we are developing. In addition, healthcare regulatory bodies in the United States and around the world impose a range of requirements related to the payment for pharmaceutical products, including laws intended to prevent fraud, waste, and abuse of healthcare dollars. This includes, for example, requirements that manufacturers of pharmaceutical products participating in Medicaid and Medicare comply with mandatory price reporting, discount, rebate requirements, and other cost control measures, as well as anti-kickback laws and laws prohibiting false claims. Some states also have enacted fraud, waste, and abuse laws that parallel (and in some cases apply more broadly than) federal laws, and in some cases price transparency requirements. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources. Further, healthcare is an active area of governmental scrutiny, and it is reasonable to expect that the requirements may become more stringent within the foreseeable future.
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FDA Regulation
In the U.S., the FDA regulates drugs under the FDCA and its implementing regulations. The process required by the FDA before product candidates may be marketed in the U.S. generally involves the following:
● compilation of required information and submission to the FDA of an NDA;
● satisfactory completion of an FDA advisory committee review, if applicable;
Preclinical Studies and IND Submission
The testing and approval process of product candidates requires substantial time, effort, and financial resources. Preclinical studies include laboratory evaluation of drug substance chemistry, pharmacology, toxicity, and drug product formulation, as well as animal studies to assess potential safety and efficacy. Such studies must generally be conducted in accordance with the FDA’s GLP regulations. Prior to commencing the first clinical trial with a product candidate, an IND sponsor must submit the results of the preclinical tests and preclinical literature, together with manufacturing information, analytical data, any available clinical data or literature, and proposed clinical study protocols, among other things, to the FDA as part of an IND.
An IND becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30‐day time period, notifies the applicant of safety and/or product quality concerns or questions related to one or more proposed clinical trials and places the trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during trials due to safety concerns or noncompliance. As a result, submission of an IND may not result in FDA authorization to commence a clinical trial.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirements that all research subjects provide their informed consent in writing for their participation in any clinical trial, as well as review and approval of the study by an IRB. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to make certain financial disclosures to the FDA. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trial procedures, the parameters to be used in monitoring safety, the effectiveness criteria to be evaluated, and a statistical analysis plan. A protocol for each clinical trial, and any subsequent protocol amendments, must be submitted to the FDA as part of the IND. In addition, an IRB at each study site participating in the clinical trial or a central IRB must review and approve the plan for any clinical trial, informed consent forms, and communications to study subjects before a study commences at that site. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits and whether the planned human subject protections are adequate. The IRB must continue to oversee the clinical trial while it is being conducted.
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Once an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted for FDA review, and to the IRB for approval. Progress reports detailing the results of the clinical trials must also be submitted at least annually to the FDA and the IRB and more frequently if serious adverse events or other significant safety information is found.
Information about certain clinical trials, including a description of the study and study results, must be submitted within specific timeframes to the NIH for public dissemination on their clinicaltrials.gov website.
Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group regularly reviews accumulated data and advises the study sponsor regarding the continuing safety of trial subjects, enrollment of potential trial subjects, and the continuing validity and scientific merit of the clinical trial. The data safety monitoring board receives special access to unblinded data during the clinical trial and may advise the sponsor to halt the clinical trial if it determines there is an unacceptable safety risk for subjects or on other grounds, such as no demonstration of efficacy.
The manufacture of investigational drugs for the conduct of human clinical trials (and their active pharmaceutical ingredients) is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into the U.S. are also subject to regulation by the FDA relating to their labeling and distribution. Further, the export of investigational drug products outside of the United States is subject to regulatory requirements of the receiving country as well as U.S. export requirements under the FDCA.
In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases, which may overlap or be combined.
The FDA may also require, or companies may conduct, additional clinical trials for the same indication after a product is approved. These so-called Phase 4 studies may be required by the FDA as a condition of approval of the NDA, to be satisfied after approval. The results of Phase 4 studies can confirm the effectiveness of a product candidate and can provide important safety information. In addition to the above traditional kinds of clinical trial data required for the approval of an NDA, the 21st Century Cures Act provides for potential FDA use of different types and sources of data in regulatory decision-making, such as patient experience data, real-world evidence for already approved products, and, for appropriate indications sought through supplemental marketing applications. Implementation of this law and related initiatives is still in progress and we do not know the extent to which we may in the future be able to utilize these types and sources of data. In the case of a 505(b)(2) NDA, which is a marketing application in which sponsors may rely on investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted, some of the above described studies and preclinical studies may not be required or may be abbreviated. Bridging studies may be needed, however, to demonstrate the applicability of the studies that were previously conducted by other sponsors to the drug that is the subject of the marketing application.
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Clinical trials at any phase may not be completed successfully within any specified period, or at all. Regulatory authorities, an IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk, the clinical trial is not being conducted in accordance with the FDA’s or the IRB’s requirements, if the drug has been associated with unexpected serious harm to the subjects, or based on evolving business objectives or competitive climate.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, potency, and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
During the development of a new drug, a sponsor may be able to request a Special Protocol Assessment (SPA) the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim as well as preclinical carcinogenicity trials and stability studies. An SPA may only be modified with the agreement of the FDA and the trial sponsor or if the director of the FDA reviewing division determines that a substantial scientific issue essential to determining the safety or efficacy of the drug was identified after the testing began. An SPA is intended to provide assurance that, in the case of clinical trials, if the agreed‐upon clinical trial protocol is followed, the clinical trial endpoints are achieved, and there is a favorable risk‐benefit profile, the data may serve as the primary basis for an efficacy claim in support of an NDA. However, SPA agreements are not a guarantee of an approval of a product candidate or any permissible claims about the product candidate. In particular, SPAs are not binding on the FDA if, among other reasons, previously unrecognized public health concerns arise during the performance of the clinical trial, other new scientific concerns regarding the product candidate’s safety or efficacy arise, or if the sponsoring company fails to comply with the agreed upon clinical trial protocol.
NDA Submission, Review by the FDA, and Marketing Approval
Assuming successful completion of the required clinical and preclinical testing, the results of product development, including chemistry, manufacturing, and control (CMC) information, non-clinical studies, and clinical trial results, including negative or ambiguous results as well as positive findings, are all submitted to the FDA, along with the proposed labeling, as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee, authorized every five years by Congress under the Prescription Drug User Fee Act (PDUFA). User fees must be paid at the time of the first submission of the application, even if the application is being submitted on a rolling basis, and if approved, program fees must be paid on an annual basis. Product candidates that are designated as orphan drugs, which are further described below, are not subject to application user fees unless the application includes an indication other than the orphan indication.
In addition, under the Pediatric Research Equity Act (PREA) an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen, or route of administration must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. A sponsor who is planning to submit a marketing application for a drug product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration must submit an initial Pediatric Study Plan (PSP) within 60 days of an End-of-Phase 2 meeting or as may be agreed between the sponsor and the FDA. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical studies or other clinical development programs. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.
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The FDA may require submission of a risk evaluation and mitigation strategy (REMS) to ensure that the benefits of the drug outweigh the risks of the drug. The REMS plan could include medication guides, physician communication plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools. An assessment of the REMS must also be conducted at set intervals. Following product approval, a REMS may also be required by the FDA if new safety information is discovered and the FDA determines that a REMS is necessary to ensure that the benefits of the drug continue to outweigh the risks of the drug.
Once the FDA receives an NDA, it will determine within 60 days whether the application as filed is sufficiently complete to permit a substantive review (with this decision often referred to as the NDA being “accepted for filing.”). If the FDA determines that the NDA is not sufficiently complete to permit a substantive review, the application must be resubmitted with additional information requested by the FDA. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in‐depth substantive review of the NDA.
The FDA has agreed to a set of performance goals and procedures under PDUFA to review 90% of all applications within ten months from the 60-day filing date for its initial review of a standard NDA for a New Molecular Entity (NME). For non-NME standard applications, the FDA has set the goal of completing its review of 90% of all applications within ten months from the submission receipt date. Such deadlines are referred to as the PDUFA date. The PDUFA date is only a goal, thus, the FDA does not always meet its PDUFA goal dates. The review process and the PDUFA goal date may also be extended if the FDA requests, or the NDA sponsor otherwise provides, substantial additional information or clarification regarding the submission.
The FDA may refer an application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved, and applications for new molecular entities are generally discussed at advisory committee meetings unless the FDA determines that this type of consultation is not needed under the circumstances.
An advisory committee is typically a panel that includes clinicians and other experts, which review, evaluate, and make a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions and typically follows such recommendations.
The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether the manufacturing methods and controls are adequate to assure and preserve the product’s identity, strength, quality, safety, potency, and purity. Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured, referred to as a Pre‐Approval Inspection. The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and subcontractors, are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA the FDA will inspect one or more clinical trial sites to assure compliance with GCPs.
The approval process is lengthy and difficult, and involves numerous FDA personnel assigned to review different aspects of the NDA, and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional preclinical, CMC, or other data and information. Uncertainties can be presented by reviewers’ ability to exercise judgment and discretion during the review process. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than an applicant interprets the same data.
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After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a Complete Response Letter (CRL). If a CRL is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter; withdraw the application; or request an opportunity for a hearing. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval in its current form and describes all of the specific deficiencies that the FDA identified in the NDA. A CRL generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. The deficiencies identified may be minor, for example, requiring labeling changes; or major, for example, requiring additional clinical trials. The FDA has the goal of reviewing 90% of application and efficacy supplement resubmissions in either two or six months (from receipt) for a Class 1 or Class 2 resubmission, respectively. For non-efficacy supplements (i.e., labeling and manufacturing supplements), FDA’s goal is to review the supplement within the same length of time (from receipt) as the initial review cycle (excluding an extension caused by a major amendment of the initial supplement).
Even with the submission of additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when the issues identified in a CRL have been addressed and resolved to the FDA’s satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the drug for specific indications and with specific prescribing information which was reviewed in connection with the NDA.
Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, including a boxed warning, require that post‐approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety and efficacy after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS which can materially affect the potential market and profitability of the product. The FDA may also not approve label statements that are necessary for successful commercialization and marketing.
After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval. The FDA may also withdraw the product approval if compliance with the pre‐ and post‐marketing regulatory standards are not maintained or if problems occur after the product reaches the marketplace. Further, should new safety information arise, additional testing, product labeling, or FDA notification may be required.
Types of Marketing Applications
Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A section 505(b)(2) NDA is an application in which the applicant, in part, relies on investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an Abbreviated New Drug Application (ANDA). An ANDA is an application for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics, and intended use, among other things, to a previously approved product. Limited changes must be pre‐approved by the FDA via a suitability petition. ANDAs are termed “abbreviated” because they are generally not required to include preclinical and clinical data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic version must deliver the same amount of active ingredients into a subject’s bloodstream in the same amount of time as the innovator drug and, under state substitution laws, may be substituted at the pharmacy for the reference listed drug.
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505(b)(2) Approval Process
Section 505(b)(2) of the FDCA, provides an alternate regulatory pathway to FDA approval for new or improved formulations or new uses of previously approved drug products. Specifically, Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch‐Waxman Act amendments, and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The applicant may rely, in part, upon the FDA’s prior findings of safety and effectiveness for an approved product that acts as the reference listed drug or on published scientific literature, in support of its application. The FDA may also require 505(b)(2) applicants to perform additional studies or measurements to support the changes from the reference listed drug as well as bridging studies to the reference listed drug. The FDA may then approve the new product candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
Orange Book Listing
In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to identify to the FDA patents that contain claims that are directed to the applicant’s product and/or method(s) of use. Upon approval of an NDA, each of the identified patents is then listed in Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book.
An applicant who files an ANDA seeking approval of a generic version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must make patent certifications to the FDA that (1) no patent information on the drug or method of use that is the subject of the application has been submitted to the FDA; (2) the patent has expired; (3) the date on which the patent has expired and approval will not be sought until after the patent expiration; or (4) in the applicant’s opinion and to the best of its knowledge, the patent is invalid, unenforceable, or will not be infringed upon by the manufacture, use, or sale of the drug product for which the application is submitted. The last certification is known as a paragraph IV certification. Generally, the ANDA or 505(b)(2) NDA approval cannot be made effective until all listed patents have expired, except where the ANDA or 505(b)(2) NDA applicant challenges a listed patent through a paragraph IV certification or if the applicant is not seeking approval of a patented method of use. If the applicant does not challenge the listed patents or does not indicate that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application approval will not be made effective until all of the listed patents claimed by the referenced product have expired.
If the competitor has provided a paragraph IV certification to the FDA, the competitor must also send notice of the paragraph IV certification to the holder of the NDA for the reference listed drug and the patent owner within 20 days after the application has been accepted for filing by the FDA. The NDA holder or patent owner may then initiate a patent infringement lawsuit in response to the notice of the paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a paragraph IV certification notice prevents the FDA from making the approval of the ANDA or 505(b)(2) application effective until the earlier of 30 months from the date of the lawsuit, expiration of the patent, settlement of the lawsuit, a decision in the infringement case that is favorable to the applicant or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the automatic 30‐month stay.
In practice, where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owners often take action to trigger the automatic 30‐month stay, resulting in patent litigation that may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) application could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug sponsor’s decision to initiate patent litigation.
Regulatory Exclusivity
Regulatory exclusivity provisions under the FDCA can also delay the submission or the approval effective date of certain applications. Regulatory exclusivity can provide the holder of an approved NDA protection from new competition in the marketplace for the innovation represented by its approved drug. Five years of exclusivity are available for NCEs. An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An active moiety is the molecule or ion excluding those appended portions of the molecule that cause the drug to be an ester, salt, including a salt with hydrogen or coordination bonds, or other noncovalent derivatives, such as a complex, chelate, or clathrate, of the molecule, responsible for the therapeutic activity of the drug substance. During the NCE exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA application by another company that contains the previously approved active moiety. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a paragraph IV certification is filed.
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Three years of exclusivity are available to the holder of an NDA, including a 505(b)(2) NDA, for a particular condition of approval, or change to a marketed product, such as a new formulation or indication for a drug product that contains an active moiety that has been previously approved, when the application contains reports of new clinical investigations, other than bioavailability studies, conducted by the sponsor that were essential to approval of the application. Changes in an approved drug product that affect its active ingredient(s), strength, dosage form, route of administration or conditions of use may be granted this exclusivity if a new clinical investigation (NCI) was essential to approval of the application containing those changes. During the NCI exclusivity period, FDA may not approve an ANDA or 505(b)(2) NDA by another company for the condition of the new drug’s approval. NCE and NCI exclusivities will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well‐controlled clinical trials necessary to demonstrate safety and efficacy.
Pediatric exclusivity is a regulatory exclusivity in the United States that provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory and statutory exclusivity, including the non‐patent exclusivity periods described above as well as applicable patent terms. This six‐month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the required time frames, whatever statutory or regulatory periods of exclusivity or Orange Book listed patent protection cover the drug are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot make an ANDA or 505(b)(2) application approval effective as a result of regulatory exclusivity or listed patents. Moreover, pediatric exclusivity attaches to all formulations, dosage forms, and indications for products with existing marketing exclusivity or patent life that contain the same active moiety as that which was studied.
The Orphan Drug Act provides incentives for the development of drugs intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals annually in the United States, or affecting more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making the drug available in the United States will be recovered from United States sales. If a product receives FDA approval for the indication for which it has orphan designation, the product is generally entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug designation also entitles a party to financial incentives such as opportunities for grant funding towards clinical study costs, tax advantages, and application user‐fee waivers.
Special FDA Expedited Review and Approval Programs
The FDA has various programs, including Fast Track designation, Priority Review and Breakthrough designation, that are intended to expedite or simplify the process for the development and FDA review of certain drug products that are intended for the treatment of serious or life-threatening diseases or conditions, and demonstrate the potential to address unmet medical needs or present a significant improvement over existing therapy. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.
To be eligible for a Fast Track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if the product will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy, safety, or public health factors. If Fast Track designation is granted, drug sponsors may be eligible for more frequent development meetings and correspondence with the FDA.
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In addition, if an applicant obtains “rolling review,” the FDA may accept and initiate review of sections of an NDA before the application submission is complete, although it is not guaranteed that FDA will commence review before the application submission is complete, and the timing of the review depends on a number of factors including availability of review personnel at the FDA, and competing agency priorities among other things. The applicant must provide, and the FDA must agree to, a schedule for the remaining information after the initial section of the NDA.
In some cases, a Fast Track designated product may be eligible for Accelerated Approval or Priority Review.
The FDA may grant an NDA Priority Review designation for drugs that are intended to treat serious conditions and, if approved, would provide significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions. A Priority Review designation means that the goal for the FDA is to review an NDA within six months of receipt, rather than the standard review of ten months under current PDUFA guidelines, of the 60‐day filing date for NMEs and within six months of the submission receipt date for non‐NMEs. Products that are eligible for Fast Track designation may also be considered appropriate to receive a Priority Review.
Moreover, under the provisions of the Food and Drug Administration Safety and Innovation Act (FDASIA) enacted in 2012, a sponsor may request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life‐threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are eligible for the Fast Track designation features as described above, intensive guidance on an efficient drug development program beginning as early as Phase 1 trials, and a commitment from the FDA to involve senior managers and experienced review staff in a proactive collaborative, cross‐disciplinary review.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Post‐approval Requirements
Any product manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, as well as other federal and state agencies, including, among other things, requirements related to manufacturing, recordkeeping, and reporting, including adverse experience reporting, drug shortage reporting, and other periodic reporting; drug supply chain security surveillance and tracking requirements; product sampling and distribution; advertising; marketing; promotion; certain electronic records and signatures; licensure in certain states for the manufacturing and distribution of drug products; and post-approval obligations imposed as a condition of approval, such as additional clinical trials, REMS, and surveillance to assess safety and effectiveness after commercialization.
After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There are also continuing annual prescription drug program user fee requirements for any approved products. In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and list their drug products, and are subject to periodic announced and unannounced inspections by the FDA and these state agencies for compliance with cGMP and other requirements, which impose certain procedural and documentation requirements upon the company and third‐party manufacturers.
Changes to the manufacturing process are strictly regulated and often require prior FDA approval or notification before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and product specifications and impose reporting and documentation requirements upon the sponsor and any third‐party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
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The FDA also strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. A company can make only those claims relating to safety and efficacy, purity, and potency that are approved by the FDA. Physicians, in their independent professional medical judgment, may prescribe legally available products for unapproved indications that are not described in the product’s labeling and that differ from those tested and approved by the FDA. Pharmaceutical companies, however, are required to promote their drug products only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off‐label uses, and a company that is found to have improperly promoted off‐label uses may be subject to significant liability, including, but not limited to, criminal and civil penalties under the FDCA and False Claims Act, exclusion from participation in federal healthcare programs, mandatory compliance programs under corporate integrity agreements, debarment, and refusal of government contracts. Recent court decisions have impacted the FDA’s enforcement activity regarding off-label promotion in light of First Amendment considerations; however, there are still significant risks in this area in part due to the potential False Claims Act exposure. Further, the FDA has not materially changed its position on off-label promotion following legal setbacks on First Amendment grounds and the Department of Justice has consistently asserted in FCA briefings that “speech that serves as a conduit for violations of the law is not constitutionally protected.”
The Drug Supply Chain Security Act (DSCSA) imposes obligations on manufacturers of prescription biopharmaceutical products for commercial distribution, regulating the distribution of the products at the federal level, and sets certain standards for federal or state registration and compliance of entities in the supply chain (manufacturers and repackagers, wholesale distributors, third-party logistics providers, and dispensers). The DSCSA preempts certain previously enacted state pedigree laws and the pedigree requirements of the Prescription Drug Marketing Act (PDMA). Trading partners within the drug supply chain must now ensure certain product tracing requirements are met that they are doing business with other authorized trading partners; and they are required to exchange transaction information, transaction history, and transaction statements. Further, the DSCSA limits the distribution of prescription pharmaceutical products and imposes requirements to ensure overall accountability and security in the drug supply chain. Product identifier information (an aspect of the product tracing scheme) is also now required. The DSCSA requirements, development of standards, and the system for product tracing have been and will continue to be phased in over a period of years through 2023, and subject companies will need to continue their implementation efforts. Many states still have in place licensure and other requirements for manufacturers and distributors of drug products. The distribution of product samples continues to be regulated under the PDMA, and some states also impose regulations on drug sample distribution.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in significant regulatory actions. Such actions may include refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, modification of promotional materials or labeling, provision of corrective information, imposition of post‐market requirements including the need for additional testing, imposition of distribution or other restrictions under a REMS, product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements, debarment from receiving government contracts and new orders under existing contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties including fines and imprisonment, and may result in adverse publicity, among other adverse consequences.
Fraud and Abuse, and Transparency Laws and Regulations
Following product approval, our business activities, including but not limited to research, sales, promotion, marketing, distribution, medical education, sponsorships, relationships with prescribers and other referral sources, and other activities will be subject to regulation by numerous federal and state regulatory and law enforcement authorities in the United States in addition to the FDA, including potentially the Department of Justice, the Department of Health and Human Services and its various divisions, including the Centers for Medicare & Medicaid Services (CMS), the Office of Inspector General (OIG), and the Health Resources and Services Administration (HRSA), the Department of Veterans Affairs (VA), the Department of Defense (DOD), and certain state and local governments. Our business activities must comply with numerous healthcare laws, including but not limited to, anti‐kickback and false claims laws and regulations as well as data privacy and security laws and regulations, which are described below.
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The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, furnishing, or order of any item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs, in whole or in part. The term “remuneration” has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary managers, and beneficiaries on the other. There are certain 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 that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor, however, does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances to determine whether one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business. The Patient Protection and Affordable Care Act (ACA) of 2010, as amended, modified the intent requirement under the Anti-Kickback Statute to a stricter standard, such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. The ACA further amended the federal civil False Claims Act to provide that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. Therefore, either the federal government or private citizens under the False Claims Act’s qui tam provisions (discussed further below) can bring an action under the False Claims Act for violations of the Anti-Kickback Statute, potentially exposing an alleged violator to substantial monetary damages and penalties. Certain Anti-Kickback safe harbor provisions that protect the rebates paid by drug manufacturers to third parties may also be repealed or materially revised.
The government has asserted False Claims Act liability against manufacturers by alleging that improper arrangements with ordering physicians caused them or another provider to file false claims in violation of the False Claims Act or that manufacturers’ support of patient assistance programs improperly induced beneficiaries to choose their products in violation of the Anti-Kickback Statute. Sales, marketing and business arrangements in the healthcare industry are also subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, patient assistance programs, and other business arrangements. Medicare Advantage and Medicaid managed care plan regulations prohibit certain forms of marketing to enrollees that are designed to discriminate against beneficiaries on the basis of their health conditions or history. These regulations may require regulatory review of marketing materials, and coordination with health plan or governmental regulators. Additionally, the federal government has pursued electronic health record (EHR) vendors and pharmaceutical manufacturers for remunerative relationships involving the EHR platform’s recommendation of particular drugs and “prompting” technology to increase prescribing of particular drugs.
The ACA further created new federal requirements for reporting under the Physician Payments Sunshine Act (the Sunshine Act) by applicable manufacturers of covered drugs, payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members. 2018 legislation extended the Sunshine Act to cover payments and transfers of value to physician assistants, nurse practitioners, and other mid-level practitioners (with reporting requirements going into effect in 2022 for payments and transfers of value made in 2021).
The Federal Civil False Claims Act (FCA) prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or avoiding, decreasing, or concealing an obligation to pay money to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. The civil FCA has been used to assert liability on the basis of kickbacks and other improper referrals, improperly reported government pricing metrics such as Best Price or Average Manufacturer Price, or submission of inaccurate information required by government contracts, improper use of Medicare provider or supplier numbers when detailing a provider of services, improper promotion of off-label uses not expressly approved by the FDA in a drug’s label, and allegations as to misrepresentations with respect to the products supplied or services rendered. Several pharmaceutical and other healthcare companies have further been sued under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Intent to deceive is not required to establish liability under the civil FCA; however, a November 2017 Department of Justice memorandum now prohibits the use of subregulatory guidance documents to impose new or more stringent requirements on entities outside the Executive Branch of the federal government. Because the Department has experienced recent administration changes, it is unclear whether the new Attorney General will continue this policy. Civil FCA actions may be brought by the government or may be brought by private individuals on behalf of the government, called “qui tam” actions. If the government decides to intervene in a qui tam action and prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If the government declines to intervene, the individual may pursue the case alone, subject to governmental review and certain approvals. Qui tam complaints are filed under seal, and the cases may progress for a number of years before a complaint is unsealed and a manufacturer becomes aware of its existence. Since 2004, these FCA lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements, as much as $3.0 billion, regarding certain sales practices and promoting off-label drug uses. For example, civil FCA liability may be imposed for Medicare or Medicaid overpayments arising out of claims that were filed by providers but alleged to have been caused by manufacturers’ incentives, impermissible discounts, or overpayments caused by understated rebate amounts. FCA enforcement may also arise from claims filed as the result of manufacturing marketing materials that contained inaccurate statements or provided certain reimbursement guidance.
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The government may further prosecute conduct constituting a false claim under the criminal FCA. The criminal FCA prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious, or fraudulent and, unlike the civil FCA, requires proof of intent to submit a false claim.
Similarly, the criminal healthcare fraud statutes impose criminal liability for, among other things, knowingly and willfully attempting or executing a scheme to defraud any healthcare benefit program, including private third-party payers, obtaining money or property of a benefit program by false or fraudulent means, or falsifying, concealing, or covering up a material fact or submitting a materially false statement in connection with the delivery of, or payment from healthcare benefits, items, or services. These statutes are not limited to items and services reimbursed by a governmental health care program and have been used to prosecute commercial insurance fraud as well.
The civil monetary penalties statute is another potential statute under which biopharmaceutical companies may be subject to enforcement. Among other things, the civil monetary penalties statue imposes fines against any person who is determined to have presented, or caused to be presented, claims to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is false or fraudulent.
The exclusion statute requires the exclusion of entities and individuals who have been convicted of federal- program related crimes or health care felony fraud or controlled substance charges. The statute also permits the exclusion of those that have been convicted of any form of fraud, the anti-kickback statute, for obstructing an investigation or audit, misdemeanor controlled substance charges, those whose health care license has been revoked or suspended, and those who have filed claims for excessive charges or unnecessary services. If a company were to be excluded, its products would be ineligible for reimbursement from any federal programs, including Medicare and Medicaid, and no other entity participating in those programs would be permitted to enter into contracts with the company. Further, employment or contracting with an individual or entity that has been excluded from participation in federal healthcare programs could serve as a basis to invalidate claims for items or services submitted by that entity and to exclude that entity from participation in such programs as well. In order to preserve access to beneficial drugs, the government may elect to exclude officers and key employees of manufacturers, rather than excluding the organization. Such enforcement actions would prohibit the Company from engaging those individuals, which could adversely affect operations, and could result in significant reputational harm.
Payment or reimbursement of prescription drugs by Medicaid or Medicare requires manufacturers of the drugs to submit pricing information to CMS. The Medicaid Drug Rebate statute requires manufacturers to calculate and report price points, which are used to determine Medicaid rebate payments shared between the states and the federal government and Medicaid payment rates for certain drugs. For drugs paid under Medicare Part B, manufacturers must also calculate and report their Average Sales Price, which is used to determine the Medicare Part B payment rate for the drug. Drugs that are approved under a Biologic License Application (BLA) or an NDA, including 505(b)(2) drugs, are subject to an additional inflation penalty which can substantially increase rebate payments. In addition, for BLA and NDA drugs, the Veterans Health Care Act (VHCA) requires manufacturers to calculate and report to the VA a different price called the Non‐Federal Average Manufacturing Price, which is used to determine the maximum price that can be charged to certain federal agencies, referred to as the Federal Ceiling Price, or FCP. Like the Medicaid rebate amount, the FCP includes an inflation penalty. A Department of Defense regulation requires manufacturers to provide this discount through prescription rebates on drugs dispensed by retail pharmacies when paid by the TRICARE Program. All of these price reporting requirements create a risk of submitting false information to the government resulting in potential FCA liability.
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The VHCA also requires manufacturers of covered drugs participating in the Medicaid program to enter into Federal Supply Schedule contracts with the VA through which their covered drugs must be sold to certain federal agencies at FCP and to report pricing information. This necessitates compliance with applicable federal procurement laws and regulations and subjects us to contractual remedies as well as administrative, civil, and criminal sanctions. In addition, the VHCA requires manufacturers participating in Medicaid to agree to provide different mandatory discounts to certain Public Health Service grantees and other safety net hospitals and clinics under the 340B Drug Pricing Program and report the ceiling price to the HRSA within Department of Health and Human Services. Manufacturers can be audited by the HRSA and be subjected to civil monetary penalties for knowingly and intentionally overcharging covered entities for drugs.
The federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) also created federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, a healthcare benefit program, regardless of whether the payer is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items, or services relating to healthcare matters. The ACA, as amended, modified the intent requirement under the certain portions of these federal criminal statutes such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it.
Further, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) and its respective implementing regulations, extended certain requirements relating to the privacy, security, and transmission of individually identifiable health information directly to business associates of HIPAA-covered entities. A business associate is defined as a person or organization, other than a member of a covered entity’s workforce, that performs certain functions or activities that involve the use or disclosure of protected health information on behalf of, or provides services to, a covered entity. We are not a covered entity under HIPAA but in certain limited situations, we may be considered a business associate. HITECH also strengthened the civil and criminal penalties that may be imposed against covered entities, business associates, and individuals, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, other federal and state laws may govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Even for entities that are not deemed “covered entities” or “business associates” under HIPAA, according to the United States Federal Trade Commission (FTC) failing to take appropriate steps to keep consumers' personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act (FTCA) 15 USC § 45(a). The FTC expects a company's data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Medical data is considered sensitive data that merits stronger safeguards. The FTC's guidance for appropriately securing consumers' personal information is similar to what is required by the HIPAA Security Rule. The FTC’s authority under Section 5 is concurrent with HIPAA’s jurisdiction and with any action taken under state law.
In addition, other federal and state laws may govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. For example, California recently enacted legislation – the California Consumer Privacy Act (CCPA) was made effective January 1, 2020. The CCPA, among other things, created new data privacy obligations for covered companies and provided new privacy rights to California residents, including the right to opt out of certain disclosures of their information. The CCPA also created a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. The California Attorney General may issue clarifying regulations. Although the law includes limited exceptions, including for certain information collected as part of clinical trials as specified in the law, it may regulate or impact our processing of personal information depending on the context, and it remains unclear what language the final Attorney General regulations will contain or how the statute and the regulations will be interpreted.
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Many states have also adopted laws similar to each of the above federal laws, which may be broader in scope and apply to items or services reimbursed by any third‐party payer, including commercial insurers, and some have transparency laws that require reporting price increases and related information. Certain state laws also regulate manufacturers’ use of prescriber‐identifiable data. Certain states also require implementation of commercial compliance programs and compliance with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments or the provision of other items of value that may be made to healthcare providers and other potential referral sources; impose restrictions on marketing practices; or require drug manufacturers to track and report information related to payments, gifts, and other items of value to physicians and other healthcare providers. These laws may affect our future sales, marketing, and other promotional activities by imposing administrative and compliance burdens.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that certain business activities could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between pharmaceutical companies and providers and patients, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring that business arrangements with third parties comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert management’s attention from the business, even if investigators ultimately find that no violation has occurred.
If our operations are found to be in violation of any of the laws or regulations described above or any other laws that apply to us, we may be subject penalties or other enforcement actions, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, corporate integrity agreements, debarment from receiving government contracts or refusal of new orders under existing contracts, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post‐marketing requirements, including safety surveillance, anti‐fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Coverage and Reimbursement Generally
The commercial success of our product candidates will depend in part on the extent to which governmental payer programs at the federal and state levels, including Medicare and Medicaid, private health insurers, and other third‐party payers provide coverage for and establish adequate reimbursement levels for our product candidates. Government authorities, private health insurers, and other organizations generally decide which drugs they will pay for and establish reimbursement levels and potential access restrictions. Medicare is a federally funded program managed by the Centers for Medicare and Medicaid Services (CMS) through local contractors that administer coverage and reimbursement for certain healthcare items and services furnished to the elderly and disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state‐defined levels and who are otherwise uninsured that is both federally and state funded and managed by each state. The federal government sets general guidelines for Medicaid and each state creates specific regulations that govern its individual program, including supplemental rebate programs that prioritize coverage for drugs on the state Preferred Drug List. Similarly, government laws and regulations establish the parameters for coverage of prescription drugs by TRICARE, the health care program for military personnel, retirees, and related beneficiaries. Many states have also created pharmacy assistance programs for individuals who do not qualify for federal programs. In the United States, private health insurers and other third‐party payers often provide reimbursement for products and services based on the level at which the government provides reimbursement through the Medicare or Medicaid programs for such products and services.
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In the U.S. and other potentially significant markets for our product candidates, government authorities and third‐party payers are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which often has resulted in average selling prices lower than they would otherwise be. For example, in the U.S., federal and state governments reimburse covered prescription drugs at varying rates generally below average wholesale price. Governmental and private payers may also establish certain access restrictions, such as prior approvals or evidence of failure on existing medications or therapies.
These restrictions and limitations influence the purchase of healthcare services and products. Third‐party payers are developing increasingly sophisticated methods of controlling healthcare costs. Third‐party payers may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA‐approved drug products for a particular indication. Third‐party payers also control costs by requiring prior authorization or imposing other dispensing restrictions before covering certain products and by broadening therapeutic classes to increase competition. Third‐party payers are increasingly challenging the price and examining the medical necessity and cost‐effectiveness of medical products and services, in addition to their safety and efficacy. Absent clinical differentiators, third‐party payers may treat products as therapeutically equivalent and base formulary decisions on net cost. To lower the prescription cost, manufacturers frequently rebate a portion of the prescription price to the third‐party payers.
Federal programs also impose price controls through mandatory ceiling prices on purchases by federal agencies and federally funded hospitals and clinics and mandatory rebates on retail pharmacy prescriptions paid by Medicaid and TRICARE. These restrictions and limitations influence the purchase of healthcare services and products. Legislative proposals to reform healthcare or reduce costs under government programs may result in lower reimbursement for our product candidates or exclusion of our product candidates from coverage. In addition, government programs like Medicaid include substantial penalties for increasing commercial prices over the rate of inflation which can affect realization and return on investment.
Private payers often rely on the lead of the governmental payers in rendering coverage and reimbursement determinations. Therefore, achieving favorable CMS coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. In addition, many government programs as a condition of participation mandate fixed discounts or rebates from manufacturers regardless of formulary position or utilization, and then rely on competition in the market to attain further price reductions, which can greatly reduce realization on the sale.
Further, the increased emphasis on managed healthcare in the U.S. and on country and regional pricing and reimbursement controls in the European Union will put additional pressure on product pricing, reimbursement, and utilization, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups and health technology assessment bodies, competition within therapeutic classes, availability of generic equivalents, judicial decisions and governmental laws and regulations related to Medicare, Medicaid, and healthcare reform, pharmaceutical coverage and reimbursement policies, and pricing in general. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third‐party payers to reimburse all or part of the associated healthcare costs. Sales of our product candidates will therefore depend substantially, both domestically and abroad, on the extent to which the costs of our products will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, such as Medicare and Medicaid, private health insurers, and other third‐party payers.
As a result of the above, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost‐effectiveness of our products, in addition to the costs required to obtain the FDA and other comparable foreign regulatory authority approvals. Our product candidates may not be considered medically necessary or cost‐effective, or the rebate percentages required to secure coverage may not yield an adequate margin over cost.
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There is often pressure to renegotiate pricing and reimbursement levels, including, in particular, in connection with changes to Medicare. Third-party payers continue to demand discounted fee structures, and the trend toward consolidation among third-party payers tends to increase their bargaining power over price structures. If third-party payers reduce their rates for our products, then our revenue and profitability may decline and our operating margins will be reduced. Because some third-party payers rely on all or portions of Medicare payment systems to determine payment rates, changes to government healthcare programs that reduce payments under these programs may negatively impact payments from third-party payers. Our inability to maintain suitable financial arrangements with third-party payers could have a material adverse impact on our business. Additionally, the reimbursement process is complex and can involve lengthy delays. Third‐party payers may disallow, in whole or in part, providers’ requests for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, that the drugs provided were not medically necessary, or that additional supporting documentation is necessary. Retroactive adjustments may change amounts realized from third‐party payers. Delays and uncertainties in the reimbursement process may adversely affect market acceptance and utilization of our products, resulting in reduced revenues. The unavailability or inadequacy of third-party coverage and reimbursement could negatively affect the market acceptance of our products and the future revenues we may expect to receive from those products. 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 enacted in the future, or what effect such legislation or regulation would have on our business. Many hospitals implement a controlled and defined process for developing and approving formularies. Any marketing efforts that are determined to have violated such policies could result in the denial or removal of our products from that hospital’s formulary.