What changed in this filing

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Item 1. Business

2021-02-25 compared with 2020-02-25 · 216 added, 258 removed, 257 unchanged (65% of the section changed)

We are a physician-led biopharmaceutical company focused on immuno-inflammatory diseases.

We currently have a pipeline of drug candidates focused on immuno-inflammatory diseases, as well as one product approved by the U.S.

Food and Drug Administration, or FDA, that we are not currently distributing, marketing or selling, and other investigational drug candidates.

In September 2019, we announced the completion of a strategic review of our business, as a result of which we are refocusing our resources on our immuno-inflammatory development programs.

We plan to pursue strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our drug candidates and ESKATA (hydrogen peroxide) topical solution, 40% (w/w), or ESKATA, our non-marketed FDA-approved product.

We are a clinical-stage biopharmaceutical company focused on developing novel drug candidates for immuno-inflammatory diseases.

In addition to developing our novel drug candidates, we are pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our novel drug candidates.

Our Drug Candidates Currently in Development

Our pipeline of drug candidates that we are currently developing is summarized in the table below.

These investigational drugs were developed internally utilizing our proprietary KINect drug discovery platform.

Drug Candidate / Program

Route of Administration

Development Phase

Immuno-Inflammatory Diseases

MK2 inhibitor

rheumatoid arthritis

(moderate to severe)

additional immuno-inflammatory diseases

“soft” JAK 1/3 inhibitor

atopic dermatitis

(moderate to severe)

ITK/TXK/JAK3 inhibitor

inflammatory bowel disease

Undisclosed- Gut Restricted Program

JAK1/JAK3 inhibitor

inflammatory bowel disease

Undisclosed- Gut Restricted Program

ITK/TXK/JAK3 inhibitor

inflammatory bowel disease

* We are currently evaluating additional potential immuno-inflammatory indications which we expect to progress directly into Phase 2.

** This is an investigator-initiated trial sponsored by the University of Kansas Medical Center.

MK2 Inhibitors, JAK Inhibitors and ITK Inhibitors as Potential Treatments for Immuno-Inflammatory Diseases

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(now known as Aclaris Life Sciences, Inc.), or Confluence.

The acquisition of Confluence added small molecule drug discovery and preclinical development capabilities that allowed us to bring early-stage research and development activities in-house that we previously outsourced to third parties.

We also earn revenue from Confluence’s provision of contract research services to third parties.

We intend to leverage our proprietary drug discovery platform acquired from Confluence, called KINect, to identify potential drug candidates that we may develop independently or in collaboration with third parties.

We also acquired several preclinical drug candidates, including inhibitors of the mitogen-activated protein kinase-activated protein kinase 2, or MK2, signaling pathway, topical Janus kinase, or JAK, inhibitors known as soft-JAK inhibitors, and inhibitors of interleukin-2-inducible T cell kinase, or ITK.

We submitted an Investigational New Drug Application, or IND, in April 2019 for ATI-450, an investigational oral, novel, small molecule selective MK2 inhibitor compound, for the treatment of rheumatoid arthritis, which was allowed by the FDA in May 2019.

MK2 is a key regulator of pro-inflammatory mediators including TNFα, IL1β, IL6, IL8 and other essential pathogenic signals in chronic immuno-inflammatory diseases, as well as in cancer.

As an oral drug candidate, we are developing ATI-450 as a potential alternative to injectable anti-TNF/IL1/IL6 biologics for treating

certain immuno-inflammatory diseases.

We initiated a Phase 1 single and multiple ascending dose clinical trial in 77 healthy subjects in August 2019.

Preliminary data from this trial demonstrated that ATI-450 resulted in marked inhibition of TNFα, IL1β, IL8 and IL6.

The acquisition of Confluence added small molecule drug discovery and preclinical development capabilities, including KINect, a proprietary drug discovery platform.

This allowed us to bring early-stage research and development activities in-house that we previously outsourced to third parties.

We intend to leverage these capabilities and KINect to identify potential drug candidates that we may develop independently or in collaboration with third parties.

As part of the Confluence acquisition we also acquired our investigational drug candidates, ATI-450, an inhibitor of the mitogen-activated protein kinase-activated protein kinase 2, or MK2, signaling pathway, and ATI-1777, a topical “soft” Janus kinase, or JAK, inhibitor, as well as several other preclinical drug candidates including inhibitors of interleukin-2-

inducible T cell kinase, or ITK.

We also earn revenue from Confluence’s provision of contract research services to third parties.

ATI-450, an Investigational Oral MK2 Inhibitor

Food and Drug Administration, or FDA, in May 2019.

MK2 is a key regulator of pro-inflammatory mediators including TNFα, IL1β, IL6, IL8 and other essential pathogenic signals in chronic immuno-inflammatory diseases, as well as in oncology.

As an oral drug candidate, we are developing ATI-450 as a potential alternative to injectable anti-TNF/IL1/IL6 biologics and JAK inhibitors for treating certain immuno-inflammatory diseases.

We initiated a Phase 1 single (at 10mg, 30mg, 50mg and 100mg doses) and multiple ascending (at 10mg, 30mg and 50mg doses) dose clinical trial evaluating ATI-450 in 77 healthy subjects in August 2019 (ATI-450-PKPD-101).

Final data from this trial demonstrated that ATI-450 resulted in marked inhibition of TNFα, IL1β, IL8 and IL6.

We also observed that ATI-450 had dose-proportional pharmacokinetics with a terminal half-life of 9-12 hours in the multiple ascending dose cohort, and had no meaningful food effect or drug-drug interaction with methotrexate.

ATI-450 was generally well-tolerated at all doses tested in the trial.

The most common adverse events (reported by 2 or more subjects who received ATI-450) observed during the trial were dizziness, headache, upper respiratory tract infection, constipation, abdominal pain, and nausea.

Based on the results of the Phase 1 trial, we intend to initiate a Phase 2a clinical trial for ATI-450 in subjects with rheumatoid arthritis in the first half of 2020.

We are also planning to initiate a Phase 2a clinical trial of ATI-450 for an additional immuno-inflammatory indication.

We expect to submit an IND for ATI-1777, an investigational topical soft-JAK inhibitor compound, for the treatment of atopic dermatitis in mid-2020.

The most common adverse events (reported by 2 or more subjects who received ATI-450) were dizziness, headache, upper respiratory tract infection, constipation, abdominal pain and nausea.

ATI-450 was also evaluated at 80mg and 120mg doses twice daily in a second Phase 1 clinical trial in healthy subjects (ATI-450-PKPD-102).

Preliminary topline data from this trial showed that no dose-limiting toxicity was observed.

Ex vivo analysis of blood samples from this Phase 1 trial also showed that increased cytokine inhibition was achieved with these higher doses of ATI-450.

No serious adverse events were reported and all adverse events were mild to moderate.

The most common adverse events (reported by 2 or more subjects who received ATI-450) were headache, dizziness, nausea, parasthesia and, in the post-dosing safety follow-up phase of the trial, dry skin.

These adverse events were all mild in severity.

A final analysis of this trial is underway.

Moderate to Severe Rheumatoid Arthritis

Following the completion of the first Phase 1 clinical trial, in March 2020 we initiated a 12-week, Phase 2a, multicenter, randomized, investigator and patient-blind, sponsor-unblinded, parallel group, placebo-controlled clinical trial to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of ATI-450 in subjects with moderate to severe rheumatoid arthritis (ATI-450-RA-201).

In the trial, 19 subjects were randomized in a 3:1 ratio (seventeen subjects [15 in the treatment arm and two in the placebo arm] completed treatment) and received either ATI-450 at 50 mg twice daily or placebo, in combination with methotrexate, for 12 weeks.

Preliminary topline data from this trial showed that ATI-450 demonstrated durable clinical activity, as defined by a marked and sustained reduction in DAS28-CRP and improvement of ACR20/50/70 responses over 12 weeks.

ATI-450 was generally well tolerated.

All adverse events were mild to moderate.

The most common adverse events (each reported in 2 subjects) were urinary tract infection, or UTI, elevated lipids and ventricular extrasystoles, all of which were determined to be unrelated to treatment except for one UTI.

Two subjects withdrew from the trial, one in the treatment arm and one in the placebo arm.

The subject in the treatment arm withdrew due to palpitations, which were unrelated to the trial medication, and an elevated creatine phosphokinase, or CPK, which was determined by the site investigator to be treatment-related.

The subject in the placebo arm withdrew as a result of prohibited medication needed to treat muscle strain.

There was one non-treatment-related serious adverse event (COVID-19) reported in the four-week safety follow-up phase of the trial in a subject who was no longer receiving treatment.

An interim analysis (11 treatment, two placebo) of ex vivo stimulated cytokines from blood samples taken from the treatment arm showed a marked and durable inhibition of TNFα, IL1β, IL6, and IL8 over the 12 week dosing period.

Similarly, analysis of endogenous inflammation biomarkers also demonstrated a marked and sustained inhibition of median concentrations of hsCRP, TNFα, IL6, IL8 and MIP1β in the treatment arm over the 12-week period.

We plan to submit for publication a full analysis of the Phase 2a data in a peer-reviewed scientific journal which will include data from other secondary and exploratory endpoints evaluated in the trial, including the four-week safety follow-up data and a full analysis of MRI, pharmacodynamic and pharmacokinetic data.

Based on the results observed in the Phase 2a trial, we intend to progress ATI-450 into a Phase 2b trial in moderate to severe rheumatoid arthritis in the second half of 2021.

Cryopyrin-associated Periodic Syndrome

In November 2020, we initiated a Phase 2a multicenter, open-label, single-arm clinical trial to investigate the safety, tolerability, efficacy and pharmacodynamics of ATI-450 for the maintenance of remission in subjects with cryopyrin-associated periodic syndrome, or CAPS, previously managed with anti-IL1 therapy (ATI-450-CAPS-201).

Due to the COVID-19 pandemic, subject enrollment in this trial was paused.

As a result of the ongoing pandemic and given the positive preliminary topline data from the ATI-450-RA-201 trial, we have decided to focus our efforts and resources on other immuno-inflammatory diseases.

We also supported an investigator-initiated Phase 2a, randomized, double-blind, placebo-controlled clinical trial to investigate the safety and efficacy of ATI-450, when used in addition to standard of care therapy, as a potential treatment for cytokine release syndrome in hospitalized patients with COVID-19.

The primary endpoint in this trial is the proportion of subjects who are free from respiratory failure by day 14.

We provided funding and clinical drug supply to the University of Kansas Medical Center, the sponsor of the trial.

The trial included 20 subjects and is completed.

We expect data to be available in the first half of 2021.

ATI-1777, an Investigational Topical “Soft” JAK 1/3 Inhibitor

In June 2020, we submitted an IND for ATI-1777, an investigational topical “soft” JAK 1/3 inhibitor compound, for the treatment of moderate to severe atopic dermatitis.

“Soft” JAK inhibitors are designed to be topically applied and active in the skin, but rapidly metabolized and inactivated when they enter the bloodstream, which may result in low systemic exposure.

If the IND is allowed, we expect to initiate a Phase 1/2 clinical trial in healthy subjects and subjects with atopic dermatitis in the second half of 2020 evaluating ATI-1777 as a potential treatment for moderate-to-severe atopic dermatitis.

We are also developing ATI-2138, our investigational oral ITK/TXK/JAK3, or ITJ, inhibitor compound, as a potential treatment for psoriasis and/or inflammatory bowel disease, which are both T-cell mediated autoimmune diseases.

In October 2020, we initiated a Phase 2a, multicenter, randomized, double-blind, vehicle-controlled, parallel-group clinical trial to determine the efficacy, safety, tolerability and pharmacokinetics of ATI-1777 in subjects with moderate to severe atopic dermatitis (ATI-1777-AD-201).

We expect data to be available mid-year 2021.

ATI-2138, an Investigational ITJ Inhibitor

We are also developing ATI-2138, an investigational oral ITK/TXK/JAK3, or ITJ, inhibitor compound, as a potential treatment for psoriasis and/or inflammatory bowel disease, which are both T-cell mediated autoimmune diseases.

The ITJ compound interrupts T cell signaling through the combined inhibition of ITK/TXK/JAK3 pathways in lymphocytes.

We expect to file an IND for ATI-2138 in the fourth quarter of 2020 or the first quarter of 2021.

Our Other Drug Candidates and FDA-Approved Product

A-101 45% Topical Solution as a Potential Treatment for Common Warts

We are developing a high-concentration formulation of hydrogen peroxide, A-101 45% Topical Solution, as a potential prescription treatment for common warts, also known as verruca vulgaris.

Although common warts are generally not harmful, and in most cases, eventually clear without medical treatment, they may be painful and aesthetically unattractive and are contagious.

On an annual basis, approximately 2.0 million people in the United States are diagnosed with common warts.

Cryosurgery is the most frequently used in-office treatment for common warts.

Common warts can also be treated with over-the-counter products, such as those containing salicylic acid.

We are not aware of any prescription drugs that have been approved by the FDA for the treatment of common warts.

In September 2018, we commenced two pivotal Phase 3 clinical trials, which we refer to as THWART-1 and THWART-2, evaluating a twice-weekly dosing regimen of A-101 45% Topical Solution for the treatment of common warts.

In each of the THWART-1 trial and THWART-2 trial, which we completed in October 2019 and September 2019, respectively, subjects treated with A-101 45% Topical Solution achieved clinically meaningful and statistically significant outcomes for the primary and secondary efficacy endpoints.

No treatment-related serious adverse events were observed in the trials.

The most common adverse events occurring in more than 5% of subjects in the A-101 45% Topical Solution group were adverse events at the application site such as pain, scabbing, erythema, pruritus, pallor and erosion.

In February 2019, we commenced an open-label safety extension trial investigating A-101 45% Topical Solution as a potential treatment for common warts.

We are pursuing strategic alternatives, including seeking a partner, to obtain regulatory approval and commercialize A-101 45% Topical Solution as a potential treatment for common warts.

ATI-501 and ATI-502 as a Potential Treatment for Alopecia

In 2015, we in-licensed exclusive, worldwide rights from Rigel Pharmaceuticals, Inc., or Rigel, to certain inhibitors of the JAK family of enzymes, which we refer to as ATI-501 and ATI-502, an oral and topical formulation, respectively, for specified dermatological conditions, including alopecia areata, or AA, androgenetic alopecia, or AGA, also known as male or female pattern baldness, vitiligo and atopic dermatitis.

We are pursuing strategic alternatives, including seeking a partner, to further develop, obtain regulatory approval and commercialize ATI-501 and ATI-502 as potential treatments for alopecia.

ESKATA for the Treatment of Raised Seborrheic Keratosis

ESKATA, our only FDA-approved product, is a proprietary formulation of high-concentration hydrogen peroxide topical solution which was approved by the FDA in December 2017 as an office-based prescription treatment for raised seborrheic keratosis, or SK, a common non-malignant skin tumor.

W e launched ESKATA in the United States in May 2018.

In August 2019, we voluntarily discontinued the commercialization of ESKATA in the United States, but we continue to maintain the New Drug Application, or NDA, for ESKATA in the United States.

We also withdrew the marketing authorizations we had previously received for the product in all countries outside of the United States.

We are pursuing strategic alternatives, including seeking a strategic partner, to commercialize ESKATA.

Our Commercial Product Which We Have Divested

RHOFADE for the Treatment of Persistent Facial Erythema (Redness) Associated with Rosacea in Adults

In November 2018, we acquired RHOFADE (oxymetazoline hydrochloride) cream, 1%, or RHOFADE, which included an exclusive license to certain intellectual property for RHOFADE, as well as additional intellectual property, from Allergan Sales, LLC, or Allergan.

In October 2019, we sold the worldwide rights to RHOFADE, which included the assignment of certain licenses for related intellectual property assets, to EPI Health, LLC, or EPI Health, as described further below under “—Acquisitions and License Agreements.”

We expect to file an IND for ATI-2138 in the second half of 2021.

Our Other Drug Candidates

We continue to seek third-party partners for our dermatology investigational drug candidate A-101 45% Topical Solution as a potential treatment for common warts (verruca vulgaris).

Manufacturing and Supply

We do not have any manufacturing facilities.

We rely on third parties for the manufacture of preclinical and clinical supplies for all of our drug candidates.

We have entered into an exclusive, ten-year, automatically renewable supply agreement with PeroxyChem LLC, or PeroxyChem, to provide hydrogen peroxide, the active pharmaceutical ingredient, or API, that is used in A-101 45% Topical Solution for the potential treatment of common warts and ESKATA for the treatment of raised SKs.

The ten-year term commenced on the date of first commercial sale of ESKATA in the United States.

We or PeroxyChem may terminate the supply agreement with prior written notice immediately for specified financial reasons, after a 10-business day and 60-day cure period for material monetary and material non-monetary breaches, respectively, and in the event of a force majeure event, that continues for 90 consecutive days.

In addition, we may terminate the PeroxyChem supply agreement, with prior written notice, for PeroxyChem’s failure to supply API to us for more than 90 cumulative days in a year.

We may assign the agreement without the consent of PeroxyChem in connection with the sale, transfer or license of the products covered by the agreement.

We have entered into an exclusive commercial supply agreement with James Alexander Corporation, or James Alexander, for the manufacture of the finished dosage form of A-101 45% Topical Solution and ESKATA.

We must meet a minimum purchase requirement each year through 2022.

In the event that we do not meet the minimum purchase requirements, James Alexander may, at its discretion, convert the agreement into a non-exclusive agreement.

Additionally, during the term of the agreement, James Alexander will not manufacture any competitive product, as defined in the agreement.

The term of the agreement with James Alexander is five years from the date of the first commercial sale of ESKATA in the United States and thereafter will be renewed automatically for one-year periods.

Either party may terminate the agreement for any reason upon 180 days prior written notice.

In addition, either party has the right to immediately terminate the supply agreement under certain circumstances, including (i) the other party files for bankruptcy, (ii) the other party materially breaches the supply agreement and such breach is not cured within a specified period and (iii) any required license, permit or certificate required of the other party to perform its obligations under the supply agreement is not approved or issued or is revoked by an applicable governmental regulatory authority.

We may assign the agreement without the consent of James Alexander in connection with the sale of the products to which the agreement relates.

We rely on third parties for the manufacture of preclinical and clinical supplies for our drug candidates.

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary drugs.

While we believe that our knowledge, experience and scientific resources provide us with

competitive advantages, we face potential competition from many different sources, including major pharmaceutical, biotechnology and specialty pharmaceutical companies, academic institutions and governmental agencies and public and private research institutions.

While we believe that our knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, biotechnology and specialty pharmaceutical companies, academic institutions and governmental agencies and public and private research institutions.

Our drug candidates, if approved, will compete with existing treatments and new treatments that may become available in the future.

With respect to A-101 45% Topical Solution for the treatment of common warts, we are aware of the following companies that are developing a drug candidate for the treatment of common warts:

Nielsen BioSciences, Inc.

and Verrica Pharmaceuticals Inc.

In addition, there are over-the-counter drugs for the treatment of common warts and other drugs that have been used off-label as treatments for common warts.

With respect to ATI-450 as a potential treatment for rheumatoid arthritis, there are numerous commercial products, such as anti-TNFs, anti-IL6s, anti-IL1s and JAK inhibitors, approved for the treatment of rheumatoid arthritis.

In addition, we are aware of a number of companies conducting late-stage clinical trials for investigational drug candidates for the treatment of rheumatoid arthritis.

The commercial opportunity for our drug candidates, if approved, could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drug that we may develop.

With respect to ATI-450 as a potential treatment for moderate to severe rheumatoid arthritis, there are several different types of therapies in the rheumatoid arthritis market.

Medications for the treatment of rheumatoid arthritis currently fall into two categories:

drugs that ease symptoms such as nonsteroidal anti-inflammatory drugs and drugs that slow disease activity.

Drugs that slow disease activity include corticosteroids and disease-modifying anti-rheumatic drugs, or DMARDs.

Disease-modifying drugs include conventional DMARDs such as methotrexate, sulfasalazine, leflunomide, hydroxychloroquine , biologic DMARDs (monoclonal antibodies which inhibit targets such as TNF, IL1, IL6 and costimulatory signaling mechanisms) , and targeted synthetic DMARDs such as JAK inhibitors.

These types of drugs are produced and sold by large pharmaceutical companies, including AbbVie, Amgen, Bristol Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Pfizer, and Roche, among others.

In addition, we are aware of a number of companies developing and conducting clinical trials for investigational drug candidates, including biosimilars, that, if approved, could compete with ATI-450, if approved, for the treatment of rheumatoid arthritis.

With respect to ATI-1777 as a potential treatment for moderate to severe atopic dermatitis, there are several different types of therapies in the atopic dermatitis market, such as biologics, oral and topical corticosteroids, injectable and oral methotrexate products, oral and topical calcineurin inhibitors, oral mycophenolate products, other JAK inhibitors, other oral antibiotics and antihistamines and phototherapy.

There are also several prescription, non-prescription and over-the-counter, or OTC, topical products, including PDE4 inhibitors, utilized to treat atopic dermatitis.

These types of drugs are produced and sold by large pharmaceutical companies, including Sanofi and Regeneron Pharmaceuticals, Inc., and Pfizer.

In addition, we are aware of a number of companies including large pharmaceutical companies, such as AbbVie, Eli Lilly, Novartis, Incyte, Pfizer and LEO Pharma A/S developing and conducting clinical trials for investigational drug candidates, that, if approved, could compete with ATI-1777, if approved, for the treatment of atopic dermatitis.

Our competitors also may obtain FDA or other regulatory approval for their drug candidates more rapidly than our potential third-party partners may obtain approval for our drug candidates, which could result in our competitors establishing a strong market position before our drug candidates are able to enter the market.

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Our success depends in large part upon our ability to obtain and maintain proprietary protection for our drug candidates and to operate without infringing the proprietary rights of others.

We seek to avoid the latter by monitoring patents and publications that may affect our business, and to the extent we identify such developments, evaluate and take appropriate courses of action.

We seek to avoid the latter by monitoring patents and publications that may affect our business, and to the extent we identify such developments, evaluating and taking appropriate courses of action.

Our policy is to protect our proprietary position by, among other methods, filing patent applications on inventions that are important to the development and conduct of our business with the U.S.

Patent and Trademark Office, or USPTO, and its foreign counterparts.

With respect to our inhibitors of the MK2 signaling pathway, we own two U.S.

patents and pending applications in the European Union and other foreign countries that cover ATI-450, our lead candidate, and certain methods of use.

patents expire in 2034 and any claims that issue from the pending applications expire in 2034, subject to any applicable patent term adjustment or extension that may be available in a particular country.

We also own numerous U.S.

patents and pending foreign patent applications directed to other inhibitors of the MK2 signaling pathway, which expire or will expire between 2031 and 2034, subject to any applicable patent term adjustment or extension that may be available in a particular country.

With respect to our soft-JAK inhibitors, we have filed two U.S.

and PCT applications directed to various novel inhibitors of JAK1 and/or JAK3, including ATI-1777, and methods of using the same.

Any claims that may issue would expire in 2038, subject to any applicable patent term adjustment or extension that may be available in a particular country.

With respect to our ITK inhibitors, we own multiple U.S.

patents and pending applications in the United States and foreign countries directed to novel inhibitors of ITK, including pending U.S.

and PCT applications to ATI-2138, and methods of using the same.

The patents and pending applications, if issued, expire between 2035 and 2039, subject to any applicable patent term adjustment or extension that may be available in a particular country.

With respect to ATI-501 and ATI-502, we exclusively license from Rigel multiple families of patents and applications relating to these compounds and the uses thereof in the field of dermatology.

In particular, we exclusively license patents and applications with claims that specifically cover the composition of matter for these compounds in the United States, the European Union, and other major foreign markets.

The issued patents specifically directed to these compounds begin to expire in 2030, subject to any applicable patent term extension that may be available in a particular country.

We also exclusively license two issued U.S.

patents, one issued patent in Australia and pending applications in Canada, the European Union and Japan with claims that cover the use of these compounds for the treatment of AA.

and Australian patents, and any claims that issue from these applications, expire, or will expire, in 2034, subject to any applicable patent term adjustment or extension that may be available in a particular country.

We also licensed a family of patents and applications that relate to ATI-501 and ATI-502 that expire in 2023, subject to any applicable patent term extension that may be available in a particular country.

We also exclusively license patents and applications from Columbia University relating to the use of JAK inhibitors to induce hair growth and treat hair loss disorders, including AA and AGA.

In particular, we exclusively license multiple U.S.

patents with claims directed to the use of certain third-party JAK inhibitors for the treatment of hair loss disorders, including AA and AGA, and inducing hair growth, which expire in 2031.

We also exclusively license patents with claims directed to the use of certain JAK1, JAK2 or JAK3 inhibitors for the treatment of hair loss disorders, including AA and AGA, and inducing hair growth in the U.S., the European Union, Japan and South Korea, which expire in 2031.

In addition, we exclusively license a patent application in the United States directed to biomarkers for AA, which if claims issue, would expire in 2036, subject to any applicable patent term adjustment or extension that may be available in a particular country.

With respect to A-101 45% Topical Solution and ESKATA, we do not currently rely on licenses to any third party’s intellectual property.

We own two U.S.

patents that include claims that cover the use of high-concentration hydrogen peroxide of at least 23%, including A-101 45% Topical Solution and ESKATA, for the alleviation of SK and acrochordons.

The patents in Australia, New Zealand and India include claims that cover the use of high-concentration hydrogen peroxide of at least 23%, including A-101 45% Topical Solution and ESKATA, for the alleviation of various skin conditions including SK, acrochordons, corns, tags, acne, warts and rosacea.

The patents in Germany, the United Kingdom, Mexico and Singapore include claims that cover the use of high-concentration hydrogen peroxide of at least 23%, including A-101 45% Topical Solution and ESKATA, for the alleviation of acrochordons.

The issued patents relating to the use of A-101 45% Topical Solution and ESKATA begin to expire in 2022, subject to any applicable patent term extension that may be available in a particular country.

We also own four issued U.S.

patents and pending U.S., European and other foreign patent applications directed to various formulations comprising high-concentration hydrogen peroxide, including A-101 45% Topical Solution and ESKATA, dosing regimens for such formulations, applicators for use with such formulations, and methods of treating various skin conditions, including SK and common warts, by the topical administration of such formulations.

formulation, method of use and applicator patents expire in 2035 and any claims that issue from the pending formulation applications will expire in 2035, subject to any applicable patent term adjustment or extension that may be available in a particular country.

We also use other forms of protection, such as trademark, copyright, and trade secret protection, to protect our intellectual property, particularly where we do not believe patent protection is appropriate or obtainable.

We aim to take advantage of all of the intellectual property rights that are available to us and believe that this comprehensive approach will provide us with proprietary positions for our drug candidates, where available.

With respect to our MK2 signaling pathway inhibitor development program, we own numerous issued patents and pending applications to novel MK2 pathway inhibitors, including our lead candidate ATI-450, and various methods of use that expire, or would expire, between 2031 and 2041, subject to any applicable patent term adjustment or extension that may be available in a particular country.

For example, we own two U.S.

patents and pending applications in the European Union and other foreign countries directed to ATI-450 and analogs thereof and certain methods of using the same.

patents expire in 2034 and any claims that may issue from the pending applications expire in 2034, subject to any applicable adjustment or extension.

We also own a Patent Cooperation Treaty, or PCT, application directed to deuterated forms of ATI-450 and methods of use, which, if issued, would expire in 2040, subject to any applicable adjustment or extension.

Further, we own numerous provisional applications directed to certain methods of using ATI-

450, methods of manufacturing ATI-450 and crystal forms of ATI-450, which, if issued, would each expire in 2041, subject to any applicable adjustment or extension.

With respect to our “soft” JAK inhibitor development program, we own one issued U.S.

patent and numerous pending applications in the U.S.

and foreign countries to novel “soft” JAK inhibitors and various methods of use that expire, or would expire, between 2038 and 2041, subject to any applicable patent term adjustment or extension that may be available in a particular country.

For example, we own one allowed U.S.

application and pending applications in the European Union and other foreign countries directed to various novel inhibitors of JAK1 and/or JAK3, including ATI-1777, and methods of using the same, which, if issued, would expire in 2038, subject to any applicable adjustment or extension.

We also own two provisional applications directed to topical formulations and crystal forms of ATI-1777, which, if issued, would expire in 2041, subject to any applicable adjustment or extension.

With respect to our ITK inhibitor development program, we own numerous issued U.S.

patents and pending applications in the U.S.

and foreign countries directed to novel inhibitors of ITK and methods of use that expire, or would expire, between 2035 and 2039, subject to any applicable patent term adjustment or extension that may be available in a particular country.

We also own pending U.S., European Union and other foreign country applications directed to ATI-2138 and analogs thereof and methods of using the same, which, if issued, would expire in 2039, subject to any applicable adjustment or extension.

Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained.

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In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application.

In the United States, a patent term may be shortened if a patent is terminally disclaimed over another patent or as a result of delays in patent prosecution by the patentee, and a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in granting a patent or by patent term extension, which compensates a patentee for delays at the FDA.

The patent term of a European patent is 20 years from its filing date;

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The European Union does have a compensation program similar to patent term extension called supplementary patent certificate that would effectively extend patent protection for up to five years.

We also protect our proprietary information by requiring our employees, consultants, contractors and other advisors to execute nondisclosure and assignment of invention agreements upon commencement of their respective employment or engagement.

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Agreement and Plan of Merger with Confluence

In August 2017, we entered into an Agreement and Plan of Merger, or the Confluence Agreement, with Confluence , Aclaris Life Sciences, Inc., our wholly-owned subsidiary, or Merger Sub, and Fortis Advisors LLC, as representative of the equity holders of Confluence.

In August 2017, we entered into an Agreement and Plan of Merger, or the Confluence Agreement, with Confluence, Aclaris Life Sciences, Inc., our wholly-owned subsidiary, or Merger Sub, and Fortis Advisors LLC, as representative of the former equity holders of Confluence.

Pursuant to the terms of the Confluence Agreement, the Merger Sub merged with and into Confluence, with Confluence surviving as our wholly-owned subsidiary, resulting in our acquisition of 100% of the outstanding shares of Confluence.

We paid $10.3 million in cash and issued 349,527 shares of our common stock with a fair value of $9.7 million to the Confluence equity holders.

In November 2018, we achieved a development milestone specified in the Confluence Agreement.

The milestone payment to the former Confluence equity holders was comprised of $2.5 million in cash and 253,208 shares of our common stock with a fair value of $2.2 million.

We also agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million, based upon the achievement of specified regulatory and commercial milestones set forth in the Confluence Agreement.

We paid closing consideration of $10.3 million in cash and issued 349,527 shares of our common stock with a fair value of $9.7 million to the former Confluence equity holders.

In November 2018, a development milestone specified in the Confluence Agreement was achieved, as a result of which we paid the former Confluence equity holders $2.5 million in cash and issued 253,208 shares of our common stock with a fair value of $2.2 million.

Under the Confluence Agreement, we also agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million based upon the achievement of specified

regulatory and commercial milestones set forth in the Confluence Agreement.

In addition, we have agreed to pay the former Confluence equity holders future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product.

In addition, if we sell, license or transfer any of the intellectual property acquired from Confluence to a third party, we will be obligated to pay the former Confluence equity holders a portion of any incremental consideration (in excess of the development and milestone payments described above) that we receive from such sale, license or transfer in specified circumstances.

License Agreement with Rigel

In August 2015, we entered into an exclusive, worldwide license and collaboration agreement with Rigel for the development and commercialization of products containing two specified JAK inhibitors, ATI-501 and ATI-502, or the Rigel License Agreement, which we amended in October 2019.

Under this agreement, we may develop these JAK inhibitors for the treatment of AA and other dermatological conditions.

We are required to use commercially reasonable efforts to develop, seek regulatory approval and commercialize at least one product, which is deemed satisfied by us using commercially reasonable efforts to find a third party to use commercially reasonable efforts to develop, seek regulatory approval and commercialize at least one product .

We paid Rigel an upfront nonrefundable payment of $8.0 million and $4.0 million upon the achievement of a specified development milestone, and have agreed to make remaining aggregate payments of up to $76.0 million upon the achievement of specified development milestones, such as clinical trials and regulatory approvals.

Further, we have agreed to pay up to an additional $10.5 million to Rigel upon the achievement of a second set of development milestones.

In addition, in connection with the amendment of the agreement in October 2019, we agreed to pay Rigel an amendment fee of $1.5 million in three installments of $0.5 million in January 2020, April 2020 and July 2020.

With respect to any products we commercialize under the Rigel License Agreement, we will pay Rigel quarterly tiered royalties on our annual net sales of each product at a high single-digit percentage of annual net sales, subject to specified reductions, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified countries under specified circumstances, ten years from the first commercial sale of such product.

The Rigel License Agreement terminates on the date of expiration of all royalty obligations unless earlier terminated by either party for a material breach.

We may also terminate the Rigel License Agreement without cause at any time upon advance written notice to Rigel.

Rigel, after consultation with us, will be responsible for maintaining and prosecuting the patent rights, and we will have final decision-making authority regarding such patent rights for a product in the United States and the European Union.

To the extent that we jointly develop intellectual property, we will confer and decide which party will be responsible for filing, prosecuting and maintaining those patent rights.

The Rigel License

Agreement also establishes a joint steering committee composed of an equal number of representatives for each party, which will monitor progress of the development of products.

Stock Purchase Agreement with Vixen Pharmaceuticals, Inc.

In March 2016, we entered into a stock purchase agreement, or the Vixen Agreement, with Vixen and JAK1, LLC, JAK2, LLC and JAK3, LLC, or together, the Selling Stockholders, and Shareholder Representative Services LLC, as the representative of the Selling Stockholders.

Pursuant to the Vixen Agreement, we acquired all shares of Vixen’s capital stock from the Selling Stockholders, or the Vixen Acquisition.

Following the Vixen Acquisition, Vixen became our wholly-owned subsidiary.

We paid $0.6 million upfront and issued an aggregate of 159,420 shares of our common stock to the Selling Stockholders.

We are obligated to make annual payments of $0.1 million through March 2022, with such amounts being creditable against specified future payments that may be paid under the Vixen Agreement.

Under the Vixen Agreement, we agreed to use commercially reasonable efforts to develop and commercialize at least one product for the treatment of AA and at least one product for the treatment of AGA, in each case for commercial sale and distribution throughout the United States and such other areas of the world as we determine to be commercially prudent.

In the event we do not comply with these obligations, we are obligated to license, on a non-exclusive basis, certain intellectual property rights related to the products to the Selling Stockholders or their designee, on terms to be mutually agreed to by the parties, among other rights exercisable by the Selling Stockholders.

Under the Vixen Agreement, we are obligated to make aggregate payments of up to $18.0 million to the Selling Stockholders upon the achievement of specified pre-commercialization milestones for three products covered by the Vixen patent rights in the United States, the European Union and Japan, and aggregate payments of up to $22.5 million upon the achievement of specified commercial milestones for products covered by the Vixen patent rights.

With respect to any covered products that we commercialize under the Vixen Agreement, we are obligated to pay low single-digit royalties on net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product.

If we sublicense any of Vixen’s patent rights and know-how acquired pursuant to the Vixen Agreement, we will be obligated to pay a portion of any consideration we receive from such sublicenses in specified circumstances.

License Agreement with Columbia University

As a result of the Vixen Acquisition, we became party to the Exclusive License Agreement, by and between Vixen and the Trustees of Columbia University in the City of New York, or Columbia, dated as of December 31, 2015, or as amended, the Columbia License Agreement.

Pursuant to the Columbia License Agreement, we have an exclusive, worldwide license under specified Columbia patent rights and a non-exclusive, worldwide license under specified Columbia know-how in all fields to develop and commercialize a product that otherwise infringes a Columbia patent right or uses Columbia know-how.

Our rights to this Columbia intellectual property cover the use of specified JAK inhibitor compounds for the potential treatment of AA, AGA and other dermatological conditions.

We are obligated to pay Columbia an annual license fee of $10,000, subject to specified adjustments for patent expenses incurred by Columbia and creditable against any royalties that may be paid under the Columbia License Agreement.

We are also obligated to pay up to an aggregate of $11.6 million upon the achievement of specified commercial milestones, including specified levels of net sales of products covered by Columbia patent rights and/or know-how, and royalties at a sub-single-digit percentage of annual net sales of products covered by Columbia patent rights and/or know-how, subject to specified adjustments.

If we sublicense any of Columbia’s patent rights and know-how acquired pursuant to the Columbia License Agreement, we will be obligated to pay Columbia a portion of any consideration received from such sublicenses in specified circumstances.

The royalties, as determined on a country-by-country and product-by-product basis, are payable until the date that all of the patent rights for that product have expired, the expiration of any market exclusivity period granted by a regulatory body or, in specified circumstances, ten years from the first commercial sale of such product.

We have agreed to use commercially reasonable efforts to develop and commercialize at least one product.

In the event we do not comply with this obligation, Columbia has the option to terminate the license or convert the exclusive patent license to a non-exclusive patent license.

Further, in the event we do not comply with our obligations under the Vixen Agreement to develop and commercialize products, our rights under the Columbia License Agreement may revert

to a party to be designated by the Selling Stockholders.

Columbia is responsible for maintaining and prosecuting the patent rights, giving due consideration to our reasonable comments related thereto.

The Columbia License Agreement terminates on the date of expiration of all royalty obligations thereunder unless earlier terminated by either party for a material breach, subject to a specified cure period.

We may also terminate the Columbia License Agreement without cause at any time upon advance written notice to Columbia.

Asset Purchase Agreement with EPI Health

In October 2019, we entered into an Asset Purchase Agreement, or APA, with EPI Health, pursuant to which we sold the worldwide rights to RHOFADE, which included the assignment of certain licenses for related intellectual property assets, or the Disposition.

Pursuant to the APA, EPI Health paid us an upfront payment of $35.0 million ($1.75 million of which was placed in escrow) and $200,000 for inventory.

In addition, EPI Health has agreed to pay us (i) potential sales milestone payments of up to $20.0 million in the aggregate upon the achievement of specified levels of net sales (as defined in the APA) of products covered by the APA, (ii) a specified high single-digit royalty calculated as a percentage of net sales, on a product-by-product and country-by-country basis, until the date that the patent rights related to a particular product, such as RHOFADE, have expired, provided, that with respect to sales of RHOFADE in any territory outside of the United States, such royalty shall be paid on a country-by-country basis until the date that the RHOFADE patent rights in the particular country have expired or, if later, 10 years from the date of the first commercial sale of RHOFADE in such country and (iii) 25% of any upfront, license, milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the Disposition in any territory outside of the United States, subject to specified exceptions.

In addition, EPI Health has agreed to assume our obligation to pay specified royalties and milestone payments under our existing agreements with Allergan, Aspect Pharmaceuticals, LLC and Vicept Therapeutics, Inc.

Assignment Agreement with the Estate of Mickey Miller and Finder’s Services Agreement with KPT Consulting, LLC

In August 2012, we entered into an assignment agreement, or, as amended, the Assignment Agreement, with the Estate of Mickey Miller, or the Miller Estate, under which we acquired some of the intellectual property rights covering A-101 45% Topical Solution and ESKATA.

The assignment of intellectual property rights covers specified know-how, along with modifications of, improvements to and variations on A-101 that meet defined chemical properties.

Under this agreement, we have the sole and exclusive right, but not the duty, to develop, obtain marketing approval for and commercialize A-101 45% Topical Solution and ESKATA in various countries throughout the world.

We are required to use commercially reasonable efforts to develop and commercialize at least one product for at least one indication in the United States.

In connection with obtaining the assignment of the intellectual property from the Miller Estate, in August 2012 we also entered into a separate finder’s services agreement, or the Finder’s Services Agreement, with KPT Consulting, LLC.

Under the terms of the Assignment Agreement and the Finder’s Services Agreement, we made aggregate upfront payments of $0.6 million in 2012 and one-time milestone payments of $0.4 million in 2013 upon the dosing of the first human subject with ESKATA in our Phase 2 clinical trial.

There are no remaining potential milestone payments under the Assignment Agreement.

Under the Finder’s Services Agreement, we made a one-time milestone payment of $1.0 million in April 2017 upon the achievement of a specified regulatory milestone, and a one-time milestone payment of $1.5 million in May 2018 upon the achievement of a specified commercial milestone.

Under the terms of the Finder’s Services Agreement, we are obligated to make an additional milestone payment of $3.0 million upon the achievement of a specified commercial milestone.

Under each of the Assignment Agreement and the Finder’s Services Agreement, we are also obligated to pay royalties on sales of ESKATA and related products, at low single-digit percentages of net sales, subject to reduction in specified circumstances.

Both agreements will terminate upon the expiration of the last pending, viable patent claim of the patents acquired under the Assignment Agreement, but no sooner than 15 years from the effective date of the agreements.

In addition to the payments described above, if we sell, license or transfer any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, we will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified circumstances.

Government Regulation and Product Approval

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In the United States, the FDA regulates drug and medical device products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations.

The FDA’s Center for Drug Evaluation and Research has primary jurisdiction over the premarket development, review and approval of our drug candidates.

Accordingly, we are investigating our drug candidates pursuant to IND applications and expect that any third-party partners that we may consummate a transaction with would seek approval through the NDA pathway.

A-101 45% Topical Solution is comprised of both a drug component (the hydrogen peroxide solution) and a pen-type applicator.

Based on our discussions with the FDA to date, we do not anticipate that the FDA will require the submission of a separate marketing application for the pen-type applicator that will be used with A-101 45% Topical Solution for the treatment of common warts, but this could change during the course of the FDA’s review of the NDA.

The FDA’s Center for Drug Evaluation and Research has primary jurisdiction over the premarket development, review and approval of our drug candidates.

Accordingly, we are investigating our drug candidates pursuant to IND applications and expect that any potential third-party partners that we may consummate a transaction with would seek approval through the New Drug Application, or NDA, pathway.

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice regulations;

● completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice regulations;

● submission to the FDA of an IND which must take effect before clinical trials may begin;

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● preparation and submission to the FDA of an NDA;

review of the NDA by a FDA advisory committee, if applicable;

satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product or its components are produced to assess compliance with current good manufacturing practices, or cGMP, and regulations to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

● review of the NDA by an FDA advisory committee, if applicable;

● satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product or its components are produced to assess compliance with current good manufacturing practices, or cGMP, and regulations to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

● payment of user fees and securing FDA approval of the NDA;

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Some preclinical studies may continue even after the IND is submitted.

In addition to including

the results of the preclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination.

In addition to including the results of the preclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination.

The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold.

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Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually.

Sponsors also must timely report to FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug.

An IRB at each institution participating in the clinical trial must review and approve the protocol before the clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations.

Sponsors also must timely report to the FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure, and any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug.

Clinical trials are typically conducted in three sequential phases that may overlap or be combined:

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If a drug candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 clinical trials, the clinical trial program will be expanded to Phase 3 clinical trials to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites.

These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product approval and labeling claims.

These trials are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product approval and labeling claims.

Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments.

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The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.

Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

In some cases, clinical trials are overseen by an independent group of qualified experts organized by the trial sponsor, which is called the clinical monitoring board or data safety monitoring board.

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During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the product.

If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required.

If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required.

A REMS can substantially increase the costs of obtaining approval.

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A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review.

A priority review designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on the NDA from ten months to six months from FDA filing of the NDA.

After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its API will be produced, it may issue an approval letter or a Complete Response Letter.

After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its active pharmaceutical ingredient will be produced, it may issue an approval letter or a Complete Response Letter.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

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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 FDA review and approval.

There also are continuing, annual user fee requirements for products and the establishments at which such products are manufactured, as well as new application fees for certain supplemental applications.

There are also continuing, annual user fee requirements for products and the establishments at which such products are manufactured, as well as new application fees for certain supplemental applications.

In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

inspections by the FDA and some state agencies for compliance with GMP regulations and other laws.

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 are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with GMP regulations and other laws.

The FDA has promulgated specific requirements for drug cGMPs and device cGMPs embodied in the Quality System Regulation.

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Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label.

However, companies may share truthful and not misleading information that is otherwise consistent with the product’s FDA approved labeling.

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.

However, physicians may, in their independent medical judgment, prescribe legally available products for off-label uses.

The FDA does not regulate the behavior of physicians in their choice of treatments but the FDA does restrict manufacturer’s communications on the subject of off-label use of their products.

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA.

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This three-year exclusivity covers only the conditions associated with the new clinical investigations and prohibits the FDA from approving an ANDA or a 505(b)(2) NDA submitted by another company with overlapping conditions associated with the new clinical investigations for the three-year period.

Clinical investigation exclusivity does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.

Clinical investigation

exclusivity does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.

Five-year and three-year exclusivity will not delay the submission or approval of an NDA for the same drug.

However, an applicant

submitting an 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 effectiveness.

However, an applicant submitting an 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 effectiveness.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to products intended to treat a rare disease or condition—generally one that affects fewer than 200,000 individuals in the United States.

Orphan drug designation must be requested before submitting the NDA.

After the FDA grants orphan drug designation, the FDA publicly discloses the drug’s identity and its intended orphan use.

Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

The first active moiety to be approved to treat a disease with FDA’s orphan drug designation is entitled to a seven-year period of marketing exclusivity in the United States for that product, for that indication.

During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same orphan indication, regardless of patent status, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or if the FDA finds that the holder of the orphan exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated.

Orphan drug exclusivity does not prevent the FDA from approving a different chemical/biological entity for the same disease or condition.

An orphan drug designation also does not preclude the same drug from being developed for a different disease or condition.

Among the other benefits of orphan drug designation are tax credits for certain research expenses and a waiver of the application user fee.

Regulation Outside of the United States

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Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member State through the Mutual Recognition Procedure.

If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.

product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.

In the EEA, upon receiving marketing authorization, new chemical entities generally receive eight years of data exclusivity and an additional two years of market exclusivity.

If granted, data exclusivity prevents regulatory authorities in the EEA from referencing the innovator’s data to assess a generic application.

During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic product can be marketed until the expiration of the market exclusivity.

However, there is no guarantee that a product will be considered by the EEA’s regulatory authorities to be a new chemical entity, and products may not qualify for data exclusivity.

If granted, data exclusivity prevents regulatory authorities in the EEA from referencing the innovator’s data to assess a generic application.

However, there is no guarantee that a product will be considered by the EEA’s regulatory authorities to be a new chemical entity, and products may not qualify for data exclusivity.

Other Health Care Laws

Health care providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any of our drug candidates for which marketing approval is obtained.

Our potential third-party partners’

arrangements with third-party payors, health care professionals and customers may expose them to broadly applicable fraud and abuse and other health care laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal civil False Claims Act, that may constrain the business or financial arrangements and relationships through which they sell, market and distribute any drug candidates for which marketing approval is obtained.

In addition, we and our potential third-party partners may be subject to transparency laws and patient

privacy regulation by the federal government and by the U.S.

Our potential third-party partners’ arrangements with third-party payors, health care professionals and customers may expose them to broadly applicable fraud and abuse and other health care laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal civil False Claims Act, that may constrain the business or financial arrangements and relationships through which they sell, market and distribute any drug candidates for which marketing approval is obtained.

In addition, we and our potential third-party partners may be subject to transparency laws and patient privacy regulation by the federal government and by the U.S.

states and foreign jurisdictions in which we or they conduct business.

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Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances.

Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal health care covered business, the Anti-Kickback Statute has been violated.

Violations of this law are punishable by up to five years in prison, and can also result in criminal fines, civil monetary penalties, administrative penalties and exclusion from participation in federal health care programs.

Violations of this law are punishable by up to ten years in prison, and can also result in criminal fines, civil monetary penalties, administrative penalties and exclusion from participation in federal health care programs.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the Affordable Care Act, 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.

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In addition, activities relating to the sale and marketing of products are subject to scrutiny under this law.

Penalties for the federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil penalties for each separate false claim, the potential for exclusion from participation in federal health care programs, and, although the federal civil False Claims Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes.

For example, the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, including private third-party payors, 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 a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services.

Penalties for federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil penalties for each separate false claim,

the potential for exclusion from participation in federal health care programs, and, although the federal civil False Claims Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, including private third-party payors, 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 a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services.

Like the Anti-Kickback Statute, the Affordable Care Act amended the intent standard for the health care fraud statute under HIPAA 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.

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In addition, legislation imposing marketing restrictions and transparency requirements on pharmaceutical manufacturers has been enacted at the state and federal levels.

For example, the Affordable Care Act imposed, among

other things, annual reporting requirements for covered manufacturers for certain payments and other transfers of value provided to physicians, as defined by such law, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

For example, the Affordable Care Act imposed, among other things, annual reporting requirements to the Centers for Medicare & Medicaid Services, or CMS, for covered manufacturers for certain payments and other transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

Beginning in 2022, applicable manufacturers will also be required to report information regarding payments and other transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants, and certified nurse-midwives.

Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties for “knowing failures.” Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices, require registration of certain employees engaged in marketing activities in the location, and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.

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Although the development and implementation of compliance programs designed to establish internal controls and facilitate compliance can mitigate the risk of investigation, prosecution, and penalties assessed for violations of these laws, or any other laws that may apply to us, the risks cannot be entirely eliminated.

If our operations are found to be in violation of any of such laws or any other governmental regulations, we may be subject to significant penalties, including, without limitation, administrative, civil, and criminal penalties, damages, fines, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state health care programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and individual imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

If our operations are found to be in violation of any such laws or any other governmental regulations, we may be subject to significant penalties, including, without limitation, administrative, civil, and criminal penalties, damages, fines, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state health care programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and individual imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

We may also 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, or HITECH, and their implementing regulations, including the final omnibus rule published on January 25, 2013, mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information.

Among other things, HITECH makes HIPAA’s security standards directly applicable to "business associates", namely independent contractors or agents of HIPAA covered entities that create, receive or obtain protected health information in connection with providing a service for or on behalf of a covered entity.

HITECH also increased the civil and criminal penalties that may be imposed against covered entities and business associates, 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.

Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates”, namely independent contractors or agents of HIPAA covered entities that create, receive or obtain protected health information in connection with providing a service for or on behalf of a covered entity and their subcontractors that use, disclose, access, or otherwise process protected health information.

HITECH also increased the civil and criminal penalties that may be imposed against covered entities and business associates, 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, certain state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

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For example, in March 2010, the Affordable Care Act was passed, which has had, and is expected to continue to have, a significant impact on the health care industry.

The Affordable Care Act was designed to expand coverage for the uninsured and at the same time containing overall health care costs.

The Affordable Care Act was designed to expand coverage for the uninsured and at the same time contain overall health care costs.

With regard to pharmaceutical products, among other things, the Affordable Care Act expanded and increased industry rebates for drugs covered under Medicaid programs;

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

Moreover, the Affordable Care Act provided incentives to programs that increase the federal government’s comparative effectiveness research and implemented payment system reforms including a national pilot program on payment bundling meant to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain health care services.

There remain judicial and Congressional challenges to, as well as efforts by the Trump Administration to repeal or replace certain aspects of the Affordable Care Act.

For example, since January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the Affordable Care Act.

Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act.

While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law.

The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.

In addition, the 2020 federal spending package permanently eliminates, effective January 1, 2020, the Affordable Care Act-mandated “Cadillac”

tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax.

Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amended the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”.

In December 2018, the Centers for Medicare & Medicaid Services, or CMS, published a new final rule permitting further collections and payments to and from certain Affordable Care Act qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment.

There remain judicial and Congressional challenges to certain aspects of the Affordable Care Act.

While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law.

In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax.

On December 14, 2018, a Texas U.S.

District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate”

was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017.

District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017.

Additionally, on December 18, 2019, the U.S.

Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well.

It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act.

Court of Appeals for the Fifth Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well.

Supreme Court is currently reviewing the case, although it is unknown when a decision will be made.

Further, although the U.S.

Supreme Court has not yet ruled on the constitutionality of the Affordable Care Act, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace.

The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act.

It is unclear how the Supreme Court ruling, other such litigation, and the health care reform measures of the Biden administration will impact the Affordable Care Act and our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.

For example, in August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions.

The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs.

This includes aggregate reductions in Medicare payments to providers of 2% per fiscal year, which went into effect beginning on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will stay in effect through 2029, unless additional Congressional action is taken.

Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, cancer treatment centers and imaging centers.

This includes aggregate reductions in Medicare payments to providers of 2% per fiscal year, which went into effect beginning on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will stay in effect through 2030 with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken.

Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was

signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, cancer treatment centers and imaging centers.

Moreover, the Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing.

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Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.

At the federal level, the Trump Administration’s budget proposal for fiscal year 2020 contains further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients.

Further, the Trump Administration released a “Blueprint”, or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal health care programs, incentivize manufacturers to lower the list price of their products, and reduce the out-of-pocket costs of drug products paid by consumers.

The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority.

For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020.

This final rule codified CMS’

policy change that was effective January 1, 2019.

While some of these and other measures may require additional authorization to become effective, Congress and the Trump Administration have both stated that they will continue to seek new legislative and/or administrative measures to control drug costs .

constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives.

For example, on July 24, 2020 and September 13, 2020, President Trump announced several executive orders related to prescription drug pricing that seek to implement several of the administration’s proposals.

As a result, the FDA released a final rule on September 24, 2020, effective November 30, 2020 providing guidance for states to build and submit importation plans for drugs from Canada.

Further, on November 20, 2020, the Department of Health and Human Services, or HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law.

The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation.

The rule also created a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review by the Biden administration until March 22, 2021.

On November 20, 2020, CMS issued an interim final rule implementing the President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021.

On December 28, 2020, the U.S.

District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule.

It is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives.

At the state level, legislatures have become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

The Affordable Care Act, as well as other federal and state health care reform measures that have been and may be adopted in the future, could harm our future revenue.

Additional legislative actions may be taken in the future which may change current regulations, guidance and interpretations.

Further, it is also possible that additional governmental action is taken in response to the COVID-19 pandemic.

The impact of such actions on our business, if any, cannot presently be determined.

The Hatch Waxman Amendments to the FDC Act

The Hatch Waxman Amendments to the FDCA

Orange Book Listing

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product or a method of using the product.

Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product or a method of using the product.

Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an ANDA or an application covered by Section 505(b)(2) of the FDCA.

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Section 505(b)(2) applications provide for marketing of a drug product that may have the same active ingredients as the listed drug and contains full safety and effectiveness data as an NDA, but at least some of this information comes from studies not conducted by or for the applicant.

This alternate regulatory pathway enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy for an existing product, or published literature, in support of its application.

The FDA may then approve the new drug 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 505(b)(2) applicant.

The ANDA or Section 505(b)(2) applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book.

The FDA may then approve the new drug 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 505(b)(2) applicant.

The ANDA or Section 505(b)(2) applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book.

Specifically, the applicant must certify that:

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If the applicant does not challenge the listed patents by filing a certification that the listed patent is invalid or will not be infringed by the new product, the ANDA or Section 505(b)(2) application will not be approved until all the listed patents claiming the referenced product have expired.

A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification.

If the ANDA or Section 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA or Section 505(b)(2) application has been accepted for filing by the FDA.

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This prohibition is generally referred to as the 30-month stay.

Thus, approval of an ANDA or 505(b)(2) NDA 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.

The ANDA or Section 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

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The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent.

The allowable patent term extension is calculated as half of the drug’s testing phase, which is the time between the IND submission becoming effective and the NDA submission, and all of the review phase, which is the time between NDA submission and approval, up to a maximum extension of five years.

The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence.

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Reimbursement by a third-party payor may depend upon a number of factors, including:

the third-party payor’s determination that a product is safe, effective, and medically necessary;

appropriate for the specific patient;

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and whether there are competitive products, either branded or generic, and the pricing of those products.

Many private third-party payors, such as managed care plans, manage access to drug products’

coverage partly to control costs for their plans, and may use drug formularies and medical policies to limit their exposure.

Obtaining and maintaining favorable reimbursement can be a time-consuming and expensive process, and our potential third-party partners may not be able to negotiate or continue to negotiate reimbursement or pricing terms for our drug candidates, if approved, with third-party payors at levels that are profitable to us, or at all .

Many private third-party payors, such as managed care plans, manage access to drug products’ coverage partly to control costs for their plans, and may use drug formularies and medical policies to limit their exposure.

Obtaining and maintaining favorable reimbursement can be a time-consuming

and expensive process, and our potential third-party partners may not be able to negotiate or continue to negotiate reimbursement or pricing terms for our drug candidates, if approved, with third-party payors at levels that are profitable to us, or at all.

In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement.

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Such pharmacoeconomic studies can be costly and the results uncertain.

Our business could be

harmed if reimbursement of our drug candidates, if approved, is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

Our business could be harmed if reimbursement of our drug candidates, if approved, is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

Employees and Human Capital Resources

As of December 31, 2020, we had 60 total employees, of which 57 were full-time employees.

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We consider our relationship with our employees to be good.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants.

The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of stock-based compensation awards in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Corporate Information

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Our telephone number is (484) 324-7933.

Our common stock is listed on the Nasdaq Global Select Market under the symbol “ACRS.”

Available Information

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The SEC also maintains a website that contains our reports, proxy and information statements and other information.

The address of the SEC’s website is www.sec.gov.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business