What changed in this filing

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Item 1A. Risk Factors

2024-10-31 compared with 2024-08-07 · 28 added, 84 removed, 180 unchanged (38% of the section changed)

17 unchanged sentences

government to impose penalties if drug prices are increased at a rate faster than inflation (IRA Inflation Penalties).

Additional proposals focused on drug pricing continue to be debated, and additional executive orders focused on drug pricing and competition are likely to be adopted and implemented in some form.

Additional proposals focused on drug pricing continue to be debated, and additional executive orders or regulatory initiatives focused on drug pricing and competition are likely to be adopted and implemented in some form.

In March 2024, the Administration released its budget plan for fiscal year 2025 that included proposals to expand the IRA’s drug price setting to more drugs and sooner after launch and making IRA Inflation Penalties applicable to commercial health insurance.

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The Medicare price setting process began in August 2023 when CMS announced the first 10 drugs for Medicare price setting, which includes ENBREL, currently a product that generates considerable revenue.

Effective July 30, 2024, CMS has set a price for ENBREL in Medicare Part D that will be applicable beginning on January 1, 2026, which we expect will negatively impact its profitability.

Effective July 30, 2024, CMS set a price for ENBREL in Medicare Part D, applicable beginning on January 1, 2026, which we expect will negatively impact its profitability.

See Part I, Item 2.

1 unchanged sentence

Depending on the growth and success of our medicines, other of our medicines may also be subject to selection by CMS in the next, or in a future, cycle of mandatory Medicare price setting.

If other of our medicines are selected by CMS for mandatory price setting, we may be required to accept a price set by the government similar to the process that was applied to ENBREL.

If other of our medicines are selected by CMS for mandatory Medicare price setting, we may be required to accept a price set by the government for Medicare similar to the process that was applied to ENBREL.

Also under the IRA, starting on January 1, 2024, Medicare Part D was redesigned to cap beneficiary out-of-pocket costs and, beginning January 1, 2025, Federal reinsurance will be reduced in the catastrophic phase (resulting in a shift and increase of such costs to Part D plans and manufacturers, including by requiring manufacturer discounts on certain drugs).

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Existing and proposed state pricing laws have added complexity to the pricing of drugs and may already be affecting industry pricing decisions.

A number of states have adopted, and many other states are considering, PDABs, drug importation programs, and other pricing actions, including proposals designed to require biopharmaceutical manufacturers to report to the state proprietary pricing information or provide advance notice of certain price increases.

A number of states have adopted, and many other states are considering, PDABs, drug importation programs, reference pricing schemes, and other pricing actions, including proposals designed to require biopharmaceutical manufacturers to report to the state proprietary pricing information or provide advance notice of certain price increases.

States are also enacting laws referencing the IRA and seeking to regulate the 340B Drug Pricing Program.

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In August 2023, the Colorado PDAB announced the first five drugs to undergo an affordability review, three of which, including ENBREL, have since been deemed “unaffordable” and will be subject to rulemaking to establish an Upper Payment Limit (UPL).

For ENBREL, a UPL could be effective as soon as the second quarter of 2025.

For ENBREL, a UPL could be effective as soon as the third quarter of 2025.

Further, Louisiana, Arkansas, West Virginia, Minnesota, Kansas, Mississippi, Missouri and Maryland have enacted laws with mandates on manufacturers participating in the 340B drug pricing program, and, thus far in 2024, no fewer than 25 states have considered similar legislation.

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The decision could increase the number of states that will consider similar legislation.

Further, in Genesis Health Care, Inc.

Becerra , the U.S.

In July 2024, the U.S.

District Court for the Southern District of Mississippi denied motions for a preliminary injunction in two cases challenging a similar law in Mississippi, finding that neither plaintiff had demonstrated a substantial likelihood of success on the merits.

These orders are being appealed at the U.S.

Court of Appeals for the 5 th Circuit.

In September 2024, the U.S.

District Court for the Western District of Louisiana dismissed a lawsuit challenging Louisiana’s 340B contract pharmacy mandate law, and the U.S.

District Court for the District of Maryland denied a motion for preliminary injunction challenging a similar law in Maryland.

These lawsuits challenging states on their 340B contract pharmacy laws are subsequent to Genesis Health Care, Inc.

Becerra , where the U.S.

District Court for the District of South Carolina issued an order in November 2023 that enjoins the Health Resources and Services Administration from enforcing its more restrictive interpretation of what is considered a patient under the 340B program, to the potential benefit of healthcare systems seeking to expand the application of 340B discounts.

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While the U.S.

District Court for the District of Columbia struck down this policy in September 2023 and further clarified in December 2023 that its ruling had the effect of reinstating the co-pay accumulator adjustment policy from 2020, CMS and HHS have signaled that they do not intend to enforce certain restrictions from the 2020 policy that would reduce the adoption of co-pay accumulator adjustment programs.

Payers, including PBMs, have sought, and continue to seek, price discounts or rebates in connection with the placement of our products on their formularies or those they manage, and to also impose restrictions on access to or usage of our products (such as Step Therapy), require that patients receive the payer’s prior authorization before covering the product, and/or chosen to exclude certain indications for which our products are approved.

For example, some payers require physicians to demonstrate or document that the patients for whom Repatha has been prescribed meet their utilization criteria, and these requirements have served to limit and may continue to limit patient access to

Repatha treatment.

Payers, including PBMs, have sought, and continue to seek, price discounts or rebates in connection with the

placement of our products on their formularies or those they manage, and to also impose restrictions on access to or usage of our products (such as Step Therapy), require that patients receive the payer’s prior authorization before covering the product, and/or chosen to exclude certain indications for which our products are approved.

In an effort to reduce barriers to access, we reduced the net price of Repatha by providing greater discounts and rebates to payers (including PBMs that administer Medicare Part D prescription drug plans), and in response to a very high percentage of Medicare patients abandoning their Repatha prescriptions rather than paying their co-pay, we introduced a set of new National Drug Codes to make Repatha available at a lower list price.

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marketplace could have downstream implications or consequences for our business and how we interact with these entities.

For example, in June 2022, the FTC launched an inquiry into the business practices of PBMs and subsequently expanded the investigation to the three rebate management organizations owned by the three largest PBMs, and in July 2024, the FTC published initial findings from its investigation.

For example, in June 2022, the FTC launched an inquiry into the business practices of PBMs and subsequently expanded the investigation to the three rebate management organizations owned by the three largest PBMs, and in September 2024, the FTC brought action against the three largest PBMs alleging anticompetitive and unfair rebating practices.

In addition, multiple Congressional Committees are investigating PBM practices and have also proposed legislation that could increase transparency and reporting of these practices and/or impact rebates and service fees.

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Other expenditure control practices, including but not limited to the use of revenue clawbacks, rebates and caps on product sales, are used in various foreign jurisdictions as well.

In addition, countries may refuse to reimburse or may restrict the reimbursed population for a product when their national health technology assessments do not consider a medicine to demonstrate sufficient clinical benefit beyond existing therapies or to meet certain cost effectiveness thresholds.

In addition, countries may refuse to reimburse or may restrict the reimbursed population for a product when their national health technology

assessments do not consider a medicine to demonstrate sufficient clinical benefit beyond existing therapies or to meet certain cost effectiveness thresholds.

For example, despite the EMA’s approval of Repatha for the treatment of patients with established atherosclerotic disease, prior to 2020, the reimbursement of Repatha in France was limited to a narrower patient population (such as those with homozygous familial hypercholesterolemia (HoFH)) following a national health technology assessment.

Many countries decide on reimbursement between potentially competing products through national or regional

tenders that often result in one product receiving most or all of the sales in that country or region.

Many countries decide on reimbursement between potentially competing products through national or regional tenders that often result in one product receiving most or all of the sales in that country or region.

Failure to obtain coverage and reimbursement for our products, a deterioration in their existing coverage and reimbursement or a decline in the timeliness or certainty of payment by payers to hospitals and other providers has negatively affected, and may further negatively affect, the ability or willingness of healthcare providers to prescribe our products for their patients and otherwise negatively affect the use of our products or the prices we realize for them.

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Further, as the majority of our employees work remotely for some portion of their jobs in our hybrid work environment, our reliance on our and third-party information technology systems has increased substantially and is expected to continue to increase.

Remote and hybrid working arrangements, including those of at many third-party providers, can increase cybersecurity risks due to the challenges associated with managing remote computing assets and security vulnerabilities that are present in many non-corporate and home networks.

Remote and hybrid working arrangements, including those of many third-party providers, can increase cybersecurity risks due to the challenges associated with managing remote computing assets and security vulnerabilities that are present in many non-corporate and home networks.

The complexity and interconnected nature of software, hardware and our systems make them vulnerable to breakdown or other service interruptions, and to software errors or defects, misconfiguration and other security vulnerabilities.

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In 2022, Okta, Inc., a provider of software that helps companies manage user authentication, disclosed that several hundred of its corporate customers were vulnerable to a security breach that allowed attackers to access Okta’s internal network.

Although this breach did not have a significant effect on our business, there can be no assurance that a

similar future breach would not result in a material adverse effect on our business or results of operations.

Although this breach did not have a significant effect on our business, there can be no assurance that a similar future breach would not result in a material adverse effect on our business or results of operations.

Our systems also contain and use a high volume of sensitive data, including intellectual property, trade secrets and other proprietary business information, financial information, regulatory information, strategic plans, sales trends and forecasts, litigation materials and/or personal identifiable information belonging to us, our staff, our patients, customers and/or other parties.

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Intentional or inadvertent data privacy or security breaches (including cyberattacks) resulting from attacks or lapses by employees, service providers (including providers of information technology-specific services), business partners, nation states (including groups associated with or supported by foreign intelligence agencies), organized crime organizations, “hacktivists” or others, create risks that our sensitive data may be exposed to unauthorized persons, our competitors or the public.

Malicious actors, including those working under state-sponsored campaigns, have sought employment, often in remote information technology roles, as a means to gain inside access at targeted companies.

In the third quarter of 2024, an individual used fraudulent identification in connection with their hiring by the Company.

While the individual was detected and terminated before any data was extracted or malware installed, there can be no assurance that future attempts by similar actors will be unsuccessful.

System vulnerabilities and/or cybersecurity breaches experienced by our third-party service providers have constituted a substantial share of the information security risks that have affected us.

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healthcare ecosystem and industry reliance on centralized claims processing systems and networks, and such future disruptions may have a material adverse effect on our business or results of operations.

In addition, we distribute our products in the United States primarily through three pharmaceutical wholesalers, and a security breach that impairs the distribution operations of our wholesalers could significantly impair our ability to deliver our products to healthcare

providers and patients.

There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, complied with or effective in protecting our information technology systems and sensitive data.

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Failure to comply with these current and future laws could result in significant penalties and reputational harm and could have a material adverse effect on our business and results of operations.

Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales.

Manufacturing biologic and small molecule human therapeutic products is difficult, complex and highly regulated.

We manufacture many of our commercial products and product candidates internally.

In addition, we use third-party contract manufacturers to produce, or assist in the production of, a number of our products, and we currently use contract manufacturers to produce, or assist in the production of, a number of our late-stage product candidates and drug delivery devices.

The number of third-party contract manufacturers that we use has increased with our recent acquisition of Horizon, as Horizon required such contract manufacturers for all of its products.

See our Annual Report on Form 10-K for the year ended December 31, 2023, Part I, Item 1.

Business—Manufacturing, Distribution and Raw Materials—Manufacturing;

and Part I, Item 1A, Risk Factors— Our efforts to collaborate with or acquire other companies, products, or technology, and to integrate the operations of companies or to support the products or technology we have acquired, may not be successful, and may result in unanticipated costs, delays or failures to realize the benefits of the transactions .

Our ability to adequately and timely manufacture and supply our products (and product candidates to support our clinical trials) is dependent on the uninterrupted and efficient operation of our facilities and those of our third-party contract manufacturers, which may be affected by:

• capacity of manufacturing facilities;

• contamination by microorganisms or viruses, or foreign particles from the manufacturing process;

• natural or other disasters, including hurricanes, earthquakes, volcanoes or fires;

• labor disputes or shortages, including the effects of health emergencies (such as novel viruses or pandemics) or natural disasters;

• compliance with regulatory requirements;

• changes in forecasts of future demand;

• timing and actual number of production runs and production success rates and yields;

• updates of manufacturing specifications;

• contractual disputes with our suppliers and contract manufacturers;

• timing and outcome of product quality testing;

• power failures and/or other utility failures;

• cyberattacks on supplier systems;

• breakdown, failure, substandard performance or improper installation or operation of equipment (including our information technology systems and network-connected control systems or those of our contract manufacturers or third-party service providers);

• delays in the ability of the FDA or foreign regulatory agencies to provide us necessary reviews, inspections and approvals, including as a result of a subsequent extended U.S.

federal or other government shutdowns;

• geopolitical conflicts (such as the ongoing conflicts in Ukraine and the Middle East).

If any of these or other problems affect production in one or more of our facilities or those of our third-party contract manufacturers, or if we do not accurately forecast demand for our products or the amount of our product candidates required in clinical trials, we may be unable to start or increase production in our unaffected facilities to meet demand.

If the efficient manufacture and supply of our products or product candidates is interrupted, we may experience delayed shipments, delays in our clinical trials, supply constraints, stock-outs, adverse event trends, contract disputes and/or recalls of our products.

From time to time, we have initiated recalls of certain lots of our products.

For example, in July 2014 we initiated a voluntary recall of an Aranesp lot distributed in the EU after particles were detected in a quality control sample following distribution of that lot, and in April 2018 we initiated a precautionary recall of two batches of Vectibix distributed in Switzerland after potential crimping defects were discovered in the metal seals on some product vials.

If we are at any time unable to provide an uninterrupted supply of our products to patients, we may lose patients and physicians may elect to prescribe competing therapeutics instead of our products, which could have a material adverse effect on our product sales, business and results of operations.

Our manufacturing processes, those of our third-party contract manufacturers and those of certain of our third-party service providers must undergo regulatory approval processes and are subject to continued review by the FDA and other regulatory authorities.

It can take longer than five years to build, validate and license another manufacturing plant, and it can take longer than three years to qualify and license a new contract manufacturer or service provider.

If we elect or are required to make changes to our manufacturing processes because of new regulatory requirements, new interpretations of existing requirements or other reasons, this could increase our manufacturing costs and result in delayed shipments, delays in our clinical trials, supply constraints, stock-outs, adverse event trends or contract negotiations or disputes.

Such manufacturing challenges may also occur if our existing contract manufacturers are unable or unwilling to timely implement such changes, or at all.

In addition, regulatory agencies conduct routine monitoring and inspections of our manufacturing facilities and processes as well as those of our third-party contract manufacturers and service providers.

If regulatory authorities determine that we or our third-party contract manufacturers or certain of our third-party service providers have violated regulations, they may mandate corrective actions and/or issue warning letters, or even restrict, suspend or revoke our prior approvals, prohibiting us from manufacturing our products or conducting clinical trials or selling our marketed products until we or the affected third-party contract manufacturers or third-party service providers comply, or indefinitely.

See our Annual Report on Form 10-K for the year ended December 31, 2023, Part I, Item 1A.

Risk Factors —Our current products and products in development cannot be sold without regulatory approval.

Such issues may also delay the approval of product candidates we have submitted for regulatory review, even if such product candidates are not directly related to the products, devices or processes at issue with regulators.

Because our third-party contract manufacturers and certain of our third-party service providers are subject to the FDA and foreign regulatory authorities, alternative qualified third-party contract manufacturers and third-party service providers may not be available on a timely basis, or at all.

If we or our third-party contract manufacturers or third-party service providers cease or interrupt production or if our third-party contract manufacturers and third-party service providers fail to supply materials, products or services to us, we may experience delayed shipments, delays in our clinical trials, supply constraints, contract disputes, stock-outs and/or recalls of our products.

Additionally, we distribute a substantial volume of our commercial products through our primary distribution centers in Louisville, Kentucky for the United States and in Breda, Netherlands for Europe and much of the rest of the world.

We also conduct most of the labeling and packaging of our products distributed in Europe and much of the rest of the world in Breda.

Our ability to timely supply products is dependent on the uninterrupted and efficient operations of our distribution and logistics centers, our third-party logistics providers and our labeling and packaging facility in Breda.

Further, we rely on commercial transportation, including air and sea freight, for the

distribution of our products to our customers, which has been negatively affected by the COVID-19 pandemic, labor unrest, natural disasters and geopolitical security threats.

Changes in laws or regulations with respect to the use and/or presence of certain chemicals in our products or the components used in the research, development, manufacture and/or packaging of our products could also disrupt or restrict our ability to develop, produce or sell our products in the affected jurisdictions.

For example, the EU, the U.S.

Congress, the U.S.

Environmental Protection Agency, and several U.S.

states are considering legislation and/or policies to address the presence, and/or use, of certain chemicals in certain of the components used in the manufacture or packaging of commercial products, including chemicals known as per- and polyfluorinated substances (PFAS).

Proposed legislation in several jurisdictions is under consideration to prohibit or otherwise regulate the importation, manufacture, or distribution of goods containing PFAS, and some such proposals do not provide exemptions for drug products, medical devices, their packaging, or the materials used in the research, development, or manufacture of such products or devices.

For example, the EU is considering a ban on PFAS in the manufacturing and packaging of pharmaceutical products that could affect pharmaceutical research and development activities and distribution.

Some proposals, if enacted without exemptions for pharmaceutical products, and materials used in their research, development, and manufacture, may cause significant disruptions to our ability to manufacture and supply products to the affected jurisdictions, potentially resulting in a material adverse effect on our business.

Additionally, certain jurisdictions and regulatory agencies, including the FDA and EMA, require testing for the presence of nitrosamine impurities in small molecule drugs that are at risk of containing microcrystalline cellulose as an excipient.

We are following the regulatorily defined process of evaluating and testing of potentially impacted small molecule products.

Testing of our cinacalcet product has indicated the presence of nitrosamines in certain lots above established limits.

As a result of such testing, we have worked closely with regulatory agencies to determine the appropriate action in each impacted country.

In certain countries we have stopped short term distribution of cinacalcet and filed shortage notifications, and, additionally, we have initiated recalls in certain Middle Eastern countries.

There have also been legislative and administrative proposals seeking to incentivize greater drug manufacturing in the United States with the stated goal of improving supply reliability in the United States.

For example, on August 6, 2020, the previous Administration issued an Executive Order aimed at boosting domestic production of essential medicines, medical countermeasures, and critical inputs titled “Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs are Made in the United States.” Additionally, one legislative proposal would have prohibited the U.S.

Department of Veterans Affairs from purchasing certain drugs that have active pharmaceutical ingredients manufactured outside the United States.

While we perform a substantial majority of our commercial manufacturing activities in the United States, including in the U.S.

territory of Puerto Rico, and a substantial majority of our clinical manufacturing activities at our facility in Thousand Oaks, California, the passage of such legislation could result in foreign governments enacting retaliatory legislation or regulatory actions, which may have an adverse effect on our product sales, business and results of operations.

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-Q

Item 1A. Risk Factors