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Item 1. Business

2021-03-04 compared with 2020-03-05 · 589 added, 423 removed, 11 unchanged (99% of the section changed)

We are a biopharmaceutical company that has leveraged our proprietary methionine aminopeptidase 2, or MetAP2, biology platform to pioneer the study of MetAP2 inhibitors in both common and rare metabolic disorders.

Our prior lead product candidate, ZGN-1061, is a MetAP2 inhibitor that was in Phase 2 clinical development for the treatment of type 2 diabetes and other related metabolic disorders.

In November 2018, we received a letter from the U.S.

Food and Drug Administration, or FDA, placing a full clinical hold on the investigational new drug application, or IND, for the first U.S.

clinical trial of ZGN-1061.

The FDA cited the possibility of cardiovascular, or CV, safety risk based on our prior compound.

In July 2019, we reached agreement with the FDA on an in vivo animal study design and protocol to establish relevant safety margins for ZGN-1061.

The study was designed to translate the data from our newly developed in vitro assays of human endothelial cells and assessment of tissue factor expression with endothelial cells, along with other supportive assays, as we worked toward resolving the full clinical hold.

Based on the preliminary results from the in vivo study, on September 5, 2019, we announced that we believe there is a low probability of resolving the clinical hold in the near-term.

Subsequently, all further development activities of MetAP2 inhibitors were halted and we withdrew the IND for ZGN-1061 in September 2019.

Therefore, we determined that it is in the best interest of shareholders to evaluate strategic alternatives and implemented a restructuring plan to reduce operating costs and better align our workforce with our needs.

Following an extensive proc ess of evaluating strategic alternatives for the company and identifying and reviewing potential candidates for a strategic acquisition or other transaction, on December 17, 2019, we entered into an Agreement and Plan of Merger, or the Merger Agreement, wi th Chondrial Therapeutics , Inc., or Chondrial, pursuant to which a wholly owned subsidiary of the company will merge with and into Chondrial, with Chondrial continuing as the surviving corporation of the merger and a wholly owned subsidiary of the company.

Under the exchange ratio formula in the Merger Agreement, as of immediately after the merger, the former Chondrial securityholders are expected to own approximately 60% of the outstanding shares of our common stock on a fully-diluted basis and our stockho lders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of our common stock on a fully-diluted basis.

Under certain circumstances further described in the Merger Agreement, the ownership percentages may b e adjusted upward or downward based on the level of our net cash at the closing of the merger and certain other adjustments.

The Merger Agreement provides each of us and Chondrial with specified termination rights, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $3,375,000.

In addition, in connection with certain terminations of the Merger Agreement, either party may be required to pay the other party’s third party expenses up to $350,000.

In connection with the merger, we will seek to amend our certificate of incorporation to:

(i) effect a reverse split of our common stock at a ratio to be determined by us and Chondrial, which is intended to ensure that the listing requirements of the Nasdaq Global Market are satisfied and (ii) change the name of Zafgen to “Larimar Therapeutics, Inc.”

Our and Chondrial’s obligations to consummate the merger are subject to the satisfaction or waiver of customary closing conditions, including, among others, obtaining the requisite approvals of our stockholders and satisfaction of minimum net cash thresholds of $30,000,000 by us and not less than zero by Chondrial.

The sole stockholder of Chondrial has approved the Merger Agreement.

In connection with the execution of the Merger Agreement, we entered into stockholder support agreements with our current directors and certain officers and our largest stockholder, which collectively beneficially own or control an aggregate of approximately 9.7% of our outstanding shares of common stock.

Each of the stockholders party to such stockholder support agreements has agreed to vote or cause to be voted, all of the shares of our common stock beneficially owned by such stockholder in favor of the stockholder proposals submitted at our stockholders meeting to be held in connection with the merger.

We expect to devote significant time and resources to the completion of the merger with Chondrial.

However, there can be no assurance that such activities will result in the completion of the merger.

Further, the completion of the merger ultimately may not deliver the anticipated benefits or enhance shareholder value.

Since our inception in November 2005, we have devoted substantially all of our resources to developing ZGN-1061, ZGN-1258, ZGN-1345, beloranib, ZGN-839 and additional MetAP2 inhibitors, building our intellectual property portfolio, developing manufacturing capabilities, business planning, raising capital, and providing general and administrative support for such operations.

From our inception through our initial public offering, or IPO, in June 2014, we received gross proceeds of $104.0 million from sales of redeemable convertible preferred stock and, to a lesser extent, through the issuances of convertible promissory notes.

In June 2014, we completed our IPO with net proceeds of $102.7 million after deducting underwriting discounts and commissions paid by us.

In January 2015, we completed a follow-on offering of our common stock, with net proceeds of $130.0 million after deducting underwriting discounts and commissions paid by us.

On July 2, 2018, we completed a public offering of our common stock, which resulted in the sale of 9,200,000 shares at a price of $7.50 per share, resulting in net proceeds of approximately $64.6 million after deducting underwriting discounts and commissions, as well as offering costs paid by us.

We have never generated any revenue and have incurred net losses in each year since our inception.

We have an accumulated deficit of $396.4 million as of December 31, 2019.

Our net loss was $45.4 million for the year ended December 31, 2019 and $61.4 million for the year ended December 31, 2018.

These losses have resulted principally from costs incurred in connection with in-licensing of technology, research and development activities and general and administrative costs associated with our operations.

We expect to incur significant expenses and operating losses for the foreseeable future.

Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public equity, private equity, debt financings, or other sources, which may include collaborations with third parties.

Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies or product candidates.

In addition, we may never successfully complete development of any of our future product candidates, if any, obtain adequate patent protection for our technology, obtain necessary regulatory approval for our future product candidates, if any, or achieve commercial viability for any approved product candidates.

Adequate additional financing may not be available to us on acceptable terms, or at all.

Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We will need to generate significant revenue to achieve profitability, and we may never do so.

We expect that our existing cash, cash equivalents and marketable securities as of December 31, 2019 will enable us to fund our operating expenses , capital expenditure requirements and minimum liquidity requirements associated with our debt facility for a period of at least one year from the issuance date of this Annual Report.

See “—Liquidity and Capital Resources.”

Sales and Marketing

Based on our early stage of development, we have not yet established commercial organization or distribution capabilities, nor have we entered into any partnership or co-promotion arrangements with an established pharmaceutical or biotechnology company.

To develop the appropriate commercial infrastructure to launch our future product candidates, if any, we may either do so on our own or by establishing alliances with one or more pharmaceutical or other biotechnology company collaborators, depending on, among other things, the applicable indications, the related development costs and our available resources.

In July 2009, we entered into an Exclusive License Agreement with Chong Kun Dang Pharmaceutical Corp.

of South Korea, or CKD, pursuant to which we exclusively licensed beloranib from CKD on a worldwide basis, with the exception of South Korea.

In consideration of such exclusive license, we paid an initial license fee to CKD, paid a one-time fee following initiation of a proof of concept trial, agreed to make milestone payments of up to $30.0 million (of which $7.5 million has been paid, including $3.3 million that was paid in the form of our common stock (valued at $3.6 million) as a result of an amendment to our license agreement and entry into a subscription agreement with CKD) to CKD upon the achievement of certain specified events, and agreed to pay a portion of sublicensing income to CKD.

Furthermore, we agreed that if we receive marketing approval for beloranib, we will pay single-digit royalties to CKD based on annual net sales of beloranib on a country-by-country and product-by-product basis until the later to occur of (i) the expiration of the last to expire patent in such country within the CKD patent rights containing a valid claim covering beloranib or its use for which regulatory approval has been obtained in such country, or (ii) ten years from the first commercial sale of beloranib in such country.

Pursuant to this agreement, we committed to using commercially reasonable efforts to develop and commercialize beloranib.

During the fourth quarter of 2019 we terminated this agreement.

Children’s License

In January 2007, we entered into an Exclusive License Agreement with Children’s Medical Center Corporation, or Children’s, pursuant to which we exclusively licensed certain patent rights from Children’s on a worldwide basis.

The licensed patent rights relate to decreasing the growth of fat tissue.

In consideration of such exclusive license, we paid an initial license fee upon execution of the license to Children’s and annual maintenance fees through the fifth anniversary of the date of the license.

We also agreed to make milestone payments to Children’s of up to $2.7 million (of which $0.4 million has been paid) with respect to the first licensed product and up to $1.3 million with respect to each subsequent licensed product, if any, that is a new chemical entity upon the achievement of certain specified events and to pay a portion of sublicensing income to Children’s.

We also agreed that this agreement will remain in effect for the longer of (i) 15 years or (ii) the life of the last expiring licensed patent, subject to earlier termination (x) by Children’s in the event of our insolvency or our failure to cure a breach within 60 days (30 days in the case of non-payment) of receiving written notice thereof, or (y) by us for any reason upon 120 days’ prior written notice.

During the fourth quarter of 2019 we provided this written notice, indicating that this agreement will be terminated by the end of the first quarter of 2020.

We are a clinical-stage biotechnology company focused on developing treatments for patients suffering from complex rare diseases using our novel cell penetrating peptide technology platform.

Our lead product candidate, CTI-1601, is a subcutaneously administered, recombinant fusion protein intended to deliver human frataxin, or FXN, an essential protein, to the mitochondria of patients with Friedreich’s ataxia.

Friedreich’s ataxia is a rare, progressive and fatal disease in which patients are unable to produce sufficient FXN due to a genetic abnormality.

There is currently no effective therapy for Friedreich’s ataxia.

CTI-1601 is currently being evaluated in Phase 1 clinical trials in patients with Friedreich’s ataxia.

We have received orphan drug status, fast track designation and rare pediatric disease designation, from the U.S.

Food and Drug Administration, or the FDA, for CTI‑1601.

In addition, we received orphan drug designation for CTI-1601 from the European Commission.

The receipt of such designations or positive opinions may not result in a faster development process, review or approval compared to products considered for approval under conventional FDA or European Medicines Agency, or EMA, procedures and does not assure ultimate approval by the FDA or EMA.

We believe that our cell penetrating peptide, or CPP, technology platform, which enables a therapeutic molecule to cross a cell membrane in order to reach intracellular targets, has the potential to enable the treatment of other rare and orphan diseases.

We intend to use our proprietary platform to target additional orphan indications characterized by deficiencies in or alterations of intracellular content or activity.

We have assembled an experienced management team, each of whom has over 20 years of pharmaceutical industry experience.

Our management team and consultants have significant expertise in discovery, nonclinical and clinical development, regulatory affairs and the development of manufacturing processes utilizing good manufacturing practices, or GMPs, for biologics and small molecules.

We believe that our management team’s diverse mix of skills provides for the implementation of effective approaches to drug and biologic development.

Our strategy is to become a leader in the treatment of rare diseases by leveraging our technology platform and applying our management team’s know how and expertise to the development of CTI-1601 and other future pipeline programs.

Key elements of our strategy include:

Advance CTI-1601 through Clinical Development and Regulatory Approval in the United States the European Union, or EU, and other foreign jurisdictions.

CTI-1601 is currently in Phase 1 clinical trials in the United States.

We are collaborating with key opinion leaders and seeking guidance from regulatory authorities to develop a clinical development plan for regulatory approval of CTI-1601 in the United States, the EU, the UK, Australia and Canada...

If CTI-1601 receives regulatory approvals, commercialize CTI-1601 in the United States, the EU, and other relevant countries independently or with third parties .

We intend to evaluate commercialization options in the United States the EU and in other foreign jurisdictions throughout the world where Friedreich’s ataxia patients can benefit.

We may build our own internal sales force;

we may enter into a joint marketing partnership with another pharmaceutical or biotechnology company, whereby it may jointly sell and market CTI-1601;

or we may seek to out-license CTI-1601, whereby other pharmaceutical or biotechnology companies sell and market CTI-1601 and pay us milestone and/or royalty payments on sales.

Expand Our Product Candidate Pipeline to Treat a Variety of Rare Diseases .

We intend to expand our pipeline to treat additional rare diseases.

A key component of this strategy is to utilize our novel protein replacement therapy platform technology to deliver FXN or other molecules to intracellular targets.

We employ a rational approach to selecting disease targets, and take into account many scientific, business, and indication specific factors before choosing each indication.

Continue to Improve Our Novel Protein Replacement Therapy Platform .

We continue to improve the scientific understanding of our platform, including how our technology allows enhanced delivery of cargo proteins, thereby impacting the biological processes associated with the diseases we seek to treat.

In addition, with our expertise in the use of a CPP, to effectively deliver proteins to intracellular targets, we believe that our scientists are well positioned to design and develop additional therapies that will address unmet medical needs associated with other rare diseases.

We also plan to continue to build our intellectual property estate to improve our protein replacement therapy platform.

Continue to Strengthen Key Relationships .

We partner with experts in every aspect of development.

We believe this expertise, along with our technology platform, will provide us with the ability to develop and commercialize the drug and biologic candidates we have under development and to maximize the value of our platform.

In addition to partnering with experts in drug and biologic development, we collaborate with key opinion leaders, academic institutions, experts in the field of rare diseases and with patient advocacy groups associated with the diseases that are being targeted.

We have established a scientific advisory board and we regularly seek advice and input from these experienced thought leaders on matters related to our research and development programs.

The members of our scientific advisory board consist of distinguished research scientists, professors and industry experts recognized as key opinion leaders in the fields of rare disease, pediatrics and mitochondrial disease.

We build these relationships to enhance our knowledge of the patient’s needs and utilize that knowledge to design development programs intended to address unmet medical needs and add value for the patient.

Platform Technology for Treatment of Rare Genetic Diseases

There are estimated to be between 5,000 and 7,000 rare genetic diseases, which, collectively affect hundreds of millions of people worldwide.

Of the hundreds of millions of individuals suffering from these rare genetic

diseases, only 5% have therapeutic options available to manage their disease.

Many of these diseases result from a deficiency in the amount or the function of a particular target molecule, often a protein.

Particularly challenging to treat are those diseases that result from the deficiency of a molecule that is active within a cell or within a cell-based organelle.

The challenge to providing treatment of these diseases is the need to improve the amount or function of the therapeutic target by transporting a therapeutic element across the cell membrane and potentially the membrane of the organelle where the target is active in the diseased patients.

The ability to transport therapeutic proteins across biological membranes has, to date, not been reproducibly achieved.

The collective population of people with rare diseases stands to benefit from the emergence of a scalable treatment platform that can transport therapeutics across cell membranes to deliver them to the intracellular site of activity.

In addition, traditionally, medical treatment for each rare genetic disorder has been approached on a disease-by-disease basis.

This approach is inefficient, as there are thousands of diseases, each with a distinct patient population, that cannot be addressed by traditional therapeutic approaches and are in need of treatment options.

Our understanding of our therapeutics derived from proprietary gene expression data across several disease models supports the concept that product candidates based on our platform technology could significantly impact common pathological mechanisms in various diseases with comparable etiologies.

We are utilizing this approach to identify therapeutic opportunities where our molecules and technology are more likely to be impactful.

Lead Product Candidate—CTI-1601 For the Treatment of Friedreich’s ataxia

Friedreich’s ataxia

Friedreich’s ataxia is a rare genetic disease that is the most common inherited ataxia in humans, with an estimated 4,000-5,000 individuals living with Friedreich’s ataxia in the United States and between 18,000 and 20,000 patients affected by the condition in the EU and the United Kingdom.

Friedreich’s ataxia results from a deficiency of the mitochondrial protein, FXN.

FXN is an essential and phylogenetically conserved protein that is found in cells throughout the body, with highest levels found in the heart, spinal cord, liver, pancreas, and skeletal muscle.

FXN is encoded in the nucleus, expressed in the cytoplasm and transported into the mitochondria, where it is processed to the mature form.

As part of this process the mitochondrial targeting sequence is cleaved off in the mitochondria by a naturally occurring enzyme.

Friedreich’s ataxia is a progressive multi-symptom disease typically presenting in mid-childhood that affects the functioning of multiple organs and systems.

It is a debilitating neurodegenerative disease that results in poor coordination of legs and arms, progressive loss of the ability to walk, generalized weakness, loss of sensation, scoliosis, diabetes and cardiomyopathy as well as impaired vision, hearing and speech.

Patients suffer from progressive neurologic and cardiac dysfunction.

Key among these is a primary neurodegeneration of the dorsal root ganglia and the dentate nucleus of the cerebellum, which leads to the hallmark clinical findings of progressive limb ataxia and dysarthria.

A hypertrophic cardiomyopathy is common and associated with early mortality, typically between 30 and 50 years of age.

As of March 2021, there are no medical treatment options approved for the treatment of Friedreich’s ataxia.

CTI-1601, a biologic fusion protein that is administered subcutaneously, consists of a CPP genetically fused to human FXN, and includes a mitochondrial targeting sequence.

Using our proprietary peptide delivery technology, CTI-1601 carries the molecule from the intravascular space across the cell membrane and into the mitochondria where the CPP and the mitochondrial targeting sequence are cleaved off to yield mature FXN.

See Figure 1.

CTI-1601 is currently being evaluated in Phase 1 clinical trials.

Based solely on the results of our nonclinical development program, we believe that administering CTI-1601 may increase FXN levels in the mitochondria of patients with Friedreich’s ataxia and patients could potentially experience:

improved cellular function;

a positive impact on Friedreich’s ataxia symptoms;

a slowing of progression of the disease, potentially prolonging life.

Our knowledge of CTI-1601 and of the impact of CTI-1601 on gene expression gives our scientists the ability to identify potential additional disease indications based on similar alterations of genomic, lipidomic and proteomic patterns in rare diseases models.

Thus, our technology may allow us to address other rare genetic diseases that either require the replacement of molecules that need to target specific intracellular organelles, or that share alteration patterns that overlap and that are impacted by treatment with CTI-1601.

Finally, the use of CTI-1601 to improve mitochondrial function in other rare diseases that demonstrate evidence of mitochondrial dysfunction is also being explored.

Development of CTI-1601

Nonclinical Development

Knock-Out Mice Studies

CTI-1601 has been demonstrated to prolong the life of knock-out mice or KO mice whose heart and skeletal muscles were deficient in FXN.

These mice, when untreated, develop a severe hypertrophic cardiomyopathy similar to patients with Friedreich’s ataxia and, like many Friedreich’s ataxia patients, die early in life.

In nonclinical studies of CTI-1601, the median survival in animals treated with vehicle of 98 days was extended to a median survival of 166 days in animals treated with CTI-1601 subcutaneously three times per week (p=0.0001).

Furthermore, 87.5% of mice treated with CTI-1601 survived beyond the mean age of death in the vehicle treated group (107.5 days) whereas only 33% of vehicle treated animals survived.

Results are reflected in Figure 2.

In a second study conducted at an independent laboratory, a similar mouse model was studied.

In this study doses of 2 mg/kg, 10 mg/kg, 30 mg/kg, 60 mg/kg and 100 mg/kg administered subcutaneously every other day were compared to vehicle.

After 2 weeks of dosing, mitochondrial extracts from cardiac tissue were analyzed for the presence of human FXN.

In addition, activity of succinate dehydrogenase, or SDH, an enzyme whose activity is dependent on the presence of FXN, was also analyzed.

Human FXN was found in the mitochondria of the cardiomyocytes and increased with increasing dose.

SDH activity which was suppressed to near zero in vehicle treated animals was also suppressed to near zero in the 2 mg/kg dose group.

In the 10 mg/kg dose group activity was increased and in the 30 mg/kg dose group the activity was returned to that of wild type animals.

There was no further increase in activity when the animals were dosed with 60 mg/kg or 100 mg/kg but the effect was maintained at levels equivalent to that of wild type animals.

See Figure 3 and 4.

A third study, also performed at an independent laboratory, demonstrated the maintenance of cardiac function when the same KO mouse model was studied.

These mice were treated with CTI-1601 at doses of 10 mg/kg every other day for 6 weeks.

Echocardiograms were performed prior to initiating dosing and after 4 weeks of dosing.

When compared to vehicle, mice treated with CTI-1601 maintained their left ventricular volume and ejection fraction while vehicle treated mice deteriorated over the same 4-week period.

See Figures 5 and 6.

Using a neurologic mouse model, treatment with CTI-1601 prevented the development of ataxia in mice whose nervous system was deficient in FXN compared to those treated with placebo.

In multiple nonclinical studies in rodents and non-human primates, or NHPs , human FXN was found to be distributed into all tissues tested following CTI-1601 dosing.

See Figure 7.

Observed hFXN across all tissue and cell types tested:

Cardiac Mitochondria

CSF (Cerebrospinal Fluid)

Dorsal Root Ganglia

Skeletal Muscle

Tissues Examined, By Study

Study Vehicle

Human Frataxin Distribution

Brain, Heart, Liver

PHARM-1601-02

Neuro KO Mice

Brain, Dorsal Root Ganglia, Spinal Cord

PHARM-1601-03

Cardiac KO Mice

Mitochondria of Skeletal Muscle and Cardiomyocytes

Cynomolgus Monkey

CSF, Skin, Buccal Cells, Platelets

Since CTI-1601 is intended to increase FXN levels in patients with Friedreich’s ataxia who are deficient in FXN, it is important to be able to measure changes in human FXN in the clinic in easily accessible tissues.

To accomplish this, we have developed an assay that can measure and quantify human FXN in buccal swabs skin biopsies and platelets.

This process is designed to allow repeated analysis of changes in human FXN in patients over time as they are dosed with CTI-1601.

The effectiveness of this assay was demonstrated in NHPs dosed for 14 days with 15 mg/kg twice a day of CTI-1601.

Buccal swabs skin biopsies and platelets were obtained on Day 3 prior to administration of any CTI-1601 but after two days of dosing with vehicle.

No human FXN was found.

Since these were healthy NHPs there were levels of endogenous monkey FXN present.

This is demonstrated by the yellow bars in the graph in Figure 8 below on Day 3.

After 7 and 14 days of dosing with CTI-1601 human FXN was seen in significant amounts in all tissues analyzed.

This is demonstrated by the appearance of the green bars on Day 10 and 16 in the figure below.

This study demonstrates that CTI-1601 delivers human FXN to NHPs when administered subcutaneously and that we should be able to use our proprietary assay to evaluate change in FXN level in patients with Friedreich’s ataxia as CTI-1601 enters early-stage clinical trials.

Non-Human Primate and Rat Studies

We have conducted 28-day and 13-week GLP toxicology studies for CTI-1601 in two species, rat and NHP.

In the rat studies, some injection sites showed edema and erythema with associated histologic changes localized to the injection site.

The rat studies showed no significant clinical observations and no significant systemic histopathological findings.

In the NHP studies, some injection sites were raised and firm with dose dependent histologic changes around the injection sites.

The NHP 28-day study showed no systemic toxicity.

The NHP 13-week study showed no systemic toxicity in the low dose group, and minimal to mild histopathological findings in the high dose group.

There were also several episodes of occasional transient rigidity in some animals observed immediately after dosing in the two highest dose groups at very high exposures.

These clinical observations resolved with no intervention and all of the NHPs who experienced these clinical observations received all doses and completed the in-life portion of the study.

We are progressing our toxicology program to support chronic dosing of CTI-1601 and are performing all required studies to support a BLA submission.

The results from these toxicology studies cannot be predicted and could affect the timing and design of the development program for CTI-1601 as well as have an impact on the future safety profile of CTI-1601.

Clinical Development

We continue to plan and perform toxicology studies required by FDA to support future clinical studies.

We intend to continue to work closely with the FDA regarding design and timing of the other required studies.

Clinical Trials

We submitted our IND application for CTI-1601 in September of 2019 and began Phase 1 clinical trials in December of 2019 in patients with Friedreich’s ataxia.

The design of the clinical trials included a Phase 1 Single Ascending Dose, or SAD trial.

The primary objective of the SAD study was to assess the safety and tolerability of increasing doses of CTI-1601 when administered subcutaneously to patients with Friedreich’s ataxia who are 18 years of age and older.

Patients received either CTI-1601 or placebo.

Pharmacokinetics and pharmacodynamics were also being assessed.

The first two cohorts of this study were dosed prior to March of 2020 after which we paused the study due to concerns about patient safety given the COVID-19 pandemic.

After implementing additional patient safety procedures, we dosed the third cohort of this study in July 2020.

In December 2020 we announced the completion of dosing of the Phase 1 SAD trial.

A safety review committee reviewed preliminary blinded data after each cohort of the SAD trial.

Based on preliminary data, single subcutaneous injections of CTI-1601 at doses up to 100 mg are thought to have been well tolerated.

During the trials, mild and transient injection site adverse events were reported and no serious adverse events were reported.

At all doses tested, the Phase 1 SAD data support further investigation of CTI-1601 Our analysis of the clinical trial results remains ongoing.

In August 2020 we initiated a multiple ascending dose or MAD trial in patients with Friedreich ’ s ataxia which is currently planned to have three cohorts .

The third cohort in this study was dosed in the first quarter of 202 1 .

Based on data from the initial three cohorts we will assess whether to close out the MAD trial as planned or whether to add a fourth cohort to enhance our understanding of the safety and tolerability, PK and PD of CTI-1601 .

As in the SAD study the primary endpoint for the MAD study is safety and tolerability.

A lso, as in the SAD clinical trial, pharmacokinetics will be assessed.

In addition, we will be measuring changes in FXN level over the course of treatment to determine if an increase in FXN in peripheral tissues is achieved.

Development Plan

We expect to initiate an open label extension, or OLE, which we refer to as the JIVE study, in the second half of 2021.

The JIVE study is a clinical trial that will enroll patients who participated in the SAD or MAD study if they are eligible and is designed to gather long-term safety and tolerability data.

In the SAD and MAD clinical studies patients received either CTI-1601 or placebo while in our JIVE study, all patients will receive CTI-1601.

We expect to initiate a MAD placebo-controlled study of CTI-1601 in patients under 18 years of age in the second half of 2021.

These patients may also be eligible to enroll in the JIVE study after completing participation in the MAD study.

We expect to initiate a registration study once enough data to inform on dosing and trial design has been obtained.

This is currently planned for the second half of 2022.

This study’s design and protocol will be based on the results of the earlier studies and will incorporate feedback we receive from discussions with the regulatory authorities.

The biopharmaceutical industry is characterized by intense and dynamic competition to develop new technologies and proprietary therapies.

Any product candidates that we successfully develop into products and commercialize may compete with existing therapies and new therapies that may become available in the future.

While we believe that our platform technology, product candidates and scientific expertise in the field of rare diseases provide competitive advantages, we face competition from various sources, including larger and better-funded pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies, as well as from academic institutions, governmental agencies and public and private research institutions.

CTI-1601 may compete with other therapies in development for Friedreich’s ataxia, including development programs by Reata Pharmaceuticals, Inc., PTC Therapeutics, Retrotope, Minoryx Therapeutics, Frategene and.

Exicure as well as companies applying gene therapy technologies such as Neurocrine, Novartis, Takeda, Pfizer, Sarepta (Aavanti Bio) and Design Therapeutics.

In addition, we compete with other companies who are focused on developing and commercializing rare disease therapies, including Agios, Alexion, Amicus, BioCryst, Biomarin, Ultragenyx, and others who may develop products that could compete with CTI-1601, or other rare disease therapies that we may target and develop.

Many of our competitors have significantly greater financial, technical and human resources than we do.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated amongst a smaller number of our competitors.

Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other novel therapies that are more effective, safer or less costly than our product candidates or obtain regulatory approval for their products more rapidly than we may obtain approval for our product candidates.

Intellectual Property

We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking and maintaining patents intended to cover our future product candidate, if any, and compositions, their methods of use and any other inventions that are important to the development of our business.

We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

As of February 29, 2020, we own thirty-eight issued U.S.

patents, all of which relate to our internal efforts to discover and discover MetAP2 inhibitors.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained.

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

In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative

delays by the U.S.

Patent and Trademark Office, or U.S.

PTO, in granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier-filed patent.

In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period.

How ever, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval.

The duration of foreign patents varies in accordance with provisions of applicable loc al law, but typically is also twenty years from the earliest effective filing date.

Our issued patents will expire on dates ranging from 202 9 to 2036.

However, the actual protection afforded by a patent varies on a claim by claim and country to country bas is for each applicable product and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforc eability of the patent.

Furthermore, the patent positions of biotechnology and pharmaceutical products and processes like those we intend to develop and commercialize are generally uncertain and involve complex legal and factual questions.

No consistent policy regarding the breadth of claims allowed in such patents has emerged to date in the United States.

The patent situation outside the United States is even more uncertain.

Changes in either the patent laws or in interpretations of patent laws in the United States and other countries can diminish our ability to protect our inventions, and enforce our intellectual property rights and more generally, could affect the value of intellectual property.

Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.

The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights.

Our ability to maintain and solidify our proprietary position for our drugs and technology will depend on our success in obtaining effective claims and enforcing those claims once granted.

We do not know whether any of the patent applications that we may file or license from third parties will result in the issuance of any patents.

The issued patents that we own or may receive in the future, may be challenged, invalidated or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology.

Furthermore, our competitors may be able to independently develop and commercialize similar drugs or duplicate our technology, business model or strategy without infringing our patents.

Because of the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before any of our drugs can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent.

As a result of the America Invents Act of 2011, the United States transitioned to a first-inventor-to-file system in March 2013, under which, assuming the other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent.

This will require us to minimize the time from invention to the filing of a patent application.

We may rely, in some circumstances, on trade secrets and unpatented know-how to protect our technology.

However, trade secrets can be difficult to protect.

We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our consultants, scientific advisors and contractors and invention assignment agreements with our employees.

We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached and we may not have adequate remedies for any breach.

In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

For more information, see “Risk Factors—Risks Related to our Intellectual Property.”

Our commercial success will also depend in part on not infringing the proprietary rights of third parties.

It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses or cease certain activities.

Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future drugs, if any, may have a material adverse impact on us.

If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the U.S.

PTO, to determine priority of invention.

The biopharmaceuticals industry is highly competitive.

There are many public and private biopharmaceutical companies, universities, governmental agencies and other research organizations actively engaged in the research and development of products that may be similar to our future product candidates, if any, or address similar markets.

It is probable that the number of companies seeking to develop products and therapies similar to our future product candidates, if

any, will increase.

Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and mar ket products.

These competitors may develop and introduce products and processes comparable or superior to ours.

Our success depends in large part upon our ability to obtain and maintain proprietary protection for our current and future products and technologies, and to operate without infringing the proprietary rights of others.

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

Patent and Trademark Office and its foreign counterparts.

We also intend to rely on regulatory exclusivity (also called data package exclusivity), which is separate and distinct from the protection afforded by patents, to protect our products.

We further 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.

Agreements with our employees also prevent them from bringing the proprietary rights of third parties to us.

In addition, we require confidentiality or service agreements from third parties that receive our confidential information or materials.

As of March 1, 2021, our intellectual property portfolio was composed of numerous international and United States non-provisional applications and United States provisional patent applications that we own or co-own, and 5 issued patents and additional provisional patent applications in the United States that we license from academic institutions.

The issued patents in the United States licensed by us, which include issued patents generically covering the composition of matter for CTI-1601 and methods for treating Friedreich’s ataxia, have expiration dates between 2024 and 2034.

The international and the United States non-provisional patent applications licensed by us relate to composition of matter and methods of use for CTI-1601.

The additional patent applications we own or co-own which include international and United States non-provisional patent applications and United States provisional patent applications are related to the development of CTI-1601 and to our peptide-delivery platform technology.

If the non-provisional patent applications owned or co-owned by us result in issued patents, such patents are expected to expire between 2040 and 2041, without taking potential patent term adjustment or patent term extension into consideration.

A provisional patent application allows for an effective filing date to be established with regard to an invention, but once a provisional patent application is filed, either a corresponding non-provisional patent application or a petition to convert the provisional patent application into a non-provisional patent application must be filed within 12 months or such effective filing date will be lost.

If we or our licensor timely files non-provisional patent applications in the United States and in countries outside of the United States with regard to our provisional patent applications and these non-provisional patent applications result in issued patents, such patents are expected to expire in 2041, without taking potential patent term adjustment or patent term extension into consideration.

CTI-1601 is covered by licensed issued patents (composition of matter and methods of use) in the United States which, if properly maintained, will expire in 2024 and 2025 (respectively), excluding any patent term extensions that might be available following the grant of marketing authorizations.

We also possess an exclusive license to an international and a United States non-provisional patent application for CTI-1601 (composition of matter and methods of use).

If the international patent applications are timely nationalized in countries outside of the United States, and the patent applications in the United States and other countries result in issued patents, those patents would be expected to expire in the United States and in countries outside of the United States in 2040, This estimated expiration excludes any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations.

We cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

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.

The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.

We also use other forms of protection besides patent protection and regulatory exclusivity, such as trademark, copyright, and trade secret protectio n, to enhance 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 exclusive positions for our product candidates, such as CTI-1601, where available.

In-License Agreements

We are party to a License Agreement (the “WFUHS License”), dated November 30, 2016 with Wake Forest University Health Sciences (“WFUHS”) and a License Agreement (the “IU License”), dated November 30, 2016, as amended, with Indiana University (“IU”).

Such agreements provide for a transferable, worldwide license to certain patent rights regarding technology used by us with respect to the development of CTI-1601.

In partial consideration for the right and license granted under these agreements, we will pay each of WFUHS and IU a royalty of a low single digit percentage of net sales of licensed products depending on whether there is a valid patent covering such products.

As additional consideration for these agreements, we are obligated to pay each of WFUHS and IU certain milestone payments of up to $2.6 million in the aggregate upon the achievement of certain developmental milestones, commencing on the enrollment of the first patient in a Phase 1 clinical trial.

We will also pay each of WFUHS and IU sublicensing fees ranging up to a low double-digit percentage of sublicense consideration depending on our achievement of certain regulatory milestones as of the time of receipt of the sublicense consideration.

We are also obligated to reimburse WFUHS and IU for patent-related expenses.

In the event that we dispute the validity of any of the licensed patents, the royalty rate would be tripled during such dispute.

We are also obligated to pay to IU a minimum annual royalty of less than $0.1 million per annum starting in the 2020 calendar year for the term of the agreement.

In the event that we are required to pay IU consideration, then we may deduct 20% of such IU consideration on a dollar-for-dollar basis from the consideration due to WFUHS.

In the event that the Company is required to pay WFUHS consideration, then we may deduct 60% of such WFUHS consideration on a dollar-for-dollar basis from the consideration due to IU.

During the twelve months ended December 31, 2020 and 2019, no milestones were achieved, and no expense was recognized.

Both agreements continue from their effective date through the last to expire of the licensed patents unless earlier terminated by either party.

Manufacturing and Supply

CTI-1601 is a biologic fusion protein that is produced in E.

We have worked with contract manufacturers to develop a cGMP manufacturing process and analytical methods for drug substance to support Phase 1 clinical trials.

Drug product was also developed and packaged into single use vials for the Phase 1 clinical program.

We also use third party manufacturers for the production of drug product, clinical packaging and storage and distribution.

We relied on third parties to store the CTI-1601 master cell bank and working cell bank, each stored at a different location.

We continue to advance the manufacturing of CTI-1601, obtain stability data, and produce drug product for ongoing toxicology studies and future clinical trials.

We are continually trying to optimize our manufacturing process to increase yields and decrease costs and increase reliability in supply chains.

The final process will need to be successfully scaled up to support commercial manufacturing.

Human Capital Resources

In order to achieve the goals and expectations of our Company, it is crucial that we continue to attract and retain top talent.

To facilitate talent attraction and retention, we strive to make our company a safe and rewarding workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits and health and wellness programs, and by programs that build connections between our employees.

In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, and which comply with local and federal government regulations.

This includes having some of our non-laboratory employees work from home, while implementing additional safety measures for employees continuing critical on-site work.

As of March 1 2021, we employed 28 full-time employees in the United States.

None of our employees are represented by a labor organization or under any collective-bargaining arrangements.

We consider our employee relations 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 and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-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.

Scientific Advisors

We have established a scientific advisory board and we regularly seek advice and input from these experienced thought leaders on matters related to our research and development programs.

Their scientific perspectives will be invaluable to determine our strategic scientific pathway and support the development of other potential treatments for complex rare diseases to help fill unmet medical needs in this space .

We intend to continue to leverage the broad expertise of our advisors by seeking their counsel on important topics relating to our product development and clinical development programs.

Our scientific advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us.

In addition, our scientific advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

All of our scientific advisors are affiliated with other entities and devote only a small portion of their time to us.

Our scientific advisors are set forth in the table below:

Rusty Clayton, DO

Consultant, Scientific Advisory Board Chair

Marni Joy Falk, MD

Executive Director, Mitochondrial Medicine Frontier Program at Children’s Hospital of Philadelphia;

Professor, Department of Human Genetics and Department of Pediatrics, University of Pennsylvania Perelman School of Medicine

Giovanni Manfredi, MD, PhD

Finbar and Marianne Kenny Professor of Clinical and Research Neurology, Weill Cornell Medicine;

Professor of Neuroscience, Weil Cornell Medicine

Mark Payne, MD

Professor of Pediatrics, Indiana University School of Medicine

Marshall Summar, MD

Margaret O’Malley Chair of Genetic Medicine at Children’s National Hospital;

Chair, Division of Genetics of Metabolism and Director, Rare Disease Institute, Children’s National Hospital

We lease office and laboratory space, which consists of approximately 5,000 square feet and 1,750 square feet located in Bala Cynwyd, PA and Philadelphia, PA, respectively.

Our office lease expires in August 2023 with an option to extend for three years, and our laboratory lease expires in December 2021, with an option to extend for an additional year .

The Company believes that it will need to increase both its office and laboratory facilities in the near

We believe that both appropriate office and laboratory space will be readily available on commercially reasonable terms.

As part of the Merger (as defined below) with Zafgen, Inc., we acquired a non-cancellable operating lease for approximately 17,705 square feet of office space at 3 Center Plaza, Boston, Massachusetts, or the Boston Lease.

The Boston Lease expires on October 30, 2029.

On October 27, 2020, we entered into a sublease agreement whereby we subleased all 17,705 square feet of office space leased under the Boston Lease until October 30, 2029.

Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business.

We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on us.

Corporate Information

We were founded in 2005 as a Delaware corporation under the name Zafgen, Inc., or Zafgen.

On May 28, 2020, Zafgen completed a reverse merger with Chondrial Therapeutics, Inc., or Chondrial, in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated December 17, 2019, by and among Zafgen, Zordich Merger Sub, Inc., Chondrial and Chondrial Therapeutics Holdings, LLC, pursuant to which Zordich Merger Sub, Inc.

merged with and into Chondrial, with Chondrial surviving as a wholly owned subsidiary of the Company.

Following completion of the Merger, Zafgen, Inc.

changed its name to Larimar Therapeutics, Inc.

Our principal executive offices are located at Three Bala Plaza East, Suite 506, Bala Cynwyd, PA 19004, and our telephone number is (844) 511-9056.

Our website address is www.larimartx.com.

The information on, or that can be accessed through, our website is not part of this prospectus and is not incorporated by reference herein.

We have included our website address as an inactive textual reference only.

Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission, or the SEC, under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

The SEC maintains an internet website, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.

Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and Form 8-K and all amendments to those reports, can be viewed and downloaded free of charge at our website, www.larimartx.com as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC.

Our code of ethics, other corporate policies and procedures, and the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are available through our website at www.larimartx.com .

We intend to post information regarding any amendments to, or waivers from, our code of ethics on our website.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products.

Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by such regulatory authority.

Drug Development

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and applicable regulations.

Drugs are also subject to other federal, state and local statutes and regulations.

In the United States, drug and biologic products are licensed by FDA for marketing under the Public Health Service Act, referred to as the PHS Act, and regulated under the Federal Food, Drug, and Cosmetic Act, or the FDCA.

Both the FDCA and the PHS Act and their corresponding regulations govern, among other things, the testing, manufacturing, safety, purity, potency, efficacy, labeling, packaging, storage, record keeping, distribution, marketing, sales, import, export, reporting, advertising and other promotional practices involving drug and biological products.

FDA clearance must be obtained before clinical testing of drug and biologic products.

FDA licensure also must be obtained before marketing of drug and biological products.

The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

Failure to comply with the applicable U.S.

requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions.

These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, voluntary product recalls, withdrawals from the market, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties.

Any agency or judicial enforcement action could have a material adverse effect on us.

Our future product candidates, if any, must be approved by the FDA through the New Drug Application, or NDA, process before they may be legally marketed in the United States.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

Completion of extensive nonclinical, sometimes referred to as nonclinical laboratory tests, animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice, or GLP, regulations;

Submission to the FDA of an IND, which must become effective before human clinical trials may begin in the United States;

Performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical trial-related regulations, sometimes referred to as good clinical practices, or GCPs, to establish the safety and efficacy of the proposed drug for its proposed indication;

Submission to the FDA of an NDA for a new drug;

A determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review;

Satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDA’s current good manufacturing practice, or cGMP, requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

Potential FDA audit of the nonclinical study and/or clinical trial sites that generated the data in support of the NDA;

FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.

The data required to support an NDA is generated in two distinct development stages:

nonclinical and clinical.

For new chemical entities, the nonclinical development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the laboratory, which support subsequent clinical testing.

The conduct of the nonclinical tests must comply with federal regulations, including GLPs, where applicable.

The sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND.

An IND is a request for authorization from the FDA to administer an investigational drug product to humans in the United States.

The IND automatically becomes effective 30 days after

receipt by the FDA, unless the FDA raises concerns or qu estions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period.

Development Process

The process required by the FDA before a drug or biologic product may be marketed in the United States generally involves the following:

completion of nonclinical laboratory tests and animal studies according to Good Laboratory Practices, or GLPs, and applicable requirements for the humane use of laboratory animals or other applicable regulations;

preparation of clinical trial material in accordance with Good Manufacturing Practices, or GMPs;

submission to the FDA of an application for an Investigational New Drug, or IND application, which must become effective before human clinical trials may begin;

approval by an institutional review board, or IRB, reviewing each clinical site before each clinical trial may be initiated;

performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCPs and any additional requirements for the protection of human research subjects and their health information, to establish the safety, purity, potency, and efficacy, of the proposed drug or biological product for its intended use;

submission to the FDA of New Drug Application, or NDA, or Biologics License Application, or BLA, for marketing approval that includes substantive evidence of safety, purity, potency, and efficacy from results of nonclinical testing and clinical trials;

satisfactory completion of an FDA inspection prior to NDA or BLA approval of the manufacturing facility or facilities where the drug or biological product is produced to assess compliance with GMPs, to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity;

potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the NDA or BLA;

potential FDA Advisory Committee meeting to elicit expert input on critical issues and including a vote by external committee members;

FDA review and approval, or licensure, of the NDA or BLA, and payment of associated user fees, when applicable;

compliance with any post approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategies, or REMS, and the potential requirement to conduct post approval studies.

Before testing any drug or biological product candidate in humans, the product candidate enters the preclinical testing stage.

Nonclinical tests include laboratory evaluations of product chemistry, pharmacology, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate.

The conduct of the nonclinical tests must comply with federal regulations and requirements including GLPs.

The clinical study sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND.

Some nonclinical testing typically continues after the IND is submitted.

An IND is an exemption from the FDCA that allows an unapproved product to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational product to humans.

The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA requests certain changes to a protocol before the trial can begin, or the FDA places the clinical trial on a clinical hold within that 30-day time period.

In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.

The FDA may also impos e clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance.

Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once beg un, issues will not arise that could cause the clinical trial to be suspended or terminated.

The clinical stage of development involves the administration of the drug candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical trial sponsor’s control, in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial.

Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and assess efficacy.

Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND.

Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted.

An IRB is charged with protecting the welfare and rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits.

The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed.

There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

Clinical trials are generally conducted in three sequential phases that may overlap, known as Phase 1, Phase 2 and Phase 3 clinical trials.

Phase 1 clinical trials generally involve a small number of healthy volunteers who are initially exposed to a single dose and then multiple doses of the product candidate.

The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug.

Phase 2 clinical trials typically involve studies in disease-affected patients to determine the dose required to produce the desired benefits.

At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy.

Phase 3 clinical trials generally involve large numbers of patients at multiple sites, in multiple countries (from several hundred to several thousand subjects) and are designed to provide the data necessary to demonstrate the efficacy of the product for its intended use, its safety in use, and to establish the overall benefit/risk relationship of the product and provide an adequate basis for physician labeling.

Phase 3 clinical trials may include comparisons with placebo and/or other comparator treatments.

The duration of treatment is often extended to mimic the actual use of a product during marketing.

Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA, although additional Phase 3 clinical trials may be required for certain indications.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval.

These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication.

In certain instances, the FDA may mandate the performance of Phase 4 clinical trials.

Progress reports detailing the results of the clinical trials conducted under an IND must be submitted at least annually to the FDA.

Within 15 calendar days after the sponsor determines that the information qualifies for reporting, written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from animal or in vitro testing or other studies that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

The FDA may also impose clinical holds on a drug or biological product candidate at any time before or during clinical trials due to safety concerns or non-compliance.

If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA.

Clinical trials may involve the administration of the drug or biological product candidate to healthy volunteers or subjects under the supervision of qualified investigators, generally physicians not employed by or under the study sponsor’s control.

Clinical trials involving some products for certain diseases, including some rare diseases may begin with testing in patients with the disease.

Each protocol and any amendments to the protocol must be submitted to the

FDA as part of the IND.

Clinical trials must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements, including the requirement that all research subjects or his or her legal representative provide informed consent.

Further, each clinical trial must be reviewed and approved by an independent IRB, at or servicing each institution at which the clinical trial will be conducted.

An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits.

The IRB also approves the form and content of the informed consent that must be signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed.

Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee.

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

The drug or biological product is initially introduced into healthy human subjects and tested for safety.

In the case of some products for rare diseases, the initial human testing is often conducted in patients.

The drug or biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.

Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency and safety in an expanded patient population at geographically dispersed clinical trial sites.

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

In drugs and biologics for rare diseases where patient populations are small and there is an urgent need for treatment, Phase 3 trials might not be required if an adequate risk/benefit can be demonstrated from the Phase 2 trial.

An Open Label Expansion study may also be conducted.

An OLE study typically enrolls participants of previous clinical trials and is designed to gather the long-term safety and tolerability data on a potential new medicine beyond the time period of the original studies.

Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval.

These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.

During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators.

Annual progress reports detailing the results of the clinical trials must be submitted to the FDA.

Written IND safety reports must be promptly submitted to the FDA and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reactions over that listed in the protocol or investigator brochure.

The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting.

The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information.

Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, if at all.

The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, 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.

Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee.

This group provides authorization for whether or not a clinical trial may move forward at designated check points based on access to certain data from the clinical trial.

We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements.

The manufacturing process must be capable of consistently producing quality batches of the drug candidate and manufacturers, among other things, must

develop methods for testing the identity, strength, quality and purity of the final drug product.

Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

A manufacturer of an investigational drug for a serious disease or condition is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational drug.

This requirement applies on the earlier of the first initiation of a Phase 2 or Phase 3 trial of the investigational drug or, as applicable, 15 days after the drug receives a designation as a breakthrough therapy, fast track product, or regenerative advanced therapy.

NDA and FDA Review Process

Following clinical trial completion, clinical trial data are analyzed to assess safety and efficacy.

The results of nonclinical studies and clinical trials are then submitted to the FDA as part of an NDA, along with proposed labeling for the product and information about the manufacturing process and facilities that will be used to ensure product quality, results of analytical testing conducted on the chemistry of the drug, and other relevant information.

The NDA is a request for approval to market the drug and must contain proof of safety and efficacy, which is demonstrated by extensive nonclinical and clinical testing.

The application includes both negative or ambiguous results of nonclinical studies and clinical trials as well as positive findings.

Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a use of a product, or from a number of alternative sources, including studies initiated by investigators.

To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational drug product to the satisfaction of the FDA.

The submission of an NDA is subject to the payment of substantial user fees;

a waiver of such fees may be obtained under certain limited circumstances.

FDA approval of an NDA must be obtained before a drug may be offered for sale in the United States.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be accompanied by a user fee.

The FDA adjusts the PDUFA user fees on an annual basis.

According to the FDA’s fee schedule for fiscal year 2020, the user fee for an application requiring clinical data, such as an NDA, is $2,942,965.

PDUFA also imposes an annual prescription drug product program fee for human drugs of $325,424.

The FDA or the sponsor or its data safety monitoring board may suspend a clinical trial at any time on various grounds, 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 or biological product has been associated with unexpected serious harm to patients.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the physical characteristics of the drug or biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with GMP requirements.

To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined.

The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality potency and purity of the final biological product.

Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the drug or biological product candidate does not undergo unacceptable deterioration over its shelf life.

There are also various laws and regulations regarding laboratory practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances in connection with the research.

In each of these areas, the FDA and other regulatory authorities have broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals.

Information about certain clinical trials must be submitted within specific timeframes to the NIH for public dissemination on its clinicaltrials.gov website.

Sponsors or distributors of investigational products for the diagnosis, monitoring, or treatment of one or more serious diseases or conditions must also have a publicly available policy on evaluating and responding to requests for expanded access requests.

Review and Approval Processes

After the completion of clinical trials of a drug or biological product, FDA approval of an NDA or BLA must be obtained before commercial marketing of the product.

The NDA or BLA must include results of product development, laboratory and animal studies, human studies, information on the manufacture and composition of the product, proposed labeling and other relevant information.

The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the NDA or BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.

Under the Prescription Drug User Fee Act, as amended, or PDUFA, each NDA or BLA may be accompanied by a significant user fee.

Under federal law, the submission of most applications is subject to an application user fee.

The sponsor of an approved application is also subject to an annual program fee.

Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business.

Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing.

The FDA must make a decision on accepting an NDA for filing within 60 days of receipt.

Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA.

Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial review of a standard new molecular-entity NDA and respond to the applicant, and six months from the filing date for a priority new molecular-entity NDA.

The FDA does not always meet its PDUFA goal dates for standard and priority NDAs, and the review process is often significantly extended by FDA requests for additional information or clarification.

After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity.

The FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions.

Additionally, no user fees are assessed on NDAs or BLAs for product candidates designated as orphan drugs, unless the product candidate also includes a non-orphan indication.

Within 60 days following submission of the application, the FDA reviews an NDA or BLA submitted to determine if it is substantially complete before the agency accepts it for filing.

The FDA may refuse to file any NDA or BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information.

In this event, the NDA or BLA must be resubmitted with the additional information.

The resubmitted application is also subject to review before the FDA accepts it for filing.

The application also needs to be published and submitted in an electronic format that can be processed through the FDA’s electronic systems.

If the electronic submission is not compatible with FDA’s systems, the NDA or BLA can be refused for filing.

Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA or BLA.

The FDA reviews the NDA or BLA to determine, among other things, whether the proposed product is safe, potent, and effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with GMPs to assure and preserve the product’s identity, safety, strength, quality, potency and purity.

The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions.

The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

The FDA will likely re-analyze the clinical trial data, which could result in extensive discussions between the FDA and us during the review process.

The review and evaluation of an NDA by the FDA is extensive and time consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if at all.

Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMPs.

The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.

In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements.

After the FDA evaluates the application, manufacturing process and manufacturing facilities, 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.

A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval.

Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA.

The Complete Response Letter may require additional clinical data and/or an additional pi votal Phase 3 clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing.

If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all o f the deficiencies identified in the letter, withdraw the application, or request an opportunity for a hearing.

Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval.

Data obta ined from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data.

There is no assurance that the FDA will ultimately approve a drug product for marketing in the United States and we may encounter significant difficulties or costs during the review process.

If a product receives marketing approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product.

Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved products.

For example, the FDA may require Phase 4 testing which involves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.

The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the drug.

If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS.

The FDA will not approve the NDA without an approved REMS, if required.

A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.

Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products.

Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

During the drug or biological product approval process, the FDA also will determine whether a REMS is necessary to assure the safe use of the biological product.

If the FDA concludes a REMS is needed, the sponsor of the NDA or BLA must submit a proposed REMS;

the FDA will not approve the NDA or BLA without a REMS, if required.

Before approving an NDA or BLA, the FDA may inspect the facilities at which the product is manufactured.

The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with GMP requirements and adequate to assure consistent production of the product within required specifications.

Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical trial sites to assure that the clinical trials were conducted in compliance with IND study requirements and GCP requirements.

To assure GMP and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production, and quality control.

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the NDA or BLA does not satisfy its regulatory criteria for approval and deny approval.

Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the sponsor interprets the same data.

If the agency decides not to approve the NDA or BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the NDA or BLA identified by the FDA.

The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials.

Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval.

If a complete response letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product.

Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling.

The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval.

In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a drug or biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

As a condition for approval, the FDA may also require additional nonclinical testing as a Phase 4 commitment.

One of the performance goals agreed to by the FDA under the PDUFA is to review standard NDAs or BLAs in 10 months from filing and priority NDAs or BLAs in six months from filing, whereupon a review decision is to be made.

The FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs and its review goals are subject to change from time to time.

The review process and the PDUFA goal date may be extended by three months if the FDA requests or the NDA or BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.

Post-Approval Requirements

Maintaining substantial compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial time and financial resources.

Rigorous and extensive FDA regulation of drug and biological products continues after approval, particularly with respect to GMP.

We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize.

Manufacturers of our products are required to comply with applicable requirements in the GMP regulations, including quality control and quality assurance and maintenance of records and documentation.

Following approval, the manufacturing facilities are subject to biennial inspections by the FDA’s and such inspections may result in an issuance of FDA Form 483 deficiency observations, untitled letter, or a warning letter, which can lead to plant shutdown and other more serious penalties and fines.

Prior to the institution of any manufacturing changes, a determination needs to be made whether FDA approval is required in advance.

If not done in accordance with FDA expectations, the FDA may restrict supply and may take further action.

Annual product reports are required to be submitted annually.

Other post-approval requirements applicable to drug and biological products, include reporting of GMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse events, reporting updated safety and efficacy information, and complying with electronic record and signature requirements.

After a n NDA or BLA is approved, the product also may be subject to official lot release.

As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution.

If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot.

The FDA also may perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer.

In addition, the FDA may conduct laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of drug and biological products.

Systems need to be put in place to record and evaluate adverse events reported by health care providers and patients and to assess product complaints.

An increase in severity or new adverse events can result in labeling changes or product recall.

Defects in manufacturing of commercial products can result in product recalls.

We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or inpatient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the internet.

Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions.

Failure to comply with the applicable U.S.

requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity.

FDA sanctions could include refusal to approve pending applications, withdrawal of an approval or license revocation, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties.

Any agency or judicial enforcement action could have a material adverse effect.

Drug and biological product manufacturers and other entities involved in the manufacture and distribution of approved drug and biological products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with GMPs and other laws.

Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain GMP compliance.

Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA or BLA, including withdrawal of the product from the market.

In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product.

Orphan product designation must be requested before submitting an NDA.

After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.

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

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity.

Under the Orphan Drug Act, the FDA may grant Orphan Drug Designation (referred to as “ODD”) to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product.

ODD must be requested before submitting a BLA.

After the FDA grants ODD, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.

ODD does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has ODD receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same biological product for the same indication for seven years, except in limited circumstances, such as not being able to supply the product for patients or showing clinical superiority to the product with orphan exclusivity.

Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity.

Orphan product exclusivity also could block the approval of one of our future product candidates, if any, for seven years if a competitor obtains approval of the same drug product as defined by the FDA or if our product candidate, if any, is determined to be contained within the competitor’s product for the same indication or disease.

Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same drug or biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease.

If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity.

Orphan drug status in the EU has similar, but not identical, benefits.

Expedited Development and Review Programs

The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition.

Fast Track designation applies to the combination of the product and the specific indication for which it is being studied.

The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product.

Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.

Any product submitted to the FDA for marketing, inc luding under a Fast Track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval.

Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies.

The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review.

Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit.

As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials.

If the FDA concludes that a drug shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions as it deems necessary to assure safe use of the drug, such as:

distribution restricted to certain facilities or physicians with special training or experience;

distribution conditioned on the performance of specified medical procedures.

The limitations imposed would be commensurate with the specific safety concerns presented by the drug.

In addition, the FDA currently requires as a condition for accelerated approval, pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Additionally, a drug or biological product may be eligible for designation as a Breakthrough Therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoint.

The benefits of Breakthrough Therapy designation include the same benefits as Fast Track designation, plus intensive guidance from the FDA to ensure an efficient drug development program.

Fast Track designation, priority review, accelerated approval and Breakthrough Therapy designation do not change the standards for approval but may expedite the development or approval process.

Pediatric Clinical Trials

Under the Pediatric Research Equity Act, or PREA, as amended, an NDA or supplement to an NDA must contain data to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

The FDA may grant deferrals for submission of data or full or partial waivers.

The FDCA requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-Phase 2 meeting or as may be agreed between the sponsor and the FDA.

The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information.

The FDA and the sponsor must reach agreement on the PSP.

A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical development programs.

Post-Marketing Requirements

Following approval of a new product, a pharmaceutical or biotechnology company and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on

promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), and requirements for promotional activities involv ing the internet.

The FDA also imposes limitations on industry-sponsored scientific and educational activities.

Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.

Presc ription drug promotional materials must be submitted to the FDA in conjunction with their first use.

Modifications or enhancements to the product or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other r egulators, which may or may not be received or may result in a lengthy review process.

Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S.

Prescription Drug Marketing Act, or the PDMA, a part of the FDCA.

In the United States, once a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA.

The FDA regulations require that products be manufactured in specific facilities, which are inspected as part of the FDA’s review of the NDA, and in accordance with cGMP.

cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP.

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 certain state agencies for compliance with cGMP and other laws.

Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities.

NDA holders using contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms.

These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such facilities or the ability to distribute products manufactured, processed or tested by them.

Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including, among other things, voluntary recall or withdrawal of the product from the market.

The FDA also may require post-approval testing, sometimes referred to as Phase 4 testing, risk minimization action plans and post-marketing surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product.

Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others.

Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures.

Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our future product candidates, if any, under development.

Other Regulatory Matters

Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments.

In the United States, sales, marketing and scientific/educational programs must also comply with state and federal fraud and abuse laws.

Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S.

Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or ACA.

If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply.

The handling of any controlled substances must comply with the U.S.

Controlled Substances Act and Controlled Substances Import and Export Act.

Products must meet applicable child-resistant packaging requirements under the U.S.

Poison Prevention Packaging Act.

Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.

The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action.

Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, inju nctions, voluntary recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts.

In addition, even if a firm c omplies with FDA and other requirements, new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval.

Prohibitions or restrictions on sales or withdrawal of future products marketed by us could ma terially affect our business in an adverse way.

Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example:

(i) changes to future our manufacturing arrangements, if any;

(ii) additions or modifications to product labeling;

(iii) the voluntary recall or discontinuation of our future product candidates, if any;

or (iv) additional record-keeping requirements.

If any such changes were to be imposed, they could adversely affect the operation of our business.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of the FDA approval of our future product candidates, if any, some of our U.S.

patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments.

The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process.

However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date.

The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application, minus any time the applicant did not act with due diligence.

Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent.

PTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.

In the future, we may apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA.

Marketing exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications.

The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity.

A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance.

During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval.

However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder.

The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example for new indications, dosages or strengths of an existing drug.

This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use.

Five-year and three-year exclusivity will not delay the submission or approval of a full NDA.

However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.

Pediatric exclusivity is another type of regulatory market exclusivity in the United States.

Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms.

This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of pediatric trials in accordance with an FDA-issued “Written Request” for such clinical trials.

European Union Drug Development

In the EU our future products, if any, may also be subject to extensive regulatory requirements.

As in the United States, medicinal products can only be marketed if a marketing authorization from the competent regulatory agencies has been obtained.

Similar to the U nited States, the various phases of nonclinical and clinical research in the EU are subject to significant regulatory controls.

Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, settin g out common rules for the control and authorization of clinical trials in the EU , the EU Member States have transposed and applied the provisions of the Directive differently.

This has led to significant variations in the member state regimes.

Under the c urrent regime, before a clinical trial can be initiated it must be approved in each of the EU countries where the clinical trial is to be conducted by two distinct bodies:

the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs.

Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

In April 2014, the EU adopted a new C linical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC.

It will overhaul the current system of approvals for clinical trials in the EU .

Specifically, the new legislation, which will be directly applicable in all member states, aims at simplifying and streamlining the approval of clinical trials in the EU .

For instance, the new Clinical Trials Regulation provides for a streamlined application procedure via a single entry point and strictly defined deadlines for the assessment of clinical trial applications.

It is expected that the new Clinical Trials Regulation will apply following confirmation of full functionality of the Clinical Trials Information System, the centralized EU portal and database f or clinical trials foreseen by the regulation, through an independent audit .

European Union Drug Review and Approval

and the European Economic Area, or EEA, which is comprised of the 27 Member States of the EU plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA.

There are two types of marketing authorizations:

The Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use of the European Medicines Agency, or EMA, and which is valid throughout the entire territory of the EEA.

The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases.

The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.

National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure.

Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in other Member States 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.

Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS.

The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SmPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval.

If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e.

in the RMS and the Member States Concerned).

Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

European Union New Chemical Entity Exclusivity

In the EU, new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity.

This data exclusivity, if granted, prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic application for eight years, after which generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years.

The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.

European Union Orphan Designation and Exclusivity

In the EU, the European Commission, upon the recommendation of the EMA’s Committee for Orphan Medicinal Products, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the EU and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected).

Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the EU would be sufficient to justify the necessary investment in developing the medicinal product.

In the EU, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following medicinal product approval.

This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Orphan drug designation must be requested before submitting an application for marketing approval.

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

Reimbursement

Sales of our future product candidates, if any, will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations.

These third-party payors are increasingly reducing reimbursements for medical products and services.

Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort.

government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products.

Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results.

Decreases in third-party reimbursement for our future product candidates, if any, or a decision by a third-party payor to not cover our future product candidates, if any, could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries.

Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which provide coverage of outpatient prescription drugs.

Unlike Medicare Part A and B, Part D coverage is not standardized.

Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level.

However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class.

Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee.

Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval.

However, any negotiated prices for our future product candidates, if any, covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain.

Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.

Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness.

The plan for the research was published in 2012 by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures are made to Congress.

Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of our future product candidates, if any, if any such product or the condition that it is intended to treat is the subject of a trial.

It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our future product candidates, if any.

If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

The ACA, enacted in March 2010, has a significant impact on the health care industry.

The ACA is intended to expand coverage for the uninsured while at the same time containi ng overall healthcare costs.

With regard to pharmaceutical products, among other things, the ACA expands and increases industry rebates for drugs covered under Medicaid programs and makes changes to the coverage requirements under the Medicare Part D progr am.

Pharmaceutical manufacturers are required to track certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” made or distributed to such entities, as well as any investment interests held by physicians and their immediate family members.

Manufacturers are required to annually report this information to The Center for Medicare and Medicaid services, or CMS, which posts the information on its website.

Since its enactment, there have been challenges to numerous aspects of the ACA, including efforts to repeal and replace the ACA, and the ACA has been modified in a number of respects.

While Congress has not passed repeal legislation to date, the 2017 Tax Reform Act includes a provision repealing the individual mandate, effective January 1, 2019.

Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devises.

On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse the insurers under the ACA.

Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017 and subsequently the lawsuit was dismissed on July 18, 2018.

In addition, CMS has proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through these marketplaces.

Congress will likely consider other legislation to replace elements of the ACA.

We cannot predict how the ACA, its possible repeal or replacement, any further action to modify the ACA, or the political uncertainty surrounding the ACA will affect our business.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted.

On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress.

A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs.

This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, started in April 2013.

On January 2, 2013, then President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011.

The ATRA, among other things, also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed.

The requirements governing drug pricing vary widely from country to country.

For example, the EU provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use.

A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market.

There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products.

Historically, products launched in the EU do not follow price structures of the United States and generally tend to be significantly lower.

Other Healthcare Laws and Compliance Requirements

If we obtain regulatory approval of our future product candidates, if any, we may be subject to various federal and state laws targeting fraud and abuse in the healthcare industry.

These laws may impact, among other things, our proposed sales, marketing and education programs.

In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business.

The laws that may affect our ability to operate include:

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or

reward, or in return for, either t he referral of an individual for, or the purchase, order, or recommendation of, an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an obligation to pay money to the federal government;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

the federal transparency laws, including the federal Physician Payment Sunshine Act, which is part of the ACA, that requires applicable manufacturers of covered drugs and biologics to disclose payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

As of March 1, 2020, we employed 7 full-time employees all of whom are in the general and administrative function.

We have never had a work stoppage, and none of our employees is represented by a labor organization or is under any collective-bargaining arrangements.

We consider our employee relations to be good.

Our Corporate Information

We were incorporated under the laws of the State of Delaware in 2005.

Our principal executive offices are located at 3 Center Plaza, Suite 610, Boston, MA 20108, and our telephone number is (617) 622-4003.

Our website address is www.zafgen.com.

We may post material information on our website, therefore please check our website to see if we have posted any material information.

Available Information

We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Please call the Securities and Exchange Commission, or the SEC, at 1-800-SEC-0330 for more information about the operation of the SEC’s public reference room.

You can review our electronically filed reports and other information that we file with the SEC on the SEC’s Internet website at http://www.sec.gov.

We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons.

The information contained on, or that can be accessed through, our website is not a part of or incorporated by reference in this Annual Report.

Expedited Review and Approval Programs

The FDA has various programs, including Fast Track designation, priority review, accelerated approval, and breakthrough therapy designation, that are intended to expedite or simplify the process for the development and FDA review of drug and biological products that are intended for the treatment of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs.

The purpose of these programs is to provide important new drug and biological products to patients earlier than under standard FDA review procedures.

To be eligible for a Fast Track designation, the FDA must determine, based on the request of a sponsor, that a drug or biological product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need.

The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors.

In addition to other benefits, such as the ability to have greater interactions with the FDA, the FDA may initiate review of sections of a Fast Track NDA or BLA before the application is complete, a process known as rolling review.

The FDA may give a priority review designation, such as a rare pediatric disease designation, to drug or biological products that treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness.

A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines.

Most products that are eligible for Fast Track designation may also be considered appropriate to receive a priority review.

In addition, drug and biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug or biological product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.

As a condition of approval, the FDA may require a sponsor of a drug or biological product receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug or biological product may be subject to accelerated withdrawal procedures.

Moreover, under the Food and Drug Administration Safety and Innovation Act enacted in 2012, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biological product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.

Drug and biological products designated as breakthrough therapies are also eligible for accelerated approval.

The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decides that the time period for FDA review or approval will not be shortened.

Furthermore, fast-track designation, priority review, accelerated approval and breakthrough therapy designation, do not change the standards for approval and may not ultimately expedite the development or approval process.

Biologics Price Competition and Innovation Act

The Biologics Price Competition and Innovation Act of 2009, or BPCIA, which was enacted as part of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or PPACA, created an abbreviated approval pathway for biological products that are demonstrated to be "biosimilar" or "interchangeable" with an FDA-licensed reference biological product via an approved BLA.

Biosimilarity to an approved reference product requires that there be no differences in conditions of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency.

Biosimilarity is demonstrated in steps beginning with rigorous analytical studies or "fingerprinting", in vitro studies, in vivo animal studies, and generally at least one clinical study, absent a waiver from the Secretary of Health and Human Services.

The biosimilarity exercise tests the hypothesis that the investigational product and the reference product are the same.

If at any point in the stepwise biosimilarity process a significant difference is observed, then the products are not biosimilar, and the development of a stand-alone NDA or BLA is necessary.

In order to meet the higher hurdle of interchangeability, a sponsor must demonstrate that the biosimilar product can be expected to produce the same clinical result as the reference product, and for a product that is administered more than once, that the risk of switching between the reference product and biosimilar product is not greater than the risk of maintaining the patient on the reference product.

Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation that are still being evaluated by the FDA.

Under the BPCIA, a reference biologic is granted 12 years of exclusivity from the time of first licensure of the reference product.

Regulation Outside of the United States

In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing clinical studies, commercial sales, and distribution of our products.

Most countries outside of the United States require that clinical trial applications be submitted to and approved by the local regulatory authority for each clinical study.

In addition, whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of countries outside the U.S.

before we can commence clinical studies or marketing of the product in those countries.

The approval process and requirements vary from country to country, so the number and type of nonclinical, clinical, and manufacturing studies needed may differ, and the time may be longer or shorter than that required for FDA approval.

To obtain regulatory approval of an orphan drug under the EU regulatory system, we are mandated to submit a Marketing Authorization Application, or MAAs, to be assessed in the Centralized Procedure.

The centralized procedure, which came into operation in 1995, allows applicants to obtain a marketing authorization that is valid throughout the EU.

It is compulsory for medicinal products manufactured using biotechnological processes, for orphan medicinal products and for human products containing a new active substance which was not authorized in the Community before 20 May 2004 (date of entry into force of Regulation (EC) No 726/2004) and which are intended for the treatment of AIDS, cancer, neurodegenerative disorder or diabetes.

The centralized procedure is optional for any other products containing new active substances not authorized in the Community before 20 May 2004 or for products which constitute a significant therapeutic, scientific or technical innovation or for which a Community authorization is in the interests of patients at Community level.

When a company wishes to place on the market a medicinal product that is eligible for the centralized procedure, it sends an application directly to the European Medicines Agency, or EMA, to be assessed by the Committee for Medicinal Products for Human Use, or CHMP.

The CHMP is responsible for conducting the assessment of whether a medicine meets the required quality, safety and efficacy requirements, and whether the product has a positive risk/benefit/risk profile.

The procedure results in a Commission decision, which is valid in all EU Member States.

Centrally authorized products may be marketed in all Member States.

Centralized procedure:

Full copies of the MA application are sent to a rapporteur and a co-rapporteur designated by the competent EMA scientific committee.

They coordinate the EMA's scientific assessment of the medicinal product and prepare draft reports.

Once the draft reports are prepared (other experts might be called upon for this purpose), they are sent to the CHMP, whose comments or objections are communicated to the applicant.

The rapporteur is therefore the privileged interlocutor of the applicant and continues to play this role, even after the MA has been granted.

The rapporteur and co-rapporteur then assess the applicant's replies, submit them for discussion to the CHMP and, taking into account the conclusions of this debate, prepare a final assessment report.

Once the evaluation is completed, the CHMP gives a favorable or unfavorable opinion as to whether to grant the authorization.

When the opinion is favorable, it shall include the draft summary of the product's characteristics, the package leaflet and the texts proposed for the various packaging materials.

The time limit for the evaluation procedure is 210 days.

The EMA then has fifteen days to forward its opinion to the Commission.

This is the start of the second phase of the procedure:

the decision-making process.

The Agency sends to the Commission its opinion and assessment report, together with annexes containing:

the SmPC, or Annex 1;

the particulars of the MAH responsible for batch release, the particulars of the manufacturer of the active substance and the conditions of the marketing authorization, or Annex 2;

and the labelling and the package leaflet, or Annex 3.

The annexes are translated into the 22 other official languages of the EU During the decision-making process, the Commission services verify that the marketing authorization complies with Union law.

The Commission has fifteen days to prepare a draft decision.

The medicinal product is assigned a Community registration number, which will be placed on its packaging if the marketing authorization is granted.

During this period, various Commission directorates-general are consulted on the draft marketing authorization decision.

The draft decision is then sent to the Standing Committee on Medicinal Products for Human Use, (Member States have one representative each in both of these committees) for their opinions.

The Centralized Procedure provides for the grant of a single marketing authorization that is valid for all EU member states.

The Decentralized Procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state, known as the reference member state.

Under this procedure, an applicant submits an application, or dossier, and related materials including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states.

The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application.

Within 90 days of receiving the reference member state's assessment report, each concerned member state must decide whether to approve the assessment report and related materials.

If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to the public health, the disputed points may eventually be referred to the European Commission, whose decision is binding on all member states.

Applications from persons or companies seeking "orphan medicinal product designation" for products they intend to develop for the diagnosis, prevention, or treatment of life-threatening or very serious conditions that affect not more than 5 in 10,000 persons in the EU are reviewed by the Committee for Orphan Medicinal Products, or COMP.

In addition, orphan drug designation can be granted if the drug is intended for a life threatening, seriously debilitating, or serious and chronic condition in the EU and that without incentives it is unlikely that sales of the drug in the EU would be sufficient to justify developing the drug.

Orphan drug designation is only available if there is no other satisfactory method approved in the EU of diagnosing, preventing, or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients.

We have obtained orphan drug designation for CTX-1601.

Orphan drug designation provides opportunities for fee reductions, protocol assistance and access to the centralized procedure before and during the first year after marketing approval.

Fee reductions are not limited to the first year after marketing approval for small and medium enterprises.

In addition, if a product which has an orphan drug designation subsequently receives EMA marketing approval for the indication for which it has such designation, the product is entitled to orphan market exclusivity, which means the EMA may not approve any other application to market a similar drug for the same indication for a period of 10 years.

The exclusivity period may be reduced to six years if the designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Competitors may receive marketing approval of different drugs or biologics for the indications for which the orphan product has exclusivity.

In order to do so, however, they must demonstrate that the new drugs or biologics are clinically superior to the existing orphan product.

This demonstration of clinical superiority may be done at the time of initial approval or in post-approval studies, depending on the type of marketing authorization granted.

A Pediatric Investigation Plan, or PIP, in the EU is aimed at ensuring that the necessary data are obtained to support the authorization of a medicine for children, through studies in children.

All applications for marketing authorization for new medicines have to include the results of studies as described in an agreed PIP, unless the study results are deferred, or the medicine is exempt because of a waiver.

This requirement also applies when a marketing-authorization holder wants to add a new indication, pharmaceutical form, or route of administration for a medicine that is already authorized and covered by intellectual property rights.

Several rewards and incentives for the development of pediatric medicines for children are available in the E.U.

Medicines authorized across the E.U.

with the results of studies from a PIP included in the product information are eligible for an extension of their supplementary protection certificate by six months.

This is the case even when the studies’ results are negative.

For orphan medicines, the incentive is an additional two years of market exclusivity.

Scientific advice and protocol assistance at the Agency are free of charge for questions relating to the development of pediatric medicines.

left the EU on January 31, 2020 following which, existing EU medicinal product legislation continued to apply in the U.K.

during the transition period under the terms of the EU-UK Withdrawal Agreement.

A transition period, which ended on December 31, 2020, maintained access to the EU single market and to the global trade deals negotiated by the EU on behalf of its members.

The transition period provided time for the U.K.

and EU to negotiate a framework for partnership for the future, which was then crystallized in the Trade and Cooperation Agreement, or TCA, and became effective on the January 1, 2021.

From January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or MHRA, will be the U.K.’s standalone medicines and medical devices regulator.

As a result of the Northern Ireland protocol, different rules will apply in Northern Ireland than in England, Wales and Scotland (together Great Britain, or GB);

broadly, Northern Ireland will continue to follow the EU regulatory regime, but its national competent authority will remain the MHRA.

The MHRA has published a draft guidance on how various aspects of the U.K.

regulatory regime for medicines will operate in GB and in Northern Ireland following the expiry of the Brexit transition period on December 31, 2020.

The guidance includes clinical trials, marketing authorizations, importing, exporting and pharmacovigilance and is relevant to any business involved in the research, development or commercialization of medicines in the U.K.

The new guidance will be given effect via the Human Medicines Regulations (Amendment etc.) (EU Exit) Regulations 2019, or the Exit Regulations.

regulatory regime largely mirrors that of the EU.

The MHRA has introduced changes to national licensing procedures, including procedures to prioritize access to new medicines that will benefit patients, an accelerated assessment procedure and new routes of evaluation for novel products and biotechnological products.

All existing E.U.

MAs for centrally authorized products will automatically be converted (grand fathered) into U.K.

MAs free-of-charge on January 1, 2021.

There will be no pre-marketing authorization orphan designation.

Instead, the MHRA will review applications for orphan designation in parallel to the corresponding MA application.

The criteria are essentially the same, but have been tailored for the GB market, i.e., the prevalence of the condition in GB (rather than the EU) must not be more than 5 in 10,000.

Should an orphan designation be granted, the period or market exclusivity will be set from the date of first approval of the product in GB or EU/European Economic Area, wherever is earliest.

Healthcare Laws and Regulations

Sales of our product candidate, if approved, or any other future product candidate will be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we might conduct our business.

The healthcare laws and regulations that may affect our ability to operate include the following:

The federal Anti-Kickback Statute makes it illegal for any person or entity to knowingly and willfully, directly or indirectly, solicit, receive, offer, or pay any remuneration that is in exchange for or to induce the referral of business, including the purchase, order, lease of any good, facility, item or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid.

The term “remuneration” has been broadly interpreted to include anything of value;

Federal false claims and false statement laws, including the federal civil False Claims Act, prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for items or services, including drugs, that are false or fraudulent;

HIPAA created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors or making any false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their implementing regulations, impose obligations on certain types of individuals and

entities regarding the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information;

The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

The Foreign Corrupt Practices Act, or FCPA prohibits U.S.

businesses and their representatives from offering to pay, paying, promising to pay or authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business.

Many states have similar laws and regulations, such as anti-kickback and false claims laws that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs.

Additionally, we may be subject to state laws that require pharmaceutical companies to comply with the federal government’s and/or pharmaceutical industry’s voluntary compliance guidelines, state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, as well as state and foreign laws governing the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA.

Additionally, to the extent that our product is sold in a foreign country, we may be subject to similar foreign laws.

Healthcare Reform

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system.

The United States government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs.

In recent years, Congress has considered reductions in Medicare reimbursement levels for drugs administered by physicians.

CMS, the agency that administers the Medicare and Medicaid programs, also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs.

Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products.

While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates.

Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payers.

The P atient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable Care Act substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry.

The Affordable Care Act is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms.

Among other things, the Affordable Care Act expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum Medicaid rebate for both branded and generic drugs, expanded the 340B program, and revised the definition of average manufacturer price , or AMP , which could increase the amount of Medicaid drug rebates manufacturers are required to pay to states.

The legislation also extended Medicaid drug rebates, previously due only on fee-for-service Medicaid utilization, to include the utilization of Medicaid managed care organizations as well and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the amount of rebates due on those drugs.

On February 1, 2016, CMS issued final regulations to implement the changes to the Medicaid Drug Rebate program under the Affordable Care Act.

These regulations became effective on April 1, 2016.

Since that time, there have been significant ongoing efforts to modify or eliminate the Affordable Care Act .

On January 20, 2017, President Trump signed an executive order directing federal agencies to exercise existing authorities to reduce burdens associated with the Affordable Care Act pending further action by Congress.

In October 2017, he signed an Executive Order which directed federal agencies to modify how the Affordable Care Act is implemented.

The Tax Act, enacted on December 22, 2017, repealed the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, as amended, or the Code, commonly referred to as the individual mandate,

Other legislative changes have been proposed and adopted since the passage of the Affordable Care Act.

The Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress.

The Joint Select Committee did not achieve its targeted deficit reduction of an amount greater than $1.2 trillion for the fiscal years 2012 through 2021, triggering the legislation’s automatic reductions to several government programs.

These reductions included aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which went into effect in April 2013.

Subsequent litigation extended the 2% reduction, on average, to 2030 unless additional Congressional action is taken.

However, pursuant to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, the 2% Medicare sequester reductions have been suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic.

On January 2, 2013, the American Taxpayer Relief Act was signed into law, which, among other things, reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further legislative and regulatory changes under the Affordable Care Act remain possible, although the new Administration under President Biden has signaled that it plans to build on the Affordable Care Act and expand the number of people who are eligible for subsidies under it.

President Biden indicated that he intends to use executive orders to undo changes to the Affordable Care Act made by the former administration and would advocate for legislation to build on the Affordable Care Act.

It is unknown what form any such changes or any law would take, and how or whether it may affect our business in the future.

We expect that changes or additions to the Affordable Care Act, the Medicare and Medicaid programs, changes allowing the federal government to directly negotiate drug prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry.

The Affordable Care Act has been subject to challenges in the courts.

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.

On December 18, 2019, the Fifth Circuit U.S.

Court of Appeals held that the individual mandate is unconstitutional and remanded the case to the Texas District Court to reconsider its earlier invalidation of the entire Affordable Care Act.

An appeal was taken to the U.S.

Supreme Court which heard oral arguments in the case on November 10, 2020.

A ruling is expected in 2021.

The Affordable Care Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government.

Each individual pharmaceutical manufacturer pays a prorated share of the branded prescription drug fee, based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law.

Furthermore, the law requires manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” 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,” by increasing from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D.

The Affordable Care Act also expanded the Public Health Service’s 340B drug pricing program.

The 340B drug pricing program requires participating manufacturers to agree to charge statutorily defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs.

The Affordable Care Act expanded the 340B program to include additional types of covered entities:

certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by the Affordable Care Act.

Because the 340B ceiling price is determined based on AMP and Medicaid drug rebate data, revisions to the Medicaid rebate formula and AMP definition could cause the required 340B discounts to increase.

Payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives as well.

For example, CMS may develop new payment and delivery models, such as bundled payment models.

Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products.

Such scrutiny has resulted in several recent U.S.

Congressional inquiries and proposed, and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies for pharmaceutical products.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical 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.

We expect that additional federal, state and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.

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What changed 10-K

Item 1. Business