What changed in this filing

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Item 1. Business

2021-02-11 compared with 2020-02-26 · 481 added, 299 removed, 322 unchanged (71% of the section changed)

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We are committed to the use of technologies that support sound science, including genetics and genomics, in drug discovery, clinical trials and the commercial positioning of our products.

Our commercial portfolio is currently comprised of two products, HETLIOZ ® for the treatment of Non-24 and Fanapt ® for the treatment of schizophrenia.

HETLIOZ ® is the first treatment for Non-24 approved by the FDA.

Our commercial portfolio is currently comprised of two products, HETLIOZ ® for the treatment of Non-24-Hour Sleep-Wake Disorder (Non-24) and nighttime sleep disturbances in Smith-Magenis Syndrome (SMS) and Fanapt ® for the treatment of schizophrenia.

HETLIOZ ® is the first treatment for patients with Non-24 and SMS approved by the FDA.

In addition, we have a number of drugs in development, including:

HETLIOZ ® (tasimelteon) for the treatment of jet lag disorder, Smith-Magenis Syndrome (SMS), pediatric Non-24 and delayed sleep phase disorder (DSPD);

Fanapt ® (iloperidone) for the treatment of bipolar disorder and a long acting injectable (LAI) formulation program for the treatment of schizophrenia;

Tradipitant (VLY-686), a small molecule neurokinin-1 receptor (NK-1R) antagonist, for the treatment of atopic dermatitis, gastroparesis and motion sickness;

• HETLIOZ ® (tasimelteon) for the treatment of jet lag disorder, pediatric Non-24, delayed sleep phase disorder (DSPD) and autism spectrum disorder (ASD);

• Fanapt ® (iloperidone) for the treatment of bipolar disorder and Parkinson's disease psychosis (PDP) and a long acting injectable (LAI) formulation for the treatment of schizophrenia;

• Tradipitant (VLY-686), a small molecule neurokinin-1 receptor (NK-1R) antagonist, for the treatment of gastroparesis, motion sickness, atopic dermatitis, and COVID-19 pneumonia;

• VTR-297, a small molecule histone deacetylase (HDAC) inhibitor for the treatment of hematologic malignancies and with potential use as a treatment for several oncology indications;

• Portfolio of Cystic Fibrosis Transmembrane Conductance Regulator (CFTR) activators and inhibitors, including VSJ-110 for the treatment of dry eye and ocular inflammation and BPO-27 for the treatment of secretory diarrhea disorders, including cholera;

• VQW-765, a small molecule nicotinic acetylcholine receptor partial agonist, with potential use for the treatment of psychiatric disorders.

Portfolio of Cystic Fibrosis Transmembrane Conductance Regulator (CFTR) activators and inhibitors for the treatment of dry eye and ocular inflammation and for the treatment of secretory diarrhea disorders, including cholera.

We were incorporated in 2003 and are headquartered in Washington, D.C.

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• Utilize novel and innovative approaches in pursuit of each of these strategies.

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Commercialized Products

Our commercial product portfolio consists of:

2019 Net Sales (in millions)

United States

Schizophrenia

Product Indication 2020 Net Sales (in millions) Geography

Non-24 (capsules)

Nighttime sleep disturbances in SMS (capsules and HETLIOZ LQ TM oral suspension)

$160.7 United States

In January 2014, HETLIOZ ® was approved in the U.S.

for the treatment of Non-24 Sleep-Wake Disorder otherwise known as Non-24.

Europe (Non-24 Only)

Schizophrenia (tablets) $87.5 United States

HETLIOZ ® for Non-24 (capsules)

In January 2014, HETLIOZ ® capsules were approved in the U.S.

for the treatment of adults with Non-24.

Non-24 is a serious, rare and chronic circadian rhythm sleep-wake disorder characterized by the inability to entrain (synchronize) the master body clock with the 24-hour day-night cycle.

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In addition, in July 2015, the European Commission (EC) granted centralized marketing authorization with unified labeling for HETLIOZ ® for the treatment of Non-24 in totally blind adults and included post-marketing commitments related to a pediatric investigation plan.

This authorization is valid in the 27 countries that are members of the European Union (E.U.), as well as European Economic Area members Iceland, Liechtenstein and Norway.

This authorization was renewed in July 2020 for an unlimited duration, and is valid in the 27 countries that are members of the European Union (E.U.), as well as European Economic Area members Iceland, Liechtenstein and Norway.

HETLIOZ ® was launched commercially in Germany in August 2016.

We have applied for renewal of this marketing authorization, which expires in the ordinary course in July 2020.

In January 2010, the FDA granted orphan drug designation status for HETLIOZ ® in Non-24 in blind individuals.

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Blind individuals who develop Non-24 lack the light sensitivity necessary to synchronize the master body clock in the brain with the 24-hour day-night cycle.

More rarely, Non-24 also can affect sighted individuals.

Non-24 also can affect sighted individuals.

As with the totally blind, Non-24 in sighted individuals appears to be a comorbidity with certain other conditions.

For example, a comorbidity has been established between psychiatric mood disorders and Non-24.

Hospitalized individuals with neurological and psychiatric disorders can become insensitive to social cues, which may predispose them to the development of Non-24.

Hospitalized individuals with neurological and psychiatric disorders can become insensitive to social cues, which

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may predispose them to the development of Non-24.

This recognition of comorbidity led Vanda to an initiative to engage with the psychiatric community.

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See Competition below for a discussion of commonly prescribed drugs for patients with sleep disorders.

HETLIOZ ® for SMS (capsules and oral suspension)

In December 2020, HETLIOZ ® capsules and oral suspension (HETLIOZ LQ TM ) were approved in the U.S.

for the treatment of adults and children, respectively, with nighttime sleep disturbances in SMS.

SMS is a developmental disorder that is caused by a small deletion of human chromosome 17p.

In more rare cases, SMS is caused by a point mutation in the RAI1 gene, which resides in the deleted region.

HETLIOZ ® is the first FDA-approved medication for patients with SMS.

In April 2010, the FDA granted orphan drug designation status for HETLIOZ ® in the treatment of sleep disorder in SMS.

SMS is estimated to affect 1/15,000-25,000 births in the U.S.

SMS is not usually inherited but rather is caused by a de-novo deletion.

Patients with SMS present with a number of physical, mental and behavioral problems.

The most common symptom of SMS is a severe sleep disorder associated with significant disruption in the lives of patients and their families.

While there are no FDA approved treatments for patients with SMS other than HETLIOZ ® , there are a number of drugs approved and prescribed for patients with sleep disorders that may be used to treat patients with SMS.

The most commonly prescribed drugs are hypnotics.

See Competition below for a discussion of commonly prescribed drugs for patients with sleep disorders.

Fanapt ® for schizophrenia (tablets)

Fanapt ® is a product for the treatment of schizophrenia.

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marketing approval of Fanapt ® for the acute treatment of schizophrenia in adults.

In October 2009, we entered into an amended and restated sublicense agreement with Novartis.

We had originally entered into a sublicense agreement with Novartis in June 2004 pursuant to which we obtained certain worldwide exclusive licenses from Novartis relating to Fanapt ® .

Pursuant to the amended and restated sublicense agreement, Novartis had exclusive commercialization rights to all formulations of Fanapt ® in the U.S.

At that time, we had certain worldwide exclusive rights relating to Fanapt ® , which we obtained pursuant to a sublicense agreement entered into with Novartis Pharma AG (Novartis) in June 2004.

In October 2009, we amended and restated our sublicense agreement with Novartis pursuant to which Novartis retained exclusive commercialization rights to all formulations of Fanapt ® in the U.S.

In January 2010, Novartis launched Fanapt ® in the U.S.

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The negative opinion was upheld upon appeal in November 2017.

(See Part I, Item 3, Legal Proceedings of this Annual Report for information relating to subsequent proceedings in this matter.)

(See Note 17, Legal Matters, to the consolidated financial statements in Part II, Item 8 of this Annual Report, which is incorporated herein by reference, for information relating to subsequent proceedings in this matter.)

Schizophrenia is a chronic, debilitating mental disorder characterized by hallucinations, delusions, racing thoughts and other psychotic symptoms (collectively referred to as “positive symptoms”), as well as moodiness, anhedonia (inability to feel pleasure), loss of interest, eating disturbances and withdrawal (collectively referred to as “negative symptoms”), and attention and memory deficits (collectively referred to as “cognitive symptoms”).

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See Competition below for a discussion of commonly prescribed atypical antipsychotics in addition to Fanapt ® .

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Research and Development

We have the following products in clinical development or under regulatory review:

We have built a research and development organization that includes extensive expertise in the scientific disciplines of pharmacogenetics and pharmacogenomics.

We operate cross-functionally and are led by an experienced research and development management team.

We use rigorous project management techniques to assist us in making disciplined strategic research and development program decisions and to help limit the risk profile of our product pipeline.

We also access relevant market information and key opinion leaders in creating target product profiles and, when appropriate, as we advance our programs towards commercialization.

We engage third parties to conduct portions of our preclinical research.

In addition, we utilize multiple clinical sites to conduct our clinical trials;

however, we are not substantially dependent upon any one of these sites for our clinical trials nor do any of them conduct a major portion of our clinical trials.

Our product pipeline currently consists of the following products in clinical development or under regulatory review:

HETLIOZ ® for jet lag disorder

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The JET study showed effectiveness in treating travelers who traveled either five or eight time zones from Washington, DC to London and San Francisco or Los Angeles to London, respectively.

The results support the previously reported pivotal JET5 and JET8 Phase III studies, which demonstrated significant effects in circadian advances of five and eight hours, respectively.

The results support the previously reported pivotal JET5 and JET8 Phase III studies, which demonstrated improvements in patients who experienced circadian advances of five and eight hours, respectively.

Additionally, in September 2018, we announced results from a driving study, which demonstrated that tasimelteon did not impair measures of driving performance.

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The FDA accepted the filing of our sNDA for HETLIOZ ® for the treatment of jet lag disorder in December 2018.

The FDA determined the action target date under the Prescription Drug User Fee Act Amendments of 2017 (PDUFA-VI) to be August 16, 2019.

Vanda received a complete response letter (CRL) on August 16, 2019 from the FDA related to the sNDA for HETLIOZ ® for the treatment of jet lag disorder, in which the FDA asserted that the measures demonstrating improved sleep were of unclear clinical significance.

We met with the FDA to discuss the CRL in a Post Action meeting and are continuing to pursue approval of the sNDA.

The FDA determined the action target date under the Prescription Drug User Fee Act Amendments of 2017 (PDUFA-VI) to be August 16, 2019, and on that date, we received a complete response letter (CRL) from the FDA.

The FDA asserted in the CRL that the measures demonstrating improved sleep were of unclear clinical significance.

We met with the FDA to discuss the CRL in a Post Action meeting and we are determining our next steps.

Jet lag disorder is a common circadian disorder frequently observed in millions of travelers who cross multiple time zones.

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residents make trips abroad each year to overseas destinations in Europe, the Middle East and Asia.

HETLIOZ ® for SMS

We reported results from an SMS placebo controlled study in December 2018, which showed that HETLIOZ ® improved sleep quality and increased sleep duration in patients with SMS.

SMS is a rare genetic disorder caused by a deletion on chromosome 17.

National Institute of Health estimates that SMS affects approximately one in 15,000 to 25,000 births in the U.S.

We met with the FDA in the fourth quarter of 2019 to discuss the HETLIOZ ® SMS clinical study results.

We submitted an sNDA, including data for a liquid formulation, and expect regulatory action by the FDA in 2020.

HETLIOZ ® for pediatric Non-24

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This delay in falling asleep causes difficulty in waking up at the desired time and affects social and occupational functioning.

Fanapt ® for Bipolar Disorder (oral tablets)

HETLIOZ ® for ASD

A clinical program of HETLIOZ ® for the treatment of sleep disturbances in ASD is expected to be initiated in the first quarter of 2021.

Sleep disturbances in ASD are a high unmet medical need in people with ASD and have been characterized in the literature to include difficulties falling and staying asleep.

Fanapt ® for bipolar disorder

A Phase III study of Fanapt ® in bipolar disorder is ongoing.

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People with bipolar disorders generally have periods of normal mood as well.

Fanapt ® for schizophrenia (LAI)

In October 2018, we enrolled our first patient in a pharmacokinetic study of the LAI formulation of Fanapt ® .

This pharmacokinetic study is ongoing and will serve to inform the dosing for a later clinical study of Fanapt ® LAI for the treatment of schizophrenia.

Tradipitant for Atopic Dermatitis

We announced results in September 2017 from a randomized Phase II clinical study of tradipitant as a monotherapy in the treatment of patients with atopic dermatitis.

Tradipitant was shown to improve the intensity of the worst itch patients experienced, as well as atopic dermatitis disease severity.

On the pre-specified primary endpoint of Average Itch Visual Analog Scale (VAS), tradipitant showed improvement over placebo, but this improvement was not significant due to high placebo effect and the lack of sensitivity of this measure.

In June 2018, we initiated EPIONE, a Phase III study of tradipitant for pruritus in atopic dermatitis.

In October 2019, we began enrolling patients in EPIONE 2, a second Phase III clinical study of tradipitant in atopic dermatitis.

We announced results of EPIONE in February 2020.

The EPIONE study did not meet its primary endpoint in reduction of pruritus across the overall study population.

However, the antipruritic effect of tradipitant was robust in the mild atopic dermatitis population.

The EPIONE study continued to demonstrate that tradipitant is safe and well-tolerated.

We plan to reassess the ongoing EPIONE 2 study of tradipitant in atopic dermatitis.

Atopic dermatitis is a chronic, relapsing inflammatory skin disorder characterized by the symptom of intense and persistent pruritus or itch.

Other clinical features include erythema, excoriation, edema, lichenification, oozing and xerosis.

It is a common skin disorder affecting millions of people worldwide.

Currently, there are very few safe systemic treatments available for atopic dermatitis, representing a significant unmet medical need in this population.

A 2015 Decision Resources Group report estimated that 9.8 million individuals were diagnosed with atopic dermatitis in the U.S., of which approximately 6.4 million were drug-treated atopic dermatitis patients.

Fanapt ® for PDP

A clinical program of Fanapt ® in PDP is expected to begin in 2021.

Parkinson's disease is a neurodegenerative disorder that affects predominately dopaminergic neurons in a specific area of the brain called substantia nigra.

People with Parkinson's disease experience a combination of hallucinations and delusions and the disease is associated with significant caregiver burden.

Tradipitant for gastroparesis

We announced results in December 2018 from a randomized clinical study (2301) of tradipitant as a monotherapy in the treatment of gastroparesis.

Several symptom severity scales were used to assess gastroparesis symptoms, including the Gastroparesis Symptom Index (GCSI), Patients Assessment of Upper Gastrointestinal Disorders-Symptoms (PAGI-SYM), and Patient Global Impression of Change (PGI-C) as well as a Clinician Global Impression of Severity (CGI-S).

We announced results in December 2018 from a Phase II randomized clinical study (2301) of tradipitant as a monotherapy in the treatment of gastroparesis.

Several symptom severity scales were used to assess gastroparesis symptoms, including the Gastroparesis Symptom Index (GCSI), Patients Assessment of Upper Gastrointestinal Disorders-Symptoms

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(PAGI-SYM), and Patient Global Impression of Change (PGI-C) as well as a Clinician Global Impression of Severity (CGI-S).

Tradipitant met the primary endpoint of the study of change in nausea score as measured by patient daily diaries and also met the related endpoint of improvement in the number of nausea free days.

Tradipitant also showed significant improvement in most of the secondary endpoints studied, including several key scales reflecting overall gastroparesis symptoms, specifically GCSI, PAGI-SYM, CGI-S, and PGI-C.

We are currently enrolling patients in a Phase III study of tradipitant in the treatment of both diabetic and idiopathic gastroparesis.

This Phase III study is a 12-week study of similar design to the Phase II study in both target population and endpoints.

We believe that tradipitant has a well-established safety profile, as demonstrated by the results of extensive testing in animals and humans.

Despite these results, however, the FDA informed us in December 2018 that in order to treat patients beyond 12 weeks, we will have to conduct a 9-month non-rodent chronic toxicity study, which currently limits our ability to collect safety data in humans for more than 12 weeks.

The non-rodent study required by the FDA necessitates the sacrifice of dozens of animals and we have disputed the necessity of a 9-month non-rodent chronic toxicity study.

In February 2019, we filed a lawsuit in the U.S.

District Court for the District of Columbia (DC District Court) challenging the FDA’s position, but ultimately did not prevail.

Despite our disagreement with the FDA, the preclinical package has allowed us to continue to conduct all of the efficacy studies necessary for NDA filing.

Moreover, in July 2020, the FDA approved the use of tradipitant for up to six months with an option of renewal for an individual patient who requested expanded access.

Since then, other patients who experienced a unique benefit in tradipitant studies have requested expanded access.

The expanded access program is ongoing and a number of patients have initiated treatment.

Although this expanded access program is not intended for data collection, we will collect safety data from this cohort of expanded access patients and include this data in its NDA for tradipitant for the treatment of gastroparesis;

however, the FDA may disregard such safety data when reviewing the NDA.

The lack of long-term (>12 weeks in humans) safety data would likely impact the FDA’s willingness to approve tradipitant for a chronic indication.

However, because long-term safety data is not normally a requirement for short-term indications, and with a preclinical profile that has not precluded clinical development, we believe the package is complete for any NDA filing to treat patients for 12 weeks or less.

In gastroparesis, for example, the FDA has communicated to us that it is considering an indication for the short-term relief of nausea in gastroparesis.

While this short-term indication is not preferred, we would consider accepting this limited indication while continuing to pursue a chronic indication.

Gastroparesis is a serious medical condition characterized by delayed gastric emptying associated with the symptoms of nausea, vomiting, bloating, fullness after meals and abdominal pain, along with significant impairment of social and occupational functioning.

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to be over 5 million patients, many of whom remain undiagnosed.

In April 2018, we submitted a protocol amendment to the FDA, proposing a 52-week open-label extension (OLE) period for patients who had completed the tradipitant Phase II clinical study (2301) in gastroparesis.

In May 2018, based on feedback from the FDA, we amended the protocol limiting the duration of treatment in the 2301 study to a total of three months, while continuing to seek further dialogue with the FDA on extending the study duration to 52-weeks.

As a part of this negotiation process, in September 2018, we submitted a new follow-on 52-week OLE protocol to the FDA (2302) for patients who had completed the 2301 study.

While waiting for further feedback, no patients were ever enrolled in any study beyond 12 weeks.

On December 19, 2018, the FDA imposed a partial clinical hold (PCH) on the two proposed studies, stating that we are required first to conduct additional chronic toxicity studies in canines, monkeys or minipigs before allowing patients access in any clinical protocol beyond 12 weeks.

At that time, the FDA informed us that the original PCH was not based on any safety or efficacy data related to tradipitant, but rather that these additional toxicity studies were required by a guidance document.

Subsequently, the FDA has taken the position that an additional study was required in order for the FDA to have adequate toxicology data to undertake a risk analysis of tradipitant.

On February 5, 2019, we filed a lawsuit against the FDA in the U.S.

District Court for the District of Columbia (DC District Court), challenging the FDA’s legal authority to issue the PCH, and seeking an order to set it aside.

In February 2019, the FDA filed a Motion for Voluntary Remand to the Agency and for a Stay of the Case.

In March 2019, the DC District Court granted the FDA’s request for voluntary remand and returned the matter to the FDA for further consideration.

In April 2019, the FDA provided its remand response, in which it indicated that, upon review of scientific literature and tradipitant data, it believes that a PCH continues to be appropriate until we have safety data from a nine-month non-rodent toxicity study.

In May 2019, we filed an amended complaint, and in July 2019, we filed a Motion for Summary Judgment based on our continuing belief after review of the FDA’s remand response that additional chronic toxicity studies are unjustified, and that we have provided the FDA with sufficient information regarding the safety of tradipitant to justify the continued study of tradipitant in patients beyond 12 weeks, in accordance with applicable law and FDA regulations.

The FDA filed a reply and cross-motion for summary judgment in October 2019 and an oral hearing was held on December 13, 2019.

On January 31, 2020, the Court granted the FDA's cross-motion for summary judgment and granted judgment in favor of the FDA on our claims.

We are evaluating our options, including a potential appeal, and we intend to continue vigorously pursuing our interests in the matter.

(see Part I, Item 3, Legal Proceedings of this Annual Report for additional information).

We do not expect the PCH to have a material impact on our ongoing clinical studies in atopic dermatitis, gastroparesis or motion sickness, each of which is under 12 weeks in duration and are not subject to the PCH.

Nor do we expect the PCH to impact the potential timing of the submission of a New Drug Application (NDA) with the FDA.

If the matter has not been fully resolved prior to the date on which we are ready to submit the first NDA for tradipitant, then we may choose to submit with the safety data we have available at that time.

We may pursue additional studies of durations in excess of 12 weeks in countries where the conduct of such studies may be permitted (or we may choose to file for approval of a limited indication).

If the FDA continues to recommend that we conduct a long-term safety study of 12 months duration in humans, and determines that our NDA does not contain safety data sufficient for approval, it may not accept the NDA for filing.

We will continue to reassess the situation on an ongoing basis.

Enrollment in the Phase III study of tradipitant in gastroparesis is ongoing.

Tradipitant for motion sickness

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The MSSS Worst score endpoint also favored tradipitant, but the difference did not reach statistical significance.

The protocol for a pivotal Phase III motion sickness study was discussed with the FDA at the end of Phase II meeting, and the FDA agreed with the adequacy of the program design to support an NDA.

Preparations for this study have begun with the boat trip portion of the study expected to commence as soon as local restrictions related to the COVID-19 pandemic are lifted.

Motion sickness is a disorder that arises often as a response to real or perceived movement, as occurring during vehicular travel.

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It is reported that approximately 30% of the general population suffers from motion sickness under ordinary travel conditions that include sea, air and land travel.

We plan to complete the Phase III program of tradipitant in motion sickness and expect to file an NDA with the FDA in 2020.

Tradipitant for atopic dermatitis

We announced results in September 2017 from a randomized Phase II clinical study of tradipitant as a monotherapy in the treatment of patients with atopic dermatitis.

Tradipitant was shown to improve the intensity of the worst itch patients experienced, as well as atopic dermatitis disease severity.

On the pre-specified primary endpoint of Average Itch Visual Analog

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Scale (VAS), tradipitant showed improvement over placebo, but this improvement was not significant due to high placebo effect and the lack of sensitivity of this measure.

In June 2018, we initiated EPIONE, a Phase III study of tradipitant for pruritus in atopic dermatitis.

In October 2019, we began enrolling patients in EPIONE 2, a second Phase III clinical study of tradipitant in atopic dermatitis.

We announced results of EPIONE in February 2020.

The EPIONE study did not meet its primary endpoint in reduction of pruritus across the overall study population.

However, the antipruritic effect of tradipitant was robust in the mild atopic dermatitis population.

The EPIONE study continued to demonstrate that tradipitant is safe and well-tolerated.

The ongoing EPIONE 2 study was placed on hold due to the COVID-19 pandemic.

Atopic dermatitis is a chronic, relapsing inflammatory skin disorder characterized by the symptom of intense and persistent pruritus or itch.

Other clinical features include erythema, excoriation, edema, lichenification, oozing and xerosis.

Atopic dermatitis is a common skin disorder affecting millions of people worldwide.

Currently, there are very few safe systemic treatments available for atopic dermatitis, representing a significant unmet medical need in this population.

Tradipitant for COVID-19 pneumonia

In April 2020, we announced the initiation of clinical study, ODYSSEY VLY-686-3501, in hospitalized patients with COVID-19.

We received permission from the FDA to proceed with the study for the treatment and prevention of pneumonia associated with COVID-19.

Enrollment in our Phase III clinical study of VLY-686-3501 is ongoing.

COVID-19 is associated with a lower respiratory tract inflammation that often progresses to acute respiratory distress syndrome requiring mechanical ventilation.

Tradipitant targets the neurokinin-1 receptor, which is coded by the TACR1 gene and is the main receptor for substance P, an 11 amino acid neuropeptide with a diverse set of functions.

It has been shown that the substance P NK-1R system is involved in the neuroinflammatory processes that leads to significant lung injury following a number of insults, including viral challenges.

VTR-297 is a small molecule HDAC inhibitor with potential use as a treatment for several oncology indications.

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Enrollment in the Phase I clinical study (1101) of VTR-297 in hematologic malignancies is ongoing.

Portfolio of CFTR activators and inhibitors

In October 2020, the FDA accepted the IND application to evaluate CFTR activator VSJ-110 and provided authorization to proceed with clinical development.

We are evaluating VSJ-110 for the treatment of allergic conjunctivitis.

In November 2020, we initiated a study in human volunteers that will evaluate the acute anti-inflammatory effects of VSJ-110 in an ocular allergic challenge model, and will evaluate the prosecretory effects using standard tear production assessments.

The results from the study will help guide further development of VSJ-110 to treat a variety of ocular inflammatory conditions, including dry eye, which has an estimated worldwide prevalence of 5-20%, with about 16 million affected individuals in the U.S.

VSJ-110 (previously known as CFTRact-K267) is a small molecule nanomolar potency CFTR activator.

VSJ-110 has shown efficacy in a dry eye model and exhibited anti-inflammatory properties in both in vitro and in vivo assays.

In addition, an early stage CFTR inhibitor program is planned for BPO-27 for the treatment of secretory diarrhea disorders, including cholera.

Other products

VQW-765 is a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist that we licensed from Novartis on December 31, 2014 pursuant to a settlement agreement.

The FDA accepted an Investigational New Drug (IND) application for VQW-765 in January 2020 and provided authorization to proceed with clinical development.

The FDA accepted an IND application for VQW-765 in January 2020 and provided authorization to proceed with clinical development.

We are evaluating VQW-765 for the treatment of psychiatric disorders.

Portfolio of Cystic Fibrosis Transmembrane Conductance Regulator (CFTR) activators and inhibitors

An early stage CFTR activator program is planned for the treatment of dry eye and ocular inflammation.

In addition, an early stage CFTR inhibitor program is planned for the treatment of secretory diarrhea disorders, including cholera.

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For more detailed information regarding our clinical trial results and regulatory activities for our products please refer to our SEC filings and press releases, which can be found on the SEC Edgar system and on our website www.vandapharma.com.

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In February 2004, we entered into a license agreement with Bristol-Myers Squibb (BMS) under which we received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize HETLIOZ ® .

To date, we have paid BMS $37.5 million in upfront fees and milestone obligations.

We have paid BMS $37.5 million in upfront fees and milestone obligations.

We have no remaining milestone obligations to BMS.

commercial sale in the territory or the expiry of the new chemical entity (NCE) patent in that territory.

Additionally, we are obligated to make royalty payments on HETLIOZ ® net sales to BMS in any territory where we commercialize HETLIOZ ® for a period equal to the greater of 10 years following the first commercial sale in the territory or the expiry of the new chemical entity (NCE) patent in that territory.

During the period prior to the expiry of the NCE patent in a territory, we are obligated to pay a 10% royalty on net sales in that territory.

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Lilly is eligible to receive future payments based upon achievement of specified development, regulatory approval and commercialization milestones as well as tiered-royalties on net sales at percentage rates up to the low double digits.

To date, we have paid Lilly $3.0 million in upfront fees and development milestones, including a $2.0 million milestone payment as a result of enrolling the first subject into a Phase III study for tradipitant in July 2018.

We have paid Lilly $3.0 million in upfront fees and development milestones, including a $2.0 million milestone payment as a result of enrolling the first subject into a Phase III study for tradipitant in July 2018.

As of December 31, 2020, remaining milestones include a $2.0 million development milestone due upon the filing of the first marketing authorization for tradipitant in either the U.S.

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Either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other.

In the event that we terminate the agreement, or if Lilly terminates the agreement due to our breach or for certain other reasons set forth in the agreement, all rights licensed and developed by us under the agreement will revert or otherwise be licensed back to Lilly on an exclusive basis, subject to payment by Lilly to us of a royalty on net sales of products that contain tradipitant.

In connection with the settlement agreement with Novartis relating to Fanapt ® , we received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize VQW-765, a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist.

Pursuant to the license agreement, we are obligated to use commercially reasonable efforts to develop and commercialize VQW-765 and are responsible for all development costs.

We have no milestone obligations, but Novartis is eligible to receive tiered-royalties on net sales at percentage rates up to the mid-teens.

Either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other.

otherwise be licensed back to Novartis on an exclusive basis, subject to payment by Novartis to us of a royalty on net sales of products that contain VQW-765.

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licensed back to Lilly on an exclusive basis, subject to payment by Lilly to us of a royalty on net sales of products that contain tradipitant.

Portfolio of CFTR activators and inhibitors

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UCSF is eligible to receive future payments based upon achievement of specified development, regulatory approval and commercialization milestones as well as single-digit tiered-royalties on net sales.

To date, we have paid UCSF $1.2 million in upfront fees and development milestones, including an upfront license fee payment of $1.0 million in 2017 and a $0.2 million development milestone payment in March 2019.

To date, we have paid UCSF $1.2 million in upfront fees and development milestones.

As of December 31, 2020, remaining milestones include $12.2 million for development milestones and $33.0 million for future regulatory approval and sales milestones.

Included in the $12.2 million in development milestones is a $350,000 milestone due upon the conclusion of a Phase I study for each licensed product but not to exceed $1.1 million in total for the CFTR portfolio.

Included in the $12.2 million in development milestones is a $350,000 milestone due upon the conclusion of a Phase I study for each licensed product, not to exceed $1.1 million in total for the CFTR portfolio.

In the fourth quarter of 2020, we determined the $350,000 milestone to be probable and accrued it as a current liability as of December 31, 2020.

Either party may terminate the agreement under certain circumstances.

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Termination will not relieve us of our obligation to pay royalties or other payments owed, if any, to UCSF under the terms of the agreement.

Pursuant to the license agreement, we are obligated to use commercially reasonable efforts to develop and commercialize VQW-765 and are responsible for all development costs.

We have no milestone obligations, but Novartis is eligible to receive tiered-royalties on net sales at percentage rates up to the mid-teens.

Either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other.

In the event that we terminate the agreement, or if Novartis terminates the agreement due to our breach or for certain other reasons set forth in the agreement, all rights licensed and developed by us under the agreement will revert or otherwise be licensed back to Novartis on an exclusive basis, subject to payment by Novartis to us of a royalty on net sales of products that contain VQW-765.

Patents and Proprietary Rights;

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In addition, we have filed for patents based on our own discoveries that seek to provide additional protection for HETLIOZ ® and Fanapt ® .

The table below is a summary of patents listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book) for our commercial products.

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A comprehensive list of patents for our U.S.

commercial products is available in the Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book) for our commercial products and is also provided in the table below.

Members of these patent families are also issued or pending in a number of territories, such as Europe and Japan.

New chemical entity

Method of treatment

US 10,071,977

Drug substance

US 10,149,829

Method of treatment

US 10,376,487

Method of treatment

US 10,449,176

Method of treatment

Product Number Type

US 5,856,529 New chemical entity

US 9,060,995 Method of treatment

US 9,539,234 Method of treatment

US 9,549,913 Method of treatment

US 9,730,910 Method of treatment

US 9,855,241 Method of treatment

US RE46604 Method of treatment

US 10,071,977 Drug substance

US 10,149,829 Method of treatment

US 10,179,119 Method of treatment

US 10,376,487 Method of treatment

US 10,449,176 Method of treatment

US 10,610,510 Method of treatment

US 10,610,511 Method of treatment

US 10,829,465 Drug substance

US 8,586,610 Method of treatment

US 8,652,776 Method of treatment

US 8,999,638 Method of treatment

US 9,072,742 Method of treatment

US 9,074,254 Method of treatment

US 9,074,255 Method of treatment

US 9,074,256 Method of treatment

US 9,138,432 Method of treatment

US 9,157,121 Method of treatment

Our rights to the NCE patent covering HETLIOZ ® and related intellectual property have been acquired through a license with BMS.

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Corresponding NCE patent protection has expired in most other markets.

Patent and Trademark Office has issued nine method of use patents for HETLIOZ ® that will expire between 2033 and 2035 and one drug substance patent that will expire in 2035.

In Europe, the law provides for ten years of data exclusivity (with the potential for an additional year if a medicine is developed for a significant new indication).

In addition, Europe provides for ten years of market exclusivity for orphan indications.

As such, in Europe, data or market exclusivity will provide protection for HETLIOZ ® for at least ten years from approval.

It is also possible that the protection through a basic patent (i.e., a patent which protects a product as such, a process to obtain a product, or an application of a product) in Europe could be extended for up to five years by the issuance of a supplementary protection certificate (SPC).

Patent and Trademark Office has issued 12 method of treatment patents for HETLIOZ ® that will expire between 2033 and 2035 and two drug substance patents that will expire in 2035.

We also have other pending patent applications covering methods of treatment and compositions of tasimelteon (HETLIOZ ® active ingredient) oral suspensions.

In Europe, the law provides for 10 years of data exclusivity (with the potential for an additional year if a medicine is developed for a significant new indication).

In addition, Europe provides for 10 years of market exclusivity for orphan indications.

As such, in Europe, data or market exclusivity will provide protection for HETLIOZ ® for at least 10 years from approval.

It is also possible that the protection through a basic patent (i.e., a patent that protects a product as such, a process to obtain a product, or an application of a product) in Europe could be extended for up to five years by the issuance of a supplementary protection certificate (SPC).

A completed Pediatric Investigation Plan (PIP) could further extend SPC protection for an additional six months or the market exclusivity in an orphan indication for two additional years.

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Other pending patent applications in Europe, if granted, may offer additional protection for HETLIOZ ® .

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Outside the U.S.

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We have pending patent applications covering the use of iloperidone and plan on filing additional applications based on discoveries made throughout the development plan of this molecule.

In Europe, the law provides for ten years of regulatory exclusivity (with the potential for an additional year if the drug is developed for a significant new indication).

In Europe, the law provides for 10 years of regulatory exclusivity (with the potential for an additional year if the drug is developed for a significant new indication).

No generic versions of Fanapt ® would be permitted to be marketed or sold during the applicable regulatory exclusivity period in most European countries.

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These patents and patent applications have been licensed to us.

The NCE patent covering tradipitant expires in April 2023, except in the U.S., where it expires normally in June 2024, subject to any extension that may be received under Hatch-Waxman.

The NCE patent covering tradipitant expires in April 2023, except in the U.S., where it expires normally in June 2024, subject to any extension that may be received under the Hatch-Waxman Act.

We have filed additional patent applications based on discoveries made during recent studies with tradipitant.

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We have pending patent applications covering the use of VTR-297 and plan on filing additional applications based on discoveries made throughout the development plan of this molecule.

Portfolio of CFTR activators and inhibitors

Our portfolio of CFTR activators and inhibitors may have broad applicability in addressing a number of high unmet medical needs, including chronic dry eye, constipation, polycystic kidney disease, cholestasis and secretory diarrheas.

We plan on filing applications based on discoveries made throughout the development plan of these product candidates.

Novartis owns an NCE patent as well as patent applications directed to methods of using VQW-765, VQW-765 formulations, and combinations of VQW-765 with other active pharmaceutical ingredients.

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The NCE patent expires normally in 2023 in the U.S., Europe, and other markets.

Portfolio of CFTR activators and inhibitors

We plan on filing applications based on discoveries made throughout the development plan of these compounds.

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Other patents

Aside from the NCE patents and other in-licensed patents discussed above, we have obtained or filed numerous patents and patent applications, most of which have been filed in key markets including the U.S., relating to our products and development compounds.

In addition, we have filed numerous other patent applications relating to drugs not presently in clinical studies.

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Marketing and Sales

HETLIOZ ® was approved in the U.S.

for the treatment of Non-24 in January 2014 and commercially launched in the U.S.

HETLIOZ ® capsules were approved in the U.S.

for the treatment of Non-24 in January 2014 and HETLIOZ ® capsules and oral suspension were approved for the treatment of nighttime sleep disturbances in SMS in December 2020.

We commercially launched HETLIOZ ® in the U.S.

in April 2014.

Additionally, HETLIOZ ® was approved in the E.U.

for the treatment of Non-24 in totally blind adults in July 2015.

We commercially launched HETLIOZ ® in Germany in August 2016.

Additionally, HETLIOZ ® capsules were approved in the E.U.

for the treatment of Non-24 in totally blind adults in July 2015 and, in August 2016, we commercially launched HETLIOZ ® in Germany.

Given the range of potential indications for HETLIOZ ® , we may pursue one or more partnerships for the development and commercialization of HETLIOZ ® worldwide.

Fanapt ® was approved in the U.S.

Fanapt ® oral tablets were approved in the U.S.

for the treatment of schizophrenia in May 2009 and commercially launched in the U.S.

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We continue to explore the regulatory path and commercial opportunity for Fanapt ® oral formulation in other regions.

Major Customers

Our revenues are generated from product sales and are concentrated with specialty pharmacies, including Diplomat Pharmacy, Inc.

(a subsidiary of UnitedHealth Group) and Accredo (a subsidiary of Express Scripts), and wholesalers, including Cardinal Health, Inc., AmerisourceBergen Drug Corporation, and McKesson Corporation.

These 5 major customers each accounted for more than 10% of total revenues for 2020 and, as a group, represented 95% of total revenues for the year ended December 31, 2020.

The pharmaceutical industry, in particular, is highly competitive and includes a number of established large and mid-sized companies with greater financial, technical and personnel resources than we have and significantly greater commercial infrastructures than we have.

Our market segment also includes several smaller emerging companies whose activities are directly focused on our target markets and areas of expertise.

Our products, once approved for commercial use, will compete with numerous therapeutic treatments offered by these competitors.

While we believe that our products will have certain favorable features, existing and new treatments may also possess advantages.

Additionally, the development of other drug technologies and methods of disease prevention are occurring at a rapid pace.

These developments may render our products or technologies obsolete or noncompetitive.

We believe the primary competitors for HETLIOZ ® and Fanapt ® are as follows:

• For HETLIOZ ® in the treatment of Non-24 and nighttime sleep disturbances in SMS, there are no FDA approved direct competitors.

Sedative-Hypnotic treatments for certain sleep related disorders include, Ambien ® (zolpidem) by Sanofi (including Ambien CR ® ), Lunesta ® (eszopiclone) by Sunovion Pharmaceuticals Inc., Sonata ® (zaleplon) by Pfizer Inc., Rozerem ® (ramelteon) by Takeda Pharmaceuticals Company Limited, Silenor ® (doxepin) by Pernix Therapeutics, Belsomra ® (suvorexant) by Merck & Co., Inc., generic products such as zolpidem, trazodone and doxepin, and over-the-counter remedies such as Benadryl ® and Tylenol PM ® .

The class of melatonin agonists includes Rozerem ® (ramelteon) by Takeda Pharmaceuticals Company Limited, Valdoxan ® (agomelatine) by Servier, Circadin ® (long-acting melatonin) by Neurim Pharmaceuticals Ltd.

and the food supplement melatonin.

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Shift work and excessive sleepiness disorder treatments include Nuvigil ® (armodafinil) and Provigil ® (modafinil) both by Teva Pharmaceutical Industries Ltd.

• For Fanapt ® in the treatment of schizophrenia, the atypical antipsychotics competitors are Risperdal ® (risperidone), including the LAI formulation Risperdal Consta ® and Invega ® (paliperidone), including the LAI formulation Invega ® Sustenna ® , each by Ortho-McNeil-Janssen Pharmaceuticals, Inc., Zyprexa ® (olanzapine), including the LAI formulation Zyprexa ® Relprevv TM , each by Lilly, Seroquel ® and Seroquel XR ® (quetiapine) by AstraZeneca PLC, Abilify ® (aripiprazole) by Otsuka America Pharmaceutical Inc., Abilify Maintena ® (the LAI formulation of Abilify ® ) by Lundbeck/Otsuka America Pharmaceutical Inc., Geodon ® (ziprasidone) by Pfizer Inc., Saphris ® (asenapine) by Allergan plc, Latuda ® (lurasidone) by Sunovion Pharmaceuticals Inc., Rexulti ® (brexpiprazole) by Lundbeck/Otsuka America Pharmaceutical, Inc., Aristada ® (aripiprazole lauroxil) extended-release injectable suspension by Alkermes, plc, Vraylar ® (cariprazine) by Teva Pharmaceutical Industries Ltd., Perseris ® (risperidone) extended-release injectable suspension by Indivior plc, Caplyta ® (lumapteperone) by Intra-Cellular Therapies, and generic clozapine, as well as the typical antipsychotics haloperidol, chlorpromazine, thioridazine, and sulpiride (all of which are generic).

Our ability to compete successfully will depend in part on our ability to utilize our pharmacogenetics and pharmacogenomics and drug development expertise to identify, develop, secure rights to and obtain regulatory approvals for promising pharmaceutical products before others are able to develop competitive products.

Our ability to compete successfully will also depend on our ability to attract and retain skilled and experienced personnel.

Additionally, our ability to compete may be affected because insurers and other third-party payors in some cases seek to encourage the use of cheaper, generic products, which could make our products less attractive.

Manufacturing

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and Patheon Inc.

(collectively, Patheon), subsidiaries of Thermo Fisher Scientific, for the manufacture of HETLIOZ ® and Fanapt ® .

(collectively, Patheon), subsidiaries of Thermo Fisher Scientific, for the manufacture of HETLIOZ ® capsules and Fanapt ® oral tablets.

In January 2014, we entered into a manufacturing agreement with Patheon for the manufacture of commercial supplies of HETLIOZ ® 20 mg capsules at Patheon’s Cincinnati, Ohio manufacturing site.

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Patheon is responsible for manufacturing the Fanapt ® 1, 2, 4, 6, 8, 10 and 12 mg tablets, conducting quality control and stability testing, and packaging the Fanapt ® tablets.

The Fanapt ® manufacturing agreement has an initial term of five years and will automatically renew after the initial term for successive terms of one year each, unless either party gives notice of its intention to terminate the agreement at least 12 months prior to the end of the then current term.

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to terminate the agreement at least 12 months prior to the end of the then current term.

Either party may terminate the Fanapt ® manufacturing agreement under certain circumstances upon specified written notice to the other party.

Research and Development

We have built a research and development organization that includes extensive expertise in the scientific disciplines of pharmacogenetics and pharmacogenomics.

We operate cross-functionally and are led by an experienced research and development management team.

We use rigorous project management techniques to assist us in making disciplined strategic research and development program decisions and to help limit the risk profile of our product pipeline.

We also access relevant market information and key opinion leaders in creating target product profiles and, when appropriate, as we advance our programs towards commercialization.

We engage third parties to conduct portions of our preclinical research.

In addition, we utilize multiple clinical sites to conduct our clinical trials;

however, we are not substantially dependent upon any one of these sites for our clinical trials nor do any of them conduct a major portion of our clinical trials.

Major Customers

Our revenues are generated from product sales and are concentrated with specialty pharmacies, including Diplomat Pharmacy, Inc.

(a subsidiary of UnitedHealth Group) and Accredo (a subsidiary of Express Scripts), and wholesalers, including Cardinal Health, Inc., AmerisourceBergen Drug Corporation, and McKesson Corporation.

These 5 major customers each accounted for more than 10% of total revenues and, as a group, represented 96% of total revenues for the year ended December 31, 2019 .

Our market segment also includes several smaller emerging companies whose activities are directly focused on our target markets and areas of expertise.

Our products, once approved for commercial use, will compete with numerous therapeutic treatments offered by these competitors.

While we believe that our products will have certain favorable features, existing and new treatments may also possess advantages.

Additionally, the development of other drug technologies and methods of disease prevention are occurring at a rapid pace.

These developments may render our products or technologies obsolete or noncompetitive.

We believe the primary competitors for HETLIOZ ® and Fanapt ® are as follows:

For HETLIOZ ® in the treatment of Non-24, there are no FDA approved direct competitors.

and the food supplement melatonin.

Shift work and excessive sleepiness disorder treatments include Nuvigil ® (armodafinil) and Provigil ® (modafinil) both by Teva Pharmaceutical Industries Ltd.

For Fanapt ® in the treatment of schizophrenia, the atypical antipsychotics competitors are Risperdal ® (risperidone), including the LAI formulation Risperdal Consta ® and Invega ® (paliperidone), including the LAI formulation Invega ® Sustenna ® , each by Ortho-McNeil-Janssen Pharmaceuticals, Inc., Zyprexa ® (olanzapine), including the LAI formulation Zyprexa ® Relprevv TM , each by Lilly, Seroquel ® and Seroquel XR ® (quetiapine) by AstraZeneca PLC, Abilify ® (aripiprazole) by Otsuka America Pharmaceutical Inc., Abilify Maintena ® (the LAI formulation of Abilify ® ) by Lundbeck/Otsuka America Pharmaceutical Inc., Geodon ® (ziprasidone) by Pfizer Inc., Saphris ® (asenapine) by Allergan plc, Latuda ® (lurasidone) by Sunovion Pharmaceuticals Inc., Rexulti ® (brexpiprazole) by Lundbeck/Otsuka America Pharmaceutical, Inc., Aristada TM (aripiprazole lauroxil) extended-release injectable suspension by Alkermes, Inc., Vraylar TM (cariprazine) by Teva Pharmaceutical Industries Ltd., CALYPTA ® (lumapteperone) by Intra-Cellular Therapies, and generic clozapine, as well as the typical antipsychotics haloperidol, chlorpromazine, thioridazine, and sulpiride (all of which are generic).

Our ability to compete successfully will also depend on our ability to attract and retain skilled and experienced personnel.

Additionally, our ability to compete may

be affected because insurers and other third-party payors in some cases seek to encourage the use of cheaper, generic products, which could make our products less attractive.

In December 2020, we entered into a non-exclusive manufacturing agreement for the manufacture of commercial supplies of HETLIOZ LQ TM .

The HETLIOZ LQ TM manufacturing agreement has an initial term of five years and automatically renews after the initial term for successive terms of one year each, unless either party gives notice of its intention to terminate the agreement at least 12 months prior to the end of the then current term.

Government Regulation

United States government regulation

The FDA provides periods of regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug for a period of three or five years following the FDA’s approval of the NDA.

Government authorities in the U.S., at the federal, state and local levels, 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, marketing and export and import of pharmaceutical products.

A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the U.S.

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.

Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market.

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

government regulation

drug development and regulation

In the U.S., the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (FDCA) and related regulations.

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

The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations requires 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 the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, 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 our business.

Once a drug candidate is identified for development, it enters the preclinical testing stage.

Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies.

An IND application sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND.

The sponsor must also include a protocol detailing, among other things, the objectives of the first phase of clinical trials, the parameters to be used in monitoring the safety of the trial, and the effectiveness criteria to be evaluated should the first phase lend itself to an efficacy evaluation.

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

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

Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about on-going or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted.

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with FDA good clinical practice (GCP) requirements, which include a requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial.

Clinical trials must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and/or effectiveness criteria to be evaluated.

Each protocol must be submitted to the FDA as part of the IND, and timely safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events.

An Institutional Review Board (IRB) at each institution participating in the clinical trial must review and approve each protocol before a clinical trial may commence at the institution and must also approve the information regarding the trial as well as the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with all applicable IRB regulations.

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

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The compound is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness.

In most cases, initial Phase I clinical trials are conducted with healthy volunteers.

However, where the compound being evaluated is for the treatment of severe or life-threatening diseases, such as cancer, and especially when the product may be too toxic to ethically administer to healthy volunteers, the initial human testing may be conducted on patients with the target disease or condition.

Sponsors sometimes subdivide their Phase I clinical trials into Phase Ia and Phase Ib clinical trials.

Phase Ib clinical trials are typically aimed at confirming dosage, pharmacokinetics and safety in a larger number of patients.

Some Phase Ib studies evaluate biomarkers or surrogate markers that may be associated with efficacy in patients with specific types of diseases or conditions.

This phase involves clinical trials 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 or conditions and to confirm dosage tolerance and appropriate dosage.

Phase III clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population, generally at geographically dispersed clinical study sites.

These clinical trials, often referred to as “pivotal” clinical trials, are intended to establish the overall risk-benefit ratio of the compound and provide, if appropriate, an adequate basis for product labeling.

The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including any 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 study subjects.

In addition, clinical trials may be overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee.

Depending on its charter, this committee may determine whether a trial may move forward at designated check points based on access to certain data from the trial.

Post-approval trials may also be conducted after a drug receives initial marketing approval.

These trials, often referred to as “Phase IV” 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 such clinical trials as a condition of approval of an NDA.

During the development of a new drug, sponsors are given several opportunities to meet with the FDA.

These meetings can provide an opportunity for the sponsor to share information about the progress of the application or clinical trials, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development.

These meetings may occur prior to the submission of an IND, at the end of Phase II clinical trials, or before an NDA is ultimately submitted.

Sponsors typically use the meetings at the end of the Phase II trials to discuss Phase II clinical results and present plans for the pivotal Phase III clinical trials that they believe will support approval of the new drug.

Meetings at other times may be made upon request.

Concurrent with clinical trials, companies typically complete additional, animal or other non-clinical studies, develop additional information about the chemistry and physical characteristics of the drug, and finalize a process for manufacturing the product in commercial quantities in accordance with the FDA’s current Good Manufacturing Practices (cGMP) requirements.

The manufacturing process must consistently produce quality batches of the drug and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug.

In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate the effectiveness of the packaging and that the compound does not undergo unacceptable deterioration over its shelf life.

While the IND is active, progress reports summarizing the results of ongoing clinical trials and nonclinical studies performed since the last progress report must be submitted on at least an annual basis to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important, increased incidence of a serious adverse reaction compared to that listed in the protocol or investigator brochure.

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

Sponsors of certain clinical trials of FDA-regulated products are required to register and disclose specified clinical trial registration and results information, which is made publicly available at www.clinicaltrials.gov.

Failure to properly report clinical trial results can result in civil monetary penalties.

Disclosure of clinical trial results can often be delayed until the new product or new indication being studied has been approved.

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review and approval process

The results of product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA.

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

a waiver of which may be obtained under certain limited circumstances.

The FDA reviews NDAs to determine, among other things, whether the product is safe and effective for its intended use and whether it is manufactured in a cGMP-compliant manner, which will assure and preserve the product’s identity, strength, quality and purity.

Under PDUFA-VI, the FDA has a goal of 10 months from the date of “filing” of a standard, completed NDA for a new molecular entity to review and act on the submission.

This review typically takes 12 months from the date the NDA is submitted to the FDA because FDA has 60 days to make a “filing” decision after the application is submitted.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review.

The FDA may request additional information rather than accept an NDA for filing.

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

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

The FDA may refer an application for a new drug to an advisory committee within the FDA.

An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether and under what conditions the application should be approved.

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

Before approving an NDA, the FDA will also inspect the facility where the product is manufactured.

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

Before approving an NDA, the FDA may also inspect one or more clinical trial sites to assure compliance with GCP requirements.

After the FDA evaluates an NDA, it will issue an approval letter or a CRL.

A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form.

A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional pivotal Phase III trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing.

If a CRL is issued, the sponsor must resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application.

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

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

The Pediatric Research Equity Act (PREA) requires IND sponsors to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration.

Under the PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver.

The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

The sponsor or the FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations.

A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin.

The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

If a drug receives FDA approval, the approval may be limited to specific diseases and dosages, which could restrict the commercial value of the product.

In addition, the FDA may require testing and surveillance programs to monitor the safety of approved products that have been commercialized, and may require a sponsor to conduct post-marketing clinical trials, which are designed to further assess a drug’s safety and effectiveness after NDA approval.

The FDA may also place other conditions on approval, including a requirement for a risk evaluation and mitigation strategy (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, prescribing or dispensing of products.

Marketing approval may be withdrawn for non-compliance with REMS or other regulatory requirements, or if problems occur following initial marketing.

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Post-approval requirements

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the drug reaches the market.

Later discovery of previously unknown problems with a drug may result in restrictions on the drug or even complete withdrawal of the drug from the market.

After approval, some types of changes to the approved drug, such as adding new indications, certain manufacturing changes and additional labeling claims, are subject to further FDA review and approval.

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 regulations and other laws and regulations.

Our approved products are, and any additional product manufactured or distributed by us following FDA approval will be, subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety and efficacy information, drug sampling and distribution requirements, complying with certain electronic records and signature requirements, and complying with FDA promotion and advertising requirements.

The FDA strictly regulates labeling, advertising, promotion and other types of information regarding approved drugs that are placed on the market, and imposes requirements and restrictions on drug manufacturers, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient 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 for a certain indication or withdrawal of the product from the market as well as possible civil or criminal sanctions.

Failure to comply with the applicable governmental 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, clinical holds on post-marketing clinical trials, enforcement 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 of which could have a material adverse effect on our business.

Orphan drug designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, generally a disease or condition that affects fewer than 200,000 individuals in the U.S or, if affects more than 200,000 individuals in the U.S., there is no reasonable expectation that sales of the drug will be sufficient to offset the cost of developing and making the drug available in the U.S..

Orphan drug designation must be requested before submitting an NDA.

After the FDA grants Orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA.

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

The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S.

for that product, for that indication.

During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity.

Orphan drug exclusivity does not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.

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

Expedited development and review programs

The FDA has a fast track designation program that is intended to expedite or facilitate the process for reviewing new drug products that meet certain criteria.

Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition.

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

Any product submitted to the FDA for approval, including a product with a fast track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval.

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A product is eligible for priority review if it is intended to treat a serious condition, and if approved, would provide a significant improvement in safety or efficacy compared to currently marketed products.

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

The FDA endeavors to review applications with priority review designations within six months of the filing date, as compared to 10 months for review of NDAs under its current PDUFA-VI review goals.

In addition, a product may be eligible for accelerated approval.

Drugs intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict a 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 that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials.

Drugs receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required post-marketing trials or if such trials fail to verify the predicted clinical benefit.

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.

The Food and Drug Administration Safety and Innovation Act established a category of drugs referred to as “breakthrough therapies” that may be eligible to receive breakthrough therapy designation.

A sponsor may seek FDA designation of a compound as a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the 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.

The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance.

The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted to the same drug if relevant criteria are met.

If a product is designated as breakthrough therapy, the FDA will work to expedite the development and review of such drug.

Fast track designation, priority review and breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process.

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

Marketing exclusivity

The FDA provides periods of regulatory exclusivity, which provide the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug for a period of three or five years following the FDA’s approval of the NDA.

Five years of exclusivity are available to NCEs.

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During the exclusivity period, the FDA may not accept for review or approve an abbreviated new drug application (ANDA) or a 505(b)(2) NDA submitted by another company that contains the previously approved active moiety.

An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed.

An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if it includes a certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid.

If a product is not eligible for the NCE exclusivity, it may be eligible for three years of exclusivity.

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

Orphan Drug Act

Under the Orphan Drug Act, the FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition, generally a disease or condition that affects fewer than 200,000 individuals in the U.S.

Orphan Drug Designation must be requested before submitting an NDA.

After the FDA grants Orphan Drug Designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA.

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

The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA Orphan Drug Designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication.

Orphan drug exclusivity does not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.

Among the other benefits of Orphan Drug Designation are tax credits for certain research and development expenses and a waiver of the NDA application user fee.

Fast Track and Breakthrough Therapy Designations

The FDA is required to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition for which there is no effective treatment, and which demonstrate the potential to address unmet medical needs for the condition.

Under the Fast Track program, the sponsor of a new product candidate may request the FDA to designate the product for a specific indication as a Fast Track product concurrent with or after the submission of the IND for the product candidate.

The FDA must determine if the product candidate qualifies for Fast Track and Breakthrough Therapy designations within 60 days after receipt of the sponsor’s request.

For Fast Track and Breakthrough Therapy products, the sponsor may have more frequent interactions with the FDA and the FDA may initiate review of sections of a Fast Track or Breakthrough Therapy product’s NDA before the application is complete.

This rolling review is available if the applicant provides and the FDA approves a schedule for the submission of the remaining information and the applicant pays applicable user fees.

However, the FDA’s time period goal for reviewing a Fast Track or Breakthrough Therapy application does not begin until the last section of the NDA is submitted.

In addition, the Fast Track and Breakthrough Therapy designations may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in

the clinical trial process.

A Fast Track and Breakthrough Therapy designated product candidate would ordinarily meet the FDA’s criteria for priority review.

NDA Submission and Review by the FDA

Assuming successful completion of the required clinical trials and preclinical testing, among other items, the results of product development, including chemistry, manufacture and controls, nonclinical studies and clinical trials are submitted to the FDA, along with proposed labeling, as part of an NDA.

The submission of an NDA requires payment of a substantial user fee to the FDA.

These user fees must be paid at the time of the first submission of the application, even if the application is being submitted on a rolling basis.

Fee waivers or reductions are available in some circumstances.

One basis for a waiver of the application user fee is if the applicant employs fewer than 500 employees, including employees of affiliates, the applicant does not have an approved marketing application for a product that has been introduced or delivered for introduction into interstate commerce, and the applicant, including its affiliates, is submitting its first marketing application.

In addition, under the Pediatric Research Equity Act (PREA), an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen or route of administration must contain data that are adequate to assess the safety and 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, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults or full or partial waivers from the pediatric data requirements.

The FDA may refer applications for drugs that contain active ingredients, including any ester or salt of the active ingredients that have not previously been approved by the FDA to an advisory committee or provide in an action letter a summary of the reasons for not referring it to an advisory committee.

The FDA may also refer drugs which present difficult questions of safety, purity or potency to an advisory committee.

An advisory committee is typically a panel that includes clinicians and other experts who review, evaluate and make a recommendation as to whether the application should be approved and under what conditions.

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

The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether the manufacturing controls are adequate to assure and preserve the product’s identity, strength, quality and purity.

Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured.

The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and subcontracts, are in compliance with current Good Manufacturing Practices (cGMP) requirements and adequate to assure consistent production of the product within required specifications.

Additionally, before approving an NDA, the FDA will typically inspect one or more clinical trial sites to assure compliance with Good Clinical Practices (GCPs).

Once the FDA receives an application, it has 60 days to review the NDA to determine if it is substantially complete to permit a substantive review, before it accepts the application for filing.

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

The FDA’s NDA review times may differ based on whether the application is a standard review or priority review application.

The FDA may give a priority review designation to drugs that are intended to treat serious conditions and provide significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions.

Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act (PDUFA), the FDA has set the review goal of 10 months from the 60-day filing date to complete its initial review of a standard NDA for a new molecular entity (NME) and make a decision on the application.

For non-NME standard applications, the FDA has set the review goal of 10 months from the submission date to complete its initial review and to make a decision on the application.

For priority review applications, the FDA has set the review goal of reviewing NME NDAs within six months of the 60-day filing date and non-NME applications within six months of the submission date.

Such deadlines are referred to as the PDUFA date.

The PDUFA date is only a goal and the FDA does not always meet its PDUFA dates.

The review process and the PDUFA date may also be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding the submission.

Once the FDA’s review of the application is complete, the FDA will issue either a Complete Response Letter, or CRL, or approval letter.

A CRL indicates that the review cycle of the application is complete, and the application is not ready for approval.

A CRL generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing, or other information or analyses in order for the FDA to reconsider the application.

The FDA has the goal of reviewing 90% of application resubmissions in either two or six months of the resubmission date, depending on the kind of resubmission.

Even with the submission of additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

If and when those conditions

have been met to the FDA’s satisfaction, the FDA may issue an approval letter.

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

The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product, or impose other conditions, including distribution restrictions or other risk management mechanisms.

For example, the FDA may require a risk evaluation and mitigation strategy (REMS), as a condition of approval or following approval to mitigate any identified or suspected serious risks and ensure safe use of the drug.

The FDA may prevent or limit further marketing of a product, or impose additional post-marketing requirements, based on the results of post-marketing studies or surveillance programs.

After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements, FDA notification and FDA review and approval.

Further, should new safety information arise, additional testing, product labeling or FDA notification may be required.

If regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which such product may be marketed or may include contraindications, warnings or precautions in the product labeling, which has resulted in a boxed warning.

The FDA also may not approve the inclusion of labeling claims necessary for successful marketing.

Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace.

In addition, the FDA may require Phase IV post-marketing studies to monitor the effect of approved products and may limit further marketing of the product based on the results of these post-marketing studies.

Post-approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including manufacturing, periodic reporting, product sampling and distribution, advertising, promotion, drug shortage reporting, compliance with any post-approval requirements imposed as a conditional of approval such as Phase 4 clinical trials, Risk Evaluation and Mitigation Strategy (REMS) and surveillance, recordkeeping and reporting requirements, including adverse experiences.

After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval.

There also are continuing, annual program user fee requirements for any approved products, as well as new application fees for supplemental applications with clinical data.

Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies and to list their drug products and are subject to periodic announced and unannounced inspections by the FDA and these state agencies for compliance with cGMPs and other requirements, which impose procedural and documentation requirements upon us and our third-party manufacturers.

We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA regulatory requirements.

Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented, or FDA notification.

FDA regulations also require investigation and correction of any deviations from cGMPs and specifications and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use.

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

Later discovery of previously unknown problems with a product, including adverse events (AEs) of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in withdrawal of marketing approval, mandatory revisions to the approved labeling to add new safety information or other limitations, imposition of post-market studies or clinical trials to assess new safety risks, or imposition of distribution or other restrictions under a REMS program, among other consequences.

The FDA closely regulates the marketing and promotion of drugs.

A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA.

Physicians, in their independent professional medical judgement, may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA.

We, however, are prohibited from marketing or promoting drugs for uses outside of the approved labeling but may share truthful and not misleading information that is otherwise consistent with the product’s approved labeling.

In addition, the distribution of prescription pharmaceutical products, including samples, is subject to the Prescription Drug Marketing Act (PDMA), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states.

Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

The Drug Supply Chain Security Act also imposes obligations on manufacturers of pharmaceutical products related to product and tracking and tracing.

Failure to comply with any of the FDA’s requirements could result in significant adverse enforcement actions.

These include a variety of administrative or judicial sanctions, such as refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials or labeling, product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, debarment, injunctions, fines, consent decrees, corporate integrity agreements, refusals of government contracts and new orders under existing contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement or civil or criminal penalties, including fines and imprisonment.

Any of these sanctions could result in adverse publicity, among other adverse consequences.

The Hatch-Waxman Act

Pediatric exclusivity is another type of marketing exclusivity available in the U.S.

Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA.

The issuance of a written request does not require the sponsor to

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undertake the described clinical trials.

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

Orange Book listing, the Hatch-Waxman Act

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims that cover the applicant’s drug.

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Federal law provides for a period of three years of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage form, route of administration or combination, or for a new use, the approval of which was required to be supported by new clinical trials conducted by or for the sponsor, during which FDA cannot grant effective approval of an ANDA based on that listed drug.

Fraud and abuse laws and other U.S.

regulatory matters

Pharmaceutical companies are subject to broadly applicable fraud and abuse and other healthcare laws and regulations, in addition to the FDCA, that may constrain the business or financial arrangements and relationships through which these companies market, sell and distribute the products for which they obtain marketing approval.

Some of the laws and regulations that may affect the ability of pharmaceutical companies to operate are described below.

Anti-kickback laws

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward the purchasing, leasing, ordering or arranging for or recommending the purchase, lease, or order of any health care item or service reimbursable under federal healthcare programs such as Medicare and Medicaid.

The term “remuneration” has been broadly interpreted to include anything of value, and the government can establish a violation of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or specific intent to violate it.

This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, patients, and formulary managers on the other.

There are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, however, the exceptions and safe harbors are drawn narrowly.

Failure to meet all of the

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requirements of a particular statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute, but the legality of the arrangement will be evaluated on a case-by-case basis based on the totality of the facts and circumstances.

Violations of the Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from the participation in federal healthcare programs, such as Medicare and Medicaid.

A number of states also have anti-kickback laws that establish similar prohibitions that may apply to items or services reimbursed by government programs, as well as any third-party payors, including commercial payors, known as "all-payor" laws.

Prescription Drug Marketing Act

As part of the sales and marketing process, pharmaceutical companies frequently provide healthcare providers with samples of approved drugs.

The Prescription Drug Marketing Act (PDMA) imposes requirements and limitations upon the distribution of drugs and drug samples, and prohibits states from licensing distributors of prescription drugs unless the state licensing program meets certain federal guidelines that include minimum standards for storage and handling, as well as record keeping and other requirements.

Violations of the PDMA may result in criminal and civil penalties.

In addition, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act or ACA), discussed in more detail in “ Pharmaceutical Coverage, Pricing and Reimbursement and Healthcare Reform ” below, imposes annual reporting requirements related to sample distribution.

False Claims Act

The False Claims Act prohibits, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds and knowingly making, or causing to be made or used, a false record or statement to get a false claim paid.

Certain marketing practices may implicate the False Claims Act, including promotion of pharmaceutical products for unapproved uses, providing free product to customers with the expectation that customers would bill federal programs for the product, or inflating prices reported to private price publication services used to set drug reimbursement rates under federal healthcare programs.

In addition, the ACA amended the Social Security Act to provide that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false claim for purposes of the False Claims Act.

Actions under the False Claims Act may be brought by the government or as a qui tam action by private individuals who may receive financial awards if their claims are successful.

False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and monetary penalties of $5,500 to $11,000 per false claim or statement, which increased to a range of $11,665 to $23,331 in June 2020, with respect to violations occurring after November 2, 2015.

Violations of the False Claims Act are also punishable by exclusion from participation in federal healthcare programs, such as Medicare and Medicaid.

Pharmaceutical and other life sciences companies often resolve allegations without admissions of liability for significant and sometimes material amounts to avoid the uncertainty of treble damages and per claim penalties that may be awarded in litigation.

These companies may be required, however, to enter into corporate integrity agreements with the government, which may impose substantial costs on companies to ensure compliance.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), includes federal criminal statutory provisions 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, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) and their implementing regulations, impose certain requirements and restrictions on certain types of individuals and entities relating to the privacy and security of individually identifiable health information.

Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable not only to covered entities (e.g.

health care providers and health plans), but also to business associates, i.e., independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity.

HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.

Physician Payment Sunshine Act

The Physician Payment Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually (with certain exceptions) to Centers for Medicare & Medicaid Services (CMS) information related to payments or other “transfers of

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value” made to physicians and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members and payments or other “ transfers of value ” to such physician owners.

Failure to report relevant data may result in civil fines and/or penalties.

Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA), prohibits U.S.

corporations and their representatives and intermediaries from offering, promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad.

The scope of the FCPA includes interactions with certain healthcare professionals in many countries.

Violation of the FCPA could result in substantial civil and criminal penalties and remedies, including fines, disgorgement, and/or imprisonment.

Analogous state laws

Analogous state fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to the business practices of pharmaceutical companies, including but not limited to research, distribution, sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors and are generally broad and are enforced by many different federal and state agencies as well as through private actions.

In addition to requiring reporting transfers of value, some states have imposed price reporting requirements.

These state laws apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

In addition, a number of states require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products and to report gifts and payments to individual physicians in the states.

Other states restrict when pharmaceutical companies may provide meals to prescribers or engage in other marketing related activities or require pharmaceutical companies to implement compliance programs or marketing codes of conduct, and file periodic reports or disclosures with states.

Compliance with these laws requires significant resources and companies that do not comply may face civil penalties or other consequences.

Many state laws govern the privacy and security of personal information in specified circumstances.

For example, the California Consumer Privacy Act (CCPA), which became effective on January 1, 2020, established a new legal framework governing covered businesses' collection and use of personal information of California residents by, among other things, creating an expanded definition of covered personal information, establishing new privacy rights for California residents, imposing an opt-in standard for certain disclosures of personal information about minors, and creating a new and potentially severe statutory damages framework for businesses subject to certain data breaches resulting from the failure to implement and maintain reasonable security procedures and practices.

While properly collected clinical trial data and all protected health information governed by HIPAA are exempt from the current version of the CCPA, other personal information may be applicable and possible changes to the CCPA may broaden its scope.

Foreign regulation

Foreign drug development, review and approval processes

Regardless of whether we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries.

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Although governed by the applicable country, clinical trials conducted outside of the U.S.

typically are administered with the three-Phase sequential process that is discussed above under “United States government regulation.” However, the foreign equivalent of an IND is not a prerequisite to performing pilot studies or Phase I clinical trials.

typically are administered with the three-Phase sequential process that is discussed above under U.S.

drug development and regulation .

However, the foreign equivalent of an IND is not a prerequisite to performing pilot studies or Phase I clinical trials.

regulatory systems, we may submit Marketing Authorization Applications (MAAs) either under a centralized or decentralized procedure.

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We face the risk that the resulting prices would be insufficient to generate an acceptable return to us.

Pharmaceutical Coverage, Pricing and Reimbursement

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Foreign fraud and abuse laws and other regulatory matters

Outside the U.S., we are subject to similar regulations in those countries where we market and sell products, including with respect to transparency, bribery and other laws mentioned above.

In some foreign countries, including major markets in the E.U.

and Japan, the pricing of prescription pharmaceuticals is subject to governmental control.

In these countries, pricing negotiations with governmental authorities can take nine to 12 months or longer after the receipt of regulatory marketing approval for a product.

To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies, which can be costly and time-consuming.

The collection and processing of personal data in the E.U.

is governed by the General Data Protection Regulation (GDPR), which became applicable in May 2018.

The GDPR implements stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosure requirements about how personal information is to be used, strengthened individual data subject rights, limitations on retention of personal data, increased requirements pertaining to health data and pseudonymised (i.e., key-coded) data, shortened mandatory data breach notification timelines and higher standards for controllers to demonstrate they have obtained valid consent for certain data processing activities.

The GDPR provides that E.U.

member states may make their own additional laws and regulations in relation to the processing of genetic, biometric or health data, which could result in differences between member states, limit our ability to use and share personal data or cause our costs to increase, and harm our business and financial condition.

Further, the U.K.’s exit from the E.U.

in January 2020, with a transition period that ended on December 31, 2020, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the U.K.

While the transition period has now concluded, decisions are still to be made on how data transfers to and from the U.K.

will be regulated.

We are also subject to evolving and strict rules on the transfer of personal data out of the E.U.

Failure to comply with E.U.

data protection laws may result in significant fines, including GDPR fines of up to the higher of €20,000,000 or 4% of our total worldwide annual revenue of the preceding financial year, and other administrative penalties, which may be onerous and adversely affect our business, financial condition, results of operations and prospects.

Pharmaceutical Coverage, Pricing and Reimbursement and Healthcare Reform

Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities.

Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations.

Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the U.S.

such as Medicare and Medicaid, commercial health insurers and managed care organizations.

The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved.

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Third party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.

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

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 a company’s revenue generated from the sale of any approved products.

Coverage policies and third-party reimbursement rates may change at any time.

Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In the E.U., pricing and reimbursement schemes vary widely from country to country.

Some countries provide that drug products may be marketed only after a reimbursement price has been agreed.

Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies, or so called health technology assessments, in order to obtain reimbursement or pricing approval.

For example, the E.U.

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

member states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market.

Other member states allow companies to fix their own prices for drug products, but monitor and control company profits.

The downward pressure on health care costs in general, particularly prescription drugs, has become intense.

As a result, increasingly high barriers are being erected to the entry of new products.

In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country.

Any country that has price controls or reimbursement limitations for drug products may not provide favorable reimbursement and pricing arrangements.

A primary trend in the U.S.

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There have been a number of federal and state proposals during the last several years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, government control and other changes to the healthcare system in the U.S.

and state governments continue to propose and pass legislation designed to reduce the cost of healthcare.

By way of example, the 2010 Affordable Care Act (ACA), among other things, includes changes to the coverage and payment for products under government health care programs.

Among the provisions of the ACA of importance to potential drug candidates are:

By way of example, in March 2010, the ACA was passed, ushering in significant changes to the coverage and payment for products under government health care programs.

Among the provisions of the ACA of importance to pharmaceutical companies are:

• an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee does not apply to sales of certain products approved exclusively for orphan indications;

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• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicaid managed care plans;

• expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” (AMP), for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicaid managed care plans;

• addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

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• established a new Patient‑Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

established the Independent Payment Advisory Board (IPAB), which has authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs.

However, the IPAB implementation has been not been clearly defined.

The ACA provided that under certain circumstances, IPAB recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings;

• added a requirement to annually report product samples that manufacturers and distributors provide to physicians;

• expanded healthcare fraud and abuse laws, including the False Claims Act and the federal Anti-Kickback Statute, and enhanced penalties for noncompliance;

• established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019.

Some of the provisions of the ACA have yet to be fully implemented, however, while others have been subject to judicial and Congressional challenges, as well as efforts by the former Trump administration to repeal or replace certain aspects of the ACA.

While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing or delaying penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D.

Additionally, in December 2018, a Texas District Court judge ruled that the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress.

Further, in December 2019, the U.S.

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

In March 2020, the U.S.

Supreme Court granted the petitions for writs of certiorari and held oral arguments in November 2020.

Accordingly, we continue to evaluate the effect that the ACA has on our business.

At the federal level, the former Trump administration supported legislative proposals and issued certain Executive Orders seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs.

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

The FDA also released a final rule in September 2020 providing guidance for states to build and submit importation plans for drugs from Canada.

Further, in November 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Medicare Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law.

The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers.

Additionally, in December 2020, CMS issued a final rule that materially modifies current Medicaid Drug Rebate Program regulations by, among other things, broadening the definitions for “line extension” and “new formulation”, the key term within the line extension definition.

A “line extension” drug is subject to a higher Medicaid rebate, thereby reducing the amount the manufacturer is paid with respect to such product.

These new definitions will become effective as of January 1, 2022.

Other legislative changes have been proposed and adopted since the ACA was enacted.

These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and will stay in effect through 2024 unless additional congressional action is taken, and the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect

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the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

Further, there have been several recent U.S.

congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.

In the coming years, additional legislative and regulatory changes could be made to governmental health programs that could significantly impact pharmaceutical companies and the success of our product candidates.

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

In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs.

These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

The ACA, as well as other federal, state and foreign healthcare reform measures that have been and may be adopted in the future, could have a material adverse effect on our business.

Further, it is also possible that additional governmental action is taken in response to the COVID-19 pandemic as it continues into 2021.

These healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price for any approved product and/or the level of reimbursement physicians receive for administering any approved product.

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Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

Since enactment of the ACA, there have been numerous legal challenges and congressional actions to repeal and replace provisions of the law.

Various pieces of

legislation have been proposed and/or passed by each of the chambers of Congress to achieve those objectives, but to date, few of these measures have been implemented.

The current presidential administration has also taken executive actions to undermine or delay implementation of the ACA.

In January 2017, the President 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 devices.

In October 2017, the President signed a second Executive Order allowing for the use of association health plans and short-term health insurance, which may provide fewer health benefits than the plans sold through the ACA exchanges.

At the same time, the Administration announced that it will discontinue the payment of cost-sharing reduction (CSR) payments to insurance companies until Congress approves the appropriation of funds for such CSR payments.

The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA and is currently being challenged in court.

More recently, with enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective on January 1, 2019.

According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise.

Additionally, in January 2018, the President signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices.

In December 2018, a federal district court judge in Texas found the ACA to be unconstitutional, although the ruling was stayed while the case is appealed.

Further, there have been several recent U.S.

congressional inquiries and both federal and state legislation, proposed or enacted, designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.

At the federal level, Congress and the current presidential administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs.

In May 2018, the Administration issued "American Patients First," a multi-faceted blueprint to lower drug prices.

The Administration has taken administrative steps to implement the blueprint, including through proposing sweeping demonstration projects aimed at putting downward pressure on drug prices.

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

These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

Similarly, pricing and reimbursement and the containment of healthcare costs has become a priority in a number of foreign jurisdictions.

In the E.U., pricing and reimbursement schemes vary widely from country to country.

Some countries provide that drug products may be marketed only after a reimbursement price has been agreed.

Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies, or so-called health technology assessments, in order to obtain reimbursement or pricing approval.

For example, the E.U.

member states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market.

Other member states allow companies to fix their own prices for drug products but monitor and control company profits.

The downward pressure on health care costs in general, particularly prescription drugs, has become intense.

As a result, increasingly high barriers are being erected to the entry of new products.

In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country.

Any country that has price controls or reimbursement limitations for drug products may not provide favorable reimbursement and pricing arrangements.

Human Capital

We had 292 full-time employees as of December 31, 2020, compared with 284 employees as of December 31, 2019.

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We have not experienced any work stoppages and consider our employee relations to be good.

Our human capital objectives include attracting, training and retaining employees in a manner that supports innovation across our business.

Corporate Information

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

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

The SEC maintains a website at

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

We also make available free of charge on our Internet website at www.vandapharma.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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

What changed 10-K

Item 1. Business