What changed in this filing

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Item 1A. Risk Factors

2021-02-11 compared with 2020-02-26 · 297 added, 306 removed, 518 unchanged (54% of the section changed)

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We are dependent on the commercial success of HETLIOZ ® and Fanapt ® .

Our future success is currently substantially dependent upon the commercial success of HETLIOZ ® for the treatment of Non-24-Hour Sleep-Wake Disorder (Non-24) and Fanapt ® for the treatment of schizophrenia.

Our future success is currently substantially dependent upon the commercial success of HETLIOZ ® capsules for the treatment of Non-24-Hour Sleep-Wake Disorder (Non-24) and HETLIOZ ® capsules and oral suspension (HETLIOZ LQ TM ) for the treatment of nighttime sleep disturbances in Smith-Magenis Syndrome and Fanapt ® oral tablets for the treatment of schizophrenia.

In January 2014, the U.S.

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

In December 2020, the FDA approved our NDA and supplemental New Drug Application (sNDA) for HETLIOZ ® for the treatment of nighttime sleep disturbances in SMS in adults and children, respectively.

In the fourth quarter of 2014, we acquired the U.S.

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and abroad, in the near term will depend on, among other things, our ability to:

• minimize the impact of disruptions caused by the COVID-19 pandemic;

• defend our patents and intellectual property from generic competition;

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• produce, through a validated process, sufficiently large quantities of inventory of our products to meet demand;

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• continue to maintain and grow a wide variety of internal sales, distribution and marketing capabilities sufficient to sustain growth in sales of our products;

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Any increase in sales of HETLIOZ ® and Fanapt ® will be dependent on several factors, including our ability to educate physicians and to increase physician awareness of the benefits of our products relative to competing products.

The degree of further market acceptance of any of our products or market acceptance of approved product candidates among physicians, patients, health care payors and the medical community will depend on a number of factors, including but not limited to:

The degree of further market acceptance of any of our products, including with respect to new indications, or market acceptance of approved product candidates among physicians, patients, health care payors and the medical community will depend on a number of factors, including but not limited to:

• acceptable evidence of safety and efficacy;

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• availability of alternative treatments;

• market awareness of the condition to be treated;

• pricing and cost effectiveness.

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Any safety issues could cause us to suspend or cease marketing of our approved products, cause us to modify how we market our approved products, subject us to substantial liabilities and adversely affect our revenues and financial condition.

In the event of a withdrawal of either HETLIOZ ® or Fanapt ® from the market, our revenues would decline significantly and our business would be seriously harmed.

If the FDA does not accept for filing the NDAs that we may submit for tradipitant for the treatment of atopic dermatitis, the treatment of gastroparesis, and the treatment of motion sickness, or the FDA determines that our clinical trial results for tradipitant for the treatment of atopic dermatitis, the treatment of gastroparesis or the treatment of motion sickness do not demonstrate adequate safety and efficacy, or the FDA does not approve an applicable PDUFA-VI date, continued development of tradipitant will be significantly delayed or terminated, our business will be significantly harmed, and the market price of our stock could decline.

In the event of a

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withdrawal of either HETLIOZ ® or Fanapt ® from the market, our revenues would decline significantly and our business would be seriously harmed.

Global economic conditions may have an adverse effect on our business.

Financial instability or a general decline in economic conditions in the U.S.

and other countries where we sell our product could adversely affect our operations.

Economic conditions, and uncertainty as to the general direction of the macroeconomic environment, are beyond our control and may make any necessary debt or equity financing more difficult, more costly, and more dilutive.

While we believe we have adequate capital resources to meet current working capital and capital expenditure requirements, an economic downturn or significant increase in our expenses could require additional financing on less than attractive rates or on terms that are excessively dilutive to existing stockholders.

Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our stock price and could require us to delay or abandon clinical development plans.

Sales of our products will be dependent, in large part, on reimbursement from government health administration authorities, private health insurers, distribution partners and other organizations.

In the event of economic decline, these organizations may be unable to satisfy their reimbursement obligations or may delay payment.

In addition, federal and state health authorities may reduce Medicare and Medicaid reimbursements, and private insurers may increase their scrutiny of claims.

A reduction in the availability or extent of reimbursement could negatively affect our product sales and revenue.

In addition, we rely on third parties for several important aspects of our business.

For example, we use third parties for sales, distribution, medical affairs and clinical research, and we rely upon several single source providers of raw materials and contract manufacturers for the manufacture of our products.

During challenging and uncertain economic times and in tight credit markets, there may be a disruption or delay in the performance of our third-party contractors, suppliers or partners.

If such third parties are unable to satisfy their commitments to us, our business and results of operations would be adversely affected.

Global health crises and pandemics, such as the global outbreak of COVID-19, may adversely impact our business.

The current global pandemic caused by the spread of the novel coronavirus (COVID-19) has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures.

The extent to which the effects of shelter-in-place orders and our work-from-home policies may negatively impact productivity and disrupt our business will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

Our sales force has had physical access to healthcare providers curtailed, which may have a negative impact on our revenues.

While we are implementing marketing and sales strategies aimed at overcoming the disruptions caused by the pandemic, we cannot ensure that these methods will be effective.

Additionally, patients who might be currently using our products, or might otherwise be eligible to use our products, may be unable to meet with their healthcare providers, which may reduce the number of prescription refills or new patient starts, thereby adversely affecting our revenues.

The COVID-19 pandemic has impacted clinical research globally, including our previously reported clinical trials.

While certain of our programs have resumed patient enrollment, other programs remain on hold.

We may experience further disruptions that could adversely impact our supply chain, our ongoing and planned clinical trials, and other regulatory activities, including:

• interruption of, or delays in receiving, supplies of the active pharmaceutical ingredients that our contract manufacturing organizations use to manufacture our products and any related interruption of, or delays in receiving, supplies of our products from these organizations, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

• delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

• diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

• delays or difficulties in enrolling patients in our clinical trials;

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• interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (such as procedures that are deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;

• limitations on our employee resources or those of third-party clinical research organizations towards the development of our products, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

• interruption or delays in the operations of regulatory agencies, which may impact review and approval timelines.

In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic.

As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms.

The COVID-19 pandemic continues to rapidly evolve.

The extent to which the outbreak may continue to impact our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, travel restrictions and social distancing practices, business closures or business disruptions and the effectiveness of actions taken in the U.S.

and other countries to contain and treat the disease.

If the FDA does not accept for filing the NDAs that we may submit for tradipitant for the treatment of gastroparesis, motion sickness, atopic dermatitis and COVID-19 pneumonia, or the FDA determines that our clinical trial results for tradipitant for the treatment of gastroparesis, motion sickness, atopic dermatitis or COVID-19 pneumonia do not demonstrate adequate safety and efficacy, or the FDA does not approve an applicable PDUFA-VI date, continued development of tradipitant will be significantly delayed or terminated, our business will be significantly harmed, and the market price of our stock could decline.

In October 2019, we completed enrollment in EPIONE, a Phase III clinical study of tradipitant for the treatment of pruritus in atopic dermatitis and commenced enrollment in EPIONE 2, a second Phase III clinical study of tradipitant for the treatment of atopic dermatitis.

Additionally, in the second quarter of 2019 we initiated a Phase III clinical study of tradipitant for the treatment of gastroparesis.

If the results of our ongoing studies of tradipitant for the treatment of atopic dermatitis, gastroparesis and/or motion sickness are positive, we will likely submit an NDA with the FDA for these indications.

We have also initiated Phase III clinical studies of tradipitant for the treatment of gastroparesis, motion sickness and COVID-19 pneumonia.

If the results of our ongoing Phase III studies of tradipitant for the treatment of gastroparesis, motion sickness, atopic dermatitis and/or COVID-19 pneumonia are positive, we will likely submit an NDA with the FDA for these indications.

Any adverse developments or results or perceived adverse developments or results with respect to our pre-NDA meeting with the FDA, our regulatory submission or the tradipitant clinical programs in any or all indications will significantly harm our business and could cause the market price of our stock to decline.

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• the FDA determining that the tradipitant clinical trial programs raise safety concerns or do not demonstrate adequate efficacy.

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 randomized clinical study (2301 study) of tradipitant as a monotherapy in the treatment of gastroparesis.

In May 2018, based on feedback from the FDA, we amended the protocol to limit 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 study) for patients who had completed the 2301 study.

While waiting for further feedback, we did not enroll any patients in any study beyond 12 weeks.

In December 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 United States 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 an 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 as events unfold.

Even if we decide to appeal the decision and ultimately prevail, there can be no assurances that the FDA will not attempt to impose a clinical hold or PCH on other grounds.

Any litigation related to this matter is subject to uncertainties and we may not prevail.

Because the PCH could, however, impede our ability to conduct longer term studies of tradipitant, whether the PCH impacts the timing or approvability of NDA filings with the FDA for any indication will depend on a number of

factors, including whether the PCH is resolved through the potential appeals of the lawsuit described above, whether we resolve the PCH out of court through discussions with the FDA, and, in addition to the non-clinical animal studies, whether the FDA considers the clinical trials that we conduct to be sufficient.

A delay in filing, or FDA delay or denial of approval of NDA filings for tradipitant for the treatment of atopic dermatitis, gastroparesis or motion sickness could materially adversely impact our business.

If the FDA does not approve our supplemental New Drug Application (sNDA) for HETLIOZ ® for the treatment jet lag disorder, or does not agree to an acceptable regulatory path forward for HETLIOZ ® for the treatment of Smith-Magenis Syndrome (SMS) or continued development of tasimelteon for the treatment of either jet lag disorder or SMS is significantly delayed or terminated, our business will be significantly harmed, and the market price of our stock could decline.

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

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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.

The chronic treatment of itch in atopic dermatitis would be expected to have a similar issue in review as gastroparesis.

Our business will be materially adversely impacted if we are not able to agree with the FDA on a regulatory path to approval for tradipitant, we experience any delay in filing, or the FDA delays or denies approval of NDA filings for the treatment of gastroparesis, motion sickness, atopic dermatitis, or COVID-19 pneumonia.

If the FDA does not approve our sNDA for HETLIOZ ® for the treatment of jet lag disorder or continued development of tasimelteon for the treatment of jet lag disorder is significantly delayed or terminated, our business will be significantly harmed, and the market price of our stock could decline.

In December 2018, we announced that the FDA had accepted the HETLIOZ ® sNDA for the treatment of jet lag disorder.

We received a complete response letter in August 2019 in which the FDA asserted that the measures of the study were of unclear clinical significance and declined to approve our sNDA.

We met with the FDA to discuss the complete response letter in a Post Action meeting and are in ongoing discussions with the FDA on the regulatory path forward.

For HETLIOZ ® for the treatment of SMS, 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.

Any additional adverse developments or results or perceived adverse developments or results with respect to our regulatory submission for jet lag disorder or our meeting with the FDA to determine the regulatory path forward for HETLIOZ ® for the treatment of SMS will significantly harm our business and could cause the market price of our stock to decline.

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

Any additional adverse developments or results or perceived adverse developments or results with respect to our regulatory submission for jet lag disorder will significantly harm our business and could cause the market price of our stock to decline.

Examples of such adverse developments include, but are not limited to:

the FDA determining that additional clinical studies are required with respect to either the SMS or jet lag disorder program;

safety, efficacy or other concerns arising from clinical or non-clinical studies in either the SMS or jet lag disorder program, or the manufacturing processes or facilities used for either the SMS or jet lag disorder programs;

the FDA determining that either the SMS or jet lag disorder program raises safety concerns or does not demonstrate substantial evidence of efficacy.

• the FDA determining that additional clinical studies are required with respect to the jet lag disorder program;

• safety, efficacy or other concerns arising from clinical or non-clinical studies in the jet lag disorder program, or the manufacturing processes or facilities used for the jet lag disorder program;

• the FDA determining that the jet lag disorder program raises safety concerns or does not demonstrate substantial evidence of efficacy.

We may enter into third-party collaborations from time to time in order to develop and commercialize our products.

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Our collaborators will have significant discretion in determining the efforts and resources that they will apply to these collaborations.

We expect that the risks which we face in connection with these future collaborations will include the following:

We expect that the risks we face in connection with these future collaborations will include the following:

• our collaboration agreements are expected to be for fixed terms and subject to termination under various circumstances, including, in many cases, on short notice without cause;

our collaborators may develop and commercialize, either alone or with others, products and services that are similar to or competitive with our products which are the subject of their collaboration with us;

• our collaborators may develop and commercialize, either alone or with others, products and services that are similar to or competitive with our products that are the subject of their collaboration with us;

• our collaborators may change the focus of their commercialization efforts.

In recent years there have been a significant number of mergers and consolidations in the pharmaceutical and biotechnology industries, some of which have resulted in the participant companies reevaluating and shifting the focus of their

business following the completion of these transactions.

The ability of our products to reach their potential could be limited if any of our future collaborators decreases or fails to increase spending relating to such products.

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Collaborations with pharmaceutical companies and other third parties often are terminated or allowed to expire by the other party.

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If our approved products fail to gain market acceptance or do not become widely accepted by physicians, patients, third-party payors and other members of the medical community, it is unlikely that we will ever become profitable on a sustained basis or achieve significant revenues.

We rely and will continue to rely on outsourcing arrangements for many of our activities, including preclinical and clinical development and supply of HETLIOZ ® , Fanapt ® and our other products.

We rely and will continue to rely on outsourcing arrangements for many of our activities, including preclinical and clinical development and supply of HETLIOZ ® , HETLIOZ LQ TM , Fanapt ® and our other products.

As of December 31, 2020, we had 292 full-time employees.

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We have limited control over these third parties and we cannot guarantee that they will perform their obligations in an effective and timely manner.

Disruptions to our HETLIOZ ® or Fanapt ® supply chains could materially affect our level of success in commercializing HETLIOZ ® or Fanapt ® , thereby reducing our future earnings and prospects.

A loss or disruption with any one of our manufacturers or suppliers could disrupt the supply of HETLIOZ ® or Fanapt ® , possibly for a significant time period, and we may not have sufficient inventories to maintain supply before the manufacturer or supplier could be replaced or the disruption is resolved.

Disruptions to our HETLIOZ ® , HETLIOZ LQ TM or Fanapt ® supply chains could materially affect our level of success in commercializing HETLIOZ ® or Fanapt ® , thereby reducing our future earnings and prospects.

A loss or disruption with any one of our manufacturers or suppliers could disrupt the supply of HETLIOZ ® , HETLIOZ LQ TM or Fanapt ® , possibly for a significant time period, and we may not have sufficient inventories to maintain supply before the manufacturer or supplier could be replaced or the disruption is resolved.

In addition, marketed drugs and their contract manufacturing organizations are subject to continual review, including review and approval by regulatory authorities of their manufacturing facilities and the manufacturing processes, which can result in delays in the regulatory approval process and/or commercialization.

Introducing a replacement or backup manufacturer or supplier for HETLIOZ ® or Fanapt ® requires a lengthy regulatory and commercial process and there can be no guarantee that we could obtain necessary regulatory approvals in a timely fashion or at all.

Introducing a replacement or backup manufacturer or supplier for HETLIOZ ® , HETLIOZ LQ TM or Fanapt ® requires a lengthy regulatory and commercial process and there can be no guarantee that we could obtain necessary regulatory approvals in a timely fashion or at all.

In addition, it is difficult to identify and select qualified suppliers and manufacturers with the necessary technical capabilities, and establishing new supply and manufacturing sources involves a lengthy and technical engineering process.

Failure to comply with government regulations regarding the sale and marketing of our products could harm our business.

Pharmaceutical companies are subject to extensive government regulation and oversight by government authorities in countries in which they do business.

As a result, we may become subject to governmental actions which could materially and adversely affect our business, results of operations and financial condition, certain of which are described below.

Pharmaceutical Pricing and Reimbursement

markets, our ability to commercialize our products successfully, and to attract commercialization partners for our products, should we choose to do so, depends in significant part on the availability of adequate financial coverage and reimbursement from third-party payors, including, in the U.S., governmental payors such as the Medicare and Medicaid programs, managed care organizations, and private health insurers.

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The ceiling price can represent a significant discount and is based on the pricing data reporting to the Medicaid Drug Rebate Program.

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The ACA expanded the 340B program to include additional entity types:

certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by ACA.

ACA exempts drugs designated under section 526 of the FDC Act as “orphan drugs” from the ceiling price requirements for these newly-eligible entities.

ACA also obligates the Health Resources and Services Administration to create regulations and processes to improve the integrity of the 340B program and to update the agreement that manufacturers must sign to participate in the 340B program.

The ACA exempts drugs designated under section 526 of the FDC Act as “orphan drugs” from the ceiling price requirements for these newly eligible entities.

The ACA also obligates the Health Resources and Services Administration to create regulations and processes to improve the integrity of the 340B program and to update the agreement that manufacturers must sign to participate in the 340B program.

A final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities became effective on January 1, 2019.

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We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost effectiveness of our products.

Even with such studies, any of our products that are commercialized may be considered

less cost-effective than other products, and third-party payors may not provide coverage and reimbursement, in whole or in part, for our products.

Political, economic and regulatory influences are subjecting the healthcare industry in the U.S.

to fundamental changes.

There have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare system pharmaceutical pricing, and reimbursement systems in ways that could impact our ability to profitably sell commercialized products.

Payors also are increasingly considering new metrics as the basis for reimbursement rates.

Even with such studies, any of our products that are commercialized may be considered less cost-effective than other products, and third-party payors may not provide coverage and reimbursement, in whole or in part, for our products.

Third-party payors also are increasingly considering new metrics as the basis for reimbursement rates.

It is difficult to project the impact of these evolving reimbursement mechanics on the willingness of payors to cover any of our commercialized products.

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Any failure to obtain eligibility for coverage under those programs for products we are able to commercialize would have a material adverse effect on revenues and royalties from sales of such products.

Interactions with Healthcare Providers

Physicians and other healthcare providers often play a primary role in the recommendation and prescription of pharmaceutical products.

Manufacturers of branded prescription drugs are subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which manufacturers market, sell and distribute the products for which they obtain marketing approval.

Some of the laws and regulations that may affect our ability 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 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.

Federal Food Drug and Cosmetic Act

The Federal Food Drug and Cosmetic Act and its implementing regulations (FDCA) apply to drug product advertising and labeling.

The FDCA provides the FDA with the authority to prohibit drug manufacturers and third parties acting on their behalf from marketing drug products for off-label uses.

Violations of the prohibition can result in warning letters and untitled letters, criminal and civil penalties, including imprisonment and civil monetary penalties.

Criminal Code may also apply and permit greater fines than those enumerated in the FDCA.

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, ACA imposes annual reporting requirements related to sample distribution.

False Claims Act

The federal 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, 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 mandatory penalties of $5,500 to $11,000 per false claim or statement, which increased to a range of $11,181 to $22,363 in January 2018, 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.

Health Insurance Portability and Accountability Act and Health Information Technology for Economic and Clinical Health Act

The federal 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 federal 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 CMS information related to payments or other “transfers of 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.

Other countries have enacted similar anti-corruption laws and/or regulations.

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

Analogous State and Foreign Laws

Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to our business practices, 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, and an increasing number of countries worldwide have either adopted or are considering similar laws requiring disclosure of various interactions with healthcare professionals.

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.

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 twelve 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.

Our business could be materially harmed if reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

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.

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

During the transition period, the U.K.

will continue to follow E.U.

law and will negotiate with the E.U.

on the terms of its relationship post-2020.

In particular, it is unclear 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 turnover 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.

Efforts to ensure that our business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations may involve substantial costs.

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If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.

Additionally, drug prices are under significant scrutiny, and along with other health care costs, continue to be subject to intense political and societal pressures, which we anticipate will continue and escalate, including on a global basis.

As a result, our business and reputation may be harmed, our stock price may be adversely impacted and experience periods of volatility, and our results of operations may be adversely impacted.

Other Laws and Regulations

There are evolving legal requirements and other statutory and regulatory regimes that will continue to affect our business.

Efforts to ensure that business activities and business arrangements comply with applicable healthcare laws and regulations can be costly for manufacturers of branded prescription products.

If a manufacturer’s operations, including activities conducted by its sales or marketing teams, are found to be in violation of any of these laws or any other governmental regulations that apply to the company, the company may be subject to significant civil, criminal and administrative sanctions, including imprisonment, monetary penalties, damages, fines, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of operations.

We intend to seek regulatory approvals for our products in additional foreign jurisdictions, but we may not obtain any such approvals.

We intend to market our products, alone or with others, in foreign jurisdictions.

In order to market our products in foreign jurisdictions, we may be required to obtain separate regulatory approvals and to comply with numerous and varying regulatory requirements.

The approval procedure varies among countries and jurisdictions and can involve additional trials, and the time required to obtain approval may differ from that required to obtain FDA approval.

Additionally, the foreign regulatory approval process may include all of the risks associated with obtaining FDA approval.

For all of these reasons, we may not obtain foreign regulatory approvals on a timely basis, if at all.

Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA.

We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

The failure to obtain these approvals could harm our business materially.

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We are subject to ongoing regulatory obligations and oversight of our products, and any failure by us to maintain compliance with applicable regulations may result in adverse consequences including the suspension of the manufacturing, marketing and sale of our respective products, the incurrence of significant additional expense and other limitations on our ability to commercialize our respective products.

We are subject to ongoing regulatory requirements and review, including periodic audits pertaining to the development, manufacture, labeling, packaging, adverse event reporting, distribution, storage, marketing, promotion, record keeping and export of our respective products.

Failure to comply with such regulatory requirements or the later discovery of previously unknown problems with the manufacture, distributions and storage of our products, or our third-party contract manufacturing facilities or processes by which we manufacture our products may result in restrictions on our ability to develop, manufacture, market, distribute or sell our products, including potential withdrawal of our products from the market.

Any such restrictions could slow or stop production development or result in decreased sales, damage to our reputation or the initiation of lawsuits against us and/or our third-party contract manufacturers.

We may also be subject to additional sanctions, including, but not limited, to the following:

• Warning letters, public warnings and untitled letters;

• Court-ordered seizures or injunctions;

• Civil or criminal penalties, or criminal prosecutions;

• Variation, suspension or withdrawal of regulatory approvals for our products;

• Changes to the package insert of our products, such as additional warnings regarding potential side effects or potential limitations on the current dosage or administration;

• Requirements to communicate with physicians and other customers about concerns related to actual or potential safety, efficacy, or other issues involving our products;

• Implementation of risk mitigation programs and post-approval obligations;

• Restrictions on our continued manufacturing, marketing, distribution or sale of our products;

• Temporary or permanent closing of the facilities of our third-party contract manufacturers;

• Interruption or suspension of clinical trials;

• Refusal by regulators to consider or approve applications for additional indications.

Any of the above sanctions could have a material adverse impact on our revenues or our reputation, and cause us to incur significant additional expenses.

In addition, if our products face any safety or efficacy issues, including drug interaction problems, under the federal Food, Drug & Cosmetic Act, the FDA has broad authority to force us to take any number of actions, including, but not limited to, the following:

• Requiring us to conduct post-approval clinical studies to assess product efficacy or known risks or new signals of serious risks, or to evaluate unexpected serious risks;

• Mandating changes to a product’s label;

• Requiring us to implement a risk evaluation and mitigation strategy where necessary to assure safe use of the drug;

• Removing an already approved product from the market.

Further, our partners, including our licensors, are subject to similar requirements and obligations as well as the attendant risks and uncertainties.

If our partners, including our licensors, suffer material and adverse effects from such risks and uncertainties, our rights and benefits for our licensed products could be negatively impacted, which could have a material adverse effect on our business.

If our products are marketed or distributed in a manner that violates federal or state healthcare fraud and abuse laws, marketing disclosure laws or other federal or state laws and regulations, we may be subject to civil or criminal penalties.

In addition to FDA and related regulatory requirements, our general operations, and the research, development, manufacture, sale and marketing of our products, are subject to extensive additional federal and state healthcare regulation, including the federal Anti-Kickback Statute, the Prescription Drug Marketing Act, and the federal False Claims Act (FCA), the

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federal Health Insurance Portability and Accountability Act of 1996, the federal Physician Payment Sunshine Act and the Foreign Corrupt Practices Act (and their state analogues), as discussed above in Part I, Item 1 under the heading Government Regulation - Fraud and abuse laws and other U.S.

regulatory matters .

If we or our partners, such as licensors, fail to comply with any federal and state laws or regulations governing our industry, we could be subject to administrative, criminal and civil penalties and a range of regulatory actions that could adversely affect our ability to commercialize our products, harm or prevent sales of our products, or substantially increase the costs and expenses of commercializing and marketing our products, all of which could have a material adverse effect on our business, financial condition and results of operations.

In recent years, CMS has been actively proposing and implementing changes to the list of business practices that are protected by safe harbors.

There is inherent risk and uncertainty in any changing regulatory environment as companies work to transition business practices to conform with new regulations.

Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws, and private individuals have been active in bringing so-called “whistleblower” lawsuits on behalf of the government (as Relators) under the FCA and similar regulations in other countries.

In addition, incentives exist under applicable U.S.

law that encourage employees and physicians to report violations of rules governing promotional activities for pharmaceutical products.

These incentives have led to, and could continue to lead to, FCA lawsuits, which attempt to recoup moneys paid by government agencies and extract penalties from manufacturers.

For example, federal enforcement agencies have recently pursued enforcement actions against pharmaceutical companies’ product and patient assistance programs, including relationships with specialty pharmacies, and support for charitable foundations providing patients with co-pay assistance.

In addition, Relators have filed lawsuits involving manufacturer reimbursement support services as well as promotion of pharmaceutical products beyond labeled claims.

Some FCA lawsuits have resulted in government enforcement authorities obtaining significant civil and criminal settlements.

Such lawsuits, whether with or without merit, are typically time-consuming and costly to defend.

Such suits may also result in related shareholder lawsuits, which are also costly to defend.

(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 regarding ongoing litigation related to similar matters.)

Further, the FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products.

A product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling.

The FDA also regulates the content of promotional material, including, among other things, the presentation of efficacy information, the types of comparative claims that can be made to distinguish products from those with similar indications, and the balance of risk information provided.

For drug products that are approved by the FDA under the FDA’s accelerated approval regulations, unless otherwise informed by the FDA, the sponsor must submit promotional materials at least 30 days prior to the intended time of initial dissemination of the promotional materials, which delays and may negatively impact a company’s ability to implement changes to its marketing materials, thereby negatively impacting revenues.

For other products, the FDA does not review promotional materials prior to dissemination but does issue “Untitled Letters” or “Warning Letters” if it objects to content that has been used promotionally.

The FDA may also withdraw approval of drug products under certain conditions.

In particular, the FDA may withdraw approval of a drug if, among other things, the promotional materials are false or misleading, or other evidence demonstrates that the drug is not shown to be safe or effective under its conditions of use.

In recent years, in addition to federal legislation related to transparency reporting of transfers of value to healthcare providers and healthcare organizations, several states have enacted legislation requiring pharmaceutical companies to file periodic reports.

Several states have adopted legislation to require pharmaceutical companies to establish marketing and promotional compliance programs or codes of conduct and/or to file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities.

Several states have also adopted laws that prohibit certain marketing-related activities, including the provision of gifts, meals or other items to certain healthcare providers.

We have developed and implemented a corporate compliance program based on what we believe are current best practices in the pharmaceutical industry;

however, relevant compliance laws are broad in scope and there may not be regulations, guidance or court decisions that definitively interpret these laws in the context of particular industry practices.

We cannot guarantee that we, our employees, our partners, our consultants or our contractors are or will be in compliance with all federal and state regulations.

If we, our partners, or our representatives fail to comply with any of these laws or regulations, a range of fines, penalties and/or other sanctions and regulatory actions could be imposed on us, including, but not limited to, restrictions on how we market and sell our products, significant fines, exclusions from government healthcare programs, including Medicare and Medicaid, litigation, or other sanctions.

Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could also have a material adverse effect on our business, financial condition and results of operations.

Such investigations or suits have resulted in, and may continue to result in, related shareholder lawsuits, which can also have a material adverse effect on our business.

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Our partners, including our licensors, are subject to similar requirements and obligations as well as the attendant risks and uncertainties.

We rely on a limited number of specialty pharmacies for distribution of HETLIOZ ® in the U.S., and the loss of one or more of these specialty pharmacies or their failure to distribute HETLIOZ ® effectively would materially harm our business.

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• obtaining FDA and other regulatory approvals of products;

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• manufacturing, marketing and selling products.

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Our products, if successfully developed and approved for commercial sale, will compete with a number of drugs and therapies currently manufactured and marketed by major pharmaceutical and other biotechnology companies.

Our products may also compete with new products currently under development by others or with products which may cost less than our products.

Our products may also compete with new products currently under development by others or with products that may cost less than our products.

Physicians, patients, third-party payors and the medical community may not accept or utilize any of our products that may be approved.

If HETLIOZ ® , Fanapt ® and our other products, if and when approved, do not achieve significant market acceptance, our business, results of operations and financial condition would be materially adversely affected.

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.

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.

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).

(See Part I, Item 1, Business – Competition, for a discussion of the primary competitors for HETLIOZ ® and Fanapt ® .)

Additionally, we may face competition from newly developed generic products.

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The FDA or applicable foreign regulatory agency can delay, limit or deny approval of a product for many reasons, including that:

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• a product may not be shown to be safe or effective;

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For example, if certain of our methods for analyzing trial data are not accepted by the FDA or the applicable foreign agency, we may fail to obtain regulatory approval for our products.

Additionally, the approval procedure varies among countries and jurisdictions and can involve additional trials, and the time required to obtain approval may differ from that required to obtain FDA approval.

Any delay or failure to obtain regulatory approvals for our products will result in increased costs, could diminish competitive advantages that we may attain and would adversely affect the marketing and sale of our products.

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We or our partners may be required to incur significant costs to comply with current or future laws or regulations, and we may be adversely affected by the cost of such compliance or the inability to comply with such laws or regulations.

If our products are determined to be unsafe or ineffective in humans, whether commercially or in clinical trials, our business will be materially harmed.

Despite the FDA’s approval of the NDA for HETLIOZ ® in January 2014 and the NDA for Fanapt ® in May 2009, the EC’s grant of the centralized marketing authorization for HETLIOZ ® in July 2015, and the positive results of our completed trials for HETLIOZ ® and Fanapt ® , we are uncertain whether either of these products will ultimately prove to be effective and safe in humans long term and in all uses.

Frequently, products that have shown promising results in clinical trials have suffered significant setbacks in later clinical trials or even after they are approved for commercial sale.

Future uses of our products, whether in clinical trials or commercially, may reveal that the product is ineffective, unacceptably toxic, has other undesirable side effects, is difficult to manufacture on a large scale, is uneconomical, infringes on proprietary rights of another party or is otherwise not fit for further use.

If our products are determined to be unsafe or ineffective in humans, our business will be materially harmed.

Our products may cause undesirable side effects or have other properties that could delay, prevent or result in the revocation of their regulatory approval or limit their marketability.

Undesirable side effects caused by our products could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, and in turn prevent us from commercializing or continuing the commercialization of such products and generating revenues from their sale.

We will continue to assess the side effect profile of our products in ongoing clinical development programs.

However, we cannot predict whether the commercial use of our approved products (or our products in development, if and when they are approved for commercial use) will produce undesirable or unintended side effects that have not been evident in the use of, or in clinical trials conducted for, such products to date.

For example, despite the positive results of our completed trials for HETLIOZ ® and Fanapt ® , as well as the FDA’s approval of the NDA for HETLIOZ ® for the treatment of Non-24 in January 2014, the NDA for Fanapt ® for the treatment of schizophrenia in May 2009, the EC’s grant of the centralized marketing authorization for HETLIOZ ® for the treatment of Non-24 in totally blind adults in July 2015, and the NDA and sNDA for HETLIOZ ® for the treatment of nighttime sleep disturbances in SMS in December 2020, we are uncertain whether either of these products will ultimately prove to be effective and safe in humans long term and in all uses.

Frequently, products that have shown promising results in clinical trials have suffered significant setbacks in later clinical trials or even long after they are approved for commercial sale.

Additionally, incidents of product misuse may occur.

These events, among others, could result in product

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recalls, product liability actions or withdrawals or additional regulatory controls, any of which could have a material adverse effect on our business, results of operations and financial condition.

In addition, if after receiving marketing approval of a product, we or others identify undesirable side effects caused by such product, we could face one or more of the following:

• regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;

• regulatory authorities may withdraw their approval of the product;

• we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

• our or the product’s reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from its sale.

Clinical trials for our products are expensive and their outcomes are uncertain.

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The length of time can vary substantially with the type, complexity, novelty and intended use of the products and the size of the prospective patient population.

Our ability to enroll

patients in, and the commencement and rate of completion of, clinical trials for our products may be affected by many factors, including:

Our ability to enroll patients in, and the commencement and rate of completion of, clinical trials for our products may be affected by many factors, including:

• the impact of global health crises, like the COVID-19 pandemic;

• the size and nature of the patient population;

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• the availability of time and resources at the institutions where clinical trials are and will be conducted;

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• the availability of adequate financing to fund ongoing clinical trial expenses;

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Any such failure or difficulty could have a material adverse effect on our business.

Our products may cause undesirable side effects or have other properties that could delay, prevent or result in the revocation of their regulatory approval or limit their marketability.

We will continue to assess the side effect profile of our products in ongoing clinical development programs.

Additionally, incidents of product misuse may occur.

These events, among others, could result in product recalls, product liability actions or withdrawals or additional regulatory controls, all of which could have a material adverse effect on our business, results of operations and financial condition.

In addition, if after receiving marketing approval of a product, we or others identify undesirable side effects caused by such product, we could face one or more of the following:

regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;

regulatory authorities may withdraw their approval of the product;

we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

our or the product’s reputation may suffer.

We have a history of operating losses and may not be able to achieve or sustain profitability in the future.

We may not be able to achieve sustained profitability.

We have been engaged in identifying and developing drug products since March 2003, which has required, and will continue to require, significant research and development expenditures.

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and we may not succeed in commercializing HETLIOZ ® or Fanapt ® outside of the U.S.

We may not be profitable even if our products are successfully commercialized.

We may be unable to fully develop, obtain regulatory approval for, commercialize, manufacture, market, sell and derive revenue from our products in the timeframes we project, if at all, and our inability to do so would materially and adversely impact the market price of our common stock and our ability to raise capital and continue operations.

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If we fail to adequately fund our research and development activities and commercialization efforts, we may be unable to continue operations or we may be forced to share our rights to commercialize our products with third parties on terms that may not be attractive to us.

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Our activities will necessitate significant uses of working capital throughout 2021 and beyond.

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Even if we locate an alternative provider, it is likely that this provider may need additional time to respond to our needs and may not provide the same type or level of service as the original provider.

In addition, any provider that we retain will be subject to current Good Laboratory Practices as set forth in 21 Code of Federal Regulations (C.F.R.) Part 58 and Good Clinical Practices as set forth in 21 C.F.R.

In addition, any provider that we retain will be subject to current Good Laboratory Practices as set forth in 21 Code of Federal

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Regulations (C.F.R.) Part 58 and Good Clinical Practices as set forth in 21 C.F.R.

Part 50, 54, and 312, and similar international standards and we do not have control over compliance with these regulations by these providers.

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In May 2016, we entered into a manufacturing agreement with Patheon for the manufacture of commercial supplies of Fanapt ® tablets at Patheon’s Mississauga, Ontario, Canada manufacturing site.

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

We do not have exclusive long-term agreements with any other third-party manufacturers of our products.

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If the manufacturers are unable to obtain these materials for our clinical trials, product testing, potential regulatory approval of our products and commercial scale manufacturing could be delayed, significantly affecting our ability to further develop and commercialize our products.

If we, our manufacturers are unable to purchase these materials for our products, there would be a shortage in supply or the commercial launch of such products would be delayed, which would materially and adversely affect our ability to generate revenues from the sale of such products.

If we or our manufacturers are unable to purchase these materials for our products, there would be a shortage in supply or the commercial launch of such products would be delayed, which would materially and adversely affect our ability to generate revenues from the sale of such products.

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If we cannot identify, or enter into licensing arrangements for, new products, our ability to develop a diverse product portfolio will be limited.

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Competition for the acquisition of these products is intense.

If we are not able to identify opportunities to acquire rights to

commercialize additional products, we may not be able to develop a diverse portfolio of products.

If we are not able to identify opportunities to acquire rights to commercialize additional products, we may not be able to develop a diverse portfolio of products.

Additionally, it may take substantial human and financial resources to secure commercial rights to promising products.

Moreover, if other firms develop pharmacogenetics and pharmacogenomics capabilities, we may face increased competition in identifying and acquiring additional products.

If we lose key scientists or management personnel, or if we fail to recruit additional highly skilled personnel, it will impair our ability to identify, develop, and commercialize products.

If we lose key scientists or management personnel, or if we fail to recruit additional highly skilled personnel, our ability to identify, develop, and commercialize new products will be impaired.

We are highly dependent on principal members of our management team and scientific staff, including our Chief Executive Officer, Mihael H.

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As elsewhere, inclusion in reimbursement catalogues focuses on the medical usefulness, need, quality and economic benefits to patients and the health care system.

Acceptance for reimbursement comes with cost, use and often volume restrictions, which can vary by Member State.

Although we have received marketing authorization for HETLIOZ ® from the EC, pricing negotiations with governmental authorities may take a considerable amount of time in those Member States that impose price controls.

Acceptance for reimbursement comes with cost, use and often volume restrictions, which can vary by

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Member State.

Although we have received marketing authorization for HETLIOZ ® capsules from the EC, pricing negotiations with governmental authorities may take a considerable amount of time in those Member States that impose price controls.

For example, we launched HETLIOZ ® commercially in Germany in August 2016, and concluded our pricing negotiations with German authorities in October 2017.

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If we are unable to establish and maintain adequate sales and marketing capabilities for future products or are unable to do so in a timely manner, we may not be able to generate product revenues from these products, which may prevent us from reaching or maintaining profitability.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

Healthcare legislative reform measures or developments arising from changes in the political climate may have a material adverse effect on our business and results of operations.

In the U.S., there have been and continue to be a number of legislative initiatives to contain healthcare costs.

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The ACA, among other things, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

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

Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA.

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

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

The TCJA, includes a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment by imposed by the ACA on certain individuals who failed to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump 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 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.

Further, the Bipartisan Budget Act of 2018 (BBA), among other things, amended the ACA, effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” On December 14, 2018, a U.S.

District Court ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the TCJA.

Subsequently, the U.S.

Fifth Circuit Court of Appeals upheld the U.S.

District Court ruling as to the unconstitutionality of the individual mandate, but remanded the decision for further analysis of whether the unconstitutionality of one provision would render the entirety of the ACA unconstitutional.

While the ruling has no immediate effect pending review by the lower court and potential appeal of the decision to the U.S.

Supreme Court, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and our business.

The effect that the ACA and its possible repeal and replacement may have on our business remains unclear.

Other legislative changes have been proposed and adopted in the U.S.

since the ACA was enacted.

On August 2, 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year.

These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the

statute, will remain in effect through 2027 unless additional congressional action is taken.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for any product candidate we develop or complementary diagnostics or companion diagnostics or additional pricing pressures.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions 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.

Further, 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

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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.

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.

Additionally, there has been increasing legislative and enforcement interest in the U.S.

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

We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could result in more rigorous coverage criteria and/or limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products and additional downward pricing pressures.

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

Significant developments arising from changes in the political climate could have a material adverse effect on us.

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.

Reductions in reimbursement levels may negatively impact the prices we can charge or the frequency with which products are prescribed or administered.

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

Changes in U.S.

social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment, and any negative sentiments towards the U.S.

as a result of such changes, could adversely affect our business.

In addition, the U.K.

formally withdrew from the E.U.

on January 31, 2020 with a transition period through December 31, 2020.

During the transition period, the U.K.

will continue to follow E.U.

law and will negotiate with the E.U.

on the terms of its relationship post-2020.

as a result of such changes, could also adversely affect our business.

In addition, 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.

Since the regulatory framework for pharmaceutical products in the U.K.

covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from E.U.

directives and regulations, Brexit could materially impact the future regulatory regime which applies to products and the approval of product candidates in the U.K.

directives and regulations, Brexit could materially impact the future regulatory regime that applies to products and the approval of product candidates in the U.K.

It remains to be seen how, if at all, Brexit will impact regulatory requirements for product candidates and products in the U.K.

These possible negative impacts, and others resulting from the U.K.’s withdrawal from the E.U., may adversely affect our operating results and growth prospects as well as the manner in which we conduct our business operations in Europe.

Changes to tax regulations to which we are subject could adversely affect us.

We are subject to tax laws, treaties and regulations in the countries in which we operate, and these laws and treaties are subject to interpretation.

New legislation or regulation which could affect our tax burden could be enacted by any governmental authority.

We cannot predict the timing or extent of such tax-related developments which could have a negative impact on our financial results.

We have taken, and will continue to take, tax positions based on our interpretation of such tax laws.

However, a challenge by a taxing authority, our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions may cause actual financial results to deviate from previous estimates.

Future transactions may harm our business or the market price of our stock.

We regularly review potential transactions related to technologies, products or product rights and businesses complementary to our business.

These transactions could include:

acquisitions;

strategic alliances;

licensing agreements;

co-promotion and similar agreements.

We may choose to enter into one or more of these transactions at any time, which may cause substantial fluctuations in the market price of our stock.

Moreover, depending upon the nature of any transaction, we may experience a charge to earnings, which could also materially adversely affect our results of operations and could harm the market price of our stock.

We may undertake strategic acquisitions in the future, and difficulties integrating such acquisitions could damage our ability to achieve or sustain profitability.

Although we have no experience in acquiring businesses, we may acquire businesses or assets that complement or augment our existing business.

If we acquire businesses with promising products or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to move one or more products through preclinical and/or clinical development to regulatory approval and commercialization.

Integrating any newly acquired businesses or technologies could be expensive and time-consuming, resulting in the diversion of resources from our current business.

We may not be able to integrate any acquired business successfully.

We cannot assure you that, following an acquisition, we will achieve revenues, specific net income or loss levels that justify the acquisition or that the acquisition will result in increased earnings, or reduced losses, for the combined company in any future period.

Moreover, we may need to raise additional funds through public or private debt or equity financing to acquire any businesses, which would result in dilution for stockholders or the incurrence of indebtedness and may not be available on terms which would otherwise be acceptable to us.

We may not be able to operate acquired businesses profitably or otherwise implement our growth strategy successfully.

Our operating results may fluctuate significantly due to a number of factors which make our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our operating results will continue to be subject to fluctuations.

The revenues we generate and our operating results will be affected by numerous factors, including:

product sales;

cost of product sales;

marketing and other expenses;

manufacturing or supply issues;

the timing and amount of royalties or milestone payments;

our addition or termination of development programs;

variations in the level of expenses related to our products or future development programs;

regulatory developments affecting our products or those of our competitors;

our execution of collaborative, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements;

any intellectual property infringement or other lawsuit in which we may become involved;

the timing and recognition of stock-based compensation expense.

If our operating results fall below the expectations of investors or securities analysts or below any guidance we may provide, the price of our common stock could decline substantially.

Furthermore, any fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

We believe that comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

We are increasingly dependent on information technology systems, infrastructure and data.

Cybersecurity breaches could expose us to liability, damage our reputation, compromise our confidential information or otherwise adversely affect our business.

We are increasingly dependent upon information technology systems, infrastructure and data.

Our computer systems may be vulnerable to service interruption or destruction, malicious intrusion and random attack.

Security breaches pose a risk that sensitive data, including intellectual property, trade secrets or personal information may be exposed to unauthorized persons or to the public.

Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect.

Cyber-attacks could include the deployment of harmful malware, denial-of service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability.

Our key business partners face similar risks, and a security breach of their systems could adversely affect our security posture.

While we continue to invest in data protection and information technology, there can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm.

Our internal computer systems, or those of our collaborator, CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of development programs for our product candidates.

Despite the implementation of security measures, our internal computer systems and those of our collaborators, CROs, and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.

Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security breaches.

While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our independent drug development programs.

For example, the loss of clinical trial data from ongoing or future clinical trials for any of our product candidates could result in delays in regulatory approval efforts and significantly increase costs to recover or reproduce the data.

Our information security systems are also subject to laws and regulations requiring that we take measures to protect the privacy and security of certain information we gather and use in our business.

For example, HIPAA and its implementing regulations impose, among other requirements, certain regulatory and contractual requirements regarding the privacy and security of personal health information.

In addition to HIPAA, numerous other federal and state laws, including, without limitation, state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and storage of personal information.

To the extent that any disruption or security breach were to result in a loss of or damage to data or applications, or inappropriate disclosure of confidential or proprietary information or personal health information, we could incur substantial liability, our reputation would be damaged, and the further development of our product candidates could be delayed.

Risks related to intellectual property and other legal matters

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These third parties may generally terminate the license agreements under certain circumstances, including a material breach of the agreement by the other.

In the event we terminate our license, or if the third-party terminates our license due to our breach, rights to the intellectual property revert back to the licensor.

In the event we terminate our license, or if the third party terminates our license due to

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our breach, rights to the intellectual property revert back to the licensor.

Any termination or reversion of our rights to develop or commercialize our products would have a material adverse effect on our business.

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Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage.

competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

Our competitors may seek to market generic versions of any approved products by submitting ANDAs to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable and/or not infringed.

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Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter.

Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the U.S.

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an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the U.S.

Patent and Trademark Office, or made a materially misleading statement, during prosecution.

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We have been successful in asserting that these third parties have infringed certain of our patents, but we may not be successful in such lawsuits in the future.

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

Please 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 additional information.

If we do not obtain protection under the Hatch-Waxman Act and similar foreign legislation to extend our patents and to obtain market exclusivity for our products, our business will be harmed.

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We also own HETLIOZ ® U.S.

method of treatment patents (directed to the approved method of treatment as described in the HETLIOZ ® label approved by the FDA), which expire normally between 2033 and 2035, and a drug substance patent which expires in 2035.

The Fanapt ® U.S.

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This patent, which was listed in the Orange Book in January 2015, is set to expire in 2027.

Please see the

risk factor entitled “We are, have been, and may continue to be, involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful, and third parties may challenge the validity or enforceability of our patents and they may be successful,” and Part I, Item 3, Legal Proceedings, of this Annual Report for additional information.

Please see the risk factor entitled “We are, have been, and may continue to be, involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful, and third parties may challenge the validity or enforceability of our patents and they may be successful,” and 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 additional information.

Eight additional U.S.

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If we are able to develop commercial products on our own, the risks associated with these programs may be greater than those associated with our programs with collaborative partners.

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Litigation or third-party claims of intellectual property infringement could require us to divert resources and may prevent or delay our drug discovery and development efforts.

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If we fail to enforce our proprietary rights against others, our business will be harmed.

As described elsewhere in these risk factors and in Part I, Item 3, Legal Proceedings , of this Annual Report, we have initiated lawsuits to enforce our patent rights against certain generic pharmaceutical companies.

Risks related to our common stock

As described elsewhere in these risk factors and in Note 17, Legal Matters , to the consolidated financial statements in Part II, Item 8 of this Annual Report, incorporated herein by reference, we have initiated lawsuits to enforce our patent rights against certain generic pharmaceutical companies.

General Risk Factors

Our stock price has been highly volatile and may be volatile in the future, and purchasers of our common stock could incur substantial losses.

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• changes in estimates of our financial results or recommendations by securities analysts or failure to meet such financial expectations;

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• changes in government regulations or policies;

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Proxy contests have been waged against many companies in the biopharmaceutical industry, including us, over the last several years.

If faced with a proxy contest or other type of shareholder activism, we may not be able to respond successfully to the contest or dispute, which would be disruptive to our business.

If faced with a proxy contest or other type of shareholder activism, we may not be able to respond successfully to

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the contest or dispute, which would be disruptive to our business.

Even if we are successful, our business could be adversely affected by a proxy contest or shareholder dispute involving us because:

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While there is no plan to do so at this time, our board of directors may choose to adopt a new rights plan in the future.