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Item 1A. Risk Factors

2022-02-24 compared with 2021-02-11 · 213 added, 186 removed, 629 unchanged (39% of the section changed)

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The following discussion of risk factors contains forward-looking statements.

These risk factors may be important to understanding any statement in this Annual Report or elsewhere.

These risk factors may be important to understanding any statement in this annual report on Form 10-K (Annual Report) or elsewhere.

The following information should be read in conjunction with the consolidated financial statements and related notes in Part II, Item 8, Financial Statements and Supplementary Data and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Because of the following risk factors, as well as other risk factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to our Business and Industry

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

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.

We are 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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In July 2015, the European Commission (EC) granted centralized marketing authorization with unified labeling for HETLIOZ ® for the treatment of Non-24 in totally blind adults, and in August 2016 we commenced the commercial launch of HETLIOZ ® in Germany.

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

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

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

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.

HETLIOZ ® capsules, for adults with SMS, were immediately available after approval and the HETLIOZ LQ TM liquid formulation, for children with SMS, became available in March 2021.

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;

• properly price and obtain adequate coverage and reimbursement of these products by governmental authorities, private health insurers, managed care organizations and other third-party payors;

• gain broad acceptance of our products from physicians, health care payors, patients, pharmacists and the medical community;

• defend our patents and intellectual property from generic competition;

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

• maintain commercial manufacturing arrangements with third-party manufacturers;

• 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;

• gain broad acceptance of our products from physicians, health care payors, patients, pharmacists and the medical community;

• properly price and obtain adequate coverage and reimbursement of these products by governmental authorities, private health insurers, managed care organizations and other third-party payors;

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

• maintain compliance with ongoing labeling, packaging, storage, advertising, promotion, recordkeeping, safety and other post-market requirements;

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• obtain regulatory approval for HETLIOZ ® or Fanapt ® in additional countries;

• renew and maintain our existing regulatory approval for HETLIOZ ® in Europe;

• maintain our existing regulatory approval for HETLIOZ ® in Europe;

• adequately protect against and effectively respond to any claims by holders of patents and other intellectual property rights that our products infringe their rights;

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This activity represents a significant investment in the commercial success of HETLIOZ ® and Fanapt ® , which is uncertain.

If our continued commercial efforts are not successful with respect to HETLIOZ ® and Fanapt ® in the U.S., Europe or other jurisdictions in which these products may be approved for sale, our ability to generate increased product sales revenue may be jeopardized.

The cost of growing and maintaining a sales, marketing and distribution organization may exceed its cost effectiveness.

If we fail to continue to develop sales, marketing and distribution capabilities, if sales efforts are not effective or if costs of developing sales, marketing and distribution capabilities exceed their cost effectiveness, our business, results of operations and financial condition could be materially adversely affected.

Growth of HETLIOZ ® and Fanapt ® may be slow or limited for a variety of reasons including competing products or unanticipated safety issues.

Future performance of HETLIOZ ® and Fanapt ® may be impacted by a number of factors including competing products or unanticipated safety issues.

If either HETLIOZ ® or Fanapt ® is not successful in gaining broad commercial acceptance, our business would be harmed.

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.

Future performance of HETLIOZ ® and Fanapt ® sales 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, 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:

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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

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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.

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.

We are subject to uncertainty relating to pricing and reimbursement policies in the U.S.

which, if not favorable for our products, could hinder or prevent our products’ commercial success.

Our ability to commercialize our products successfully depends in part on the coverage and reimbursement levels with governmental authorities, private health insurers and other third-party payors.

In determining whether to reimburse our products and at what level, third-party payors consider factors that include the efficacy, cost effectiveness and safety of our products, as well as the availability of other treatments including generic prescription drugs and over-the-counter alternatives.

We expect to continue to face increasing pressure to make unfavorable pricing modifications, such as discounts or rebates.

Negotiating favorable reimbursement can be a time consuming and expensive process, and there is no guarantee that we will be able to reach pricing terms with third-party payors at levels that are profitable to us.

Certain third-party payors also have reimbursement or coverage processes that we believe are difficult to navigate and require prior authorization for, or even refuse to provide, reimbursement for our products, and others may do so in the future.

Our business may be materially adversely affected if our patients are not able to receive approval for reimbursement of our products from third-party payors on a broad, timely or satisfactory basis;

if reimbursement is subject to difficult reimbursement or coverage processes or prior authorization

requirements;

or if reimbursement is not maintained at satisfactory levels.

In addition, our business could be adversely affected if third-party payors limit or reduce the indications for or conditions under which, or the patient populations for whom, our products may be reimbursed.

Moreover, as discussed further below and above in in Part I, Item 1 under the heading Pharmaceutical Coverage, Pricing and Reimbursement and Healthcare Reform , changes in insurance coverage or reimbursement levels by third-party payors, or in the type of such coverage held by patients, as well as the impacts to healthcare access or administration (including, for example, limitations on medications or procedures deemed “non-essential,” reduced interaction between patients and physicians, and increased unemployment), due to the COVID-19 pandemic may materially harm our business and commercialization efforts.

We expect to experience pricing pressures in connection with the sale of our current and future products due to the healthcare reforms discussed below and above in in Part I, Item 1 under the heading Pharmaceutical Coverage, Pricing and Reimbursement and Healthcare Reform , as well as the trend toward initiatives aimed at reducing healthcare costs, the increasing influence of managed care, the scrutiny of pharmaceutical pricing, the ongoing debates on reducing government spending and additional legislative proposals.

There has been significant scrutiny of pharmaceutical pricing and the resulting costs of pharmaceutical products that could cause significant operational and reimbursement changes for the pharmaceutical industry.

There have been a number of federal and state efforts to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices, price increases or other related costs.

For example, the Bipartisan Budget Act of 2018 contained various provisions that affect coverage and reimbursement of drugs, including an increase, which began in 2019, in the discount that manufacturers of Medicare Part D brand name drugs must provide to Medicare Part D beneficiaries during the coverage gap from 50% to 70%.

Healthcare reform efforts or any future legislation or regulatory actions aimed at controlling and reducing healthcare costs, including through measures designed to limit reimbursement, restrict access or impose unfavorable pricing modifications on pharmaceutical products, could impact our ability to obtain or maintain reimbursement for our products at satisfactory levels, or at all, which could materially harm our business and financial results.

We have experienced both an increase in the rate at which third-party payors refuse to cover or reimburse prescriptions written for HETLIOZ ® and in the number of patients who are unable to navigate the coverage or reimbursement processes established by these third-party payors.

If this trend continues, the commercial success of HETLIOZ ® may be limited, and our business and results of operations may be materially harmed.

We have recently experienced an increase in the rate at which third-party payors refuse to cover or reimburse prescriptions written for HETLIOZ ® .

Additionally, we are aware of an increasing number of patients who are experiencing difficulties navigating coverage processes established by third-party payors, making it difficult for them to fill a prescription for HETLIOZ ® .

Although currently there are no other FDA-approved products for the treatment of Non-24, the rate at which third-party payors have refused to allow patients access to HETLIOZ ® has continued to increase.

As a result, the revenue that we receive from HETLIOZ ® is significantly less than it would be if third-party payors were to remove or lessen these reimbursement challenges and hurdles and approve a greater percentage of the prescriptions written for HETLIOZ ® .

Our business may be materially adversely affected if this trend continues and large numbers of patients cannot fill their HETLIOZ ® prescriptions due to coverage or reimbursement challenges.

If the FDA does not accept our tradipitant NDA or sNDA filings for the treatment of gastroparesis and motion sickness;

if the FDA determines that our clinical trial results for tradipitant for the treatment of gastroparesis or for the treatment of motion sickness do not demonstrate adequate safety and substantial evidence of efficacy;

or the FDA does not approve an applicable PDUFA 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 February 2022, we announced results from our Phase III clinical study, VP-VLY-686-3301, evaluating the efficacy and safety of tradipitant in treating the symptoms of gastroparesis.

The study did not meet its prespecified primary endpoint, which was the difference between drug and placebo on the change of the severity of nausea from baseline at week 12 of treatment.

Both treatment arms showed significant improvements from baseline on nausea as well as the other core symptoms of gastroparesis.

When restricting the analysis in the group of patients that used no rescue medications at baseline and adjusting for poor compliance, we identified strong evidence of a drug effect across a number of symptoms and across the duration of the study, including a significant and meaningful effect at the prespecified primary endpoint of nausea change at week 12.

We plan to continue the analysis of the data of this study and prepare the results for submission to peer review journals as well as prepare the data for submission to regulatory authorities.

The FDA may not view this data as constituting substantial evidence of efficacy for tradipitant in any indication for the treatment of gastroparesis or its symptoms, for any length of treatment.

We have also initiated a Phase III clinical study of tradipitant for the treatment of motion sickness.

Any adverse developments or

results or perceived adverse developments or results with respect to 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.

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

• the FDA determining that they believe additional clinical studies are required with respect to tradipitant for the treatment of gastroparesis or for the treatment of motion sickness;

• safety, efficacy or other concerns arising from clinical or non-clinical studies in these programs;

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

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 nine-month non-rodent chronic toxicity study.

This 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 nine-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 we 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 authorized tradipitant through an expanded access program (EAP) for a single patient.

An EAP allows a patient to request the use of tradipitant, prior to NDA approval, for up to six months with an option to request renewal.

Since then, certain patients who experienced a benefit in tradipitant studies have requested and received expanded access, while others have been denied treatment under the EAP.

The EAP is ongoing and a number of patients have initiated treatment.

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

The FDA may disregard such safety data when reviewing the NDA.

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

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

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.

However, the FDA may not deem the safety information sufficient even for a short-term indication.

Moreover, FDA authorization of an EAP is not a guarantee of or a step in obtaining full FDA approval of an NDA.

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 or sNDA filings for the treatment of gastroparesis or motion sickness.

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.

and other countries where we sell our products, including as a result of the COVID-19 pandemic, could adversely affect our operations.

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.

As discussed in the risk factor entitled " We are subject to uncertainty relating to pricing and reimbursement policies in the U.S.

which, if not favorable for our products, could hinder or prevent our products’ commercial success", sales of our products are 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.

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

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

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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.

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.

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, the extent of which new strains of the virus, such as the Delta and Omicron variants, continue to develop and spread, and other limitations on our ability to conduct our business in the ordinary course.

Additionally, the COVID-19 pandemic has caused global supply chain disruptions that may have lasting impacts and consequences that are difficult to predict.

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.

While we have implemented 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:

The COVID-19 pandemic has impacted clinical research globally, including delays in our development programs.

While our clinical trials have since resumed patient enrollment, we may continue to experience 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;

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• 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;

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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.

The extent to which the pandemic 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 and severity of the pandemic, the emergence of new variant strains of the virus, 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.

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.

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

• the FDA determining that additional clinical studies are required with respect to tradipitant for the treatment of atopic dermatitis and/or the treatment of gastroparesis and/or the treatment of motion sickness;

• safety, efficacy or other concerns arising from clinical or non-clinical studies in these programs;

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

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 we are determining our next steps.

We received a complete response letter (CRL) 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 CRL 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.

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countries and elsewhere outside of the U.S., and future product development arrangements.

If we are unable to identify or enter into an agreement with any material third-party collaborator, this could result in an adverse effect on our business, results of operations or financial condition.

If we are unable to identify or enter into an agreement with any material third-party collaborator, our business, results of operations or financial condition could be adversely affected.

Any arrangements we do enter into may not be scientifically or commercially successful.

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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.

With respect to our future collaborations, any such termination or expiration could adversely affect us financially as well as harm our business reputation.

Any such termination or expiration with respect to our future collaborations could adversely affect us financially as well as harm our business reputation.

Even after we obtain regulatory approvals of a product, acceptance of the product in the marketplace is uncertain and failure to achieve commercial acceptance will prevent or delay our ability to generate significant revenue from such product.

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The degree of market acceptance of any product will depend on a number of factors, including the demonstration of its safety and efficacy, its cost-effectiveness, its potential advantages over other therapies, the reimbursement policies of government and third-party payors with respect to such product, our ability to attract and maintain corporate partners, including pharmaceutical companies, to assist in commercializing our products, receipt of regulatory clearance of marketing claims for the uses that we are developing and the effectiveness of our marketing and distribution capabilities.

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 ® , HETLIOZ LQ TM , Fanapt ® and our other products.

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

We rely on outsourcing arrangements for a significant portion of our activities, including distribution, preclinical and clinical research and development, data collection and analysis and manufacturing, as well as for certain functions as a public company.

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 on, 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.

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 ® , 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.

Disruptions to our HETLIOZ ® , HETLIOZ LQ TM or Fanapt ® supply chains could materially affect our level of success in commercializing these products, 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 ® , 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.

Introducing a replacement or backup manufacturer or supplier for HETLIOZ ® , HETLIOZ LQ TM or Fanapt ® requires a lengthy regulatory and commercial process, including FDA approval of chemistry, manufacturing and controls (CMC) changes, 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.

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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.

We participate in the Medicaid Drug Rebate Program for both HETLIOZ ® and Fanapt ® .

We participate in the Medicaid Drug Rebate Program.

Under the Medicaid Drug Rebate Program, we are required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having our drugs eligible for coverage under Medicaid and Medicare Part B.

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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:

The Patient Protection and Affordable Care Act (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.

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 exempts drugs designated under section 526 of the Federal Food, Drug and Cosmetic Act (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.

Implementation of this final regulation and the issuance of any other final regulations and guidance could affect our obligations under the 340B program in ways we cannot anticipate.

In addition, legislation may be introduced that, if passed, would further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in the inpatient setting.

Federal law also requires that for a drug manufacturer’s products to be eligible for coverage under the Medicaid and Medicare Part B programs and to be purchased by certain federal agencies and grantees, the manufacturer must participate in the Department of Veterans Affairs Federal Supply Schedule (FSS), pricing program, established by Section 603 of the Veterans Health Care Act of 1992.

Manufacturers that participate in the FSS pricing program must list their covered (innovator and authorized generic) drugs on an FSS contract and charge no more than Federal Ceiling Price (FCP), to the Department of Veterans Affairs, Department of Defense, Public Health Service, and Coast Guard when those agencies purchase from the FSS contract or a depot contract.

FCP is calculated based on non-federal average manufacturer price data, which manufacturers must submit quarterly and annually.

FCP is calculated based on non-federal average manufacturer price data, which manufacturers must

submit quarterly and annually.

In addition, because our products are available in the retail and specialty pharmacy setting, we are required to provide rebates to the Department of Defense for prescriptions dispensed to Tricare beneficiaries from Tricare retail network pharmacies under the Tricare Retail Refund Program.

To the extent we choose to participate in these government healthcare programs for our current and future products, these and other requirements may affect our ability to profitably sell any product for which we obtain marketing approval.

To the extent we continue to choose to participate in these government healthcare programs for our current and future products, these and other requirements may affect our ability to profitably sell any product for which we obtain marketing approval.

Pricing and rebate calculations vary among products and programs.

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There can be no assurance that our submissions will not be found to be incomplete or incorrect.

Third-party payors decide which drugs they will cover and establish reimbursement and co-pay levels.

Third-party payors are increasingly challenging the prices charged for medical products and services and examining their cost effectiveness, in addition to their safety and efficacy.

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.

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.

In addition, we anticipate that a significant portion of our revenue from sales of commercialized products will be obtained through government payors, including Medicare and Medicaid.

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.

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.

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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.

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

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

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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:

In addition, if our products face any safety or efficacy issues, including drug interaction problems, under the federal FDC 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;

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

• Removing an already approved product from the market.

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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.

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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.

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 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 .

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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.

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

(See Note 16, 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.)

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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.

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.

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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 adopted legislation to require pharmaceutical companies to establish marketing and promotional compliance programs or codes of conduct 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.

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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.

If we, our partners, or our representatives fail to comply with any of these laws or regulations, a range of fines, penalties 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 it is not determined that we 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.

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HETLIOZ ® is available for distribution through a limited number of specialty pharmacies in the U.S.

A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions, which often require a high level of patient education and ongoing management.

A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions that often require a high level of patient education and ongoing management.

The use of specialty pharmacies involves certain risks, including, but not limited to, risks that these specialty pharmacies will:

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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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Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA or foreign regulatory approval or commercializing superior products or other competing products before we do.

Technological developments or the FDA or foreign regulatory approval of new therapeutic indications for existing products may make our products obsolete or may make them more difficult to market successfully, any of which could have a material adverse effect on our business, results of operations and financial condition.

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.

Technological developments or the approval by the FDA or foreign regulators of new therapeutic indications for existing products may make our products obsolete or may make them more difficult to market successfully, any of which could have a material adverse effect on our business, results of operations and financial condition.

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

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

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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.

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

(See Part I, Item 1, 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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To obtain an ANDA approval for a generic drug, the generic company needs to show, among other things, that its version of the product is bioequivalent to the Reference Listed Drug (RLD).

This usually requires the generic company to conduct bioequivalence studies comparing its product to the RLD, and to retain sufficient samples of the RLD used in testing after a study is complete.

In recent years, the U.S.

federal lawmakers and the FDA have been considering proposals to facilitate the generic drug company’s access to samples and foster the generic competition.

For example, in February 2019, the U.S.

House and Senate lawmakers reintroduced the Creating and Restoring Equal Access to Equivalent Samples Act (CREATES Act), a bill intended to require brand drug manufacturers to provide sufficient drug samples to generic and biosimilar drug developers.

The proposed legislation, if enacted, would allow a biosimilar or generic product developer to bring a civil action against a brand drug manufacturer for failing to provide samples of the brand product for comparative testing “on commercially reasonable, market-based terms.” The developer could receive injunctive relief and a monetary award “sufficient to deter the license holder from failing to provide other eligible product developers with sufficient quantities of a covered product on commercially reasonable, market-based terms” in certain cases.

This usually requires the generic company to conduct bioequivalence studies comparing its product to the RLD, and to retain sufficient samples of the RLD used in testing

after a study is complete.

In recent years, U.S.

federal lawmakers and the FDA have considered proposals and enacted legislation to facilitate the generic drug company’s access to samples and foster the generic competition.

For example, the Creating and Restoring Equal Access to Equivalent Samples Act (CREATES Act) allows a biosimilar or generic product developer to bring a civil action against a brand drug manufacturer for failing to provide samples of the brand product for comparative testing “on commercially reasonable, market-based terms.” The developer could receive injunctive relief and a monetary award “sufficient to deter the license holder from failing to provide other eligible product developers with sufficient quantities of a covered product on commercially reasonable, market-based terms” in certain cases.

While the full impact of the CREATES Act is unclear at this time, its provisions do have the potential to facilitate the development and future approval of generic versions of our products, introducing generic competition that could have a material adverse effect on our business, results of operations and financial condition.

Certain states have also taken similar actions.

In 2018, Maine passed a new law that requires brand drug manufacturers to make samples of drugs distributed in the state available for sale in Maine at a price no greater than wholesale acquisition cost and without any restriction that would block or delay a biosimilar and generic drug application in a manner inconsistent with federal law.

For example, in 2018, Maine passed a new law that requires brand drug manufacturers to make samples of drugs distributed in the state available for sale in Maine at a price no greater than wholesale acquisition cost and without any restriction that would block or delay a biosimilar and generic drug application in a manner inconsistent with federal law.

The state may seek injunctive relief and attorney’s fees from a drug manufacturer who fails to comply with this requirement.

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To obtain regulatory approval of such products, we must demonstrate to the satisfaction of the applicable regulatory agency that, among other things, the product is safe and effective for its intended use.

In addition, we must show that the manufacturing facilities used to produce such products are in compliance with cGMPs.

In addition, we must show that the manufacturing facilities used to produce such products are in compliance with current good manufacturing practices (cGMPs).

The process of obtaining FDA and other required regulatory approvals and clearances can take many years and will require us to expend substantial time and capital.

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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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• the FDA or foreign agency may change its approval policies or adopt new regulations;

• the FDA or foreign agency may not meet, or may extend, the PDUFA-VI date or its foreign equivalent with respect to a particular NDA or foreign application;

• the FDA or foreign agency may not meet, or may extend, the PDUFA date or its foreign equivalent with respect to a particular NDA or foreign application;

• the FDA or foreign agency may not agree with our regulatory approval strategies or components of the regulatory filings, such as clinical trial designs.

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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.

Other than HETLIOZ ® in the U.S.

and the countries in Europe covered by the centralized marketing authorization by the EC, and Fanapt ® in the U.S., Mexico and Israel, we have not received, and may never receive, regulatory approval to market any of our products in any jurisdiction.

Other than HETLIOZ ® and HETLIOZ LQ TM in the U.S.

and HETLIOZ ® in the countries in Europe covered by the centralized marketing authorization by the EC, and Fanapt ® in the U.S., Mexico and Israel, we have not received, and may never receive, regulatory approval to market any of our products in any jurisdiction.

Even following regulatory approval of our products, the FDA or the applicable foreign agency may impose limitations on the indicated uses for which such products may be marketed, subsequently withdraw approval or take other actions against us, or such products that are adverse to our business.

The FDA and foreign agencies generally approve drugs for particular indications.

The FDA and foreign agencies generally approve drugs for use in specific indications.

An approval for a more limited indication reduces the size of the potential market for the product.

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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.

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 FDA’s approval of the sNDA and NDA for HETLIOZ ® capsule and liquid formulation for the treatment of adults and children, respectively, with 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.

These events, among others, could result in product 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 require us to implement a REMS, such as the addition of labeling statements (e.g., “black box” warning or a contraindication);

• regulatory authorities may withdraw their approval of the product;

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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 impact of global health crises, including 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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A limitation on our ability to utilize some or all of our NOLs or credits could have a material adverse effect on our results of operations and cash flows.

Ownership changes occurred in the years ending December 31, 2014 and 2008.

Ownership changes occurred in the years ended December 31, 2014 and 2008.

We believe that the ownership changes in 2014 and 2008 will not impact our ability to utilize NOL and credit carryforwards;

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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 2022 and beyond.

It is uncertain whether cash provided by our operating activities, together with our existing funds, will be sufficient to meet our operating needs.

It is uncertain whether cash provided by our operating activities, together with our existing funds, will be sufficient to meet our long-term operating needs.

As of December 31, 2021, our total cash and cash equivalents and marketable securities were $432.8 million.

Our long-term capital requirements are expected to depend on many factors, including, among others:

• our level of success in commercializing HETLIOZ ® and Fanapt ® globally;

• our level of success in commercializing HETLIOZ ® and Fanapt ® , as well as other products that may be approved, globally;

• outcomes of ongoing and potential patent litigation;

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• costs involved in preparing, filing, prosecuting, maintaining and enforcing patent, trademark and other intellectual property claims;

• cost of evaluating and acquiring new products from third parties;

• competing technological and market developments;

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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

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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 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 .

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 one of our contract manufacturers fails to maintain compliance, the production of our products could be interrupted, resulting in delays and additional costs.

In addition, if the facilities of such manufacturers do not pass a pre-approval or post-approval plant inspection, the FDA will not grant approval and may institute restrictions on the marketing or sale of our products.

Moreover, if the facilities of such manufacturers do not pass a pre-approval or post-approval plant inspection, the FDA will not grant approval for our products and may institute restrictions on the marketing or sale of our products.

Similarly, if we change contract manufacturers, the FDA must approve these contract manufacturers or any other CMC changes before our products can be manufactured.

Our manufacturing strategy presents the following additional risks:

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Moreover, we currently do not have any agreements for the commercial production of these materials.

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 the manufacturers are unable to obtain these materials for our clinical trials, including due to supply chain issues caused by the COVID-19 pandemic, 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 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.

A component of our business strategy is acquiring rights to develop and commercialize products discovered or developed by other pharmaceutical and biotechnology companies for which we may find effective uses and markets through our unique pharmacogenetics and pharmacogenomics expertise for the treatment of central nervous system disorders.

Competition for the acquisition of these products is intense.

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vary by Member State.

For the public systems, reimbursement is determined by guidelines established by the legislature or responsible national authority.

For the public systems, reimbursement is determined by law and/or by guidelines established by the responsible national authority.

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

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Member State.

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 ® 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.

In addition, to obtain reimbursement or pricing approval for HETLIOZ ® in some Member States, we may be required to conduct a clinical trial that compares the cost-effectiveness of HETLIOZ ® , to other available therapies.

In addition, to obtain reimbursement or pricing approval for HETLIOZ ® in some Member States, we may be required to conduct an additional clinical trial that compares the cost-effectiveness of HETLIOZ ® , to other available therapies.

Some Member States require approval of the sale price of a drug before it can be marketed.

In many countries, the pricing review period begins after marketing or product licensing approval is granted.

In others, the pricing review period begins after marketing or product licensing approval is granted.

In some Member States, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted.

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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.

In July 2021, the U.S Supreme Court ruled that the states and individuals that brought the lawsuit did not have standing to challenge the ACA, and therefore, the Court did not reach the merits of the lawsuit.

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

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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.

These modifications to the safe harbors are being challenged in court and HHS has delayed their implementation until January 1, 2023;

however, the rule may be repealed through legislative action before such time.

In July 2021, President Biden issued an executive order pertaining to drug pricing, which expressed support for legislation allowing direct negotiation in Medicare Part D and inflationary rebates and directed various executive branch agencies to take actions to lower drug prices and promote generic competition.

In response to President Biden’s executive order, in September 2021, HHS issued a Comprehensive Plan for Addressing High Drug Prices that identified potential legislative policies and administrative tools that Congress and the agency can pursue in order to make drug prices more affordable and equitable, improve and promote competition throughout the prescription drug industry, and foster scientific innovation.

Several pending or proposed legislative efforts incorporate these drug pricing reforms in addition to inflationary rebates on Part B and Part D drugs that would be payable on commercial and governmental program utilization, policies aimed at redesigning the Medicare Part D benefit and adopting drug price transparency measures.

Drug manufacturers who are unwilling to negotiate with Medicare would be subject to additional excise taxes.

Additionally, the plan would impose tax penalties on drug manufacturers that increase the prices of drug products faster than the rate of inflation.

If elements of these prescription drug pricing plans become law, our pricing strategy and commercial prospects may be adversely affected.

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.

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

These new definitions became effective on 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 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, 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 and the American Rescue Plan Act of 2021, which will eliminate the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024.

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.

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

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.

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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 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.

We are subject to stringent laws, rules, regulations, policies, industry standards and contractual obligations regarding data privacy and security in foreign jurisdictions and may be subject to additional related laws and regulations in other jurisdictions into which we expand.

Many of these laws and regulations are subject to change and reinterpretation and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business.

The regulatory framework for privacy and personal information security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.

Various foreign government bodies and agencies have adopted or are considering adopting laws, rules, regulations and standards limiting, or laws, rules, regulations and standards regarding, the collection, distribution, use, disclosure, storage, security and other processing of personal information.

Outside of the U.S., legal requirements relating to the collection, storage, processing and transfer of personal data continue to evolve.

For example, the collection and use of health data and other personal data is governed in the European Union 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.

Failure to comply with the GDPR may result in fines up to €20,000,000 or 4% of the total worldwide annual revenue of the preceding financial year, whichever is higher, and other administrative penalties.

The GDPR may increase our responsibility and liability in relation to personal data that we may process, and we may be required to implement additional measures in an effort to comply with the GDPR and with other laws, rules, regulations and standards in the E.U., including those of E.U.

Member States, relating to privacy and data protection.

This may be onerous and if our efforts to comply with GDPR or other applicable E.U.

laws, rules, regulations and standards are not successful, or are perceived to be unsuccessful, it could adversely affect our business.

In July 2020, the European Court of

Justice (ECJ) invalidated the E.U.-U.S.

Privacy Shield, which had enabled the transfer of personal data from the E.U.

for companies that had self-certified to the Privacy Shield.

While we do not rely on the Privacy Shield, the ECJ decision also raised questions about the continued validity of the European Commission’s Standard Contractual Clauses, on which we rely.

regulators have issued additional guidance regarding considerations and requirements that we and other companies must consider and undertake when using the Standard Contractual Clauses.

Although the European Commission has presented a new set of Standard Contractual Clauses, which are required to be implemented, there are few, if any, viable alternatives to the Standard Contractual Clauses and it remains to be seen whether additional means for lawful data transfers will become available.

The ECJ’s decision and other regulatory guidance or developments may impose additional obligations with respect to the transfer of personal data from the E.U.

to the U.S, all of which could restrict our activities in those jurisdictions, limit our ability to provide our products and services in those jurisdictions, require us to modify our policies and practices, and to engage in additional contractual negotiations, or increase our costs and obligations and impose limitations upon our ability to efficiently transfer personal data from the E.U.

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

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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 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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The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the U.S.

Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products.

Such challenges may result in loss of

exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products.

In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

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Even where laws provide protection or we are able to obtain patents, costly and time-consuming litigation may be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain.

Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have.

Moreover, any actions we may bring to enforce our intellectual property rights against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have.

To counter infringement or unauthorized use of any patents we may obtain, we may be required to file infringement claims, which can be expensive and time-consuming to litigate.

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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.

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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.

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.

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

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new chemical entity (NCE) patent (the primary patent covering the product as a new composition of matter) received the full five-year patent term extension under the Hatch-Waxman Act and so, assuming that we continue to have rights under our license agreement with respect to this product, this patent in the U.S.

expires in December 2022.

will expire in December 2022.

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 two drug substance patents that expire in 2035.

Additionally, the U.S.

Patent and Trademark Office has issued a drug formulation patent for HETLIOZ LQ TM that will expire in 2040.

The Fanapt ® U.S.

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patents directed to methods of treating patients with Fanapt ® , which are set to expire between 2025 and 2031, were issued to us in 2015.

A directive in the E.U.

provides that companies that receive regulatory approval for a new medicinal product will have a 10-year period of market exclusivity for that product (with the possibility of a further one-year extension), beginning on the date of such European regulatory approval, regardless of when the European NCE patent covering such product expires.

A generic version of the approved drug may not be marketed or sold in Europe during such market exclusivity period.

This directive is of material importance with respect to Fanapt ® , since the European NCE patent for Fanapt ® has expired.

provides that companies that receive regulatory approval for a new medicinal product will have a 10-year period of regulatory data protection and market protection for that product (with the possibility of a further one-year extension

under certain conditions), beginning on the date of such European regulatory approval, regardless of when the European NCE patent covering such product expires.

A generic version of the approved drug that refers to the approved drug’s regulatory data may not be marketed or sold in Europe during such market protection period.

This legislation is of material importance with respect to Fanapt ® , since the European NCE patent for Fanapt ® has expired.

Assuming we gain a five-year patent term restoration for tradipitant, and that we continue to have rights under our license agreement with respect to this product, we would have exclusive rights to tradipitant’s U.S.

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However, there is no assurance that we will receive the extensions of our patents or other exclusive rights available under the Hatch-Waxman Act or similar foreign legislation.

Such extensions may not be granted because of, for example, the failure to exercise due diligence during the testing phase or regulatory review process, the failure to apply within applicable deadlines, the failure to apply prior to expiration of relevant patents, or any other failure to satisfy applicable requirements.

Moreover, the applicable time period or the scope of patent protection afforded could be less than we request.

If we fail to receive such extensions or exclusive rights, our ability to prevent competitors from manufacturing, marketing and selling generic versions of our products will be materially impaired.

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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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The realization of any of the risks described in these risk factors or other unforeseen risks could have a dramatic and adverse effect on the market price of our common stock.

Between January 1, 2020 and December 31, 2020, the high and low sale prices of our common stock as reported on The Nasdaq Global Market varied between $7.12 and $16.96.

Between January 1, 2021 and December 31, 2021, the high and low

sale prices of our common stock as reported on The Nasdaq Global Market varied between $13.14 and $21.86.

Additionally, market prices for securities of biotechnology and pharmaceutical companies, including ours, have historically been very volatile.

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and foreign countries;

• newly enacted healthcare legislation or changes to existing legislation;

• developments concerning any collaboration or other strategic transaction we may undertake;

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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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Sales by these stockholders of a substantial number of shares, or the expectation of such sales, could cause a significant reduction in the market price of our common stock.

In addition to our outstanding common stock, as of December 31, 2020, there were a total of 5,246,381 shares of our common stock that we have registered and that we are obligated to issue upon the exercise of currently outstanding options and settlement of restricted stock unit awards granted under our 2006 and 2016 Equity Incentive Plans.

In addition to our outstanding common stock, as of December 31, 2021, there were a total of 5,485,888 shares of our common stock that we have registered and are obligated to issue upon the exercise of currently outstanding options and

settlement of restricted stock unit awards granted under our 2006 and 2016 Equity Incentive Plans.

Upon the exercise of these options or settlement of the shares underlying these restricted stock units, as the case may be, in accordance with their respective terms, these shares may be resold freely, subject to restrictions imposed on our affiliates under Rule 144.

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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

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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:

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.

Even if we are successful, our business could be adversely affected by a proxy contest or shareholder dispute involving us for several reasons, including, among others:

• responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting operations and diverting the attention of management and employees;

• perceived uncertainties as to future direction may result in the loss of potential acquisitions, collaborations or in-licensing opportunities, and may make it more difficult to attract and retain qualified personnel and business partners;

• if individuals are elected to a board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders.

• if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders.

These actions could cause our stock price to experience periods of volatility.

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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 our actual financial results to deviate from previous estimates.

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

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• cost of product sales;

• the rate at which third-party payors approve coverage for our products;

• marketing and other expenses;

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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.

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

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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.

Our internal computer systems, or those of our collaborators, 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.

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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.

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.

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

What changed 10-K

Item 1A. Risk Factors