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Item 1A. Risk Factors

2024-02-08 compared with 2023-02-09 · 226 added, 140 removed, 795 unchanged (32% of the section changed)

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Risks Related to our Business and Industry

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

In the U.S., HETLIOZ ® competes with a generic version of HETLIOZ ® and we could experience increased generic competition in the near term.

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 ® ) for the treatment of nighttime sleep disturbances in Smith-Magenis Syndrome (SMS) and Fanapt ® oral tablets for the treatment of schizophrenia.

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

In the U.S., HETLIOZ ® competes with generic versions of HETLIOZ ® and we could experience increased generic competition in the near term.

We are substantially dependent upon the commercial success of HETLIOZ ® capsules for the treatment of Non-24-Hour Sleep-Wake Disorder (Non-24), HETLIOZ ® capsules and oral suspension (HETLIOZ LQ ® ) for the treatment of nighttime sleep disturbances in Smith-Magenis Syndrome (SMS), Fanapt ® oral tablets for the treatment of schizophrenia and PONVORY ® oral tablets for the treatment of relapsing forms of multiple sclerosis (RMS) in adults.

In January 2014, the U.S.

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

On December 13, 2022, the U.S.

District Court for the District of Delaware (the Delaware District Court) ruled in favor of certain generic drug companies in our patent litigation alleging that the companies’ generic versions of HETLIOZ ® capsules, for which they were seeking FDA approval, infringed our patents covering HETLIOZ ® .

We disagree with the ruling that certain claims of our patents are invalid or not infringed by the defendants and have appealed the decision to the U.S.

In December 2022, the U.S.

District Court for the District of Delaware (Delaware District Court) ruled in favor of certain generic drug companies in our patent litigation alleging that the companies’ generic versions of HETLIOZ ® capsules, for which they were seeking FDA approval, infringed our patents covering HETLIOZ ® .

We appealed the decision to the U.S.

Court of Appeals for the Federal Circuit (Federal Circuit).

Teva Pharmaceuticals USA, Inc.

(Teva) has launched its generic version of HETLIOZ ® at risk in the U.S.

The FDA has approved Abbreviated New Drug Applications (ANDA) for generic versions of tasimelteon for Apotex Inc.

In May 2023, a three-judge panel of the Federal Circuit affirmed the Delaware District Court’s ruling.

In August 2023, the Federal Circuit denied our request for a rehearing.

In January 2024, we filed a petition for a writ of certiorari with the U.S Supreme Court to review the Federal Circuit’s decision.

The FDA has approved Abbreviated New Drug Applications (ANDA) for generic versions of HETLIOZ ® for Teva Pharmaceuticals USA, Inc.

(Teva), Apotex Inc.

(Apotex) and MSN Pharmaceuticals Inc.

and MSN Laboratories Private Limited (MSN).

HETLIOZ ® could face even more competition from generic companies in the U.S.

Teva and Apotex have launched their generic versions of HETLIOZ ® at risk in the U.S., and MSN has launched its generic version as well.

HETLIOZ ® could face even more competition from other generic companies in the U.S.

in the near term in light of the patent litigation rulings against us.

Sales of generic versions of HETLIOZ ® could result in a significant reduction in the demand for HETLIOZ ® and/or the price at which we can sell it, which would have a material and adverse impact on our revenues and results of operations.

Unless and until our appeal is successful, we may reduce the amount we spend with the intention of retaining the capability to ramp-up promptly if we win upon appeal.

Sales of generic versions of HETLIOZ ® have resulted in and could continue to result in a reduction in the demand for HETLIOZ ® and/or the price at which we can sell it and/or create volatility in net product sales in future periods, which would have a material and adverse impact on our revenues and results of operations.

Unless and until we are able to successfully enforce our legal rights to exclusivity, we may reduce the amount we spend with the intention of retaining the capability to ramp-up promptly.

Our expansion and development of HETLIOZ ® outside the U.S.

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commercial rights to Fanapt ® , and began selling, marketing and distributing Fanapt ® in the U.S.

Our ability to generate significant product revenue from sales of HETLIOZ ® and Fanapt ® , both in the U.S.

In December 2023, we acquired the U.S.

and Canadian rights to PONVORY ® from Actelion Pharmaceuticals Ltd.

(Janssen), a Johnson & Johnson Company.

Janssen is responsible for the continued marketing and sale of PONVORY ® during a transition period until the regulatory and supply responsibilities for PONVORY ® are transitioned to us.

Our ability to generate significant product revenue from sales of HETLIOZ ® , Fanapt ® and PONVORY ® both in the U.S.

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

• defend our patents and intellectual property from generic competition, including the impact of and outcome of our pending appeal of the December 2022 Delaware District Court’s ruling and the litigation that we recently commenced in the New Jersey and Florida District Courts;

• defend our patents and intellectual property from generic competition;

• 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;

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

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

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

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

• adequately protect against and effectively respond to any unanticipated adverse effects or unfavorable publicity that develops in respect to our products, as well as the emergence of new or existing competitive products, which may be proven to be more clinically effective and cost-effective.

We expect to continue to incur significant expenses and to utilize a substantial portion of our cash resources as we continue the commercialization of HETLIOZ ® and Fanapt ® , evaluate foreign market opportunities for HETLIOZ ® and Fanapt ® and continue to grow our operational capabilities, both domestically and abroad.

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 adversely affected.

We expect to continue to incur significant expenses and to utilize a substantial portion of our cash resources as we continue the commercialization of HETLIOZ ® and Fanapt ® and commence commercial operations for PONVORY ® , evaluate foreign market opportunities for HETLIOZ ® and Fanapt ® and continue to grow our operational capabilities, both domestically and abroad.

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

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

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.

As a result of the decision in favor of generic drug companies in connection with our HETLIOZ ® patent litigation, we could face increased generic competition in the near term and our revenues and results of operations could be materially and adversely affected by the launch of one or more additional generic versions of HETLIOZ ® in the U.S.

As a result of the decision in favor of generic drug companies in connection with our HETLIOZ ® patent litigation, we have faced generic competition in the near term and our revenues and results of operations could be further affected by the launch of additional generic versions of HETLIOZ ® in the U.S.

Between April 2018 and March 2021, we filed numerous Hatch-Waxman lawsuits in the Delaware District Court against Teva, MSN and Apotex asserting that our patents would be infringed by their generic versions of HETLIOZ ® .

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A trial was held in March 2022 in the Delaware District Court to resolve the consolidated lawsuits against the remaining companies (the Defendants).

On December 13, 2022, following conclusion of the trial, the Delaware District Court issued its ruling in favor of the Defendants, finding that the Defendants’ use of a generic HETLIOZ ® , for which they were seeking FDA approval, did not infringe one of our HETLIOZ ® patents and the asserted claims of certain of our other HETLIOZ ® patents were invalid.

On December 14, 2022, we appealed the decision to the Federal Circuit and requested a stay of market entry by the Defendants while the appeal is pending.

On December 16, 2022, the Federal Circuit granted a temporary injunction to prohibit market entry by Teva and Apotex until the Federal Circuit entered its order on our motion for a stay pending appeal.

On December 28, 2022, the Federal Circuit denied our request for an injunction.

Our appeal is pending before the Federal Circuit.

Teva has since launched its generic version at risk.

The commercial launch of the generic version, and potential increased competition from additional generic entrants in the near term, could have a material and adverse impact on our revenues and our results of operations.

MSN and Impax may be permitted to launch a generic version of HETLIOZ ® under certain limited circumstances pursuant to the license agreement with us.

Further, although we are appealing the ruling of the Delaware District Court, and are pursuing additional remedies in other courts, including seeking injunctions against Apotex and Teva, we may not be successful in any such efforts, which will be costly and time-consuming to pursue.

In December 2022, following conclusion of the trial, the Delaware District Court issued its ruling in favor of the Defendants, finding that the Defendants’ use of a generic HETLIOZ ® , for which they were seeking FDA approval, did not infringe one of our HETLIOZ ® patents and the asserted claims of certain of our other HETLIOZ ® patents were invalid.

We appealed the decision to the Federal Circuit and in May 2023, a three-judge panel of the Federal Circuit affirmed the Delaware District Court’s ruling.

In August 2023, the Federal Circuit denied our request for a rehearing.

In January 2024, we filed a petition for a writ of certiorari with the U.S.

Supreme Court to review the Federal Circuit’s decision.

Teva and Apotex have since launched their generic versions at risk and MSN has launched its generic version as well.

The commercial launch of the generic versions, and potential increased competition from additional generic entrants in the near term, have resulted in and could continue to have a material and adverse impact on our revenues and our results of operations.

Further, although we are pursuing additional remedies in other courts, including seeking injunctions against Apotex and Teva, we may not be successful in any such efforts, which will be costly and time-consuming to pursue.

Such efforts will also require considerable attention of management and could, even if ultimately successful, negatively impact our results of operations.

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as well if supply costs and availability are affected.

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.

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.

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

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

Future performance of HETLIOZ ® , Fanapt ® and PONVORY ® 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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• pricing and cost effectiveness.

In addition, HETLIOZ ® and Fanapt ® are subject to continual review by the FDA, and we cannot assure that newly discovered or reported safety issues will not arise.

In addition, HETLIOZ ® , Fanapt ® and PONVORY ® are subject to continual review by the FDA, and we cannot assure that newly discovered or reported safety issues will not arise.

With the use of any newly marketed drug by a wider patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself.

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

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

With the at risk launch of a generic version of HETLIOZ ® and further generic versions possible, it may not be viable for us to invest in market education to grow the U.S.

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

With the launch of generic versions of HETLIOZ ® and further generic versions possible, it may not be viable for us to invest in market education to grow the U.S.

market and our ability to maintain current promotional efforts and attract favorable commercial terms in several aspects of our business will likely be adversely affected as we face increased generic competition.

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The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years.

For that and other reasons, it is currently unclear how the IRA will be effectuated, and while the impact of the IRA on the pharmaceutical industry cannot yet be fully determined, it is likely to be significant.

On March 15, 2023 and June 30, 2023, HHS issued guidance regarding implementation of the Medicare drug price negotiation program in initial price applicability year 2026.

HHS stated it would provide additional information in the future related to implementation for initial price applicability years 2027 and beyond.

Several manufacturers and industry groups have challenged the drug price negotiation program for Medicare Parts B and D in federal court.

These lawsuits are ongoing, and additional lawsuits may be filed in the future related to provisions of the IRA.

It is unknown whether such litigation or other litigation, if brought, will be successful.

For these and other reasons, it is currently unclear how the IRA will be effectuated, and while the impact of the IRA on the pharmaceutical industry cannot yet be fully determined, it is likely to be significant.

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

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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 use of tradipitant for patients with gastroparesis and patients with 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 if 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.

If the FDA does not approve our tradipitant NDA filing for the use of tradipitant for patients with gastroparesis or accept our sNDA filing for the use of tradipitant for patients with motion sickness;

or 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, 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.

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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 are preparing for submission of an NDA for tradipitant for patients with gastroparesis.

In May 2023, we announced positive results from the first Phase III study of tradipitant in motion sickness, confirming the previously reported results demonstrating that tradipitant is effective in the prevention of vomiting associated with motion sickness.

Our second Phase III study of tradipitant in motion sickness is ongoing.

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

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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.

Despite these results, however, the FDA informed us in December 2018 that in order to treat patients beyond 12 weeks, we would 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.

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

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

Although this EAP is not intended for data collection, we collect safety data from this cohort of expanded access patients and included this data in the NDA that we submitted for tradipitant for patients with gastroparesis.

In December 2023, the FDA accepted our NDA for tradipitant in gastroparesis for

filing and set a PDUFA target action date of September 18, 2024.

If approved, tradipitant will be the first novel drug to be approved by the FDA for the treatment of gastroparesis in over 40 years and tradipitant is the first novel drug to be accepted for review by the FDA for gastroparesis in over 30 years.

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

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.

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 was 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.

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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.

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 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.

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and other countries caused by political instability and conflict and economic challenges caused by general health crises such as the COVID-19 pandemic have led to market disruptions, including significant volatility in commodity prices, credit and capital market instability and supply chain interruptions, which have caused record inflation globally and could adversely affect our operations.

Increased inflation may result in increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital on acceptable terms, if at all.

In addition, the U.S.

Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks.

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, costly and dilutive.

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Global health crises and pandemics may adversely impact our business.

Global health crises and pandemics, such as the novel coronavirus (COVID-19), could lead to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures that may negatively impact productivity and disrupt our business.

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

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 experience future disruptions as a result of the COVID-19 pandemic or other health crises that could adversely impact our sales activities, supply chain, our ongoing and planned clinical trials, and other regulatory activities, including:

Global health crises and pandemics, such as the COVID-19, could lead to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures that may negatively impact productivity and disrupt our business.

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

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

While our clinical trials have since resumed patient enrollment, we may experience future disruptions as a result of the lasting effects of the COVID-19 pandemic or other health crises that could adversely impact our sales activities, supply chain, our ongoing and planned clinical trials, and other regulatory activities, including:

• curtailment of our sales force or patient access to healthcare providers, which may reduce the number of prescription refills or new patient starts, thereby adversely affecting our revenues;

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

The COVID-19 pandemic continues to rapidly evolve.

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 approve our sNDAs for HETLIOZ ® for the treatment of jet lag disorder or insomnia 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.

If the FDA does not approve our sNDAs for HETLIOZ ® for the treatment of jet lag disorder or insomnia, continued development of tasimelteon for the treatment of jet lag disorder and insomnia will be 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.

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The FDA then published the notice in the Federal Register in October 2022.

We are undergoing discussions with the FDA on the timing of such hearing.

In November 2022, we announced that we were preparing for the submission of an sNDA for HETLIOZ ® in the treatment of insomnia.

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

We have asked the U.S.

District Court for the District of Columbia (DC District Court) to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates the FDCA and the FDA regulations.

In January 2024, the DC District Court held an oral argument on dispositive cross-motions, following which the DC District Court granted our motion for summary judgment.

The DC District Court ruled that the FDA violated the statute and ordered the FDA to either finally resolve our application or commence a hearing on or before March 5, 2024.

Our lawsuit remains pending.

We have asked the DC District Court to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates the FDCA and the FDA regulations.

In January 2024, the DC District Court held an oral argument on dispositive cross-motions, following which the DC District Court granted our motion for summary judgment.

The DC District Court ruled that the FDA violated the statute and ordered the FDA to either finally resolve our application or commence a hearing on or before March 5, 2024.

Our lawsuit remains pending.

In July 2023, the FDA accepted our sNDA for HETLIOZ ® in insomnia for filing and set a Prescription Drug User Fee Act (PDUFA) target action date of March 4, 2024 for its decision.

Any additional adverse developments or results or perceived adverse developments or results with respect to our regulatory submissions for jet lag disorder or insomnia 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:

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

• the FDA determining that the jet lag disorder or insomnia programs raise safety concerns or does not demonstrate substantial evidence of efficacy.

• the FDA determining that the jet lag disorder or insomnia programs raise safety concerns or do not demonstrate substantial evidence of efficacy.

If the FDA does not approve our sNDA for Fanapt ® for the treatment of bipolar I disorder, our business will be significantly harmed, and the market price of our stock could decline.

In December 2022, we announced Fanapt ® was effective in the treatment of acute manic and mixed episodes associated with bipolar I disorder in adults in a randomized double-blind placebo controlled Phase III study.

We intend to submit an sNDA for Fanapt ® for the treatment of acute manic and mixed episodes associated with bipolar I disorder in adults in 2023.

In August 2023, the FDA accepted our sNDA for Fanapt ® in bipolar I disorder in adults for filing and set a PDUFA target action date of April 2, 2024 for its decision.

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

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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.

The at risk launch of a generic version of HETLIOZ ® and further generic competition may make it more difficult for us to identify or attract third-party collaborators and obtain favorable commercial terms in any such agreement or arrangement.

The launch of generic versions of HETLIOZ ® and further generic competition may make it more difficult for us to identify or attract third-party collaborators and obtain favorable commercial terms in any such agreement or arrangement.

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

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The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators.

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

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

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

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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.

Even after obtaining regulatory approvals for the sale of our products, the commercial success of these products will depend, among other things, on their acceptance by physicians, patients, third-party payors and other members of the medical community as therapeutic and cost-effective alternatives to competing products and treatments.

community as therapeutic and cost-effective alternatives to competing products and treatments.

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.

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Generic competition may also adversely affect our ability to grow our markets and obtain acceptance of our products in the marketplace.

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 ® , Fanapt ® and our other products.

We have just recently completed the acquisition of PONVORY ® and our ability to commercialize PONVORY ® in the U.S.

and Canada and transition regulatory and supply responsibility to us is uncertain, and we may not realize all of the anticipated benefits of the acquisition, those benefits make take longer to realize than expected or we may encounter significant integration difficulties.

We acquired the U.S.

and Canadian rights to PONVORY ® in December 2023.

Our ability to realize the anticipated benefits of the acquisition will depend, to a large extent, on our ability to integrate PONVORY ® into our business and realize anticipated growth opportunities and synergies.

We will be required to devote significant management attention and resources to integrating this product into our business.

The process may be disruptive to our business and the expected benefits may not be achieved within the anticipated time frame, or at all.

The failure to meet the challenges involved and to realize the anticipated benefits of the acquisition could adversely affect our business, financial condition and results of operations.

Our ability to realize the anticipated benefits of the transaction will require us to overcome a number of difficulties, including, among others:

• the diversion of management attention to integration matters;

• difficulties in achieving anticipated business opportunities and growth prospects from the acquisition;

• challenges related to public and market perception of PONVORY ® and/or our acquisition of the product;

• delays or other difficulties with the transition of regulatory and supply responsibilities for PONVORY ® to us from Janssen;

• potential unknown liabilities, adverse consequences, unforeseen increased expenses or other unanticipated problems associated with the acquisition.

Many of these factors are outside of our control, and any one of them could result in increased costs, decreased expected revenues and further diversion of management time and energy, which could materially harm our business, financial condition and results of operations.

In addition, we have no Canadian operations and no history of commercializing products in Canada.

As a result, we will have to either build our own Canadian sales force or enter into an agreement with one or more third-party collaborators for the sale and distribution of PONVORY ® in Canada.

There is no guarantee that we will be successful in building our own Canadian sales force or that we will be able to identify or enter into an agreement with any such third-party collaborator on favorable terms, or at all.

All of these factors could decrease or delay the expected accretive effect of the acquisition and negatively impact our stock price and harm our business.

As a result, it cannot be assured that the acquisition of PONVORY ® will result in the full realization of the benefits anticipated from the transaction within the anticipated time frames or at all.

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.

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 ® 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 ® or Fanapt ® , possibly for a significant time period, and we may not have sufficient inventories to maintain supply before the manufacturer or supplier could be replaced or the disruption is resolved.

Disruptions to our HETLIOZ ® , HETLIOZ LQ ® Fanapt ® or PONVORY ® 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 ® , Fanapt ® or PONVORY ® , 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 ® 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.

Introducing a replacement or backup manufacturer or supplier for HETLIOZ ® , HETLIOZ LQ ® , Fanapt ® or PONVORY ® 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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The 340B program is administered by the Health Resources and Services Administration (HRSA) and requires us to agree to charge statutorily defined covered entities no more than the 340B “ceiling price” for our covered drugs when used in an outpatient setting.

These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients.

These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as certain small rural hospitals and hospitals that serve a disproportionate share of low-income patients.

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

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In general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price requirement.

We must report 340B ceiling prices to HRSA on a quarterly basis, and HRSA publishes them to 340B covered entities.

We must report 340B ceiling prices to HRSA on a quarterly basis, and HRSA publishes them to 340B covered entities and state Medicaid programs.

HRSA has finalized regulations regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities for 340B eligible drugs.

also finalized an administrative dispute resolution process through which 340B covered entities may pursue claims against participating manufacturers for overcharges.

HRSA has also finalized an administrative dispute resolution process through which 340B covered entities may pursue claims against participating manufacturers for overcharges.

A recent court decision in the District Court of South Carolina, Genesis Health Care, Inc.

Becerra , found that HRSA’s definition of “patient” as applied to the 340B Program was too broad and may result in covered entities expanding the number of individuals considered eligible to receive drugs purchased through the 340B Program, resulting in higher volumes of drugs purchased at the discounted 340B ceiling price.

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

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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 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.

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

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

For example, federal enforcement agencies have recently pursued

enforcement actions against pharmaceutical companies’ product and patient assistance programs, including relationships with specialty pharmacies, and support for charitable foundations providing patients with co-pay assistance.

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

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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 that 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:

• not provide us accurate or timely information regarding their inventories, the number of patients who are using HETLIOZ ® or complaints about HETLIOZ ® ;

• reduce their efforts or discontinue to sell or support or otherwise not effectively sell or support HETLIOZ ® , particularly in light of the recent entry into the market of a generic version of HETLIOZ ® ;

• reduce their efforts or discontinue to sell or support or otherwise not effectively sell or support HETLIOZ ® , particularly in light of the recent entry into the market of generic versions of HETLIOZ ® ;

• not devote the resources necessary to sell HETLIOZ ® in the volumes and within the time frames that we expect;

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

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

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

If HETLIOZ ® , Fanapt ® , PONVORY ® 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

See Part I, Item 1, Competition, for a discussion of the primary competitors for HETLIOZ ® , Fanapt ® and PONVORY ® .

In addition, we may face competition from newly developed generic products.

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In December 2022, the Delaware District Court ruled in favor of the Defendants in our patent litigation relating to the Defendants’ filing of ANDAs for generic versions of HETLIOZ ® in the U.S.

We disagree with the ruling that the claims of our patents are invalid and are vigorously pursuing appeal.

However, Teva has launched its generic version of HETLIOZ ® at risk in the U.S.

The FDA has approved ANDAs for Apotex and MSN and other potential competitors may be successful in obtaining ANDA approval and launching generic versions as well.

We appealed the decision to the Federal Circuit, and in May 2023, a three-judge panel of the Federal Circuit affirmed the Delaware District Court’s ruling.

In August 2023, the Federal Circuit denied our request for a rehearing.

In January 2024, we filed a petition for a writ of certiorari with the U.S Supreme Court to review the Federal Circuit’s decision.

The FDA has approved ANDAs for Teva, Apotex and MSN, and Teva and Apotex have launched their generic versions of HETLIOZ ® at risk in the U.S., and MSN has launched its generic version as well.

In addition, other potential competitors may be successful in obtaining ANDA approval and launching their own generic versions.

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).

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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.

In December 2023, we acquired U.S.

and Canadian rights to PONVORY ® , which had already been approved by the FDA and Health Canada, for the treatment of adults with RMS.

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.

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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 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.

For example, despite the positive results of the completed trials for HETLIOZ ® , Fanapt ® and PONVORY ® , 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, 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, and the NDA for PONVORY ® for the treatment of RMS in adults in March 2021 and Health Canada’s approval of PONVORY ® for the treatment of adults with RMS in April 2021, 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.

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

The continued commercialization of HETLIOZ ® and Fanapt ® will also require substantial additional expenditures.

The continued commercialization of HETLIOZ ® , Fanapt ® and PONVORY ® will also require substantial additional expenditures.

As of December 31, 2023, we had an accumulated deficit of $155.4 million and we cannot estimate with precision the extent of our future income or loss.

We may not succeed in maintaining or gaining additional market acceptance of HETLIOZ ® and Fanapt ® in the U.S.

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

We may not succeed in maintaining or gaining additional market acceptance of HETLIOZ ® , Fanapt ® and PONVORY ® in the U.S.

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

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

There can be no assurance that we will achieve sustained profitability, which depends on many factors, including but not limited to, our ability to obtain regulatory approval for our products and achieve success in commercializing them in the U.S., Europe and our other target jurisdictions, as well as other factors described in this Annual Report.

There can be no assurance that we will achieve sustained profitability, which depends on many factors, including but not limited to, our ability to obtain regulatory approval for our products and achieve success in commercializing them in the U.S., Europe, Canada and our other target jurisdictions, as well as other factors described in this Annual Report.

In addition, the amount we spend on developing, obtaining and maintaining regulatory approval for and commercializing our products, among other expenditures described in this Annual Report, will impact our profitability.

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An adjustment to such net operating loss carryforwards, including an adjustment from a taxing authority, could result in higher tax costs, penalties and interest, thereby adversely impacting our financial condition.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (IRC), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (NOLs) and certain other tax assets (tax attributes) to offset future taxable income.

Certain of our tax attributes, including net operating losses (NOLs) and credit carryforwards, would be subject to limitation under Section 382 and 383 should an ownership change as defined under Section 382 of the Internal Revenue Code of 1986, as amended (IRC), occur.

The limitation resulting from a “change in ownership” could affect our ability to utilize NOLs and credit carryforwards (tax attributes) to offset future taxable income.

In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).

Transactions involving our common stock, even those outside our control, such as purchases or sales by investors, within the testing period could result in an ownership change.

A limitation on our ability to utilize some or all of our net operating losses (NOLs) or credits could have a material adverse effect on our results of operations and cash flows.

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;

A limitation on our ability to utilize some or all of our NOLs or credit carryforwards could have a material adverse effect on our results of operations and cash flows.

An ownership change occurred in the year ended December 31, 2014.

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

however, future ownership changes may cause our existing tax attributes to have additional limitations.

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Our activities will necessitate significant uses of working capital throughout 2024 and beyond.

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.

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

As of December 31, 2023, our total cash and cash equivalents and marketable securities were $388.3 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 ® , as well as other products that may be approved, globally;

• outcomes of ongoing and potential patent litigation, including the outcome of our pending appeal of the December 2022 Delaware District Court’s ruling;

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

• outcomes of ongoing and potential patent litigation;

• costs of developing and maintaining sales, marketing and distribution channels and our ability to sell our products;

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Our arrangements with CROs are critical to our success in bringing our products to the market.

We are dependent on CROs, third-party vendors and investigators for preclinical testing and clinical trials related to our drug discovery and development efforts and we will likely continue to depend on them to assist in our future discovery and development efforts.

We are generally dependent on CROs, third-party vendors and investigators for preclinical testing and clinical trials related to our drug discovery and development efforts and we will likely continue to depend on them to assist in our future discovery and development efforts.

These parties are not our employees and we cannot control the amount or timing of resources that they devote to our programs.

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

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

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

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

PONVORY ® is manufactured by third parties and supplied to Janssen, which is currently distributing PONVORY ® pursuant to the terms of a transition agreement.

During the transition period, Vanda and Janssen will transition supply responsibility for PONVORY ® to us.

If we, or Janssen during the transition period, are unable to acquire sufficient quantities of PONVORY ® , our sales of PONVORY ® would suffer adverse effects.

Our manufacturing strategy presents the following additional risks:

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If the manufacturers are unable to obtain these materials for our clinical trials, including due to supply chain issues caused by global health crises, 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.

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.

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

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As our development activities and commercialization efforts progress and we sell our products, this coverage may be inadequate, we may be unable to obtain adequate coverage at an acceptable cost or we may be unable to get adequate coverage at all or our insurer may disclaim coverage as to a future claim.

This could prevent the commercialization or limit the commercial potential of our products.

This could prevent the commercialization or limit the commercial potential of our

Even if we are able to maintain insurance that we believe is adequate, our results of operations and financial condition may be materially adversely affected by a product liability claim.

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vary by Member State.

For the public systems,

reimbursement is determined by law and/or by guidelines established by the 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.

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and replaces the Medicare Part D coverage gap discount program with a new discounting program (beginning in 2025).

The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.

The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years.

On March 15, 2023 and June 30, 2023, HHS issued guidance regarding implementation of the Medicare drug price negotiation program in initial price applicability year 2026.

HHS stated it would provide additional information in the future related to implementation for initial price applicability years 2027 and beyond.

Several manufacturers and industry groups have challenged the drug price negotiation program for Medicare Parts B and D in federal court.

These lawsuits are ongoing, and additional lawsuits may be filed in the future related to provisions of the IRA.

It is unknown whether such litigation or other litigation, if brought, will be successful.

Healthcare reforms are discussed above in Part I, Item 1 under the heading Pharmaceutical Coverage, Pricing and Reimbursement and Healthcare Reform and in the risk factor entitled “ We are subject to uncertainty relating to pricing and reimbursement policies in the U.S., including recent and future health reform measures, which, if not favorable for our products, could hinder or prevent our products’ commercial success.

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

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.

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, rules, regulations, policies, industry standards and contractual obligations in other jurisdictions into which we expand.

Many of these provisions are subject to change and reinterpretation depending on the jurisdiction and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or other harm to our business activities.

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

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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.

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

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

The GDPR applies to personal data processing carried out by a controller or processor (i) located within the E.U.

or (ii) targeting E.U.

individuals regardless of controller or processor’s location.

The GDPR implements stringent operational requirements for controllers and processors of personal data, including, for example, transparent information for the data subjects regarding the processing of their personal data, appropriate legal basis for processing personal data that may require to obtain the valid consent of the data subjects where applicable, expanded individual data subject rights, limitations on retention of personal data, increased requirements pertaining to data security and confidentiality, mandatory data breach notification with the competent supervisory authority and higher standards for controllers and processors to demonstrate their compliance with the GDPR by documenting it.

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 may supplement the GDPR with their own additional laws and regulations in relation to the personal data processing, in particular regarding sensitive personal data, (e.g., genetic, biometric or health data), which could result in differences between E.U.

Member States, limit our ability to collect, use and share such personal data or cause our costs to increase, and harm our reputation, business and financial condition.

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

The GDPR may increase our responsibility and liability in relation to health data and other personal data that we may collect and 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.

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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.

While we do not rely on the Privacy Shield, the ECJ decision also raised questions about the continued validity of the EC’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.

The EC has presented a new set of Standard Contractual Clauses, to be included in agreements involving personal data transfers outside the E.U.

In addition, in July 2023, the European Commission adopted its adequacy decision for the E.U.-U.S.

Data Privacy Framework (DPF).

companies with the DPF certification can lawfully transfer personal data from the E.U.

without additional transfer mechanisms.

However, the validity of such mechanism is currently challenged by NYOB, an Austrian non-profit organization seeking to enforce digital rights (particularly privacy, and data protection rights) in the E.U.

This uncertainty regarding the validity of the existing transfer mechanisms 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.

for conducting our business activities.

Risks related to intellectual property and other legal matters

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In December 2022, the Delaware District Court ruled in favor of the Defendants in our patent litigation relating to the Defendants’ filing of ANDAs for generic versions of HETLIOZ ® in the U.S.

We disagree with the ruling that the claims of our patents are invalid and are vigorously pursuing appeal.

We appealed the decision to the Federal Circuit, and in May 2023, a three-judge panel of the Federal Circuit affirmed the Delaware District Court’s ruling.

In August 2023, the Federal Circuit denied our request for a rehearing.

In January 2024, we filed a petition for a writ of certiorari with the U.S Supreme Court to review the Federal Circuit’s decision.

Please see Note 17, Legal Matters , to the consolidated financial statements in Part II, Item 8 of this Annual Report, which is incorporated herein by reference, for additional information.

Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products.

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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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In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability are commonplace and challenges to validity of patents in certain foreign jurisdictions are common as well.

Grounds for a validity challenge could be an alleged failure to meet any of

several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter.

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

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

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In December 2022, the Delaware District Court ruled in favor of the Defendants in our patent litigation relating to the Defendants’ filing of ANDAs for generic versions of HETLIOZ ® in the U.S.

We disagree with the ruling that the claims of our patents are invalid and are vigorously pursuing appeal.

However, we may not be successful in this lawsuit and other such lawsuits in the future.

We appealed the decision to the Federal Circuit, and in May 2023, a three-judge panel of the Federal Circuit affirmed the Delaware District Court’s ruling.

In August 2023, the Federal Circuit denied our request for a rehearing.

In January 2024, we filed a petition for a writ of certiorari with the U.S Supreme Court to review the Federal Circuit’s decision.

Please see Note 17, Legal Matters, to the consolidated financial statements in Part II, Item 8 of this Annual Report, which is incorporated herein by reference, for additional information.

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We also own HETLIOZ ® U.S.

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

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 2041, and four drug substance patents that expire in 2035.

Additionally, the 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.

With respect to PONVORY ® , an application for term extension of the NCE patent pursuant to the Hatch-Waxman Act is pending.

Based on correspondence between FDA and the U.S.

Patent and Trademark Office, we expect that the NCE patent’s term should be extended for the maximum amount of time, five years, which would extend the term of this patent until November 2029.

Patent and Trademark Office has granted additional patents, including a further patent directed to a crystalline form of the active ingredient in PONVORY ® , which will expire in May 2032 in view of awarded patent term adjustment.

Patent and Trademark Office has also issued three method of treatment patents for

PONVORY ® , which will expire between November 2024 and December 2035.

Furthermore, on January 24, 2024, the U.S.

Patent and Trademark Office issued a Notice of Allowance in the case of U.S.

17/962,968, which covers other methods of treatment using the active ingredient in PONVORY ® .

Once issued, this patent would be expected to expire on October 10, 2042.

Also, a number of patent applications covering further methods of treatment remain pending at the U.S.

Patent and Trademark Office.

In December 2022, the Delaware District Court ruled in favor of the Defendants in our patent litigation relating to the Defendants’ filing of ANDAs for generic versions of HETLIOZ ® in the U.S.

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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.

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.

Generic company competitors have received FDA approval of generic versions of HETLIOZ ® in the U.S.

We are pursuing an appeal of the December 2022 Delaware District Court decision that declared as invalid claims of a group of patents that protect our exclusivity in the U.S.

We are pursuing U.S.

Supreme Court review of the May 2023 decision of the Federal Circuit affirming the December 2022 Delaware District Court decision that declared as invalid claims of a group of patents that protect our exclusivity in the U.S.

The FDCA, as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, or the Hatch-Waxman Amendments, permits the FDA to approve ANDAs for generic versions of brand name drugs like HETLIOZ ® .

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Statutory stays may be shortened or lengthened if either party fails to cooperate in the litigation and it may be terminated if the court decides the case in less than 30 months.

If the litigation is resolved in favor of the ANDA applicant before the expiration of the 30-month period, the stay will be

immediately lifted and the FDA’s review of the application may be completed.

If the litigation is resolved in favor of the ANDA applicant before the expiration of the 30-month period, the stay will be immediately lifted and the FDA’s review of the application may be completed.

Such litigation is often time-consuming and costly, and may result in generic competition if such patents are not upheld or if the generic competitor is found not to infringe such patents.

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The license agreement grants MSN and Impax a non-exclusive license to manufacture and commercialize MSN’s version of HETLIOZ ® in the U.S.

effective as of March 13, 2035, unless prior to that date the Company obtains pediatric exclusivity for HETLIOZ ® , in which case the license will be effective as of July 27, 2035.

effective as of March 13, 2035, unless prior to that date we obtain pediatric exclusivity for HETLIOZ ® , in which case the license will be effective as of July 27, 2035.

MSN and Impax may enter the market earlier under certain limited circumstances.

In January 2023, MSN and its commercial partner, Amneal Pharmaceuticals, Inc., informed us of their belief that such circumstances have occurred and have since launched their generic.

We disagree with this position and continue to aggressively defend our legal rights to exclusivity for HETLIOZ ® .

There is no guarantee, however, that we will be successful in our efforts.

The consolidated lawsuits against the remaining Defendants went to trial in March 2022.

On December 13, 2022, the Delaware District Court ruled that Teva and Apotex did not infringe the ‘604 Patent, and that the asserted claims of the ‘604 Patent, ‘910 Patent, ‘829 Patent and ‘487 Patent were invalid.

On December 14, 2022, we appealed the Delaware District Court’s decision to the Federal Circuit and requested an injunction prohibiting market entry by Teva and Apotex while the appeal is pending.

On December 28, 2022, the Federal Circuit denied our request for an injunction, and Teva has since launched a generic version of HETLIOZ ® at risk.

While we are pursuing additional remedies beyond our pending appeal of the Delaware District Court’s decision, we cannot be certain of the success, timing or efforts involved in connection with these efforts.

In December 2022, the Delaware District Court ruled that Teva and Apotex did not infringe the ‘604 Patent, and that the asserted claims of the ‘604 Patent, ‘910 Patent, ‘829 Patent and ‘487 Patent were invalid.

We appealed the decision to the Federal Circuit and in May 2023, a three-judge panel of the Federal Circuit affirmed the Delaware District Court’s ruling.

In August 2023, the Federal Circuit denied our request for a rehearing.

In January 2024, we filed a petition for a writ of certiorari with the U.S.

Supreme Court to review the Federal Circuit’s decision.

While we are pursuing additional remedies, we cannot be certain of the success, timing or efforts involved in connection with these efforts.

If any of the generic manufacturers has adequate supply available and is successful, such generic competition in the short term could have a material and adverse impact on our revenues and our stock price.

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Patent and Trademark Office.

Such a proceeding could be introduced against us within the statutory one-year window triggered by service of a complaint for infringement related to an ANDA filing or at any time by an entity not served with a complaint.

Such a proceeding could be introduced against us within the statutory one-year window triggered by service of a

complaint for infringement related to an ANDA filing or at any time by an entity not served with a complaint.

Such proceedings may review the patentability of one or more claims in a patent on specified substantive grounds such as allegations that a claim is obvious on the basis of certain prior art.

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Between January 1, 2023 and December 31, 2023, the high and low sale prices of our common stock as reported on The Nasdaq Global Market varied between $3.30 and $8.15.

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

Additionally,

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

The market for these securities has from time to time experienced significant price and volume fluctuations for reasons that were unrelated to the operating performance of any one company.

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The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business.

We currently have research coverage by securities and industry analysts.

If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline.

If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, interest in the purchase of our stock could decrease, which could cause our stock price or trading volume to decline.

We currently have research coverage by one securities and industry analyst.

If the analyst who covers us downgrades our stock, our stock price would likely decline.

If this analyst ceases coverage of our company or fails to regularly publish reports on us, interest in the purchase of our stock could decrease, which could cause our stock price or trading volume to decline.

Our common stock may experience future dilution as a result of future equity offerings.

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• establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Our board of directors previously adopted a rights agreement, the provisions of which could have had the effect of discouraging, delaying or preventing a change in or management or control over us.

Our board of directors previously adopted a rights agreement, the provisions of which could have had the effect of discouraging, delaying or preventing a change in management or control over us.

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

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• acquisitions;

• asset purchases;

• strategic alliances;

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

It is too early to tell whether our December 2023 acquisition of PONVORY ® from Janssen will yield the results that we expect.

If we experience difficulties integrating PONVORY ® into our portfolio of approved products, or we are unable to achieve market acceptance of PONVORY ® , our business and results of operations may be materially harmed.

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

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

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

Moreover, we may need to raise additional funds through public or

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

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

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

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

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

For example, federal and state laws, including, without limitation, state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and storage of personal information.

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

UNRESOLVED STAFF COMMENTS

Not applicable.

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