In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should” or “will” or the negative thereof, variations thereof and similar expressions. Such statements are based on management’s current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from those set forth in the forward-looking statements. In particular, this Annual Report on Form 10-K addresses top-line results regarding data from PERSIST-2, our Phase 3 trial of pacritinib for the treatment of patients with myelofibrosis whose platelet counts are less than or equal to 100,000 per microliter. Meaningful interpretation of PERSIST-2 may not be possible because the pre-specified minimum evaluable patient goal was not met. The statements are based on assumptions about many important factors and information currently available to us to the extent we have thus far had an opportunity to fully and carefully evaluate such information in light of all surrounding facts, circumstances, recommendations and analyses. There can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. We urge you to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including those made under Part I, Item 1, “Business,” Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report on Form 10-K and any risk factors contained in subsequent Quarterly Reports on Form 10-Q that we file with the U.S. SecuritiesSEC.
We do not intend to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results or changes in our expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K.
In this Annual Report on Form 10-K, all references to “we,” “us,” “our,” the “Company” and “CTI” mean CTI BioPharma Corp. and our subsidiaries, except where it is otherwise made clear.
Item 1. Business
Our objective is to become a leader in the acquisition, development and commercialization of novel therapeutics for the treatment of blood-related cancers. The key elements of our strategy to achieve these objectives are to:
•Identify and Acquire Additional Pipeline Opportunities. Our current Historically, we have built our candidate pipeline is the result ofusing multiple approaches, including through licensing and acquiring assets that we believe were initially undervalued opportunities. We plan to continue to seek out additional product candidates in an opportunistic manner.
Product and Development Portfolio
The following table summarizes our current product and development portfolio as of March 7, 2018:the date of this report:
Oncology Market Overview and Opportunity
According to the American Cancer Society, or ACS, cancer is the second leading cause of death in the U.S.,United States, resulting in close to 609,640more than 600,000 deaths annually, or more than 1,670 people1,600 deaths per day. Approximately 1.71.9 million new cases of cancer wereare expected to be diagnosed in 20182021 in the United States. While the exact prevalence of myelofibrosis is uncertain, a U.S. study presented at the 2012 American Society of Hematology reported a prevalence rate of 5.7 myelofibrosis cases per 100,000 people, indicating that there are approximately 17,000 myelofibrosis patients in the United States. The most commonly used methods for treating patients with cancer are surgery, radiation and chemotherapy. Patients usually receive a combination of these treatments depending upon the type and extent of their disease.
We believe our expertise in blood-related cancers, together with our ability to identify unique therapies that address unmet medical needs that are potentially less toxic and more effective at treating and curing patients, may fill a significant unmet medical need for cancer patients.
Pacritinib
Commercialized Product
PIXUVRI
Overview
PIXUVRI is a novel aza-anthracenedione with unique structural and physiochemical properties. In May 2012, the European Commission granted conditional marketing authorization in the E.U., for PIXUVRI as a monotherapy for the treatment of adult patients with multiply relapsed or refractory aggressive B-cell non-Hodgkin lymphoma, or NHL. PIXUVRI is the first approved treatment in the E.U. for patients with multiply relapsed or refractory aggressive B-cell NHL who have failed two or three prior lines of therapy. As part of our conditional marketing authorization in the E.U., we are required to conduct a post-authorization trial, which we refer to as PIX306, comparing PIXUVRI and rituximab with gemcitabine and rituximab in the setting of aggressive B-cell NHL. In August 2017, we announced the completion of enrollment in the trial. If positive, the results from this trial could support broader indications. Top-line results are event-driven and are expected by the end of the first half of 2018. Although we do not have and are not currently pursuing regulatory approval of PIXUVRI in the U.S., we may reevaluate a possible submission strategy in the U.S. based on the data generated from the PIX306 study. Pursuant to our conditional marketing authorization in the E.U., and an extension granted in September 2016, we are required to submit the requisite clinical study report for PIX306 by December 2018.
PIXUVRI for the Treatment of NHL
We are specifically developing and commercializing PIXUVRI for the treatment of aggressive NHL. NHL is caused by the abnormal proliferation of lymphocytes, which are cells key to the functioning of the immune system. NHL usually originates in lymph nodes and spreads through the lymphatic system. The ACS estimated that there would be 72,240 people diagnosed with NHL in the U.S. and approximately 20,140 people would die from this disease in 2017. The World Health Organization’s International Agency for Research on Cancer’s 2012 GLOBOCAN database estimates that, in the E.U., approximately 79,312 people will be diagnosed with NHL and 30,730 people are estimated to die from NHL annually. NHL is the seventh most common type of cancer. NHL can be broadly classified into two main forms, each with many subtypes; aggressive NHL is a rapidly growing form of the disease that moves into advanced stages much faster than indolent NHL, which progresses more slowly.
Aggressive B-cell NHL is the most common subtype, accounting for about 55 percent of NHL cases. After initial therapy for aggressive NHL with anthracycline-based combination therapy, one-third of patients typically develop progressive disease. Approximately half of these patients are likely to be eligible for intensive second-line treatment and stem cell transplantation, although 50 percent are expected not to respond. For those patients who fail to respond or relapse following second line treatment, treatment options are limited and usually palliative only. PIXUVRI is the first treatment approved in the E.U. for patients with multiply relapsed or refractory aggressive B-cell NHL.
Commercialization of PIXUVRI in the E.U.
In September 2012, we initiated E.U. commercialization of PIXUVRI and in September 2014 we entered into a collaboration arrangement with Servier. In April 2017, we entered into an Amended and Restated Exclusive License and Collaboration Agreement, or the Restated Agreement, with Servier. Under the Restated Agreement, Servier will have rights to PIXUVRI in all markets except in the U.S. where we will retain the commercialization rights. Previously, Servier had rights to commercialize the drug globally except in Austria, Denmark, Finland, Germany, Israel, Norway, Sweden, Turkey, the United Kingdom, or the U.K., and the U.S. Servier paid us €12.0 million in May 2017 and purchased PIXUVRI drug product for an additional €0.9 million in July 2017. In September 2017, we attained a regulatory milestone under the Restated Agreement and recognized a €1.0 million milestone revenue.We are eligible to receive up to €75.0 million in additional sales and regulatory milestone payments as well as royalties on net product sales.
For additional information on our collaboration with Servier, please see the discussion in “License Agreements and Additional Milestone Activities - Servier.”
As discussed in Part I, Item 1, “Business-Manufacturing, Distribution and Associated Operations,” we utilize third parties for the manufacture, storage and distribution of PIXUVRI, as well as for other associated supply chain operations. Our strategy of utilizing third parties in such manner allows us to direct our resources to the development and commercialization of compounds rather than to the establishment and maintenance of facilities for such operational activities.
Development Candidates
Pacritinib
Development in Myelofibrosis
Our lead development candidate, pacritinib, is an investigational oral kinase inhibitor with specificity for JAK2, FLT3, IRAK1 and CSF1R. The JAK family of enzymes is a central component in signal transduction pathways, which are critical to normal blood cell growth and development, as well as inflammatory cytokine expression and immune responses. Mutations in these kinases have been shown to be directly related to the development of a variety of blood-related cancers, including myeloproliferative neoplasms, leukemia and lymphoma. In addition to myelofibrosis, the kinase profile of pacritinib suggests its potential therapeutic utility in conditions such as acute myeloid leukemia, or AML, myelodysplastic syndrome, or MDS, chronic myelomonocytic leukemia, or CMML, prevention of graft versus host disease, or GvHD, and chronic lymphocytic leukemia, or CLL, due to its inhibition
of c-fms,JAK2, IRAK1, JAK2FLT3 and FLT3.CSF1R. We believe pacritinib has the potential to be delivered as a single agent or in combination therapy regimens.
In August 2014, pacritinib was granted Fast Track designation bySeptember 2020, we reached an agreement with the U.S. Food and Drug Administration, or FDA, to submit a New Drug Application, or NDA, for the potential accelerated approval of pacritinib as a treatment of intermediate and high riskfor myelofibrosis including, but not limited to patients with disease-relatedsevere thrombocytopenia, patients experiencing treatment-emergent thrombocytopeniaand in October 2020 we commenced our rolling NDA submission. The NDA is based on other JAK2 therapy or patients who are intolerantthe available data from our completed Phase 3 PERSIST-1 and PERSIST-2 trials and the Phase 2 PAC203 dose-ranging trial. Completion of or whose symptoms are sub-optimally managed on, other JAK2 therapy.the NDA submission is anticipated in the first quarter of 2021. The FDA’s Fast Track processongoing Phase 3 PACIFICA trial is designedexpected to facilitate the developmentbe completed as a post-marketing commitment.
PERSIST-1 and expedite the review of drugs to treat serious conditions and fill an unmet medical need.PERSIST-2 Trials
Pacritinib was evaluated in two Phase 3 clinical trials, collectively known as the PERSIST program, for patients with myelofibrosis, with onemyelofibrosis. The PERSIST-1 trial evaluated pacritinib in a broad set of patients without limitations on platelet counts, the PERSIST-1 trial; and the otherPERSIST-2 trial evaluated pacritinib in patients with low platelet counts, the PERSIST-2 trial.counts. Myelofibrosis is a rare blood cancer associated with significantly reduced quality of life and shortened survival. As the disease progresses, the body slows production of important blood cells and within one year of diagnosis, the incidence of disease-related thrombocytopenia (very low blood platelet counts), severe anemia and red blood cell transfusion requirements increase significantly. Among other complications, most patients with myelofibrosis present with enlarged spleens (splenomegaly), as well as many other potentially devastating physical symptoms such as abdominal discomfort, bone pain, feeling full after eating little, severe itching, night sweats and extreme fatigue. Currently patients with very low blood platelets, so called severe thrombocytopenia, (<50,000/µL) or those ineligible to receive, intolerant of or have insufficient response to the approved JAK1/JAK2 inhibitor havelimited or no effective treatment options. PatientsMyelofibrosis patients with severe thrombocytopenia have poor survival following discontinuation of therapy with the approved JAK1/JAK2 therapy. We believe pacritinib may offer effective treatment of splenomegaly and disease-related symptoms forin patients following prior exposure to the approved JAK1/JAK2 inhibitor and / or those with severe thrombocytopenia.
PERSIST-1 was a randomized (2:1), open-label, multi-center Phase 3 trial comparingevaluating the efficacy and safety of pacritinib with that of best available therapy other thancompared to BAT excluding JAK inhibitors, in 327 patients with myelofibrosis, without exclusion for low platelet counts. The primary endpoint for PERSIST-1 was the proportion of patients achieving a 35 percent or greater reduction in spleen volume from baseline to Week 24 as measured by MRI or CT, when compared with physician-specified BAT, excluding treatment with JAK2 inhibitors. The secondary endpoint was the percentage of patients achieving a 50 percent or greater reduction in Total Symptom Score, or TSS, from baseline to week 24 as measured by tracking specific symptoms on a form, or Patient Reported Outcome, or PRO, instrument. At study entry, 46 percent of patients were thrombocytopenic; 32 percent of patients had platelet counts less than 100,000 per microliter (<100,000/µL); and 16 percent of patients had platelet counts less than 50,000 per microliter (<50,000/µL); normal platelet counts range from 150,000 to 450,000 per microliter. At the time of initiation of the trial, PERSIST-1 utilized the Myeloproliferative Neoplasm Symptom Assessment Form, or MPN-SAF TSS, the PRO instrument developed by Mayo Clinic, to measure TSS reduction. We collaborated with Mayo Clinic and the FDA and developed a modified instrument to be used as the endpoint for pacritinib clinical development. As a result, we amended the PERSIST-1 trial protocol to replace the original MPN-SAF TSS instrument with a new instrument, known as the MPN-SAF TSS 2.0, which is also being used for recording patient-reported outcomes for the PERSIST-2 trial. In connection with this amendment, we increased patient enrollment in the PERSIST-1 study from 270 to 327 patients.
In May 2015, data from PERSIST-1 showed that compared to BAT (exclusive of a JAK inhibitor) pacritinib therapy resulted in a significantly higher proportion of patients with spleen volume reductionSVR and control of disease-related symptoms meeting the primary endpoint of the trial. Results were presented at a late-breaking oral session at the 51st Annual Meeting of the American Society of Clinical Oncology. Additionally, in June 2015, results from PERSIST-1 PRO and other quality of life measures presented at a late-breaking oral session at the 20th Congress of the European Hematology Association showed significant improvements in symptom score with pacritinib therapy compared to BAT (exclusive of a JAK inhibitor) across the symptoms reported in the presentation.
The following table shows the proportion of patients randomized to pacritinib or BAT who achieved a ≥35% reduction in spleen volume from baseline at Week 24 or up to Week 24 in the intent-to-treat, or ITT, population or evaluable patient population. The greatest difference in treatment arms was observed in evaluable patients with the lowest platelet counts (<50,000/µL platelets) (33.3 percent with pacritinib vs 0 percent with BAT) (p=0.037).
Spleen Volume Reduction of ≥35% at Week 24 by Platelet Levels
|
| | | |
| Pacritinib | BAT | p-value |
All Platelet Levels |
ITT* | 19% (n=220) | 5% (n=107) | 0.0003 |
Evaluable** | 25% (n=168) | 6% (n=85) | <0.0001 |
|
<100,000/µL platelets
|
ITT | 17% (n=72) | 0% (n=34) | 0.0086 |
Evaluable | 24% (n=51) | 0% (n=24) | 0.0072 |
|
<50,000/µL platelets
|
ITT | 23% (n=35) | 0% (n=16) | 0.0451 |
Evaluable | 33% (n=24) | 0% (n=11) | 0.0370 |
* ITT - primary analysis included all patients randomized. Patients who missed MRI or CT scans at baseline or at Week 24 were counted as non-responders.
** Evaluable - analysis included patients who had assessment at both baseline and at Week 24.
Results from PERSIST-1 PRO and other quality of life measures showed significant improvements in symptom score with pacritinib therapy compared to BAT (exclusive of a JAK inhibitor) across the symptoms reported in the presentation. Patients treated with pacritinib experienced greater improvement in their disease-related symptoms (ITT patient population: 24.5 percent of pacritinib-treated patients vs 6.5 percent of BAT-treated patients, p<0.0001; evaluable patient population: 40.9 percent of pacritinib-treated patients vs 9.9 percent of BAT-treated patients, p<0.0001).
Additionally, 25 percent of patients treated with pacritinib who were severely anemic and transfusion dependent - requiring at least six units of blood in the 90 days prior to study entry - became transfusion independent, compared to zero patients treated with BAT (p<0.05). Among patients with the lowest baseline platelets (<50,000/µL) who received treatment with pacritinib, a significant increase in platelet counts was observed over time compared to BAT (p=0.003) - with a 35 percent increase in platelet counts from baseline to Week 24.
The most common adverse events, occurring in 10 percent or more of patients treated with pacritinib within 24 weeks, of any grade, were: mild to moderate diarrhea, nausea, anemia, thrombocytopenia and vomiting. Of the patients treated with pacritinib, 3three discontinued therapy and 13 patients required dose interruption (average one week) for diarrhea. Patients received a daily full dose of pacritinib over the duration of treatment. Gastrointestinal symptoms typically lasted for approximately one week and few patients discontinued treatment due to side effects. There were no Grade 4 gastrointestinal events reported.
In December 2015, primarily based on the results of the PERSIST-1 trial, we submitted a NDA to the FDA, for pacritinib requesting U.S. marketing approval of pacritinib for the treatment of patients with intermediate and high-risk myelofibrosis with low platelet counts of less than 50,000 per microliter (<50,000/µL) for whom there are no approved therapies.
The PERSIST-2 trial was a randomized (2:1), open-label, multi-center registration-directed Phase 3 trial evaluating pacritinib compared to BAT, including the approved JAK inhibitor dosed according to product label, for patients with myelofibrosis whose platelet counts are less than or equal to 100,000 per microliter (≤100,000/µL). Patients were randomized to receive 200 mg pacritinib twice daily, 400 mg pacritinib once daily or BAT. In October 2013, we reached an agreement with the FDA on a Special Protocol Assessment, or SPA, for the PERSIST-2 trial regarding the planned design, endpoints and statistical analysis approach of the trial. The SPA is a written agreement between us and the FDA regarding the design, endpoints and planned statistical analysis approach of the trial to be used in support of a NDA submission. Under the SPA, the agreed upon co-primary endpoints are the percentage of patients achieving a 35% or greater reduction in spleen volume measured by MRI or CT scan from baseline to Week 24 of treatment and the percentage of patients achieving a TSS reduction of 50 percent or greater using eight key symptoms as measured by the modified MPN-SAF TSS 2.0 diary from baseline to Week 24. The design of PERSIST-1 and PERSIST-2 allowed for patients on the BAT arm to crossover and receive treatment with pacritinib if their disease progresses or after they achieve the 24-week measurement endpoint. Although crossover design
of clinical trials may confound evaluation of survival, such designs are frequently used in cancer studies, and the FDA has approved multiple oncology drugs that utilized crossover design in Phase 3 trials.
In February 2015, we received a recommendation from the Independent Data Monitoring Committee, or IDMC, in place at the time to terminate the PERSIST-1 trial and hold enrollment of new patients in the PERSIST-2 trial. The IDMC’s recommendation was based on non-statistically significant safety concerns, including mortality, in patients on pacritinib, particularly those who crossover after 24 weeks, which crossover potentially confounds evaluation of survival. The IDMC agreed that the recommendation would be only preliminary until we were unblinded to and could review the primary and secondary endpoint data as well as safety results from the PERSIST-1 trial. The IDMC recommendation was reviewed with the PERSIST Steering Committee, comprised of external experts and the study’s principal investigators who disagreed with the IDMC’s recommendation and expressed the view that the studies should continue as planned. We also asked an independent clinician and a statistician experienced in oversight of clinical trial safety to evaluate the safety profile of pacritinib in the PERSIST-1 trial. Neither was told of the recommendation reached by either the IDMC or the Steering Committee. Both experts agreed with the Steering Committee that the studies could continue. The firm that assembled the IDMC hired a second external independent statistician to review the IDMC’s analyses and recommendation, who also disagreed with the IDMC recommendation and concurred with the other independent experts that the studies need not be terminated nor enrollment held. In June 2015, the IDMC made its recommendation final and we provided to the FDA the information reviewed by the IDMC, the IDMC’s meeting minutes, and the written opinion of the Steering Committee co-chairs, the independent experts, and the second independent statistician. In July 2015, we requested a meeting with the FDA to confirm if we should continue the studies. The FDA assigned the request to a type C meeting. In its written response, the FDA did not mandate any modifications to the studies or place pacritinib on clinical hold at that time, but indicated that it had not yet reviewed the data and noted the difficulty in attempting to draw meaningful conclusions from non-significant results, and that the crossover designs may confound the analysis of survival. We determined that no modifications to the ongoing trials were required. Because we had concerns about the original IDMC’s impartiality, we decided to discharge it, and retained a new IDMC through an independent firm specializing in IDMCs. The newly constituted IDMC met on several occasions and its recommendation was to continue PERSIST-2 as planned.
On February 8, 2016, the FDA notified us that a full clinical hold had been placed on pacritinib clinical studies. A full clinical hold is a suspension of the clinical work requested under the investigational new drug, or an IND, application. Under the full clinical hold, all patients on pacritinib at the time were required to discontinue pacritinib immediately and no patients could be enrolled or start pacritinib as initial or crossover treatment. In its written notification, the FDA cited the reasons for the full clinical hold were that it noted interim overall survival results from the PERSIST-2 Phase 3 trial showing a detrimental effect on survival consistent with the results from PERSIST-1. The deaths in PERSIST-2 in pacritinib-treated patients include intracranial hemorrhage, cardiac failure and cardiac arrest. In connection with the full clinical hold, the FDA has recommended that we conduct Phase 1 dose exploration studies of pacritinib in patients with myelofibrosis, submit final clinical study reports, or CSRs, and datasets for PERSIST-1 and PERSIST-2, provide certain notifications, revise relevant statements in the related Investigator’s Brochure and informed consent documents and make certain modifications to protocols. In addition, the FDA recommended that we request a meeting prior to submitting a response to full clinical hold. As a result of the full clinical hold of pacritinib, the SPA agreement is no longer binding for PERSIST-2, and we have withdrawn the NDA.
In February 2016, prior to the clinical hold we completed patient enrollment in the PERSIST-2 Phase 3 clinical trial. Under the full clinical hold, all patients participating in the PERSIST-2 clinical trial discontinued pacritinib treatment.
In August 2016, we announced the top-line results from PERSIST-2, and the detailed results were presented in a late-breaking oral session at the American Society of Hematology Annual Meeting in December 2016. In the PERSIST-2 trial three hundred eleven (311) patients were randomized to receive 200 mg pacritinib BID, 400 mg pacritinib QD or BAT. Two hundred twenty-one (221) patients (74 pacritinib BID; 75 pacritinib QD; 72 BAT) were enrolled at least 24 weeks prior to the full clinical hold and were potentially evaluable for the Week 24 efficacy endpoint (ITT efficacy population). In the ITT efficacy population at study entry, 46 percent (101/221) of patients had platelet counts less than 50,000 per microliter (<50,000/µL), and 59 percent (130/221) were anemic (hemoglobin <10 g/dL). Normal platelet counts range from 150,000 to 450,000 per microliter. The percentage of patients in the ITT efficacy population who received prior ruxolitinib was as follows: 41 percent (31/75) pacritinib QD; 42 percent (31/74) pacritinib BID; and 46 percent (33/72) BAT. Safety analyses were based on all patients exposed to study treatment of any duration.
The co-primary endpoints of the trial were the proportion of patients achieving a 35 percent or greater reduction in spleen volume from baseline to Week 24 as measured by MRI or CT scan and the proportion of patients achieving a TSS reduction of 50 percent or greater using the modified Myeloproliferative Neoplasm Symptom Assessment (MPN-SAF TSS 2.0) diary from baseline to Week 24. The primary objective of the study was to compare pooled pacritinib arms versus BAT
and the secondary objectives were to compare pacritinib BID and QD arms individually to BAT. Study was designed to evaluate its objectives with a sample size of 300. At the time of clinical hold, study enrollment was completed with thre hundred eleven (311) patients randomized, but only two hundred twenty one (221) patients had the potential to be evaluated for efficacy endpoints at Week 24.
The PERSIST-2 trial met one of the co-primary endpoints showing a statistically significant response rate in SVR in patients with myelofibrosis treated with pacritinib combining the once- and twice-daily arms compared to BAT. Although theThe PERSIST-2 trial did not meet the other co-primary endpoint of greater than 50 percent reduction in TSS, the results approached marginal significance compared to BAT.TSS. Although secondary objectives could not be evaluated formally due to the study not achieving one of the primary objectives, when the two pacritinib dosing arms were evaluated separately versus BAT, pacritinib given twice daily showed a higher percent of SVR and TSS responses compared to BAT; whereas, pacritinib given once daily showed only a higher percent SVR responses compared to BAT.
Spleen Volume Reduction of ≥35%; Total Symptom Score Reduction of ≥50% at Week 24
|
| | | | |
| Co-Primary
Pacritinib BID + QD (n=149)
| Secondary
Pacritinib BID
(n=74)
| Secondary
Pacritinib QD
(n=75)
| BAT
(n=72)
|
Percent of Patients with ≥35% SVR from baseline to Week 24 | 18%
(n=27;p=0.001)
| 22%
(n=16;p=0.001)
| 15%
(n=11;p=0.017)
| 3%
(n=2)
|
Percent of Patients with ≥50% reduction in TSS from baseline to Week 24 | 25%
(n=37;p=0.079)
| 32%
(n=24;p=0.011)
| 17%
(n=13;p=0.652)
| 14%
(n=10)
|
A total of 45 percent of the BAT patients randomized received ruxolitinib at some point on the study.
There was no significant difference in overall survival, or OS, across treatment arms, censored at the time of clinical hold. Hazard ratios (95% confidence intervals, or CI) were 0.68 (0.30-1.53) for pacritinib BID versus BAT and 1.18 (0.57-2.44) for pacritinib QD versus BAT. Overall mortality rates at that time were comparable between arms: 9 percent BID versus 14 percent QD and 14 percent BAT.
The most common treatment-emergent AEs,adverse events, occurring in 20 percent or more of patients treated with pacritinib within 24 weeks, of any grade, were gastrointestinal (generally manageable diarrhea, nausea and vomiting) and hematologic (anemia and thrombocytopenia) and were generally less frequent for BID versus QD administration. The most common serious treatment-emergent AEsadverse events (incidence of ≥5 percent reported in any treatment arm irrespective of grade) were anemia, thrombocytopenia, pneumonia and acute renal failure none of which exceeded 8 percent individually in any arm.
In February 2015, we received a recommendation from the Independent Data Monitoring Committee, or IDMC, in place at the time to terminate the PERSIST-1 trial and hold enrollment of new patients in the PERSIST-2 trial. The IDMC’s recommendation was based on non-statistically significant safety concerns, including mortality, in patients on pacritinib, particularly those who crossover after 24 weeks. On February 8, 2016, the FDA notified us that a full clinical hold had been placed on pacritinib clinical studies.
PAC203 Trial
In January 2017, the FDA removed the full clinical hold following review of our complete response submission which included, among other items, final Clinical Study Reports for both PERSIST-1 and 2-2 trials and a dose-exploration clinical trial protocol that the FDA requested.
In July 2017, we enrolled our first patient in At that time, the PAC203 trial which planswas designed to enroll up to approximately 105 patients with primary myelofibrosis and who havehad failed prior ruxolitinib therapy across three dose regimens of pacritinib, 100 mg QD, 100 mg BID and 200 mg BID, to evaluate the dose response relationship for safety and efficacy (SVR at 12 and 24 weeks) of three dose regimens: 100 mg QD, 100 mg BID and 200 mg BID.. The 200 mg BID dose regimen was usedselected as the top dose based upon observations from the completed PERSIST-2 study. In PAC203, the entry criteria were modified to exclude patients with a history of cardiac and/or bleeding events and additional dose modification guidelines were implemented for the management of treatment-emergent cardiac and or bleeding events. The first patient in PERSIST-2. We expectthe PAC203 trial was enrolled in July 2017.
In April 2018, we amended the protocol to complete enrollment by mid-2018. We expectexpand the sample size to havea maximum of 150 patients (or 50 patients per arm) to collect additional data for the safety and efficacy analyses. In July 2018, we announced that the IDMC for the PAC203 trial completed its planned interim data from PAC203 by the endreview of the second quarter of 2018PAC203 trial and topline data inthat the first quarter of 2019.
Marketing Authorization Application
The Marketing Authorization Application,IDMC did not identify any drug- or MAA, for pacritinib was submitted todose-related safety concerns and did not identify any concerns about cardiac or bleeding events. Following meetings with the FDA and European Medicines Agency, or EMA, and consultation with the IDMC, we eliminated the interim efficacy analysis and focused the second interim data review, and all subsequent data reviews, on an assessment of safety. The protocol was amended to reflect this change and submitted to FDA. In October 2018, we announced the continuation of the PAC203 Phase 2 study without modification, following a planned second interim data review by the IDMC. The IDMC did not identify significant drug- or dose-related safety concerns and specifically did not identify any concerns around hemorrhagic or cardiac toxicity. A complete dataset from the fully enrolled study (including efficacy, safety, pharmacokinetic and pharmacodynamic data) will be used to determine the optimal dose of pacritinib for further clinical development, as requested by the FDA. The PAC203 study was fully enrolled in February 2016December 2018. In January 2019, the IDMC completed its planned third interim safety review and recommended that the study continue without modification.
In December 2019, we announced top-line efficacy and safety data for the PAC203 trial. Pacritinib was shown to be generally well tolerated across dosing cohorts. The majority of non-hematological adverse events were mild or moderate in severity and, with an indication statementthe exception of diarrhea, were considered unlikely related to pacritinib. The most common non-hematologic adverse events were gastrointestinal, including diarrhea (23.6%) and nausea (23.6%), and occurred more commonly in patients treated at 200 mg BID (31/54, 57.4%) than at lower doses (100 mg BID: 23/55, 41.8%, 100 mg QD: 22/52, 42.3%). These events were largely grade 1 or 2 in severity. Diarrhea was generally manageable with standard antidiarrheal agents, and only one patient (at 200mg BID) required drug discontinuation due to any gastrointestinal event (diarrhea).
The most common hematologic adverse events were thrombocytopenia and anemia, both occurring at higher frequencies at the 200 mg BID dose (35.2 percent and 24.1 percent respectively); this did not, however, lead to higher rates of Grade 3/4 hemorrhage at higher doses (200 mg BID: 5.6 percent; 100 mg BID: 0 percent; 100 mg QD: 7.7 percent; all Grade 3). Similarly, the highest dose saw no excess in Grade 3/4 cardiac (200 mg BID: 3.7 percent; 100 mg BID: 7.3 percent; 100 mg QD: 5.8; all grade 3). There were 10 Grade 5 (fatal) adverse events: 3 at 200 mg BID (sepsis, respiratory failure, subdural hematoma), 3 at 100 mg BID (disease progression, subdural hemorrhage, heart failure), and 4 at 100 mg QD (disease progression, general physical health deterioration, sepsis, tuberculosis).
The 200 mg BID arm had the highest observed rates of SVR ≥35 percent (200 mg BID: 9.3 percent; 100 mg BID: 1.8 percent; 100 mg QD: 0.0 percent). Of the 5 patients with SVR ≥35 percent at the 200 mg BID dose, 4 had platelet counts <50,000/µL, representing a 17 percent (4/24) response rate among patients with severe thrombocytopenia. Though a dose response relationship was not observed in total symptom score (TSS) based on the PERSIST-1 trial data. In its initial assessment report,threshold of 50 percent reduction in symptom score, the Committee for Medicinal Products for Human Use, or CHMP, determined thatmedian percent decrease in TSS (including fatigue) did show deeper reductions with escalating doses, with best response at 200 mg BID. At Week 24, the current application is not approvable at this pointpercent change in TSS from baseline was highest in the 200 mg pacritinib BID group (median ‑27.3%) compared with the other treatment groups (100 mg pacritinib BID group: median ‑16.0%; 100 mg pacritinib QD group: median ‑3.1%). Of the TSS (including fatigue) responders, baseline cytopenias were common: 8 of 12 had hemoglobin <10g/dL, and 4 of 12 had platelet counts <50,000/µL.
PACIFICA Phase 3 Trial
In June 2019, we attended a Type B meeting with the FDA to review cycle becausethe results of major objectionsthe PAC203 study. Based on FDA feedback at that meeting, we designed a randomized Phase 3 study of pacritinib to compare the safety and efficacy of 200 mg BID of pacritinib to Physician's Choice in adult myelofibrosis patients with severe thrombocytopenia (platelet count of less than
50,000 per microliter) an indication that has been recognized by the areasFDA as an important unmet serious medical need. In July 2019, we received scientific advice from the EMA on the study’s design.
The selection of efficacy, safety (hematologicalthe 200 mg BID dose and cardiovascular toxicity)dosing schedule for the Phase 3 study was determined using the results of the PAC203 study together with dose- and the overall risk-benefit profile of pacritinib. Subsequentexposure-response analyses using all available data from pacritinib clinical trial. In July 2019, a draft protocol for that Phase 3 study was submitted to the filingFDA and we received their feedback on the design in September 2019 and October 2019, which included a suggestion that we amend the design to include change in total symptom score, or TSS, as a co-primary endpoint. We completed a Type C meeting with the FDA in December 2019 and received additional input from the FDA on key elements of the MAA, datadesign of the Phase 3 study including changes that could allow for an accelerated approval NDA filing and that we would power the study for TSS but it would remain a secondary endpoint.
In January 2020, we received the FDA's preliminary comments from a Type A meeting request and reached an agreement on the second phasefinal design changes to our PACIFICA pivotal Phase 3 clinical trial, including changes to the statistical analysis plan that would allow for an accelerated approval pathway for pacritinib. We have amended our PACIFICA Phase 3 trial of pacritinib, PERSIST-2, were reported. These data suggest that pacritinib may show clinical benefit in patients who
have failed or are intolerantprotocol, to ruxolitinib therapy, a population for which there is no approved therapy. Following discussions with the EMA about how PERSIST-2 data might address the major objections and how to integrate the data into the current application, we withdrew the original MAA, and submitted a new applicationallow for the treatmentprimary analysis of Spleen Volume Reduction, or SVR, rate on the first 168 patients, with myelofibrosis who have thrombocytopenia (platelet counts less than 100,000 per microliter). The new MAA was validatedan end-of-study analysis of Total Symptom Score, or TSS, and Overall Survival, or OS, following the full enrollment of 348 patients. We previously anticipated reporting primary SVR data by the EMAend of 2021 with final study efficacy data expected in July 2017. Validation confirms that the submission is complete and initiates the centralized review process by the CHMP. The CHMP review period is 210 days, excluding question or opinion response periods, after which the CHMP opinion is reviewed by the European Commission, which usually issues a final decision on E.U. authorization within three months. If authorized, pacritinib would be granted a marketing license valid in all 28 E.U. member states, Norway, Iceland and Liechtenstein.
On January 25, 2018, we were granted a three-month extension for submitting our response to the Day 120 List of Questions, or D120 LoQ, from the CHMP of the EMA, with regard to the MAA for pacritinib. As2023; however, as a result of the extension,worldwide coronavirus pandemic known as COVID-19, we currently anticipate submitting oura lower enrollment rate than planned and at least a nine-month delay in the PACIFICA Phase 3 trial timeline.
PRE-VENT Phase 3 Trial
In April 2020, in response to the D120 LoQpublic health crisis due to the global COVID-19 pandemic, we initiated PRE-VENT, a Phase 3 trial evaluating pacritinib in May 2018.hospitalized patients with severe COVID-19. PRE-VENT, a randomized, double-blind, placebo-controlled multicenter study will compare pacritinib plus Standard of Care, or SOC, versus placebo plus SOC in hospitalized patients with severe COVID-19, including those with a current or prior diagnosis of cancer. The primary endpoint of the trial will assess the proportion of patients who progress to invasive mechanical ventilation and/or extracorporeal membrane oxygenation or die by Day 28. We primarily requestedcommenced enrollment of PRE-VENT in the extensionsecond quarter of 2020 in order to provide the EMA with new pharmacokinetic analyses that include dataUnited States and currently anticipate the reporting of interim analysis from the ongoing phasePRE-VENT trial in mid-2021.
Patients enrolled in PRE-VENT will be randomized 1:1 to receive pacritinib (400 mg once on Day 1, then 200 mg twice daily from Day 2 PAC203 study. Theto Day 120 LoQ were received by14) plus SOC or placebo plus SOC. Assigned treatment will continue up to Day 14 or until the Company in November 2017 and included Major Objections in areas including efficacy, safety (including hematological, cardiovascular and infectious toxicities) and other concerns includingpatient experiences intolerable adverse events, withdraws consent, initiates another investigational therapy or until the sizestudy is terminated. Assigned therapy may be given for an additional seven days (for a total of 21 days) at the discretion of the data setinvestigator and with medical monitor approval. In the pharmacokinetic analysesevent of the two dosing regimens studied in PERSIST-2. The extension request was submitted following a clarification meetinghospital discharge, patients will complete treatment with the rapporteurassigned therapy as an outpatient.
As a JAK2, IRAK1 and co-rapporteurCSF1R inhibitor, pacritinib may ameliorate the effects of cytokine storm, a pathological immune reaction that can be triggered by viral infection and memberscan lead to serious complications, including acute respiratory distress syndrome, or ARDS. Multiple inflammatory cytokines are upregulated in patients with severe COVID-19, including IL-1 and IL-6, and some patients have evidence of over-active macrophage activation. As a JAK2/IRAK1 inhibitor, pacritinib may ameliorate the EMA. We also plan to address with the EMA deficiencies identified ineffects of cytokine storm via inhibition of IL-6 and IL-1 signaling. Furthermore, as a January 2018 interim GCP inspection report which concluded that PERSIST-2 was in most aspects conducted in compliance with GCP and internationally accepted ethical standards, but compliance was not verified in the areasCSF1R inhibitor, pacritinib may mitigate effects of protocol compliance, safety reporting and data integrity, where significant deficiencies were cited.macrophage activation syndrome.
Development in Other Indications
In December 2014, we announced results of a preclinical analysis of kinase inhibition by pacritinib that demonstrated a unique kinome profile among agents in development for myelofibrosis and suggests potential therapeutic benefit across a broad spectrum of blood-related cancers. Pacritinib’s potent inhibition of FLT3, c-fms, IRAK1 and c-kitCSF1R highlight its potential therapeutic utility in other indications,diseases, such as AML, MDS, CMMLCLL, GvHD, autoimmune diseases and CLL,breast cancer, some of which are currently being evaluated in investigator sponsored trials, or ISTs.
In December 2020, results from an IST evaluating pacritinib’s ability to prevent GvHD were presented in an oral presentation at the American Society for Hematology conference. In this study, pacritinib was administered in combination with sirolimus and tacrolimus to patients who had undergone allogeneic stem cell transplantation for hematologic malignancies, which resulted in a significant reduction in the expected acute GvHD rates in patients within the first 100 days of therapy as compared to historical data. The Phase I portion of the study identified a biologically active and safe dose of pacritinib (100 mg twice daily) for use in this indication and showed preliminary evidence of efficacy in prevention of GvHD without compromising transplant outcomes and without any new safety concerns. Enrollment in Phase II of the study is ongoing.
In October 2016, we regained worldwide rights for the development and commercialization of pacritinib following termination of the Pacritinib License Agreement with Baxalta. For additional information relating to the termination of the Pacritinib License Agreement, see “License Agreements and Additional Milestone Activities - Baxalta” below.
Tosedostat
Tosedostat, is a novel oral, once-daily aminopeptidase inhibitor that has demonstrated significant responses in patients with AML. It has been evaluated in randomized Phase 2 cooperative group-sponsored trials in elderly patients with AML.
Enrollment in the randomized Phase 2 cooperative group-sponsored trials in elderly patients with AML (the LI1 trial) was halted in March 2017 after target recruitment had been attained. Following a Data Monitoring Committee meeting in November 2017, the trial Steering Committee decided to not reopen randomization as a sufficient survival benefit had not been demonstrated in patients receiving tosedostat combination therapy.
Research and Development Expenses
Research and development is essential to our business. We spent $32.9 million, $65.0 million and $76.6 million in 2017, 2016 and 2015, respectively, on Company-sponsored research and development activities. The development of a product candidate involves inherent risks and uncertainties, including, among other things, that we cannot predict with any certainty the pace of enrollment of our clinical trials. As a result, we are unable to provide the nature, timing and estimated costs of the efforts necessary to complete the development of pacritinib and tosedostat or to complete the post-approval commitment study of PIXUVRI. Further, third parties are conducting clinical trials for tosedostat and pacritinib. Even after a clinical trial is enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process. For these reasons, among others, we cannot estimate the date on which clinical development of these product candidates will be completed or when, if ever, we will generate material net cash inflows from PIXUVRI or be able to commence commercialization of pacritinib and tosedostat. For additional information relating to our research and development expenses and associated risks, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Years ended December 31, 2017, 2016 and 2015 - Operating costs and expenses - Research and development expenses” and Part I, Item 1A, “Risk Factors.”
License Agreements and Additional Milestone Activities
Servier
In April 2017, we entered into the Restated Agreement with Servier, pursuant to which the Original Agreement with Servier, entered into in September 2014, was amended and restated in its entirety. Under the Original Agreement, we granted Servier an exclusive and sublicensable (subject to certain conditions) royalty-bearing license with respect to the development and commercialization of PIXUVRI for use in pharmaceutical products outside of Austria, Denmark, Finland, Germany, Israel, Norway, Sweden, Turkey, the U.K. and the U.S. Under the Original Agreement, we received an upfront payment in October 2014 of €14.0 million (or $17.8 million using the currency exchange rate as of the date we received the funds). In addition, we received a €1.5 million (or $1.7 million upon conversion from euros as of the date we received the funds) milestone payment relating to the attainment of reimbursement approval for PIXUVRI in Spain and a €7.5 million (or $8.0 million upon conversion from euros as of the date we achieved the milestone in December 2016) milestone payment relating to the occurrence of a certain enrollment event in the PIX306 study.
Under the Restated Agreement, we granted Servier an exclusive, sublicensable (subject to certain exceptions) license with respect to the development and commercialization of PIXUVRI for use in pharmaceutical products, or Licensed Products, outside of the U.S. (and its territories and possessions). In accordance with the Restated Agreement, we will transfer to Servier medical affairs and commercialization activities relating to the Licensed Products in Austria, Denmark, Finland, Germany, Israel, Norway, Sweden, Turkey and the U.K. (collectively, the "Transition Territory"). We are in the process of terminating or assigning certain distributor and wholesaler contracts to Servier in the Transition Territory, and expect the last contract to be terminated in 2018. Each party will be responsible for the manufacture and supply of drug products and substances in its respective territory.
We have obtained conditional marketing authorization in the E.U. to market PIXUVRI for the treatment of adult patients with relapsed or refractory aggressive non-Hodgkin B-cell lymphomas. Under the Restated Agreement, we will transfer our European marketing authorization to Servier upon positive, statistically significant results in an ongoing post-authorization Phase 3 clinical trial, PIX306, unless Servier elects to terminate the Restatement Agreement within thirty (30) days after the positive results.
We received an upfront payment of €12.0 million from Servier, which included €2.0 million for a new milestone previously achieved, and Servier purchased PIXUVRI drug product for an additional €0.9 million in July 2017. Subject to the achievement of certain conditions, the Restated Agreement provides for additional milestone payments from Servier in the aggregate amount of up to €76.0 million, including up to €36.0 million in potential regulatory milestone payments and up to €40.0 million in potential sales milestone payments. In September 2017, we attained a regulatory milestone under the Restated Agreement and recorded a €1.0 million milestone revenue (or $1.2 million using the currency exchange rate as of the date the milestone was achieved).
We are eligible to receive tiered royalty payments ranging from a low-double digit percentage up to a percentage in the low-twenties based on net sales of the Licensed Products, subject to certain reductions of up to mid-double digit percentages under certain circumstances. We will no longer use a joint marketing plan with Servier, and marketing costs will no longer be shared equally; instead Servier will be solely responsible for marketing costs within Europe. Mutually agreed upon
development costs other than PIX306 will continue to be shared equally with Servier, which represents no change to the development cost sharing.
The Restated Agreement also requires an amendment to the trademark license agreement entered into on June 8, 2015 between us and Servier to provide for Servier’s right to use of our trademark PIXUVRI in connection with Licensed Products worldwide, excluding the U.S. (and its territories and possessions). The amendment was executed in October 2017.
Baxalta
In November 2013, we entered into a Development, Commercialization and License Agreement, dated as of November 14, 2013, with Baxter International Inc., or Baxter, for the development and commercialization of pacritinib for use in oncology and potentially additional therapeutic areas, or the Original Pacritinib License Agreement. The Original Pacritinib License Agreement, thewhich was subsequently amended in June 2015. Baxter assigned its rights and obligations to which Baxter had assigned to Baxalta, was amended by the License Amendment, effective June 8, 2015. Under the Original Pacritinib License Agreement, as amended by the License Amendment, orunder the Pacritinib License Agreement Baxalta hadto Baxalta. Under the Pacritinib License Agreement, we granted to Baxter an exclusive, worldwide (subject to co-promotion rights discussed below), royalty-bearing, non-transferable, and (under certain circumstances outside of the United States) sub-licensable license (which was sub-licensable under certain circumstances)to our know-how and patents relating to pacritinib. Licensed products
In October 2016, we entered into the Asset Return and Termination Agreement, or the Baxalta Termination Agreement,with Baxalta. Pursuant to the Baxalta Termination Agreement, the Pacritinib License Agreement was terminated in its entirety (other than with respect to certain customary provisions that survive termination, including those pertaining to confidentiality and indemnification), the Pacritinib License Agreement has no further force or effect, and all rights and obligations of the Company and Baxalta under the Pacritinib License Agreement consisted of products in which pacritinib is an ingredient.were terminated.
We received an upfront payment of $60.0 million under the Pacritinib License Agreement, which included a $30.0 million investment in our equity. The Pacritinib License Agreement also provided for us to receive potential additional payments of up to $302.0 million upon the successful achievement of certain development and commercialization milestones, comprised of $112.0 million of potential clinical, regulatory and commercial launch milestone payments, and potential additional sales milestone payments of up to $190.0 million. We have received milestone payments of $52.0 million pursuant to the Pacritinib License Agreement.
In June 2015, we entered into the License Amendment. Pursuant to the License Amendment, two potential milestone payments in the aggregate amount of $32.0 million from Baxalta to us were accelerated from the schedule contemplated by the Original Pacritinib License Agreement relating to the PERSIST-2 Milestone and the MAA Milestone. In the first quarter of 2016, we recorded $32.0 million in license and contract revenue upon attainment of these milestones.
In October 2016, we regained worldwide rightsresumed primary responsibility for the development and commercialization of pacritinib following terminationas a result of the Pacritinib LicenseBaxalta Termination Agreement withand are no longer eligible to receive cost sharing or milestone payments for pacritinib’s development from Baxalta.
Pursuant to the termination, Baxalta paid usTermination Agreement, we are required to make a one-time cashmilestone payment to Takeda Pharmaceutical Company Limited, or Takeda, in the amount of approximately $10.3 million as reimbursement for certain expenses incurred by us or to be incurred. In exchange, we have agreed to provide a one-time payment to Baxalta, upon the first regulatory approval or any pricing and reimbursement approvals of a product containing pacritinib,pacritinib. Baxalta was acquired by Shire plc in the amount of approximately $10.3 million which represents certain amounts paid2016, and Shire plc was subsequently acquired by Baxalta for the benefit of the pacritinib program manufacturing efforts. We have also agreed not to transfer, license, sublicense or otherwise grant rights with respect to intellectual property of pacritinib unless the transferee/licensee/sublicensee agrees to be bound by the terms of the Asset Return and Termination Agreement with Baxalta.Takeda in 2019.
University of Vermont
We entered into an agreement with the University of Vermont, or UVM, in March 1995, as amended, or the UVM Agreement, which grants us an exclusive sublicensable license for the rights to PIXUVRI. Pursuant to the UVM Agreement, we acquired the rights to make, have made, sell and use PIXUVRI, and we are obligated to make royalty payments to UVM ranging from low single digits to mid-single digits as a percentage of net sales; such royalty expenses are included in Cost of product sold in our consolidated financial statements. The higher royalty rate is payable for net sales in countries where specified UVM licensed patents exist, or where we have obtained orphan drug protection, until such UVM patents or such protection no longer exists. For a period of ten years after the first commercialization of PIXUVRI, the lower royalty rate is payable for net sales in such countries after expiration of the designated UVM patents or loss of orphan drug protection, and in all other countries without such specified UVM patents or orphan drug protection. Unless otherwise terminated, the term of the UVM Agreement continues for the life of the licensed patents in those countries in which a licensed patent exists, and continues for ten years after the first sale of PIXUVRI in those countries where no such patents exist. We may terminate the UVM Agreement, on a country-by-country basis or on a patent-by-patent basis, at any time upon advance written notice. UVM may terminate the UVM Agreement upon advance written notice in the event royalty payments are not made. In addition, either party may terminate the UVM Agreement in the event of an uncured material breach of the UVM Agreement by the other party or in the event of bankruptcy of the other party.
S*BIO
We acquired the compounds SB1518 (which is referred to as “pacritinib”) and SB1578, which inhibit JAK2 and FLT3, from S*BIO in May 2012. Under our agreement with S*BIO, we are required to make milestone payments to S*BIO up to an aggregate amount of $132.5 million if certain U.S., E.U.EU and Japanese regulatory approvals are obtained and if certain worldwide net sales thresholds are met in connection with any pharmaceutical product containing or comprising any compound that we acquired from S*BIO for use for specific diseases, infections or other conditions. At our election, we may pay up to 50%50 percent of any milestone payments to S*BIO through the issuance of shares of our common stock or shares of our preferred stock convertible into our common stock. In addition, S*BIO will be entitled to receive royalty payments from us at incremental rates in the low single-digits based on certain worldwide net sales thresholds on a product-by-product and country-by-country basis.
Vernalis
We entered into an amended and restated exclusive license agreement with Vernalis (R&D) Limited, or Vernalis, in October 2014, or the Vernalis License Agreement, for the exclusive worldwide right to use certain patents and other intellectual property rights to develop, market and commercialize tosedostat and certain other compounds. Under the Vernalis License Agreement, we have agreed to make tiered royalty payments of no more than a high single-digit percentage of net sales of products containing licensed compounds, with such obligation to continue on a country-by-country basis for the longer of ten years following commercial launch or the expiry of relevant patent claims.
The Vernalis License Agreement will terminate when the royalty obligations expire, although the parties have early termination rights under certain circumstances, including the following: (i) we have the right to terminate, with three months’ notice, upon the belief that the continued development of tosedostat or any of the other licensed compounds is not commercially viable; (ii) Vernalis has the right to terminate in the event of our uncured failure to pay sums due; and (iii) either party has the right to terminate in the event of the other party’s uncured material breach or insolvency.
Gynecologic Oncology Group
We entered into an agreement with the Gynecologic Oncology Group, now part of NRG Oncology, in March 2004, as amended, related to the GOG-0212 trial of Opaxio it is conducting in patients with ovarian cancer. Pursuant to the terms of such agreement, we paid an aggregate of $1.2 million in milestone payments during 2014 based on certain enrollment milestones achieved. In addition, we made a milestone payment of $0.5 million relating to the transfer of final datasets during the second quarter of 2017. The agreement was terminated in May 2017. No further development of Opaxio is planned.
PG-TXL
In November 1998, we entered into an agreement with PG-TXL, as amended in February 2006, or the PG-TXL Agreement, which granted us an exclusive worldwide license for the rights to Opaxio and to all potential uses of PG-TXL’s polymer technology. Pursuant to the PG-TXL Agreement, we acquired the rights to research, develop, manufacture, market and sell anti-cancer drugs developed using this polymer technology. Pursuant to the PG-TXL Agreement, we were obligated to make payments to PG-TXL upon the achievement of certain development and regulatory milestones of up to $14.4 million. The timing of the remaining milestone payments under the PG-TXL Agreement was based on trial commencements and completions for compounds protected by PG-TXL license rights, and regulatory and marketing approval of those compounds by the FDA and the EMA. Additionally, we were required to make royalty payments to PG-TXL based on net sales. Our royalty obligations ranged from low to mid-single digits as a percentage of net sales. In February 2017, we terminated our agreement with PG-TXL and the exclusive worldwide license for rights to Opaxio and certain polymer technology under our agreement with PG-TXL.
Novartis
In January 2014, we entered into a Termination Agreement with Novartis, or the Novartis Termination Agreement, to reacquire the rights to PIXUVRI previously granted to Novartis under our agreement entered into in September 2006, as amended, or the Original Novartis Agreement. Pursuant to the Novartis Termination Agreement, the Original Novartis Agreement was terminated in its entirety, except for certain customary provisions, including those pertaining to confidentiality and indemnification, which survive termination.
Under the Novartis Termination Agreement, we agreed not to transfer, license, sublicense or otherwise grant rights with respect to intellectual property of PIXUVRI and Opaxio unless the recipient thereof agrees to be bound by the terms of the Novartis Termination Agreement. We also agreed to provide potential payments to Novartis, including a percentage ranging from the low double-digits to the mid-teens, of any consideration received by us or our affiliates in connection with any transfer, license, sublicense or other grant of rights with respect to intellectual property of PIXUVRI or Opaxio; provided that such payments will not exceed certain prescribed ceilings in the low single-digit millions. Novartis is entitled to receive potential payments of up to $16.6 million upon the successful achievement of certain sales milestones of PIXUVRI and Opaxio. We are also obligated to pay to Novartis tiered low single-digit percentage royalty payments for the first several hundred million dollars in annual net sales, and 10% royalty payments thereafter based on annual net sales of each of PIXUVRI and Opaxio, subject to reduction in the event generic drugs are introduced and sold by a third party, causing the sale of PIXUVRI to fall by a percentage in the high double digits. Royalty payments for PIXUVRI are subject to certain minimum floor percentages in the low single digits. The royalty expenses payable under the Novartis Termination Agreement are included in Cost of product sold in our consolidated financial statements.
Teva Pharmaceutical Industries Ltd.
In June 2005, we entered into an acquisition agreement with Cephalon, Inc., or Cephalon, pursuant to which we divested the compound, TRISENOX. Cephalon was subsequently acquired by Teva Pharmaceutical Industries Ltd., or Teva. Under this agreement, we have the right to receive up to $100 million in payments upon achievement by Teva of specified sales and development milestones related to TRISENOX. To date, we have received $50.0$60.0 million of such potential milestone payments as a result of having achieved certain sales milestones.
Other Agreements
We have several agreements with clinical research organizations, or CROs, third-party manufacturers and distributors that have durations of greater than one year for the development and distribution of certain of our compounds.
Information about Customer and Geographic Concentrations
Information about customer and geographic revenue is set forth in Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 15. Customer and Geographic Concentrations" of this Annual Report on Form 10-K.
Patents and ProprietaryOther Intellectual Property Rights
We dedicate significant resources to protecting our intellectual property, which is important to our business. We have filed numerous patent applications in the U.S.United States and various other countries seeking protection of inventions originating from our research and development, and we have also obtained rights to various patents and patent applications under licenses with third parties and through acquisitions. Patents have been issued on many of these applications. We have pending patent applications or issued patents in the U.S.United States and foreign countries directed to PIXUVRI, pacritinib tosedostat and other product candidates. However, the lives of these patents are limited. Patents for the individual products extend for varying periods according to the date of the patent filing or grant and the legal term of patents in the various countries where patent protection is obtained.
Our U.S. and foreign composition of matter patents for pacritinib expire as follows: USU.S. patents expire in May 2028 (method) / January 2029 (compound) / March 2030 (salt); foreign patents expire in November 2026 (compound)(method and compound) / December 2029 (salt). Pacritinib has orphan drug designation for myelofibrosis in theWe expect our U.S. and the E.U.
Our various tosedostat-directed patentsforeign patent applications for use of pacritinib for treating transplant rejection will expire in 2018. Tosedostat has orphan drug designation for acute myeloid leukemia in the U.S. and the E.U.2036.
Each patent may be eligible for future patent term restoration of up to five years under certain circumstances. Also, regulatory exclusivity tied to the protection of clinical data may be complementary to patent protection. During a period of regulatory exclusivity, competitors generally may not use the original applicant’s data as the basis for a generic application. In the U.S.,United States, the data protection generally runs for five years from first marketing approval of a new chemical entity, extended to seven years for an orphan drug indication. Pacritinib has orphan drug designation for myelofibrosis in the United States and the European Union.
In the absence of aaddition to our patent rights, we would,rely, to the extent possible, need to rely on unpatented technology,trade secrets and contractual protections for our know-how and confidential information.other unpatented technology. Ultimately, to the lack or expiration atextent any given time of aour product candidates are not protected by patent to protect our compounds may allowrights, our competitors would be free to copy the underlyinguse inventions and betterembodied in our product candidates to which they have access to compete with us.
The risks and uncertainties associated with our intellectual property, including our patents, are discussed in more detail in Part I, Item 1A, “Risk Factors.”
Manufacturing, Distribution and Associated Operations
Our manufacturing strategy utilizes third party contractors for the procurement and manufacture, as applicable, of raw materials, active pharmaceutical ingredients and finished drug product, as well as for labeling, packaging, storage and distribution of our compounds and associated supply chain operations. As our business continuesclinical development activities continue to expand, we expect that our manufacturing, distribution and related operational requirements will increase correspondingly. Additionally, in October 2016, we resumed primary responsibility for the development and commercialization of pacritinib as a result of the termination of the Pacritinib License Agreement. The development and commercialization of a major product candidate like pacritinib without a collaborative partner wouldhas significantly increaseincreased our manufacturing, distribution and related operational requirements.requirements, and we expect such increases to continue as we advance the clinical development of pacritinib.
Each third party contractor will always undergoundergoes a formal qualification process by CTIour subject matter experts prior to signingour entry into any service agreement and initiating any manufacturing work. We currently have a commercial supply arrangement for PIXUVRI and pacritinib.
Integral to our manufacturing strategy is our quality control and quality assurance program, which includes standard operating procedures and specifications with the goal that our compounds are manufactured in accordance with current Good Manufacturing Practices, or cGMPs, and other applicable global regulations. The cGMP compliance includes strict adherence to regulations for quality control, quality assurance and the maintenance of records and documentation. Manufacturing facilities for products and product candidates must meet cGMP requirements, and commercialized products must have acquired FDA, EMA and any other applicable regulatory approval. In this regard, we expect to continue to rely on contract manufacturers to produce sufficient quantities of our compounds in accordance with cGMPs for use in clinical trials and distribution.
We believe our operational strategy of utilizing qualified outside vendors in the foregoing manner allows us to direct our financial and managerial resources to development and commercialization activities, rather than to the establishment and maintenance of a manufacturing and distribution infrastructure.
Competition
Competition in the pharmaceutical and biotechnology industries is intense. We face competition from a variety of companies focused on developing oncology drugs. We compete with large pharmaceutical companies and with other specialized biotechnology companies. In addition to the specific competitive factors discussed below, new anti-cancer drugs that may be developed and marketed in the future could compete with our various compounds.
With respect to PIXUVRI, while there are no other productsPacritinib may face competition from the currently approved in the E.U. as monotherapyJAK1/JAK2 inhibitors, Jakafi® / Jakavi® (ruxolitinib) and Inrebic® (fedratinib). In August 2019, Celgene (which was subsequently acquired by Bristol Myers Squibb) announced FDA approval of Inrebic® for the treatment of adult patients with multiply relapsedintermediate-2 or refractory aggressive NHL, there are other agents approved to treat aggressive NHL that could be usedhigh-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis, and in this setting, including both branded and generic anthracyclines as well as mitoxantrone.
With respect to our other investigational candidates, if approved, theyFebruary 2021 Bristol Myers Squibb announced the European Commission approval of Inrebic®. Pacritinib may also face competition from compoundsmomelotinib, which Sierra Oncology acquired from Gilead. In June 2019, Sierra Oncology announced that momelotinib was granted fast track designation by the FDA and launched a Phase 3 clinical trial in November 2019. In addition, if we are successful in bringing pacritinib to market as a treatment to prevent progression to acute respiratory distress syndrome, or ARDS, and medical ventilation, we expect to face competition from numerous other companies that are currently approved or may be approved in the future. Pacritinib would compete with Jakafi®, which is marketed by Incyte in the U.S.,pursuing clinical development programs for COVID-19 and potentially other candidates in development that target JAK inhibition to treat cancer such as fedratinib that was recently acquired and now being developed by Celgene. Tosedostat would compete with currently marketed products such as Dacogen®, Vidaza®, Revlimid®, Thalomid® and Clolar®.related conditions.
ManySome of our existing or potential competitors have substantially greater financial, technical and human resources than us and may be better equipped to develop, manufacture and market products. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these competitors have products that have been approved or are in development and operate large, well-funded research and development programs.
Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before us may achieve a significant competitive advantage if their products work through a similar mechanism as our products and if the approved indications are similar. A number of biotechnology and pharmaceutical companies are developing new products for the treatment of the same diseases being targeted by us. In some instances, such products have already entered late-stage clinical trials or received FDA or European Commission approval. However, cancer drugs with distinctly different mechanisms of action are often used together in combination for treating cancer, allowing several different products to target the same cancer indication or disease type. Such combination therapy is typically supported by clinical trials that demonstrate the advantage of combination therapy over that of a single-agent treatment.
We believe that our ability to compete successfully will be based on our ability to create and maintain scientifically advanced technology, develop proprietary products, attract and retain scientific personnel, obtain patent or other protection for our products, obtain required regulatory approvals and manufacture and successfully market our products, either alone or through outside parties. We will continue to seek licenses with respect to technology related to our field of interest and may face competition with respect to such efforts. See the risk factor, “We face direct and intense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfully against them.” in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for additional information regarding the risks and uncertainties we face due to competition in our industry.
Government Regulation
We are subject to extensive regulation by the FDA and other federal, state, and local regulatory agencies. The Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations set forth, among other things, requirements for the testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our products. In addition to FDA regulation, we are also subject to additional legal and regulatory requirements at both the federal and state levels in the United States. Our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S.,United States, although there can be important differences. Additionally, some significant aspects of regulation in the E.U.European Union are addressed in a centralized way through the EMA and the European Commission, but country-specific regulation by the competent authorities of the E.U.EU member states remains essential in many respects.
U.S. Regulation
In the U.S.,United States, the FDA regulates drugs under the FDCA and its implementing regulations, including through review and approval of NDAs. NDAs require extensive studies and submission of a large amount of data by the applicant. There are also additional laws and regulations, administered by the FDA and other government agencies, that are applicable to the development, approval, manufacture, marketing, promotion, sale, pricing and distribution of drugs.
Drug Development
Preclinical Testing. Before testing any compound in human subjects in the U.S.,United States, a company must generate extensive preclinical data. Preclinical testing generally includes laboratory evaluation of product chemistry and formulation, as well as toxicological and pharmacological studies in several animal species to assess the quality and safety of the product. Animal studies must be performed in compliance with the FDA’s Good Laboratory Practice regulations and the U.S. Department of Agriculture’s Animal Welfare Act.
IND Application. Human clinical trials in the U.S.United States cannot commence until an IND application is submitted and becomes effective. A company must submit preclinical testing results to the FDA as part of the IND application, and the FDA must evaluate whether there is an adequate basis for testing the drug in initial clinical studies in human volunteers. Unless the FDA raises concerns, the IND application becomes effective 30 calendar days following its receipt by the FDA. Once human clinical trials have commenced, the FDA may stop the clinical trials by placing them on “clinical hold” because of concerns about the safety of the product being tested, or for other reasons.
Clinical Trials. Clinical trials involve the administration of the drug to healthy human volunteers or to patients, under the supervision of a qualified investigator. The conduct of clinical trials is subject to extensive regulation, including compliance with the FDA’s bioresearch monitoring regulations and Good Clinical Practice, or GCP requirements, which establish standards for conducting, recording data from and reporting the results of, clinical trials, and are intended to assure that the data and reported results are credible and accurate, and that the rights, safety, and well-being of study participants are protected. Clinical trials must be conducted under protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated. Each protocol is reviewed by the FDA as part of the IND application. In addition, each clinical trial must be reviewed, approved, and conducted under the auspices of an institutional review board, or IRB, at the institution conducting the clinical trial. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol
and investigational plan, adequately monitoring the clinical trial and timely reporting adverse events. Foreign studies conducted under an IND application must meet the same requirements that apply to studies being conducted in the U.S.United States. Data from a foreign study not conducted under an IND application may be submitted in support of an NDA if the study was conducted in accordance with GCP and the FDA is able to validate the data.
A study sponsor is required to submit certain details about active clinical trials and clinical trial results to the National Institutes of Health for public posting on http://clinicaltrials.gov. Human clinical trials typically are conducted in three sequential phases, although the phases may overlap with one another:
•Phase 1 clinical trials include the initial administration of the investigational drug to humans, typically to a small group of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase 1 clinical trials generally are intended to determine the metabolism and pharmacologic actions of the drug, the side effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness.
•Phase 2 clinical trials generally are controlled studies that involve a relatively small sample of the intended patient population, and are designed to develop data regarding the product’s effectiveness, to determine dose response and the optimal dose range and to gather additional information relating to safety and potential adverse effects.
•Phase 3 clinical trials are conducted after preliminary evidence of effectiveness has been obtained, and are intended to gather the additional information about safety and effectiveness necessary to evaluate the drug’s overall risk-benefit profile, and to provide a basis for physician labeling. Generally, Phase 3 clinical development programs consist of expanded, large-scale studies of patients with the target disease or disorder to obtain statistical evidence of the efficacy and safety of the drug, or the safety, purity, and potency of a biological product, at the proposed dosing regimen.
The sponsoring company, the FDA or the IRB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Further, success in early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit or prevent regulatory approval.
The FDA and IND application sponsor may agree in writing on the design and size of clinical trials intended to form the primary basis of an effectiveness claim in an NDA application. This process is known as a Special Protocol Assessment, or SPA. These agreements may not be changed after the clinical trials begin, except in limited circumstances. The existence of a SPA, however, does not assure approval of a product candidate. For additional information relating to drug development, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
Drug Approval
Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical trials, together with other detailed information, including information on the manufacture and composition of the investigational product, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The testing and approval process requires substantial time, effort and financial resources. Submission of an NDA requires payment of a substantial review user fee to the FDA. The FDA will review the application and may deem it to be inadequate to support commercial marketing, and there can be no assurance that any product approval will be granted on a timely basis, if at all. The FDA may also seek the advice of an advisory committee, typically a panel of clinicians practicing in the field for which the product is intended, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee. We are not permitted to market our drugs in the United States until we receive approval of an NDA from the FDA.
The FDA has various programs, including breakthrough therapy, fast track, priority review and accelerated approval, that are intended to expedite or simplify the process for reviewing drugs and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those that provide meaningful benefit over existing treatments. We cannot be sure that any of our drugs will qualify for any of these programs, or that, if a drug does qualify, the review time will be reduced or the product will be approved.
Before approving a NDA, the FDA usually will inspect the facility or the facilities where the product is manufactured, tested and distributed and will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA may issue an approval letter, or in some cases, a complete response letter. A complete response letter contains a number of conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of approval, the FDA may
require post-marketing testing and surveillance to monitor the product’s safety or efficacy, or impose other post-approval commitment conditions.
In some circumstances, post-marketing testing may include post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, which are used primarily to gain additional experience from the treatment of patients in the intended population, particularly for long-term safety follow-up. In addition, the FDA may require a Risk Evaluation and Mitigation Strategy, or REMS, to ensure that the benefits outweigh the risks. A REMS can include medication guides, physician communication plans and elements to assure safe use, such as restricted distribution methods, patient registries or other risk mitigation tools.
After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical trials be conducted. For additional information relating to drug development, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
Post-Approval FDA Requirements
Holders of an approved NDA are required to: (i) report certain adverse reactions to the FDA; (ii) comply with certain requirements concerning advertising and promotional labeling for their products; and (iii) continue to have quality control and manufacturing procedures conform to cGMP after approval. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing and distribution facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the area of production, quality control and distribution to maintain cGMP compliance. Future FDA inspections may identify compliance issues at manufacturing facilities that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market.
Marketing of prescription drugs is also subject to significant regulation through federal and state agencies tasked with consumer protection and prevention of medical fraud, waste and abuse. After approval in the U.S., we must comply with FDA’s regulation of drug promotion and advertising, including restrictions on off-label promotion, and we comply with federal anti-kickback statutes, limitations on gifts and payments to physicians and reporting of payments to certain third parties, among other requirements.
Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as clinical holds, FDA refusal to approve pending NDAs or supplemental applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution. For additional information relating to post-approval requirements, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
Advertising and Promotion
Under the FDCA and other laws, we are prohibited from promoting our products for off-label uses, or uses not approved by the FDA. This means that in the U.S., we may not make claims about the safety or effectiveness of our products and may not proactively discuss or provide information on the uses of our products that are not approved by the FDA, unless otherwise allowed by the FDA by policy or other guidance. Marketing of prescription drugs is also subject to additional laws and regulations through federal and state agencies tasked with consumer protection. After approval in the U.S., we must comply with these law and regulations, as well as FDA’s regulation of drug promotion and advertising, including restrictions on off-label promotion. For additional information relating to restrictions related to advertising and promotion, see Part I, Item 1A, Risk Factors in this Annual Report on Form 10-K.
Health Care Fraud and Abuse
If we receive approval for one or more of our products in the United States, our operations and business arrangements with third-parties (including but not limited to researchers, healthcare professionals, consultants, payors, and customers) will be subject to additional healthcare laws, regulations and enforcement by federal and state governments in the United States. Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, price reporting, and physician sunshine laws.
Anti-Kickback Laws
The Anti-Kickback Statute prohibits companies and individuals from offering, paying, soliciting, or receiving remuneration to induce or reward referrals of business that will be paid for by federal health care programs, such as Medicare and Medicaid. We are also required to comply with other state anti-kickback statutes and other limitations on gifts and payments to physicians and reporting of payments to certain third parties, among other requirements. Failure to abide by anti-kickback statutes can result in civil and criminal enforcement actions and/or sanctions. Likewise, federal and state false claims laws, including the federal False Claims Act and similar state statutes, prohibit knowingly submitting, or causing to be submitted, false claims or false or fraudulent statements material to a false claim to government health care programs. Pharmaceutical companies are frequent targets of false claims lawsuits, which may result in treble damages, penalties, and potential exclusion from participation in government healthcare programs. The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Anti-kickback laws, false claims laws, and civil monetary penalty statutes often overlap and may also be enforced in conjunction. Some of our pre-commercial activities are subject to these laws. For additional information relating to our obligations under health care fraud and abuse laws, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act of 1977, or FCPA, and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The United States Department of Justice and Securities and Exchange Commission jointly enforce the FCPA, and those agencies have, in recent years, emphasized FCPA enforcement against pharmaceutical companies.
In some countries, we may interact with health care professionals or other officials that meet the definition of a foreign government official for the purposes of the FCPA. We are subject to the FCPA’s prohibitions against unauthorized payments or offers of payments by our employees or agents. If we were determined to have violated the FCPA, we could be subject to substantial fines, penalties, and other legal or equitable sanctions. For additional information relating to our obligations under the FCPA and anti-bribery laws, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
Third-Party Reimbursement
The coverage and reimbursement status of our products, if and when approved, is subject to significant uncertainty. Sales of and revenue from our products will depend on coverage and reimbursement decisions by third-party payors, including government health programs, managed care organizations, and private health insurers. Prices at which we or our customers seek reimbursement for our products can be subject to challenge, reduction, or denial by payors. Government health programs, private insurers, are increasingly trying to reduce the costs of pharmaceuticals, and any future legislative, regulatory, or contractual developments could affect the coverage and reimbursement status of our products, if and when approved. For additional information relating to product reimbursement, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
Data Privacy and Protection
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and implementing regulations, create requirements relating to the privacy and security of individually identifiable health information. HIPAA regulations govern the manner in which certain health information may be used and disclosed, and require the adoption of administrative, physical, and technical safeguards to protect such information. HIPAA and HITECH requirements are applicable to covered entities, which are (1) health plans, (2) health care clearinghouses, and (3) health care providers who electronically transmit certain health information. Those requirements are also applicable, in many instances, to business associates of covered entities. In some cases, depending on our business operations and contractual agreements, including through the conduct of clinical trials, we are subject to HIPPA requirements. Non-compliance with these laws and regulations can result in significant fines, penalties, damages, loss of goodwill or business opportunities, and reputational harm. There are also additional federal, state, and local privacy laws and regulations in the U.S. that may apply to us now or in the future and that require that we take measures to protect the privacy and security of certain information we gather and use in our business. For example, in June 2018, California enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020. The law requires businesses collecting information about California consumers to disclose what personal information is collected about a consumer and the purposes for which that personal information is used, disclose what personal information is sold or shared for a business purpose, and to whom, and delete information or stop selling such information upon request (subject to exceptions). For additional information relating to our obligations under data privacy laws, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.
Non-U.S. Regulation
Before our medicinal products can be marketed outside of the U.S.,United States, they aremust be subject to regulatory approval similar to that required in the U.S., although theUnited States. The requirements governing the conduct of clinical trials, including requirements to conduct additional clinical trials, that may be required, product licensing, safety reporting, post-authorization requirements, marketing and promotion, interactions with healthcare professionals, pricing and reimbursement may vary widely from country to country. No action can be taken to market any product in a country until an appropriate approval application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product.
Conduct of clinical trials in the European Union
Similar to the United States, the various phases of non-clinical and clinical research in the European Union are subject to significant regulatory controls. Although EU Clinical Trials Directive 2001/20/EC, or the Clinical Trials Directive, has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the European Union, EU Member States have transposed and applied the provisions of the Clinical Trials Directive in a manner that is not always uniform. This has led to variations in the rules governing the conduct of clinical trials in the individual EU Member States. The European Union has, therefore, adopted Regulation (EU) No 536/2014, or the Clinical Trials Regulation. The Clinical Trials Regulation, which will replace the Clinical Trials Directive, introduces a complete overhaul of the existing regulation of clinical trials for medicinal products in the European Union, including a new coordinated
procedure for authorization of clinical trials that is reminiscent of the mutual recognition procedure for marketing authorization of medicinal products, and increased obligations on sponsors to publish clinical trial results. The effectiveness of the Clinical Trials Regulation has been postponed several times due to technical difficulties with the underlying IT systems that are still ongoing. Currently it is expected to become effective in December 2021.
Clinical trials must currently be conducted in accordance with the requirements of the Clinical Trials Directive and applicable good clinical practice standards, as implemented into national legislation by the individual EU Member States. Under the current regime, before a clinical trial can be initiated it must be approved in each EU Member State where there is a site at which the trial is to be conducted by two separate entities: the National Competent Authority, or NCA, and one or more Ethics Committees. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial must be reported to the NCA and to the Ethics Committees of the EU Member State where they occur.
In the E.U.,European Union, pediatric data or an approved Pediatric Investigation Plan, or PIP, or deferral or waiver, must be approved by the European Medicines Agency, or EMA, prior to submission of a marketing authorization application to the EMA or to the competent authorities of the EU Member States; an application must include the results of studies as described in an approved PIP, unless the medicine is exempt because of a deferral or waiver. In most EU countries, companies are also required to have an approved PIP before enrolling pediatric patients in a clinical trial.
Marketing authorization procedures in the European Union and post-marketing obligations
In the European Union, medicinal products may only be placed on the market after a related marketing authorization, or MA, has been granted. Marketing authorizations for medicinal products can be obtained through several different procedures founded on the same basic regulatory process. These are through the centralized procedure, the mutual recognition procedure, the decentralized procedure, or a national procedure (for medicinal products sold in a single EU Member State only). The centralized procedure is mandatory for certain medicinal products, including orphan medicinal products, medicinal products derived from certain biotechnological processes, advanced therapy medicinal products and certain other new medicinal products containing a new active substance for the treatment of certainAIDS, cancer, neurodegenerative disorders, diabetes, autoimmune and viral diseases. It is optional for certain othermedicinal products includingcontaining a new active substance that is not yet authorized in the European Economic Area, or the EEA, and for medicinal products that areconstitute significant therapeutic, scientific or technical innovations, or whosefor which grant of a marketing authorization through the centralized procedure would be in the interest of publicpatients or animal health.health at EU level. The centralized procedure allows a company to submit a single application to the EMA which will provide a positive opinion regarding the application if it meets certain quality, safety, and efficacy requirements. Based on the positive opinion of the Committee for Medicinal Products for Human Use, or CHMP, at EMA, the European Commission takes ahas final decisionauthority for granting the marketing authorization within 67 days after receipt of the CHMP opinion to grant a centralized marketing authorization which is valid in all 28 E.U.EU Member States and three of the four European Free Trade Association, statesor EFTA countries (Iceland, Liechtenstein and Norway).
Unlike the centralizedThe decentralized authorization procedure the decentralized marketingpermits companies to file identical applications for authorization procedure requires a separate application to and leads to separate approval by, the competent authorities of each E.U.in several EU Member StateStates simultaneously for a medicinal product that has not yet been authorized in which the product is to be marketed. One national competent authority selected by the applicant, the Referenceany EU Member State, assesses the application for marketing authorization. Following a positive opinion by theState. The competent authority of the Referencea single EU Member State, the reference member state, is appointed to review the application and provide an assessment report. The competent authorities of the other E.U.EU Member States, Concerned Member Statesthe concerned member states, are subsequently required to grant marketing authorization for their territoryterritories on the basis of this assessment exceptassessment. The only exception to this is where groundsthe competent authority of an EU Member State considers that there are concerns of potential serious risk to public health requirerelated to authorization of the product. In these circumstances the matter is submitted to the Heads of Medicines Agencies, or CMDh, for review. The mutual recognition procedure allows companies that have a medicinal product already authorized in one EU Member State to apply for this authorization to be refused. The mutual recognition procedure is similarly based on the acceptancerecognized by the competent authorities of the Concernedin other EU Member States of the marketing authorization of a medicinal product by the competent authorities of other Reference Member States.The holder of a national marketing authorization granted byprocedure is founded on the same basic EU regulatory process as the other marketing authorization procedures discussed herein. The national marketing authorization procedure, which is increasingly rare, permits a Reference Member State maycompany to submit an application to the competent authority of a Concernedsingle EU Member State requesting that this authority mutually recognize theand, if successful, to obtain a marketing authorization deliveredthat is valid only in this EU Member State.
The maximum timeframe for the evaluation of a marketing authorization application in the European Union is 210 days, subject to extension if additional questions need to be addressed. The initial marketing authorization granted in the European Union is valid for five years. The authorization may be renewed and remain valid for an unlimited period unless the national competent authority or the European Commission decides on justified grounds to proceed with one additional five year renewal period; applications for renewal must be made to the EMA at least nine months before the five-year period expires. The renewal of a marketing authorization is subject to a re-evaluation of the risk-benefit balance of the product by the national competent authority ofauthorities or the Reference Member State.EMA.
Similar to accelerated approval regulations in the U.S.,United States, conditional marketing authorizations can be granted in the E.U.European Union by the European Commission in exceptional circumstances. A conditional marketing authorization can be granted for medicinal products where, a number of criteria are fulfilled; i) although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not been supplied, a number of criteria are fulfilled; i) the benefit/risk balance of the product is positive, ii) it is likely that the applicant will be in a position to provide the comprehensive clinical data, iii) unmet medical needs will be fulfilled by the grant of the marketing authorization and iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization must be renewed annually. Under the provisions of the conditional marketing authorization for PIXUVRI, our former product candidate, we arewere required to complete a post-marketing Phase 3 study to further investigate the effects of using PIXUVRI in a defined group of patients who had received prior treatment with rituximab. We submitted the related clinical study report to the EMA in November 2018.
In the European Union, innovative medicinal products that are subject to marketing authorization on the basis of a full dossier and which do not fall within the scope of the concept of global marketing authorization qualify for eight years of data exclusivity upon marketing authorization and ten years of market exclusivity. The eight years' data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data in assessing an application for authorization of a generic or biosimilar medicinal product for eight years from the data of authorization of the innovative product. After this period has expired a generic or biosimilar marketing authorization application may be submitted, and the innovator’s data may be referenced in the application. However, even if the generic product or biosimilar products is authorized it cannot be marketed in the European Union during the ten year marketing exclusivity period. This market exclusivity period may be extended for a further year to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
Pricing and reimbursement in the European Union
Even if a product receivesis subject to a marketing authorization in the E.U.,European Union, there can be no assurance that reimbursement for such product will be secured on a timely basis or at all. Individual countries comprising theThe EU member states, rather than the EU, have jurisdiction across the region over patient reimbursement or pricing matters. Therefore, we will need to expend significant effort and expense to establish and maintain reimbursement arrangements in the various countries comprising the E.U. and may never succeed in obtaining widespread reimbursement arrangements therein.
The national authorities of the individual E.U. Member States are freehave the power to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use. Some E.U.An EU Member States adopt policies according to whichState may approve a specific price or level of reimbursement is approved for the medicinal product. Other E.U. Member StatesAlternatively, it may adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market, including volume-based arrangementsmarket.
In a number of EU Member States we may be subject to cost-cutting measures, such as lower maximum prices, lower or lack of reimbursement coverage and reference pricing mechanisms.
incentives to use cheaper, usually generic, products as an alternative. Health Technology Assessment, or HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some E.U. Member States. These E.U.EU Member States, include the U.K, France, Germany and Sweden.including countries representing major markets. The HTA process, which is governed by the national laws of these countries, is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted.conducted; ultimately, HTA measures the added value of a new health technology compared to existing ones. The extentoutcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to whichthese medicinal products by the competent authorities of individual EU Member States. On January 31, 2018, the European Commission adopted a proposal for a regulation on health technologies assessment. This legislative proposal is intended to boost cooperation among EU Member States in assessing health technologies, including new medicinal products, and providing the basis for cooperation at the EU level for joint clinical assessments in these areas. The proposal provides that EU Member States will be able to use common HTA tools, methodologies, and procedures across the European Union, working together in four main areas, including joint clinical assessment of the innovative health technologies with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU Member States will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement. The European Commission has stated that the role of the draft HTA regulation is not to influence pricing and reimbursement decisions are influenced byin the individual EU Member States, but there can be no assurance that the draft HTA ofregulation will not have effects on pricing and reimbursement decisions.
Therefore, we will need to expend significant effort and expense to establish and maintain reimbursement arrangements in the specific medicinal product vary between E.U. Member States.various countries comprising the European Union and may never succeed in obtaining widespread reimbursement arrangements therein.
Post-Approval Regulation
SimilarlySimilar to the U.S.,United States, both marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission and the competent authorities of the individual E.U.EU Member States both before and after grant of the manufacturing and marketing authorizations. Failure by us or by any of our third-party partners, including suppliers, manufacturers and distributors to comply with E.U.EU laws and the related national laws of individual E.U.EU Member States governing the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal products and marketing of such products, both before and after grant of marketing authorization, may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.
The holder of an E.U.EU marketing authorization for a medicinal product must also comply with E.U.EU pharmacovigilance legislation and its related regulations and guidelines, which entail many requirements for conducting pharmacovigilance, or the assessment and monitoring of the safety of medicinal products. These rules can impose on centralholders of marketing authorization
holders for medicinal products granted through the centralized marketing authorization procedure the obligation to conduct a labor intensive collection of data regarding the risks and benefits of marketed medicinal products and to engage in ongoing assessments of those risks and benefits, including the possible requirement to conduct additional clinical studies or post-authorization safety studies to obtain further information on a medicine's safety, or to measure the effectiveness of risk-management measures, which may be time consuming and expensive and could impact our profitability. Non-complianceMarketing authorization holders are required to prepare Periodic Safety Update Reports in relation to medicinal products for which they hold marketing authorizations. The EMA reviews Periodic Safety Update Reports for medicinal products authorized through the centralized procedure. If the EMA has concerns that the risk benefit profile of a product has varied, it can adopt an opinion advising that the existing marketing authorization for the product be suspended, withdrawn or varied. The Agency can advise that the marketing authorization holder be obliged to conduct post-authorization Phase IV safety studies. The EMA opinion is submitted to the European Commission for its consideration. If the Commission agrees with suchthe opinion, it can adopt a decision varying the existing marketing authorization. Failure by the marketing authorization holder to fulfill the obligations for which the European Commission's decision provides can undermine the on-going validity of the marketing authorization.
More generally, non-compliance with pharmacovigilance obligations can lead to the variation, suspension or withdrawal of the marketing authorization for the product or imposition of financial penalties or other enforcement measures. In the E.U., PIXUVRI's label includes an inverted black triangle, which indicates that it is subject to additional monitoring, as a condition of authorization of PIXUVRI.
The manufacturing process for medicinal products in the E.U.European Union is highly regulated and regulators may shut down manufacturing facilities that they believe do not comply with regulations. Manufacturing requires a manufacturing authorization, and the manufacturing authorization holder must comply with various requirements set out in the applicable E.U.EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with E.U.EU cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the E.U.European Union with the intention to import the active pharmaceutical ingredients into the E.U.European Union. Similarly, the distribution of medicinal products into and within the E.U.European Union is subject to compliance with the applicable E.U.EU laws, regulations and guidelines, including the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the E.U.EU Member States.
We and our third-party manufacturers are subject to cGMP, which are extensive regulations governing manufacturing processes, stability testing, record keeping, and quality standards as defined by the EMA, the European Commission, the competent authorities of E.U.EU Member States and other regulatory authorities. The EMA reviews Periodic Safety Update Reports forCompanies may be subject to civil, criminal or administrative sanctions. These include suspension of manufacturing authorization in case of non-compliance with the EU or EU Member States’ requirements governing the manufacturing of medicinal products authorized in the E.U. If the EMA has concerns that the risk benefit profile of a product has varied, it can adopt an opinion advising that the existing marketing authorization for the product be suspended or varied and can advise that the marketing authorization holder be obliged to conduct post-authorization safety studies. The EMA opinion is submitted for approval by the European Commission. Failure by the marketing authorization holder to fulfill the obligations for which the approved opinion provides can undermine the on-going validity of the marketing authorization.
products.
Sales and Marketing Regulations
In the E.U.,European Union, the advertising and promotion of our products are subject to E.U.EU Member States’ laws governing promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other legislation adopted by individual E.U.EU Member States may apply to the advertising and promotion of medicinal products. These laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. Promotion of a medicinal product that does not comply with the SmPC is considered to constitute off-label promotion. The off-label promotion of medicinal products is prohibited in the E.U..European Union. The applicable laws at E.U.EU level and in the individual E.U.EU Member
States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of medicinal products in the E.U.European Union could be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public and may also impose limitations on our promotional activities with health care professionals.
Anti-Corruption Legislation
Our business activities outside of the U.S.United States are subject to anti-bribery or anti-corruption laws, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct or rules of other countries in which we operate, including the U.K. Bribery Act of 2010.
Interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct developed at both E.U.EU level and in the individual E.U.EU Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited in the E.U..European Union. Violation of these laws could result in substantial fines and imprisonment. Payments made to physicians in certain E.U.EU Member States also must be publicly disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician’s employer, his/her competent professional organization, and/or the competent authorities of the individual E.U.EU Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
Data Privacy and Protection
Data protection laws and regulations have been adopted at E.U.the EU level with related implementing laws in individual E.U.EU Member States which impose significant compliance obligations. For example, the E.U.EU General Data Protection Directive, as implementedRegulation, which entered into national laws by the E.U. Member States,force in May 2018, imposes strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting.reporting and provides for significant monetary and other sanctions in the case of non-compliance.
As the General Data Protection Regulation entered into force recently, guidance on implementation and compliance practices are still being developed, updated or otherwise revised. Although the General Data Protection Regulation is intended to provide for a high level of harmonization across the EU, Member States may still implement certain variations, and data protection authorities may enforce the General Data Protection Regulation and national laws differently, which adds to the complexity of processing personal data in the European Union.
Furthermore, there is a growthtrend towards the public disclosure of clinical trial data in the E.U.European Union which also adds to the complexity of processing health data from clinical trials. Such public disclosure obligations are provided in the new E.U.EU Clinical Trials Regulation (which is replacing the EU Clinical Trials Directive), EMA disclosure initiatives, and voluntary commitments by industry. Data protection authorities from the different E.U. Member States may interpret the E.U. Data Protection Directive and national laws differently, which adds to the complexity of processing personal data in the E.U., and guidance on implementation and compliance practices are often updated or otherwise revised.industry, among other sources. Failing to comply with these lawsobligations could lead to government investigations, enforcement actions and significant penalties against us, harm to our reputation, and adversely impact our business and operating results. Apart from exceptional circumstances,The uncertainty regarding the E.U.interplay between different regulatory frameworks, such as the Clinical Trials Regulation and the General Data Protection Directive prohibitsRegulation, further adds to the transfer of personal datacomplexity that we face with regard to countries outside of the European Economic Area, that are not considered by the European Commission to provide an adequate level of data protection including the U.S.regulation.
Consequences of Non-Compliance
Failure to comply with applicable requirements may subject us to administrative or judicial sanctions, such as clinical holds, refusal of regulatory authorities to approve or authorize pending product applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, financial penalties and/or criminal prosecution.
Environmental Regulation
In connection with our research and development activities, we are subject to federal, state and local laws, rules, regulations and policies, both internationally and domestically, governing the use, generation, manufacture, storage, air emission, effluent discharge, handling, treatment, transportation and disposal of certain materials, biological specimens and wastes and employee safety and health matters. Although we believe that we have complied with these laws, regulations and policies in all material respects and have not been required to take any significant action to correct any noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research
and development involves the controlled use of hazardous materials, including, but not limited to, certain hazardous chemicals and radioactive materials. Although we believe that our safety procedures for handling and disposing of such materials comply with applicable law and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability not covered by insurance could exceed our resources. See the risk factor, “We may be subject to claims relating to improper handling, storage or disposal of thesehazardous materials.” in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for additional information regarding the risks and uncertainties we face due to the use of hazardous materials.
Employees
As of December 31, 2017,2020, we employed 5723 individuals, in the U.S., including 1 employee at our majority-owned subsidiary Aequus Biopharma, Inc., or Aequus, and 1 employee in Italy.22 of whom were full-time. Our U.S. employees do not have a collective bargaining agreement. Our employee in Italy is subject to a collective bargaining agreement. We believe our relations with our employees are good.
Corporate Information
We were incorporated in Washington in 1991. In May 2014, we changed our name from “Cell Therapeutics, Inc.” to “CTI BioPharma Corp.” We completed our initial public offering in 1997 and our shares are listed on The NASDAQ Capital Market in the U.S. where our symbol is CTIC. On January 24, 2018, we changed our state of incorporation from the State of Washington to the State of Delaware by merging the Company with and into its wholly-owned Delaware subsidiary named CTI Biopharma Corp. and delisted the Company from Borsa Italiana’s Main Market, or MTA. Our principal executive offices are located at 3101 Western Avenue, Suite 800, Seattle, Washington 98121. Our telephone number is (206) 282-7100. Our website address is http://located at www.ctibiopharma.com. We may post; however, the information in, or that is important to investors on our website. However, information found oncan be accessed through, our website is not incorporated by reference intopart of this Annual Report on Form 10-K. “CTI BioPharma”, “PIXUVRI” and “Opaxio” are our proprietary marks. All other product names, trademarks and trade names referred to in this Annual Report on Form 10-K are the property of their respective owners. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after each is electronically filed with, or furnished to, the SEC.
In addition, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov)an Internet site that contains reports, proxy and information statements, and other information regarding registrants, including the Company,reports that we file or furnish electronically with the SEC.them at www.sec.gov.
This Annual Report on Form 10-K includes our trademarks and registered trademarks, including “CTI BioPharma.” Each other trademark, trade name or service mark appearing in this Annual Report on Form 10-K belongs to its holder.
Item 1A. Risk Factors
This Annual Report on Form 10-Kreport contains forward-looking statements that involve risks and uncertainties. The occurrence of any of the risks described below and elsewhere in this document including the risk that our actual results may differ materially from those anticipated in these forward-looking statements, could materially adversely affect our business, financial condition, liquidity, operating results or prospects and the trading price of our securities. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also harm our business, financial condition, operating results and prospects and the trading price of our securities.
Factors AffectingRisks Related to Our Business Financial Condition, Operating Results and Prospects
We will need to raise additional funds to operate our business, but additional funds may not be available on acceptable terms, or at all. Any inability to raise required capital when needed could harm our liquidity, financial condition, business, operating results and prospects.
We have substantial operating expenses associated with the development of our compounds and the commercialization of PIXUVRI, and we have significant contractual payment obligations. Our available cash, cash equivalents and restricted cash were $43.2 million as of December 31, 2017. In February 2018, we received approximately $64.2 million in net proceeds from the public offering of common stock as discussed in Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 21. Subsequent Events," which is incorporated herein by reference. In addition, we received a $10.0 million milestone payment from Teva Pharmaceutical Industries Ltd. relating to the achievement of a milestone for FDA approval of TRISENOX for first line treatment of acute promyelocytic leukemia. We believe that our present financial resources, together with payments projected to be received under certain of our contractual agreements and our ability to control costs, will be sufficient to fund our operations through the first quarter of 2020. However, cash forecasts and capital requirements are subject to change as a result of a variety of risks and uncertainties. Developments in and expenses associated with our clinical trials and other research and development activities, including the resumption of primary responsibilities for the development and commercialization of pacritinib as a result of the termination of the Pacritinib License Agreement in October 2016, acquisitions of compounds or other assets, our ability to generate projected sales of PIXUVRI, any expansion of our sales and marketing organization for PIXUVRI, regulatory approval developments, our ability to consummate appropriate collaborations for development and commercialization activities, our ability to reach milestones triggering payments under applicable contractual arrangements, receive the associated payments, litigation and other disputes, competitive market developments and other unplanned expenses or business developments may consume capital resources earlier than planned. Due to these and other factors, any forecast for the period for which we will have sufficient resources to fund our operations, as well as any other operational or business projection we have disclosed, or may, from time to time, disclose, may fail.
On November 28, 2017, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB, the proceeds of which was partially used to repay in full all outstanding indebtedness under our Loan and Security Agreement, dated March 26, 2013, as amended, with Systems Medicine LLC and Hercules Technology Growth Capital, Inc., or Hercules, (and certain of its affiliates). As of December 31, 2017, we had an outstanding principal balance under our senior secured term loan agreement of $16.0 million. We have an option to borrow an additional $2.0 million through July 31, 2018, subject to the satisfaction of certain conditions, which if borrowed would increase our outstanding principal balance. We are required to make monthly interest only payments for at least 12 months after closing, through November 1, 2018, which period of interest-only payments may be extended to 18 months upon the occurrence of a certain milestone event, in the approximate amount of $0.1 million per month. After the initial 12-month interest-only period, we are required to pay interest plus principal payments for 36 months, in the approximate amount of $0.5 million per month, with the final principal plus interest payment of approximately $0.4 million as well as a back-end fee of $1.4 million on November 1, 2021. These borrowings are secured by a first priority security interest on substantially all of our personal property except our intellectual property and subject to certain other exceptions. In addition, the senior secured term loan agreement requires us to comply with restrictive covenants, including those that limit our operating flexibility and ability to borrow additional funds. A failure to make a required loan payment or an uncured covenant breach could lead to an event of default, and in such case, all amounts then outstanding may become due and payable immediately.
We may need to acquire additional funds in order to develop our business. We may seek to raise such capital through public or private equity financings, partnerships, collaborations, joint ventures, disposition of assets, debt financings or restructurings, bank borrowings or other sources of financing. However, our ability to do so is subject to a number of risks, uncertainties, constraints and consequences, including, but not limited to, the following:
•our ability to raise capital through the issuance of additional shares of our common stock or convertible securities is restricted by the limited number of our residual authorized shares, the potential difficulty of obtaining shareholder approval to increase authorized shares and the restrictive covenants under our senior secured term loan agreement;
•issuance of equity-based securities will dilute the proportionate ownership of existing shareholders;
•our ability to obtain further funds from any potential loan arrangements is limited by our existing senior secured term loan agreement;
•certain financing arrangements may require us to relinquish rights to various assets and/or impose more restrictive terms than any of our existing or past arrangements; and
•we may be required to meet additional regulatory requirements, and we may be subject to certain contractual limitations, which may increase our costs and harm our ability to obtain funding.
For these and other reasons, additional funding may not be available on favorable terms or at all. If we fail to obtain additional capital when needed, we may be required to delay, scale back or eliminate some or all of our research and development programs, reduce our selling, general and administrative expenses, be unable to attract and retain highly qualified personnel, refrain from making our contractually required payments when due (including debt payments) and/or be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Any of these consequences could harm our business, financial condition, operating results and prospects.
We have in the past received and may in the future receive audit reports with an explanatory paragraph on our consolidated financial statements.
Our independent registered public accounting firm included an explanatory paragraph in its reports on our consolidated financial statements for each of the years ended December 31, 2007 through December 31, 2011 and for the years ended December 31, 2014 and 2016 regarding their substantial doubt as to our ability to continue as a going concern. Although our independent registered public accounting firm removed this going concern explanatory paragraph in its report on our December 31, 2017 consolidated financial statements, we expect to continue to need to raise additional financing to fund our operations and satisfy obligations as they become due. The inclusion of a going concern explanatory paragraph in future years may negatively impact the trading price of our common stock and make it more difficult, time consuming or expensive to obtain necessary financing, and we cannot guarantee that we will not receive such an explanatory paragraph in the future.
We expect to continue to incur net losses, and we may never achieve profitability.
We were incorporated in 1991 and have incurred a net operating loss every year since our formation. As of December 31, 2017,2020, we had an accumulated deficit of $2.2$2.3 billion, and we expect to continue to incur net losses. As part of our business plan, we will need to continue to conduct research, development, testing and regulatory compliance activities with respect to our compounds and ensure the procurement of manufacturing and drug supply services, the costs of which, together with projected general and administrative expenses, is expected to result in operating losses for the foreseeable future. There can be no assurances that we will ever achieve profitability.
In order to develop and commercialize pacritinib, we may need to raise additional financing or seek a new collaboration partner for pacritinib.
We have resumed primary responsibility forOur prospects are dependent on the successful development, regulatory approval and commercialization of pacritinib as a result of the termination of the Pacritinib License Agreement in October 2016, and we are no longer eligiblemay be unsuccessful in such efforts.
Our business and future success depends on our ability to receive cost sharing or milestone paymentssuccessfully develop, obtain regulatory approval for pacritinib’sand commercialize pacritinib. Pacritinib is our sole product candidate in active development from Baxalta. Because obtainingand has not yet received regulatory approval.
Obtaining regulatory approval requires substantial time, effort and financial resources, and without additional financing, we lack sufficient resources to pursue the terminationdevelopment of this collaborative partnership could negatively impact our ability to successfully develop and commercialize pacritinib. We currently have no commitments or arrangements for any significant additional financing to fund the development and commercial launch of pacritinib, and we maywill need to seek additional funding, which may not be available or may not be available on favorable terms. We could also seek another collaborative partnership for the development and commercialization of pacritinib, which may not be available on reasonable terms or at all.
If ourwe partner pacritinib, we may have to relinquish valuable economic rights and would potentially forgo additional economic benefits that could be realized if we continued the development and commercialization collaborationsactivities alone. Even if pacritinib receives approval from regulatory authorities for one or more indications, we would need to incur significant expenses to support the commercialization and launch of pacritinib, which investment may never be realized if sales are not successful,insufficient.
Our business could be adversely affected by the effects of health epidemics, including the recent COVID-19 global pandemic, in regions where third parties for which we rely, as in Clinical Research Organizations, or if we are unableCROs, have clinical trial sites or other business operations and may result in significant disruptions to enter into additional collaborations, we may not be able to effectively develop and/or commercialize our compounds,clinical trials, which could have a material adverse effect on our business.
Our business is heavily dependenthas been adversely affected and may continue to be adversely affected by the effects of health epidemics, including the ongoing worldwide COVID-19 pandemic, in regions where we have clinical trial sites or other business operations and has resulted in and may continue to result in significant disruptions to our clinical trials.On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of novel coronavirus originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO declared the coronavirus outbreak a pandemic, which virus has spread throughout the world, including to geographies where we are conducting the PACIFICA Phase 3 trial and the PRE-VENT Phase 3 trial. Further, the President of the United States declared the COVID-19 pandemic a national emergency. Similarly, numerous states have declared a state of emergency related to the spread of COVID-19 and/or issued executive orders directing all individuals living in their respective states to stay at their place of residence for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary activities) to mitigate the impact of the COVID-19 pandemic. These states and others have repeated and may continue to repeat these mitigation steps in the future. The spread of this pandemic has caused significant volatility and uncertainty in U.S. and international markets. This has resulted in an economic downturn and may disrupt our business and delay our clinical trials and timelines.
Quarantines, shelter-in-place and similar government orders have been enacted in each of the geographies in which we are conducting our clinical trials and such orders, shutdowns or other restrictions on the successconduct of business operations could
continue to remain in place for extended periods of time or subsequently reinstated, thereby further affecting our clinical trials. The patient populations that are eligible for our clinical trials are immune-compromised and are at higher risk for becoming infected with COVID-19. As COVID-19 affects the parts of the world where we are conducting our clinical trials, and the patients involved with these clinical trials become infected with COVID-19, we may have more adverse events and deaths in our clinical trials as a result.
We have faced and may continue to face difficulties enrolling patients in our clinical trials as the patient populations that are eligible for our clinical trials are impacted by COVID-19. Patient enrollment may be further delayed due to the diversion of healthcare resources, such as hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our development and commercialization collaborations. In particular, underclinical trials, away from the Restated Agreement with Servier, we rely heavily on Servierconduct of clinical trials, toward the COVID-19 pandemic.
Additionally, if our clinical trial patients are unable to collaborate with ustravel to develop and commercialize PIXUVRI. Asour clinical trial sites as a result of quarantines or other restrictions resulting from COVID-19, we may experience higher drop-out rates or delays in our dependenceclinical trials. Similarly, we may struggle to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19. Any such delays in enrollment hinder our ability to obtain clinical data on our relationship with Servier, the success or commercial viabilityschedule we currently predict.
Travel restrictions continue to be implemented throughout the world in an effort to contain COVID-19, and several countries have expanded screenings of PIXUVRI is, to a certain extent, beyond our control. travelers.
We are subject to a number of specific risks associated with our dependence on our collaborative relationship with Servier, including but not limitedmay experience additional disruptions due to the following: possible disagreements asCOVID-19 pandemic that could severely impact our business and clinical trials, including:
•evidence from the PRE-VENT Phase 3 trial showing increased adverse events in trial participants, which could affect the safety profile and/or acceptability of our application to the timing, natureFDA;
•delays in clinical sites receiving the supplies and extent of development plans for the respective compound, includingmaterials needed to conduct our clinical trials, or regulatory approval strategy; including interruption in global shipping that may affect the transport of clinical trial materials;
•changes in their respective personnel who are keylocal regulations as part of a response to the collaboration efforts; any changesCOVID-19 pandemic which may require us to change the ways in their respective business strategies adversewhich our clinical trials are conducted, which may result in unexpected costs, or to our interests, whetherdiscontinue the clinical trials altogether;
•interruption of key clinical trial activities, such as clinical trial site 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, the occurrence of which could affect the integrity of clinical trial data;
•delays in connectionnecessary interactions with a change of control or otherwise; possible disagreements regarding ownership of proprietary rights; the ability to meet our financiallocal regulators, ethics committees, and other contractual obligations under the respective agreements;important agencies and the possibilitycontractors due to limitations in employee resources or forced furlough of government employees;
•limitations in employee resources that Servier could elect to terminate their agreement with us pursuant to “at-will” termination clauses or breach their agreement with us. Furthermore, the contingent financial returns under our collaboration with Servier depends in large partwould otherwise be focused on the achievementconduct of development and commercialization milestones andour clinical trials, including because of sickness of employees or their families or the abilitydesire of employees to generate applicable product salesavoid contact with large groups of people;
•refusal of the FDA to trigger royalty payments. Therefore, our success, and any associated future financial returns to us and our investors, will depend in large part on the performance of Servier. If our existing collaborations fail, or if we do not successfully enter into additional collaborations when needed, we may be unable to further develop and commercialize the applicable compounds, generate revenues to sustain or grow our business or achieve profitability, which would harm our business, financial condition, operating results and prospects.
The regulatory approval process for pacritinib has been subject to delay and uncertainty associated with clinical holds placed on pacritinibaccept data from clinical trials in February 2016affected geographies; and
•interruption or delays to our sourced discovery and clinical activities.
The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the withdrawalduration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
The global pandemic of COVID-19 continues to rapidly evolve. The ultimate impact of the original MAA in Europe. WhileCOVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical holdtrials, healthcare systems or the global economy as a whole. However, any one or a combination of these events could have an adverse effect on pacritinibthe operation of and results from our clinical trials, has been removedwhich could prevent or delay us from obtaining approval for pacritinib.
We face direct and a new MAA has been validatedintense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfully against them.
Competition in the oncology market is intense and is accentuated by the EMA, our dose-exploration trial for pacritinibrapid pace of technological and further clinical trials for pacritinib could be subject to further delay orproduct development. We anticipate that we could be prevented from further studying pacritinib or seeking its commercialization.
On February 8, 2016, the FDA notified us that a full clinical hold had been placed on pacritinib and we subsequently withdrew our NDA for pacritinib until we determine next steps. A full clinical hold is a suspension of the clinical work requested under an investigational new drug application. Under the full clinical hold, all patients on pacritinib at the time the hold was placed were required to discontinue pacritinib, and we were not permitted to enroll any new patients or start pacritinib as initial or crossover treatment. In its written notification, the FDA noted interim overall survival results from PERSIST-2 showing a detrimental effect on survival consistent with the results from PERSIST-1, and that deaths in PERSIST-2 in pacritinib-treated patients include intracranial hemorrhage, cardiac failure and cardiac arrest. On January 3, 2017, the full clinical hold was removed. Our complete response submission included, among other items, final Clinical Study Reports for both PERSIST-1 and 2 trials and the dose-exploration clinical trial protocol requested by the FDA. In July 2017, we enrolled the first patientwill face increased competition in the PAC203 trial. We plan to enroll up to approximately 105 patients in our PAC203 trial with primary myelofibrosis who have failed prior ruxolitinib therapy to evaluatefuture as new companies enter the dose response relationship for safety and efficacy (spleen volume reduction at 12 or 24 weeks) of three dose regimens: 100 mg once-daily, 100 mg twice-daily (BID) and 200 mg BID. The 200 mg BID dose regimen was used in PERSIST-2. The trial is expected to enroll up to 105 patients. We enrolled our first patient in PAC203 in July 2017 and expect to complete enrollment by mid-2018. We expect to have interim data from PAC203 by the end of the second quarter of 2018 and full datamarket. Our competitors in the first quarter of 2019. The results of PAC203United States and elsewhere are numerous and include, among others, major multinational pharmaceutical companies, specialized biotechnology companies and universities and other research institutions. Specifically, if we are successful in bringing pacritinib to market for indications such as MF, AML, MDS, CMML, or CLL, pacritinib may not address all of the FDA’s concerns regarding appropriate safe and efficacious dosage for pacritinib, and the FDA may again request additional information or require us to pursue new clinical safety trials with changes to, among other things, protocol, study design or sample size.
Further, in the EMA’s initial assessment report regarding our original MAA, the CHMP determined that the current application was not approvable because of major objections in the areas of efficacy, safety (hematological and cardiovascular toxicity) and the overall risk-benefit profile of pacritinib. Subsequent to the filing of the original MAA, dataface competition from the second phase 3 trialcurrently approved JAK1/JAK2 inhibitors, Jakafi® / Jakavi® (ruxolitinib) and Inrebic® (fedratinib). In August 2019, Celgene (which was subsequently acquired by Bristol Myers Squibb) announced FDA approval of pacritinib, PERSIST-2, were reported. These data suggest that pacritinib may show clinical benefit in patients who have failed or are intolerant to ruxolinitib therapy, a population for which there is no approved therapy. Following discussions with the EMA about how PERSIST-2 data might address the major objections and how to integrate the data into the current application, we withdrew our original MAA, and we submitted a new MAA that seeks to address the major objections by including data from PERSIST-2. The new application isInrebic® for the treatment of adult patients with intermediate-2 or high-risk primary or secondary (post-polycythemia vera or post-essential thrombocythemia) myelofibrosis, who have thrombocytopenia (platelet counts less than 100,000 per microliter)and in February 2021 Bristol Myers Squibb announced the European Commission approval of Inrebic®. The new MAAPacritinib may also face competition from momelotinib, which Sierra Oncology acquired from Gilead. In June 2019, Sierra Oncology announced that momelotinib was validatedgranted fast track designation by the EMAFDA and launched a Phase 3 clinical trial in July 2017. Following discussions withNovember 2019. In addition, if we are successful in bringing pacritinib to market as a treatment to prevent progression to acute respiratory distress syndrome, or ARDS, and medical ventilation, we expect to face competition from numerous other companies that are currently pursuing clinical development programs for COVID-19 and related conditions.
In addition to the EMA about how PERSIST-2 data might address the major objections and how to integrate the data into the current application, we withdrew the original MAA, and submitted aspecific competitive factors discussed above, new applicationanti-cancer drugs or drugs for the treatment of patients with myelofibrosis who have thrombocytopenia (platelet counts less than 100,000 per microliter). The new MAA was validated by the EMA in July 2017. Validation confirmsCOVID-19 that the submission is complete and initiates the centralized review process by the CHMP. The CHMP review period is 210 days, excluding question or opinion response periods, after which the CHMP opinion is reviewed by the European Commission, which usually issues a
final decision on E.U. authorization within three months. If authorized, pacritinib would be granted a marketing license valid in all 28 E.U. member states, Norway, Iceland and Liechtenstein.
The submission of new marketing applications, complying with any additional requests for information from the FDA or EMA or making any changes to protocol, study design, or sample size may be time-consuming, expensiveunder development or developed and delay or prevent our ability to continue to study pacritinib. If we are unable to address any further recommendations, requests, or objections in a manner satisfactory to the FDA or EMA, as applicable, in a timely manner, or at all, we could be delayed or prevented from seeking commercialization of pacritinib. Delaysmarketed in the commercialization of pacritinib would prevent us from receiving future milestone or royalty payments, and otherwise significantly harmcould compete with our business.various compounds.
Compounds that appear promising in research and development may fail to reach later stages of development for a number of reasons, including, among others, that clinical trials may take longer to complete than expected or may not be completed at all, and top-line or preliminary clinical trial data reports may ultimately differ from actual results once existing data are more fully evaluated.
Successful development of anti-cancer and other pharmaceutical products is highly uncertain, and obtaining regulatory approval to market drugs to treat cancer is expensive, difficult and speculative. Compounds that appear promising in research and development may fail to reach later stages of development for several reasons, including, but not limited to:
•delay or failure in obtaining necessary U.S. and international regulatory approvals, or the imposition of a partial or full regulatory hold on a clinical trial;
•difficulties in formulating a compound, scaling the manufacturing process, timely attaining process validation for particular drug products and obtaining manufacturing approval;
•pricing or reimbursement issues or other factors that may make the product uneconomical to commercialize;
•production problems, such as the inability to obtain raw materials or supplies satisfying acceptable standards for the manufactureMany of our products, equipment obsolescence, malfunctionscompetitors, particularly multinational pharmaceutical companies, either alone or failures, product quality/contamination problems or changestogether with their collaborators, have substantially greater financial and technical resources and substantially larger development and marketing teams than us, as well as significantly greater experience than we do in regulations requiringdeveloping, commercializing, manufacturing, modifications;
•inefficient cost structure of a compound compared to alternative treatments;
•obstacles resulting from proprietary rights held by others with respect to a compound, such as patent rights;
•lower than anticipated rates of patient enrollment as a result of factors, such as the number of patients with the relevant conditions, the proximity of patients to clinical testing centers, eligibility criteria for testsmarketing and competition with other clinical testing programs;
•preclinical or clinical testing requiring significantly more time than expected, resources or expertise than originally expected and inadequate financing, which could cause clinical trials to be delayed or terminated;
•failure of clinical testing to show potential products to be safe and efficacious, and failure to demonstrate desired safety and efficacy characteristics in human clinical trials;
•suspension of a clinical trial at any time by us, an applicable collaboration partner or a regulatory authority on the basis that the participants are being exposed to unacceptable health risks or for other reasons;
•delays in reaching or failing to reach agreement on acceptable terms with prospective CROs, and trial sites; and
•failure of third parties, such as CROs, academic institutions, collaborators, cooperative groups and/or investigator sponsors, to conduct, oversee and monitor clinical trials and results.
In addition, from time to time, we report top-line data for clinical trials. Such data are based on a preliminary analysis of then-available efficacy and safety data, and such findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. Top-line or preliminary data are based on important assumptions, estimations, calculations and information then available to us to the extent we have had, at the time of such reporting, an opportunity to fully and carefully evaluate such information in light of all surrounding facts,
circumstances, recommendations and analyses.selling products. As a result, top-line results may differ from future results, or different conclusions or considerations may qualify such results once existing data have been more fully evaluated. In addition, third parties, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular compound and our business in general.
If the developmentproducts of our compounds is delayedcompetitors might come to market sooner or fails,might prove to be more effective, less expensive, have fewer side effects or if top-line or preliminary clinical trial data reported differ from actual results, our development costs may increasebe easier to administer than ours. In any such case, sales of any potential future product would likely suffer and we might never recoup the abilitysignificant investments we have made and will continue to commercialize our compounds may be harmed, which could harm our business, financial condition, operating results or prospects.
We or our collaboration partners may not obtain or maintain the regulatory approvals requiredmake to develop or commercialize some or all of ourand market these compounds.
We are subject to rigorous and extensive regulation by the FDA in the U.S. and by comparable agencies in other jurisdictions, including the EMA in the E.U. Some of our other product candidates are currently in research or development and, other than conditional marketing authorization for PIXUVRI in the E.U., we have not received marketing approval for our compounds. Our products may not be marketed in the U.S. until they have been approved by the FDA and may not be marketed in other jurisdictions until they have received approval from the appropriate foreign regulatory agencies. Each product candidate requires significant research, development and preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. Obtaining regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any of our products on a timely basis, or at all. For instance, on February 8, 2016, the FDA placed pacritinib on full clinical hold and the clinical hold was not removed until January 3, 2017. The number, size, design and focus of preclinical and clinical trials that will be required for approval by the FDA, the EMA or any other foreign regulatory agency varies depending on the compound, the disease or condition that the compound is designed to address and the regulations applicable to any particular compound. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. The FDA, the EMA and other foreign regulatory agencies can delay, limit or deny approval of a compound for many reasons, including, but not limited to:
•a compound may not be shown to be safe or effective;
•the clinical and other benefits of a compound may not outweigh its safety risks;
•clinical trial results may be negative or inconclusive, or adverse medical events may occur during a clinical trial;
•the results of clinical trials may not meet the level of statistical significance required by regulatory agencies for approval;
•such regulatory agencies may interpret data from pre-clinical and clinical trials in different ways than we do;
•such regulatory agencies may not approve the manufacturing process of a compound or determine that a third-party contract manufacturers manufactures a compound in accordance with current good manufacturing practices, or cGMPs;
•a compound may fail to comply with regulatory requirements; or
•such regulatory agencies might change their approval policies or adopt new regulations.
If our compounds are not approved at all or quickly enough to provide net revenues to defray our operating expenses, our business, financial condition, operating results and prospects could be harmed.
In the event that we seek and the FDA does not grant accelerated approval or priority review for a drug candidate, we would experience a longer time to commercialization in the U.S., if commercialized at all, our development costs may increase and our competitive position may be harmed.
We were seeking accelerated approval and requested Priority Review of our NDA for pacritinib. However, on February 8, 2016, the FDA notified us that a full clinical hold had been placed on pacritinib and we subsequently withdrew our NDA for pacritinib. On January 3, 2017, the full clinical hold was removed. In July 2017, we enrolled the first patient in a new trial, PAC203, and we plan to enroll up to approximately 105 patients with primary myelofibrosis who have failed
prior ruxolitinib therapy to evaluate the dose response relationship for safety and efficacy (spleen volume reduction at 12 and 24 weeks) of three dose regimens: 100 mg once-daily, 100 mg twice-daily (BID) and 200 mg BID. The 200 mg BID dose regimen was used in PERSIST-2.
We may in the future decide to seek accelerated approval pathway for our compounds. The FDA may grant accelerated approval to a product designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. A surrogate endpoint under an accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. There can be no assurance that the FDA will agree that any endpoint we suggest with respect to any of our drug candidates is an appropriate surrogate endpoint. Furthermore, there can be no assurance that any application will be accepted or that approval will be granted. Even if a product candidate is granted accelerated approval, such accelerated approval is contingent on the sponsor’s agreement to conduct one or more post-approval confirmatory trials. Such confirmatory trial(s) must be completed with due diligence and, in some cases, the FDA may require that the trial(s) be designed and/or initiated prior to approval. Moreover, the FDA may withdraw approval of a product candidate or indication approved under the accelerated approval pathway for a variety of reasons, including if the trial(s) required to verify the predicted clinical benefit of a product candidate fail to verify such benefit or do not demonstrate sufficient clinical benefit to justify the risks associated with the drug, or if the sponsor fails to conduct any required post-approval trial(s) with due diligence.
In the event of priority review, the FDA has a goal to (but is not required to) take action on an application within a total of eight months (rather than a goal of twelve months for a standard review). The FDA grants priority review only if it determines that a product treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness when compared to a standard application. The FDA has broad discretion whether to grant priority review, and, while the FDA has granted priority review to other oncology product candidates, our drug candidates may not receive similar designation. Moreover, receiving priority review from the FDA does not guarantee completion of review or approval within the targeted eight-month cycle or thereafter.
A failure to obtain accelerated approval or priority review would result in a longer time to commercialization of the applicable compound in the U.S., if commercialized at all, could increase the cost of development and could harm our competitive position in the marketplace.
Even if ourpacritinib or other compounds we may develop are successful in clinical trials and receive regulatory approvals, we or our collaboration partners may not be able to successfully commercialize them.
The development and ongoing clinical trials for ourpacritinib and other compounds we may develop may not be successful and, even if they are, the resulting products may never be successfully developed into commercial products.products or gain market acceptance among physicians, patients, healthcare payors or the medical community. Even if we are successful in our clinical trials and in obtaining other regulatory approvals, the respectiveour products may not reach or remain in the market for a number of reasons including:
•they may be found ineffective or causeincluding ineffectiveness, harmful side effects;
•they may be difficult to manufacture on a scale necessary for commercialization;
•they may experience excessive product loss due to contamination, equipment failure, inadequate transportation or storage, improper installation or operation of equipment, vendor or operator error, inconsistencyeffects, difficulty in yields or variability in product characteristics;
•they may be uneconomical to produce;
•scaling manufacturing, political and legislative changes, emerging after the recent election of the President of the United States may make the commercialization of our product candidates more difficult;
•we may fail to obtain reimbursement approvals or pricing that is cost effective for patients as compared tocompetition from other available forms of treatment or that covers the cost of production and other expenses;
•they may not compete effectively with existing or future alternatives;
•alternatives. In addition, we currently have limited commercialization expertise, including sales, marketing or distribution capabilities. Advancing pacritinib through Phase 3 development and regulatory approval will require us to begin commercialization preparation activities and incur related expenses before we obtain final trial results and know whether PACIFICA or PRE-VENT will support regulatory approval. If we are unable to adequately prepare the market for the potential future commercialization of pacritinib, we may be unable to develop commercial operations and to sell marketing rights;
•they may fail to achieve market acceptance; or
•we may be precluded from commercialization of a product due to proprietary rights of third parties.
In particular, with respect to the commercialization of PIXUVRI, we will be heavily dependent on our collaboration partner, Servier. The failure of Servier (or any other applicable collaboration partner) to fulfill its commercialization obligations with respect to a compound, or the occurrence of any of the events in the list above, could adversely affect the commercialization of our products. Additionally, uncertainty and speculation continue regarding the possible repeal of all or a portion of the Patient Protection and Affordable Care Act through legislative action, as well as possible changes to the regulations implemented under the Patient Protection and Affordable Care Act by the Department of Health and Human Services. The uncertainty this causes for the healthcare industry could also adversely affect the commercialization of our products. If we fail to commercialize products or if our future products do not achieve significant market acceptance, we will not likely generate significant revenues or become profitable.
The pharmaceutical business is subject to increasing government price controls and other restrictions on pricing, reimbursement and access to drugs, which could adversely affect our future revenues and profitability.
To the extent our products are developed, commercialized and successfully introduced to market, they may not be considered cost-effective and third-party or government reimbursement might not be available or sufficient. Globally, governmental and other third-party payors are becoming increasingly aggressive in attempting to contain health care costs by strictly controlling, directly or indirectly, pricing and reimbursement and, in some cases, limiting or denying coverage altogether on the basis of a variety of justifications, and we expect pressures on pricing and reimbursement from both governments and private payors inside and outside the U.S. to continue. In the U.S., we are subject to substantial pricing, reimbursement and access pressures from state Medicaid programs, private insurance programs and pharmacy benefit managers, and implementation of U.S. health care reform legislation is increasing these pricing pressures. The Patient Protection and Affordable Care Act instituted comprehensive health care reform, which includes provisions that, among other things, reduce and/or limit Medicare reimbursement and impose new and/or increased taxes. In addition, members of the Trump administration, including the President, have made public statements criticizing pricing practices within the pharmaceutical industry, indicating that they may seek to increase pricing pressures on the pharmaceutical industry.
In almost all European markets, pricing and choice of prescription pharmaceuticals are subject to governmental control. Therefore, the price of our products and their reimbursement in Europe is and will be determined by national regulatory authorities. Reimbursement decisions from one or more of the European markets may impact reimbursement decisions in other European markets. A variety of factors are considered in making reimbursement decisions, including whether there is sufficient evidence to show that treatment with the product is more effective than current treatments, that the product represents good value for money for the health service it provides and that treatment with the product works at least as well as currently available treatments. The continuing efforts of governments and insurance companies, health maintenance organizations and other payors of health care costs, to contain or reduce costs of health care may affect the availability of capital, as well as our future revenues and profitability or those of our potential customers, suppliers and collaborative partners.
We may never be able to generate significant product revenues from the sale of PIXUVRI.
We anticipate that, for at least the next several years, our ability to generate revenues and become profitable will depend, in part, on our ability and that of our collaborator, Servier, to successfully commercialize our only currently marketed product, PIXUVRI. PIXUVRI is not approved for marketing in the U.S., is presently available only in a limited number of countries and is reimbursed in even fewer countries.
In addition, the successful commercialization of PIXUVRI depends heavily on the ability to obtain and maintain favorable reimbursement rates for users of PIXUVRI, as well as on various additional factors, including, without limitation, the ability to:
•obtain an annual renewal of our conditionalrevenue once marketing authorization for PIXUVRI;is obtained.
•increase demand for and sales of PIXUVRI and obtain greater acceptance of PIXUVRI by physicians and patients;
•establish and maintain agreements with wholesalers and distributors on reasonable terms;
•maintain, and where necessary, enter into additional, commercial manufacturing arrangements with third parties, cost-effectively manufacture necessary quantities and secure distribution, managerial and other capabilities; and
•further develop and maintain a commercial organization to market PIXUVRI.
If we are unable or decide not to successfully commercialize PIXUVRIestablish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements on commercially reasonable terms, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
Pacritinib or other compounds we may develop may cause undesirable side effects or have other properties that could halt their development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.
It is possible that the FDA or foreign regulatory authorities may not agree with our assessment of the safety profile of pacritinib or other compounds we may develop in the future. Undesirable side effects caused by pacritinib could cause us, institutional review boards, our CROs, the FDA or foreign regulatory authorities to interrupt, delay or discontinue development and could result in a clinical hold on any clinical trial, or the denial of regulatory approval by the FDA or foreign regulatory authorities for any or all targeted indications. This, in turn, could prevent us from commercializing pacritinib and generating revenues from its sale. In addition, if pacritinib or other compounds we may develop in the future cause serious or unexpected side effects or are associated with other safety risks after receiving marketing approval, a number of potential significant negative consequences could result.
We will need to raise additional funds to operate our business, but additional funds may not be available on acceptable terms, or at all. Any inability to raise required capital when needed could harm our liquidity, financial condition, business, operating results and prospects.
We have substantial operating expenses associated with the development of pacritinib, and we have significant contractual payment obligations. In addition, we believe that our present financial resources will only be sufficient to fund our operations into the second quarter of 2021. This raises substantial doubt about our ability to continue as planned,a going concern and we will need to raise substantial additional capital in the near term in order to fund our operations through and beyond the second quarter of 2021 and to continue as a going concern thereafter. See Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on our assessment. Uncertainty regarding our ability to continue as a going concern could also have a material and adverse impact on the price of our common stock, which could negatively impact our ability to raise sufficient funds for the development and commercialization of pacritinib and continue as a going concern. In addition, cash forecasts and capital requirements are subject to change as a result of a variety of risks and uncertainties. Developments in and expenses associated with our clinical trials and other research and development activities may consume capital resources earlier than planned. Due to these and other factors, any forecast for the period for which we will have sufficient resources to fund our operations, as well as any other operational or business projection we have disclosed, or may disclose, may fail.
We will need to acquire additional funds in order to develop our business, continue the development and prepare for the potential commercialization of pacritinib. We may seek to raise such capital through public or private equity financings, partnerships, collaborations, joint ventures, disposition of assets, debt financings or restructurings, bank borrowings or other sources of financing. However, our ability to raise capital is subject to a number of risks, uncertainties, constraints and consequences.
For these and other reasons, additional funding may not be available on favorable terms or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. If we fail to obtain additional capital when needed, we may be required to delay, scale back or eliminate some or all of our research and development programs, reduce our general and administrative expenses, be unable to attract and retain highly qualified personnel, refrain from making our contractually required payments when due (including debt payments) and/or be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Any of these consequences could harm our business, financial condition, operating results and prospectsprospects.
We are dependent on third-party service providers for a number of critical operational activities. Any failure or delay in these undertakings by third parties could harm our business.
Our business is dependent on the performance by third parties of their responsibilities under contractual relationships. In particular, we rely heavily on third parties for the manufacture and testing of our compounds. We do not have internal analytical laboratory or manufacturing facilities to allow the testing or production of our compounds in compliance with Good Laboratory Practices, or GLP, and current Good Manufacturing Practices, or cGMP. As a result, we rely on third parties to supply us in a timely manner with manufactured products or product candidates. We may not be harmed.able to adequately manage and oversee the manufacturers we choose, they may not perform as agreed or they may terminate their agreements with us. In particular, we depend on third-party manufacturers to conduct their operations in compliance with GLP and cGMP or similar standards imposed by U.S. and/or applicable foreign regulatory authorities, including the FDA and EMA. Any of these regulatory authorities may take action against a contract manufacturer who violates GLP and cGMP. Failure of our manufacturers to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance, and could subject us to penalties.
Post-approvalWe may not be able to obtain sufficient quantities of our compounds if we are unable to secure manufacturers when needed, or authorizationif our designated manufacturers do not have the capacity or otherwise fail to manufacture compounds according to our schedule and specifications or fail to comply with cGMP regulations. In particular, in connection with the transition
of the manufacturing of drug supply to successor vendors, we could face logistical, scaling or other challenges that may adversely affect supply. Furthermore, in order to ultimately obtain and maintain applicable regulatory reviewsapprovals, any manufacturers we utilize are required to consistently produce the respective compounds in commercial quantities and obligations often result in significant expenseof specified quality or execute fill-finish services on a repeated basis and marketing limitations,document their ability to do so, which is referred to as process validation. Even if our compound manufacturing processes obtain regulatory approval and any failuresufficient supply is available to complete clinical trials necessary for regulatory approval, there are no guarantees we will be able to supply the quantities necessary to effect a commercial launch of the applicable drug, or once launched, to satisfy such ongoing obligations, including, in particular,demand. Any shortage could also impair our post-authorization commitment trialability to deliver contractually required supply quantities to applicable collaborators, as well as to complete any additional planned clinical trials.
We also rely on third-party service providers for PIXUVRI, could negatively affect our business, financial condition, operating results or prospects.
Even if a product receives regulatory approval or authorization, as applicable, we arecertain warehousing, transportation, sales, order processing, distribution and will continuecash collection services. With regard to be subject to numerous regulations and statutes regulating the manner of obtaining reimbursement for and selling the product, including limitations on the indicated uses for which a product may be marketed. Approved or authorized products, including PIXUVRI, are subject to extensive manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping regulations. These requirements include submissions of safety and other post-marketing information and reports. In addition, such products are subject to ongoing maintenance of product registration and continued compliance with cGMPs, good clinical practices, or GCPs, and good laboratory practices, or GLPs. Further, distribution of products must be conductedour compounds, we depend on third-party distributors to act in accordance with good distribution practices,Good Distribution Practices, or GDPs. TheGDP, and the distribution process and facilities of our third-party distributors are subject to, and our wholesale distribution authorization by the UK Medicines and Healthcare Products Regulatory Agency subjects us to continuing regulation by applicable regulatory authorities with respect to the distribution and storage of products. Regulatory authorities
In addition, we depend on medical institutions and CROs (together with their respective agents) to conduct clinical trials and associated activities in compliance with Good Clinical Practices, or GCP, and in accordance with our timelines, expectations and requirements. To the extent any such third parties are delayed in achieving or fail to meet our clinical trial enrollment expectations, fail to conduct our trials in accordance with GCP or study protocol or otherwise take actions outside of our control or without our consent, our business may also impose new restrictionsbe harmed. Furthermore, we conduct clinical trials in foreign countries, subjecting us to additional risks and challenges, including as a result of the engagement of foreign medical institutions and foreign CROs, who may be less experienced with regard to regulatory matters applicable to us and may have different standards of medical care.
With regard to certain of the foregoing clinical trial operations and stages in the manufacturing and distribution chain of our compounds, we rely on continued product marketing or may requiresingle vendors. In the withdrawalevent pacritinib is approved, we will initially have only one commercial supplier for pacritinib. The use of single vendors for core operational activities, such as clinical trial operations, manufacturing and distribution, and the resulting lack of diversification, exposes us to the risk of a product frommaterial interruption in service related to these single, outside vendors. As a result, our exposure to this concentration risk could harm our business.
We are party to a loan and security agreement that contains operating and financial covenants that may restrict our business and financing activities and we may be required to repay the market ifoutstanding indebtedness in an event of default, which could have a material adverse eventseffect on our business.
In November 2017, we entered into a loan and security agreement with Silicon Valley Bank, which was amended in May 2018, the proceeds of unanticipated severitywhich were partially used to repay in full all outstanding indebtedness under a prior loan and security agreement.
Borrowings under this loan and security agreement are secured by substantially all of our assets except intellectual property and subject to certain other exceptions. The loan and security agreement restricts our ability to take various actions, and we are required under our loan agreement and security agreement to comply with various affirmative covenants, which may restrict our ability to finance our operations, engage in business activities or frequency are discovered following approval. In addition, regulatory agencies may impose post-approval/post-authorization clinical trials, such asexpand or fully pursue our ongoing PIX306 trialbusiness strategies. A breach of PIXUVRI required by the EMA. We cannot predict the outcomeany of PIX306these restrictions or whether we will be able to complete the associated requirementscovenants could result in a timely manner. default under the loan and security agreement, which could cause all of the outstanding indebtedness under the facility to become immediately due and payable.
If we are unable to submit the requisite PIX306 clinical study report by the due date in December 2018recruit, retain, integrate and motivate senior management, other key personnel and directors, or if such persons are unable to obtain an extensionperform effectively, our business could suffer.
Our future success depends, in part, on our ability to continue to attract and retain senior management, other key personnel and directors to enable the execution of such deadline,our business plan and to identify and pursue new opportunities. Additionally, our productivity and the quality of our operations are dependent on our ability to integrate and train our new personnel quickly and effectively.
If we are unable to continue to provide directors and officers sufficient liability insurance at affordable rates or at all, or if directors and officers perceive our ability to do so in the future to be limited, it may become increasingly more difficult to attract and retain management and qualified directors to serve on our Board of Directors.
The loss of the services of senior management, other key personnel or directors and/or the inability to timely attract or integrate such persons could significantly delay or prevent the achievement of our development and strategic objectives and may adversely affect our business, financial condition and operating results.
We may encounter difficulties in managing our expected growth and in expanding our operations successfully.
Advancing our lead product candidate, pacritinib, through the product development and, if approved, commercialization process will require us to develop or expand our development, regulatory, manufacturing, medical affairs, marketing and sales capabilities or contract with third parties to provide these capabilities for us. We must also successfully integrate the employees and operations related to the development of pacritinib. Maintaining additional relationships and managing our future growth will impose significant added responsibilities on members of our management. We must be able to manage our development efforts and clinical trials effectively, hire, train and integrate additional management, development, medical affairs, administrative and sales and marketing personnel, improve our managerial, development, operational and finance systems, and expand our facilities, all of which may impose a strain on our administrative and operational infrastructure. Our future financial performance will depend, in part, on our ability to manage this growth effectively. We may not be able to accomplish these tasks; which failure could prevent us from successfully developing and commercializing pacritinib.
If we are otherwise unable to satisfyin-license or acquire additional product candidates, our future product portfolio and potential profitability could be harmed.
One component of our business strategy is the in-licensing and acquisition of drug compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories, such as pacritinib. Competition for new promising compounds and commercial products canbe intense. If we are not able to identify future in-licensing or acquisition opportunities and enter into arrangements on acceptable terms, our future product portfolio and potential profitability could be harmed.
We may owe additional amounts for VATrelated to our operations in Europe.
Our European operations are subject to the Value Added Tax, or VAT, which is usually applied to all applicable requirements,goods and services purchased and sold throughout Europe. We historically carried out research and development activities in Italy and incurred value added tax, or VAT, from Italian suppliers on the acquisition of goods and services in Italy. This VAT should be considered as an input VAT credit. We treated the majority of our conditional marketing authorizationsales made in Italy without output VAT (on the basis that the supplies should be considered outside the scope of Italian VAT). This resulted in the value of input VAT exceeding the value of output VAT, and accordingly we submitted a refund claim for PIXUVRIthe VAT. The Italian Tax Authority, or the ITA, has challenged the treatment of the sales transactions and claimed that the sales transactions made by us should have been subject to output VAT.
Further information pertaining to these cases can be found in Part II, Item 8, "Notes to Consolidated Financial Statements, Note 14. Commitments and Contingencies" and is incorporated by reference herein. If the final decision of the Italian Supreme Court is unfavorable to us, or if, in the interim, the ITA were to make a demand for payment and we were to be unsuccessful in suspending collection efforts, we may be revoked.requested to pay to the ITA an amount up to €4.3 million, or approximately $5.3 million converted using the currency exchange rate as of December 31, 2020, including interest and penalties for the period lapsed between the date in which the assessments were issued and the date of effective payment.
AnyWe are currently subject to certain regulatory and legal proceedings, and may in the future be subject to additional proceedings and/or allegations of wrong-doing, which could harm our financial condition and operating results.
We are currently, and may in the future be, subject to regulatory matters and legal claims, including possible securities, derivative, consumer protection and other failuretypes of proceedings pursued by individuals, entities or regulatory bodies. See Part II, Item 8, "Notes to comply with applicable regulations couldConsolidated Financial Statements - Note 14. Commitments and Contingencies " regarding the regulatory matters and legal claims in which we are currently involved. Litigation and regulatory proceedings are subject to inherent uncertainties, and we have had and may in the future have unfavorable rulings and settlements. Adverse outcomes may result in warningsignificant monetary damages and penalties or untitled letters, product recalls, interruption of manufacturinginjunctive relief against us. It is possible that our financial condition and commercial supply processes, withdrawal or seizure of products, suspensionoperating results could be harmed in any period in which the effect of an applicable wholesale distribution authorization and/or distribution of products, operating restrictions, injunctions, suspension of licenses, revocationunfavorable final outcome becomes probable and reasonably estimable. If an unfavorable ruling were to occur in any of the applicable product’s approvallegal proceedings we are or authorization, other administrative or judicial sanctions (including civil penalties and/or criminal prosecution) and/or unanticipated related expendituremay be subject to, resolve shortcomings, which could negatively affect our business, financial condition, operating results and prospects could be harmed. The ultimate outcome of litigation and other claims is subject to inherent uncertainties, and our view of these matters may change in the future.
In addition, our insurance is subject to high deductibles and there is no guarantee that the insurance will cover any specific claim that we currently face or prospects.may face in the future, or that it will be adequate to cover all potential liabilities and damages. In the event of negative publicity resulting from allegations of wrong-doing and/or an adverse outcome under any currently pending or future lawsuit, our business could be materially harmed.
WeOur net operating losses may not be ableavailable to maintainreduce future income tax liability.
We have substantial tax loss carryforwards for U.S. federal income tax purposes, but our listings onability to use such carryforwards to offset future income or tax liability is limited under section 382 of the NASDAQ Capital Market,Internal Revenue Code of 1986, as amended, as a result of prior changes in the stock ownership of our company. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income and taxes may be subject to limitations. Moreover, future changes in the NASDAQ, or trading on the NASDAQ may otherwise be halted or suspended, which may make it more difficult for investors to sellownership of our stock, including those resulting from issuance of shares of our common stock and consequentlyupon exercise of outstanding warrants, may negatively impact the price of our common stock.
We regained compliance in January 2017 with the minimum $1.00 bid price requirement by effecting a 1-for-10 reverse stock split on January 1, 2017, after receiving notice of non-compliance from the NASDAQ in March 2016.
We have in the past and may in the future fail to comply with the NASDAQ requirements. If our common stock ceases to be listed for trading on the NASDAQ for failure to comply with the minimum $1.00 per share closing bid price requirement or for any other reason, it may harm our stock price, increase the volatility of our stock price, decrease the level of trading activity and make it more difficult for investors to buy or sell shares of our common stock. Our failure to maintain a listing on the NASDAQ may constitute an event of default under our senior secured term loan and any future indebtedness, which would accelerate the maturity date of such debt or trigger other obligations. In addition, certain institutional investors that are not permitted to own securities of non-listed companies may be required to sell their shares adversely affecting the market price of our common stock. If we are not listed on the NASDAQ or if our public float falls below $75 million, we will be limited infurther limit our ability to file new shelf registration statements on SEC Form S-3 and/oruse our net operating losses.
We could be subject to fully use one or more registration statements on SEC Form S-3. additional income tax liabilities.
We have relied significantly on shelf registration statements on SEC Form S-3 for most of our financings in recent years, so any such limitations may harm our abilityare subject to raise the capital we need. Trading in our common stock has been halted or suspended on the NASDAQincome taxes in the pastUnited States and certain foreign jurisdictions. We use significant judgment in evaluating our worldwide income-tax provision. During the ordinary course of business, we conduct many transactions for which the ultimate tax determination is uncertain. We are subject to audit in various jurisdictions, and such jurisdictions may alsoassess additional income tax against us. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be haltedmaterially different from our historical income-tax provisions and accruals. The results of an audit or suspendedlitigation could have a material effect on our operating results or cash flows in the future on the NASDAQ due to marketperiod or trading conditions at the discretion of the NASDAQ. Any halt or suspension in the trading in our common stock may negatively impact the market price of our common stock.periods for which that determination is made.
We may be unablesubject to obtainclaims relating to improper handling, storage or disposal of hazardous materials.
Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations, both internationally and domestically, governing the use, manufacture, storage, handlings, treatment, transportation and disposal of such materials and certain waste products and employee safety and health matters. In the event of such an accident, we could be held liable for any damages that result and any such liability not covered by insurance could exceed our resources.
If we or the third parties upon whom we depend are adversely affected by natural disasters or other events, our business continuity and disaster recovery plans may not adequately protect us from such interruptions.
Our headquarters are located in Seattle, Washington. Any unplanned event, such as flood, fire, explosion, earthquake, tsunami, extreme weather condition, power shortage, power outage, telecommunication failure, or other natural or man-made accidents or incidents could disrupt our operations. If a quorum for meetingsnatural disaster or other event occurred that prevented us from using all or a significant portion of our shareholdersheadquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or obtain requisite shareholder approval and, consequently,that otherwise disrupted operations, it may be unabledifficult or, in certain cases, impossible for us to take certain corporate actions, including financing activities.
Failurecontinue our business for a substantial period of time. We may not carry sufficient business interruption insurance to meet the requisite quorum or obtain requisite shareholder approval can preventcompensate us from raising capital through equity financing or otherwise taking certain actionsfor all losses that may occur. The disaster recovery and business continuity plans we have in place may not be in our best interest and that of our shareholders. We have experienced such difficultiesadequate in the past.
event of a serious disaster or similar event. We are required under the NASDAQ Marketplace Rules to obtain shareholder approval for any issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding before the issuance of such securities sold at a discount to the greater of book or market value in an offering that is not deemed to be a “public offering” by the NASDAQ Marketplace Rules,may incur substantial expenses as well as under certain other circumstances. We have in the past and may in the future issue additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding in order to fund our operations. However, we might not be successful in obtaining the required shareholder approval for any future issuance that requires shareholder approval pursuant to applicable rules and regulations, particularly in light of difficulties we have had in the past in obtaining a quorum and obtaining the requisite vote. If we are unable to obtain financing or our financing options are limited due to shareholder approval difficulties, such failure may harm our ability to continue operations.
As a result of a natural disaster or other event, which could have a material adverse effect on our business, and we could potentially lose valuable data and other items. The occurrence of any of the foregoing or for other reasons, we may be unable to obtaincould have a quorum at annual or special meetings of shareholders. Even if we are able to obtain a quorum atmaterial adverse effect on our shareholder meetings, we may not obtain enough votes to approve matters to be resolved upon at those meetings. Any failure to obtain a quorum or the requisite vote on a proposal in question could harm us.business.
We will incur a variety of costs for, and may never realize the anticipated benefits of, acquisitions, collaborations or other strategic transactions.
We evaluate and undertake acquisitions, collaborations and other strategic transactions from time to time. The process of negotiating these transactions, as well as integrating any acquisitions and implementing any strategic alliances, may result in operating difficulties and expenditures. In addition, these transactions may require significant management attention that would otherwise be available for ongoing development of our business, whether or not any such transaction is ever consummated. These undertakings could also result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to intangible assets, and we may never realize the anticipated benefits.
Risks Related to the Development, Clinical Testing and Regulatory Approval of Our Product Candidates
The regulatory approval process for pacritinib has been subject to delay and uncertainty. While the dose-exploration trial for pacritinib has been completed, further registration of clinical trials for pacritinib could be subject to further delay or we could be prevented from further studying pacritinib or seeking its commercialization, which could have a material adverse effect on our business.
Although the independent data monitoring committee, or IDMC, completed its fourth and final interim safety review in May 2019 and recommended that the PAC203 Phase 2 trial continue without modification, we cannot be certain that the PACIFICA Phase 3 trial will be sufficient for regulatory approval. Even if the current primary endpoint of the PACIFICA Phase 3 trial is achieved, the FDA may determine that the benefit/risk profile of pacritinib at the dose selected for the PACIFICA Phase 3 trial does not support approval based on the results of such trial, previously identified FDA concerns regarding safety and dosing limitations of pacritinib, including FDA concerns identified in connection with our previous PERSIST-1 and 2 trials, or otherwise. We also cannot be certain of the anticipated timing of the results from the PACIFICA Phase 3 trial. The FDA may request additional information regarding pacritinib or require us to pursue new clinical safety trials with changes to, among other things, protocol, study design or sample size, which could cause significant delays in completion of these studies.
Additionally, in July 2019 we announced an expanded access program, or EAP, for pacritinib for patients in the PAC203 Phase 2 trial. Patients who receive access to unapproved drugs through compassionate use or EAPs have life-threatening illnesses and generally have exhausted all other available therapies. In April 2020 we announced the initiation of PRE-VENT, a Phase 3 trial evaluating pacritinib in hospitalized patients with severe COVID-19.The risk for serious adverse events, including those which may be unrelated to pacritinib, in these patient populations is high and could have a negative impact on the safety profile of pacritinib, which could cause significant delays or impair our ability to obtain regulatory approval for pacritinib.
The submission of new marketing applications, complying with any additional requests for information from the FDA or EMA or making any changes to study design or sample size may be time-consuming, expensive and delay or prevent our ability to continue to study pacritinib. If we are unable to adequately address any previous or further recommendations, concerns, requests, or objections in a manner satisfactory to the FDA or EMA, as applicable, in a timely manner, or at all, we could be delayed or prevented from seeking commercialization of pacritinib.
We may amend the clinical protocols for our product candidates. The protocol amendment process requires review and approval by several review bodies, who may not accept the amendments in the form submitted, or at all, which may delay our planned enhancements to the clinical development program and/or limit or change the type of information we may gather from our studies.
In early October 2019, we received correspondence from the FDA asking us to consider incorporating change in TSS at week 24 as a co-primary endpoint for the PACIFICA Phase 3 trial. In January 2020, we reached agreement on an accelerated approval pathway for pacritinib. In March 2020, we submitted an amended PACIFICA pivotal Phase 3 trial protocol to allow for the primary analysis of SVR rates on the first 168 patients, with an end-of-study analysis of TSS and OS following the full enrollment of 348 patients. Such a change to the trial protocol will require an increase in the number of patients evaluated over the course of the trial, as well as the costs and time required to complete the trial. Making any changes to clinical protocols is time-consuming and expensive and may delay or prevent our ability to continue to study pacritinib. If our changes to the trial design do not adequately address any previous or further recommendations, concerns, requests, or objections in a manner satisfactory to the FDA or EMA, as applicable, in a timely manner, or at all, we could be delayed or prevented from seeking commercialization of pacritinib.
If development and commercialization collaborations we enter into are not successful, or if we are unable to enter into additional collaborations, we may not be able to effectively develop and/or commercialize our compounds, which could have a material adverse effect on our business.
Historically, we have entered into development and commercialization collaborations to help advance the development of our product candidates. We evaluate collaboration opportunities from time to time and if we enter into such collaborations in the future, our business may become increasingly dependent on the success of such collaborations. Additionally, if we do not successfully enter into additional collaborations when needed, we may be unable to further develop and commercialize the applicable compounds, generate revenues to sustain or grow our business or achieve profitability, which would harm our business, financial condition, operating results and prospects.
Compounds that appear promising in research and development may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities, and top-line or preliminary clinical trial data reports may ultimately differ from actual results, which could have a material adverse effect on our business.
Compounds that appear promising in research and development may fail to reach later stages of development.
In addition, followingfrom time to time, we report top-line data for clinical trials. Top-line results may differ from future results, or different conclusions or considerations may qualify such results once existing data have been more fully evaluated. In addition, third parties, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations or analyses or may interpret or weigh the consummationimportance of a transaction,data differently, which could impact the value of the particular program, the approvability or commercialization of the particular compound and our business in general.
If the development of pacritinib is delayed or fails, or if top-line or preliminary clinical trial data reported differ from actual results, of operationsour development costs may increase and the market price of our common stockability to commercialize pacritinib may be affected by factors different from those that affected our results of operations and the market price of our common stock prior to such acquisition. Any of the foregoing consequences resulting from transactions of the type described aboveharmed, which could harm our business, financial condition, operating results or prospects.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. Additionally, our clinical trials compete with other clinical trials for similar product candidates. This competition reduces the number and types of patients and qualified clinical investigators available to us. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. We may also encounter difficulties finding a clinical trial site at which to conduct our trials. Moreover, because our product candidates are experimental, potential patients and their doctors may be inclined to use conventional therapies rather than enroll patients in any one of our clinical trials.
Delays in patient enrollment may result in increased costs or affect the timing or outcome of our planned clinical trials, which could prevent completion of these clinical trials and adversely affect our ability to advance the development of pacritinib or other compounds we may develop.
We may be required to suspend, repeat or terminate clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive, or the trials are not well-designed.
Regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. Clinical trials must be conducted in accordance with GCPs or other applicable foreign regulatory authority guidelines. In addition, clinical trials must be conducted with product candidates produced in accordance with applicable cGMPs. Clinical trial data may be rejected by the FDA or foreign regulatory authorities or clinical trials may be suspended by the FDA, foreign regulatory authorities, or us for various reasons.
If we elect or are forced to suspend or terminate a clinical trial of any of our current or future product candidates, the commercial prospects for that product will be harmed and our ability to generate product revenue from that product may be delayed or eliminated. Furthermore, any of these events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue from the commercialization of these products either by us or by our collaboration partners.
If we are unable to expedite the regulatory approval process for pacritinib in our clinical trials, we may be required to pursue strategic alternatives for the development of pacritinib and/or our company, which could have a material adverse effect on our business.
The FDA may grant accelerated approval to a product designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. A surrogate endpoint under an accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy
may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. Even if a product candidate is granted accelerated approval based on a surrogate endpoint, such accelerated approval is contingent on the sponsor’s agreement to conduct one or more post-approval confirmatory trials that demonstrate a clinical benefit. Moreover, the FDA may withdraw approval of a product candidate or indication approved under the accelerated approval pathway for a variety of reasons.
In January 2020, we reached agreement on an accelerated approval pathway for pacritinib and in September 2020, we reached an agreement with the U.S. Food and Drug Administration, or FDA, to submit a New Drug Application, or NDA, for the potential accelerated approval of pacritinib as a treatment for myelofibrosis patients with severe thrombocytopenia. In October 2020, we commenced our rolling NDA submission. The NDA is based on the available data from our completed Phase 3 PERSIST-1 and PERSIST-2 trials and the Phase 2 PAC203 dose-ranging trial. Completion of the NDA submission is anticipated in the first quarter of 2021.
We or any collaboration partners we may work with may not obtain or maintain the regulatory approvals required to develop or commercialize pacritinib or any other compounds we may develop in the future, which could have a material adverse effect on our business.
We are subject to rigorous and extensive regulation by the FDA in the United States and by comparable agencies in other jurisdictions, including the EMA in the European Union. Pacritinib is currently in clinical development. Pacritinib may not be marketed in the United States until it has been approved by the FDA and may not be marketed in other jurisdictions until it has received approval from the appropriate foreign regulatory agencies, and requires development and extensive clinical investigation before submission of any regulatory application for marketing approval. Obtaining regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of pacritinib or any other product candidate on a timely basis, or at all. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. The FDA, the EMA and other foreign regulatory agencies can delay, limit or deny approval of a compound for many reasons. In particular, if pacritinib is not approved at all or quickly enough to provide net revenues to defray our operating expenses, our business, financial condition, operating results and prospects could be harmed.
Disruptions at government agencies could negatively affect the review of our regulatory submissions.
The ability of the FDA to review and clear or approve regulatory submissions can be affected by a variety of factors. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs, medical devices, and biologics or modifications to cleared or approved drugs, medical devices, and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, the FDA postponed certain of its manufacturing facility inspections. If a prolonged government shutdown occurs, or if global health concerns continue to impact the FDA or other regulatory authorities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
The pharmaceutical business is subject to increasing government price controls and other restrictions on pricing, reimbursement and access to drugs, which could adversely affect our future revenues and profitability.
To the extent our products are developed, commercialized and introduced to market, they may not be considered cost-effective and third-party or government reimbursement might not be available or sufficient. Globally, governmental and other third-party payors are becoming increasingly aggressive in attempting to contain health care costs by strictly controlling, directly or indirectly, pricing and reimbursement and, in some cases, limiting or denying coverage altogether on the basis of a variety of justifications, and we expect pressures on pricing and reimbursement from both governments and private payors inside and outside the United States to continue.
Post-approval or authorization regulatory reviews and obligations often result in significant expense and marketing limitations, and any failure to satisfy such ongoing obligations could negatively affect our business.
Even if a product receives regulatory approval or authorization, as applicable, we are and will continue to be subject to numerous regulations and statutes regulating the manner of obtaining reimbursement for and selling the product. Regulatory authorities may also impose new restrictions on continued product marketing or may require the withdrawal of a product from the market if adverse events of unanticipated severity or frequency are discovered following approval.
Any other failure to comply with applicable regulations could result in warning or untitled letters from the FDA, which could negatively affect our business, financial condition, operating results or prospects.
We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for non-FDA-approved, or off-label, uses.
Our business and future growth depend on the development, ultimate sale and use of products that are subject to FDA, EMA and or other regulatory agencies regulation, clearance and approval. Under the U.S. Federal Food, Drug, and Cosmetic ActFDCA and other laws, we are prohibited from promoting our products for off-label uses.uses, or uses not approved by the FDA. We may also be subject to various federal and state physician payment transparency laws, including the federal Physician Payments Sunshine Act. This means that in the U.S.,United States, we may not make claims about the safety or effectiveness of our products and may not proactively discuss or provide information on the useuses of our products except asthat are not approved by the FDA, unless otherwise allowed by the FDA.FDA by policy or other guidance.
Government investigations concerning the promotion of off-label uses and related issues are typically expensive, disruptive and burdensome, generate negative publicity and may result in fines or payments of settlement awards. If our promotional activities are found to be in violation of applicable law or if we agree to a settlement in connection with an enforcement action, we would likely face significant fines and penalties and would likely be required to substantially change our sales, promotion, grant and educational activities.
A failureWe are subject to comply with the numerous laws and regulations that govern our business, including those related to cross-border conduct, health care fraud and abuse, anti-corruption and false claims, anti-bribery and anti-corruption laws, such as the U.S. Anti-Kickback Statute and the protectionFCPA, in which violations of health information,these laws could result in substantial penalties and prosecution.
We are subject to risks associated with doing business outside of the U.S., which exposes us to complex foreign and U.S. regulations. For example, we are subject to regulations imposed by the Foreign Corrupt Practices Act, or the
FCPA, the Bribery Act 2010 and other anti-corruption laws. These laws generally prohibit U.S. companies and their intermediaries from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtaining or retaining business. The SEC and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. Internal control policies and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not be effective in prohibiting our employees, contractors or agents from violating or circumventing our policies and the law.
In addition,the United States, we are subject to various state and federal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. There are similar laws in other countries. These laws may impact, among other things, the sales, marketing and education programs for our products. The federal Anti-Kickback Statute prohibits persons from knowingly and willingly soliciting, offering, receivingAny allegation, investigation, or providing remuneration, directly or indirectly, in exchange for or to induce either the referralviolation of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federalthese domestic health care program. The federal False Claims Act prohibits persons from knowingly filing,fraud and abuse laws could result in government or causing to be filed, a false claim to, or the knowing useinternal investigations, significant diversion of false statements to obtain payment from the federal government. Suits filed under the False Claims Act can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. Many states have also adopted laws similar to the federal Anti-Kickback Statute and False Claims Act.
We may also be subject to the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act and their respective implementing regulations, or HIPAA, which established uniform standards for certain “covered entities” (health care providers, health plans and health care clearinghouses) governing the conduct of certain electronic health care transactions and protecting the security and privacy of protected health information. Among other things, HIPAA’s privacy and security standards are directly applicable to “business associates” - independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. In addition to possible civil and criminal penalties for violations, state attorneys general are authorized to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
We are unable to predict whether we could be subject to actions under any of the foregoing or similar laws and regulations, or the impact of such actions. If we were to be found to be in violation of applicable laws or regulations, we may be subject to penalties, including civil and criminal penalties, damages, fines,resources, exclusion from government health care reimbursement programs and the curtailment or restructuring of our operations, allsignificant fines, penalties, or other financial consequences, any of which couldmay ultimately have a material adverse effect on our businessbusiness.
For our sales and results of operations.
operations outside the United States, we are similarly subject to various heavily-enforced anti-bribery and anti-corruption laws, such as the FCPA, as amended, U.K. Bribery Act, and similar laws around the world. We are dependent on third-party service providers for a number of critical operational activities including, in particular, for the manufacture, testing and distribution of our compounds and associated supply chain operations, as well as for clinical trial activities. Any failure or delay in these undertakings by third parties could harm our business.
Our business is dependent on the performance by third parties of their responsibilities under contractual relationships. In particular, we rely heavily on third parties for the manufacture and testing of our compounds. We do not have internal analytical laboratory or manufacturing facilities to allow the testing or production of compounds in compliance with GLP and cGMP. As a result, we rely on third parties to supply us in a timely manner with manufactured products/product candidates. We may not be able to adequately manage and oversee the manufacturers we choose, they may not perform as agreed or they may terminate their agreements with us. In particular, we depend on third-party manufacturers to conduct their operations in compliance with GLP and cGMP or similar standards imposed by the U.S. and/or applicable foreign regulatory authorities, including the FDA and EMA. Any of these regulatory authorities may take action against a contract manufacturer who violates GLP and cGMP. Failure of our manufacturers to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance.
We may not be able to obtain sufficient quantities of our compoundsface significant risks if we, are unable to secure manufacturers when needed, or ifwhich includes our designated manufacturers do not have the capacity or otherwise fail to manufacture compounds according to our schedule and specifications orthird parties, fail to comply with cGMP regulations. In particular, in connectionthe FCPA and other anti-corruption and anti-bribery laws.
We leverage various third parties to sell our products and conduct our business abroad. We, our commercial partners and our other third-party intermediaries, including collaborators and licensees, may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the transitioncorrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, partners, collaborators, licensees and agents, even if we do not explicitly authorize such activities.
Any violation of the manufacturingFCPA, other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of PIXUVRIexport privileges, severe criminal or civil sanctions and, pacritinib drug supplyin the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, business, operating results and prospects. In addition, responding to successor vendors, respectively, we could face logistical, scalingany enforcement action or related investigation may result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.
Our employees, collaborators and other personnel may engage in misconduct or other challenges that may adversely affect supply. Furthermore, in order to ultimately obtain and maintain applicable regulatory approvals, any manufacturers we utilize are required to consistently produce the respectiveimproper activities, which could have a material adverse impact on our business.
compounds in commercial quantities and of specified quality or execute fill-finish services on a repeated basis and document their ability to do so, which is referred to as process validation. In order to obtain and maintain regulatory approval of a compound, the applicable regulatory authority must consider the result of the applicable process validation to be satisfactory and must otherwise approve of the manufacturing process. Even if our compound manufacturing processes obtain regulatory approval and sufficient supply is available to complete clinical trials necessary for regulatory approval, there are no guarantees we will be able to supply the quantities necessary to effect a commercial launch of the applicable drug, or once launched, to satisfy ongoing demand. Any compound shortage could also impair our ability to deliver contractually required supply quantities to applicable collaborators, as well as to complete any additional planned clinical trials.
We also rely on third-party service providers for certain warehousing, transportation, sales, order processing, distribution and cash collection services. With regard to the distribution of our compounds, we depend on third-party distributors to act in accordance with GDP, and the distribution process and facilities are subject to continuing regulation by applicable regulatory authorities with respect to the distribution and storage of products.
In addition, we depend on medical institutions and CROs (together with their respective agents) to conduct clinical trials and associated activities in compliance with GCP and in accordance with our timelines, expectations and requirements. To the extent any such third parties are delayed in achieving or fail to meet our clinical trial enrollment expectations, fail to conduct our trials in accordance with GCP or study protocol or otherwise take actions outside of our control or without our consent, our business may be harmed. Furthermore, we conduct clinical trials in foreign countries, subjecting us to additional risks and challenges, including, in particular, as a result of the engagement of foreign medical institutions and foreign CROs, who may be less experienced with regard to regulatory matters applicable to us and may have different standards of medical care.
With regard to certain of the foregoing clinical trial operations and stages in the manufacturing and distribution chain of our compounds, we rely on single vendors. In particular, our current business structure contemplates, at least in the foreseeable future, use of a single commercial supplier for PIXUVRI drug substance. In addition, in the event pacritinib is approved, we are initially preparing to have only one commercial supplier for pacritinib. We may in the future seek to qualify an additional manufacturer of pacritinib, but the process for qualifying a manufacturer can be lengthy and may not occur on a timely basis or at all. The use of single vendors for core operational activities, such as clinical trial operations, manufacturing and distribution, and the resulting lack of diversification, expose usexposed to the risk of a material interruption in service relatedfraud or other misconduct by our employees, collaborators, vendors, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to these single, outside vendors. As a result, our exposure to this concentration risk could harm our business.
Although we monitor the compliance of our third-party service providers performing the aforementioned services, we cannot be certain that such service providers will consistently comply with applicable regulatory requirementsthe regulations of the FDA, EMA and other regulators, providing inaccurate or that they will otherwise timely satisfy their obligationsmisleading information to the FDA, EMA and other regulators, failure to comply with data privacy and security and healthcare fraud and abuse laws and regulations in the United States and abroad, reporting inaccurate financial information or clinical data or failing to disclose unauthorized activities to us.
Various laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Any such failure and/or any failure by us to monitor their services and to plan for and manage our short and long term requirements underlying such servicesmisconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in shortageregulatory sanctions and cause serious harm to our reputation. We have adopted a code of the compound, delays in or cessation of clinical trials, failureconduct applicable to obtain or revocation of product approvals or authorizations, product recalls, withdrawal or seizure of products, suspension of an applicable wholesale distribution authorization and/or distribution of products, operating restrictions, injunctions, suspension of licenses, other administrative or judicial sanctions (including civil penalties and/or criminal prosecution) and/or unanticipated related expenditures to resolve shortcomings. Such consequences could have a significant impact on our business, financial condition, operating results or prospects.
If we are unable to recruit, retain, integrate and motivate senior management, other key personnel and directors, or if such persons are unable to perform effectively, our business could suffer.
Our future success depends, in part, on our ability to continue to attract and retain senior management, other key personnel and directors to enable the executionall of our business planemployees, officers, directors, agents and representatives, including consultants, but it is not always possible to identify and pursue new opportunities. Additionally, our productivitydeter misconduct, and the quality of our operations are dependent on our abilityprecautions we take to integratedetect and train our new personnel quickly and effectively. In February 2017, we announced the appointment of Adam Craig, M.D., Ph.D., as President and Chief Executive Officer effective March 2017, and also in September 2017, we announced the appointment of Bruce J. Seeley as Executive Vice President, Chief Operating Officer and David H. Kirske as Chief Financial Officer. Leadership transitions and management changes can be difficult to manage and may create uncertainty or disruption to our business or increase the likelihood of turnover in our other officers and employees. Weprevent misconduct may not be ableeffective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to effectively manage our transitioncomply with these laws and regulations.
Risks Related to a new president and chief executive officer.Our Intellectual Property
Directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and shareholder claims, as well as governmental, creditor and other claims that may be made against them. Due to these and other reasons, such persons are also becoming increasingly concerned with the availability of
directors and officers liability insurance to pay on a timely basis the costs incurred in defending such claims. We currently carry directors and officers liability insurance. However, directors and officers liability insurance is expensive and can be difficult to obtain. If we are unable to continue to provide directors and officers sufficient liability insurance at affordable rates or at all, or if directors and officers perceive our ability to do so in the future to be limited, it may become increasingly more difficult to attract and retain management and qualified directors to serve on our Board of Directors.
The loss of the services of senior management, other key personnel or directors and/or the inability to timely attract or integrate such persons could significantly delay or prevent the achievement of our development and strategic objectives and may adversely affect our business, financial condition and operating results.
We face direct and intense competition from our competitors in the biotechnology and pharmaceutical industries, and we may not compete successfully against them.
Competition in the oncology market is intense and is accentuated by the rapid pace of technological and product development. We anticipate that we will face increased competition in the future as new companies enter the market. Our competitors in the U.S. and elsewhere are numerous and include, among others, major multinational pharmaceutical companies, specialized biotechnology companies and universities and other research institutions. Specifically:
•In Europe, PIXUVRI faces competition from existing treatments for adults with multiply relapsed or refractory aggressive B-cell NHL. For example, patients are currently being treated with ibrutinib, idelalisib, lenolidimide, bendamustine, oxaliplatin and gemcitabine, although these particular agents do not have regulatory approval in Europe for the foregoing indication. If we were to pursue bringing PIXUVRI to market in the U.S. (which is not currently part of our near-term plan), PIXUVRI would face similar competition.
•If we are successful in bringing pacritinib to market, pacritinib will face competition from the currently approved JAK1/JAK2 inhibitor, Jakafi®.
•If we are successful in bringing tosedostat to market, we will face competition from currently marketed products, such as cytarabine, Dacogen®, Vidaza®, Clolar®, Revlimid® and Thalomid®.
In addition to the specific competitive factors discussed above, new anti-cancer drugs that may be under development or developed and marketed in the future could compete with our various compounds.
Many of our competitors, particularly multinational pharmaceutical companies, either alone or together with their collaborators, have substantially greater financial and technical resources and substantially larger development and marketing teams than us, as well as significantly greater experience than we do in developing, commercializing, manufacturing, marketing and selling products. As a result, products of our competitors might come to market sooner or might prove to be more effective, less expensive, have fewer side effects or be easier to administer than ours. In any such case, sales of PIXUVRI or any potential future product would likely suffer and we might never recoup the significant investments we have made and will continue to make to develop and market these compounds.
If any of our license agreements for intellectual property underlying our compoundsproduct candidates are terminated, we may lose the right to develop or market that product.product candidate.
We have acquired or licensed intellectual property from third parties, including patent applications and patents relating to intellectual property for PIXUVRI, pacritinib and tosedostat.pacritinib. Some of our product development programs depend on our ability to maintain rights under these arrangements.license agreements relating to this licensed intellectual property. Each licensor of this intellectual property has the power to terminate its agreement with us if we fail to meet our obligations under these licenses. We may not be able to meet our obligations under these licenses.that agreement. If we default under any license agreement,of these agreements, we may lose our right to market and sell any products based on the intellectual property licensed technologyunder these agreements and may be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection. Bankruptcy may result in the termination of agreements pursuant to which we license certain intellectual property rights.these agreements.
If we are unable to in-license or acquire additional product candidates, our future product portfolio and potential profitability could be harmed.
One component of our business strategy is the in-licensing and acquisition of drug compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories. PIXUVRI, pacritinib and tosedostat have all been in-licensed or acquired from third parties. Competition for new promising compounds and commercial products can
be intense. If we are not able to identify future in-licensing or acquisition opportunities and enter into arrangements on acceptable terms, our future product portfolio and potential profitability could be harmed.
We hold rights under numerous patents that we have acquired or licensed or that protect inventions originating from our research and development, and the expiration of any of these patents may allowwould enable our competitors to copyuse the inventions that are currently protected.the subject of such patents in competition with us.
We dedicate significant resources to protecting our intellectual property, which is important to our business. We have filed numerous patent applications in the U.S.United States and various other countries seeking protection of inventions originating from our research and development, and we have also obtained rights to various patents and patent applications under licenses with third parties and through acquisitions. Patents have been issued on many of these applications. We have pending patent applications or issued patents in the U.S.United States and foreign countries directed to PIXUVRI, pacritinib tosedostat and other product candidates. However, the lives of these patents are limited. Patents for the individual products extend for varying periods according to the date of the patent filing or grant and the legal term of patents in the various countries where patent protection is obtained.
Our U.S. and foreign composition of matter patents for pacritinib expire as follows: US patents expire in 2029 (compound) / 2030 (salt); foreign patents expire in 2026 (compound) / 2029 (salt). Pacritinib has orphan drug designation for myelofibrosis in the U.S. and the E.U.
Our various tosedostat-directed patents expire in 2018. Tosedostat has orphan drug designation for acute myeloid leukemia in the U.S. and the E.U.
Each patent may be eligible for future patent term restoration of up to five years under certain circumstances. Also, regulatory exclusivity tied to the protection of clinical data may be complementary to patent protection. During a period of regulatory exclusivity, competitors generally may not use the original applicant’s data as the basis for a generic application. In the U.S., the data protection generally runs for five years from first marketing approval of a new chemical entity, extended to seven years for an orphan drug indication.
In the absence of aaddition to our patent rights, we would,rely, to the extent possible, need to rely on unpatented technology,trade secret and contractual protections for our know-how and confidential information.other unpatented technology. Ultimately, to the lack or expiration atextent any given time of aour product candidates are not protected by patent to protect our compounds may allowrights our competitors would be free to copy the underlyinguse inventions and betterembodied in our product candidates to which they have access to compete with us.
If we fail to adequately protect our intellectual property, our competitive position and the potential for long-term success could be harmed.
Development and protection of our intellectual property are critical to our business. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies. Our success dependstechnologies, including the inventions embodied in part on our ability to:product candidates.
•obtain and maintain patent protection for our products or processes both in the U.S. and other countries;
•protect trade secrets; and
•prevent others from infringing on our proprietary rights.
The patent position of pharmaceutical and biotechnology firms, including ours, generally is highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office, or PTO, has not established a consistent policy regarding the breadth of claims that it will allow in pharmaceutical and biotechnology patents. If it allows broad claims, the number and cost of patent interference proceedings in the U.S. and the risk of infringement litigation may increase. If it allows narrow claims, the risk of infringement may decrease, but the value of our rights under our patents, licenses and patent applications may also decrease. Patent applications in which we have rights may never issue as patents, and the claims of any issued patents may not afford meaningful protection for our technologiesproduct candidates or products.technologies. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated, circumvented or circumvented.found unenforceable. Litigation, interference or derivation proceedings or other governmental proceedings that we may become involved in with respect to our patent rights or our proprietary technologies or the proprietary technologytechnologies of others could result in substantial cost to us.
We also rely upon trade secrets to protect our proprietary know-how and continuing technological innovation to enable us to remain competitive. Third parties may independently develop such know-how or innovations or otherwise obtain access to oursuch know-how or technology. While
we require our employees, consultants, and corporate partners and other third parties with access to our proprietary information to enter into confidentiality agreements, these agreements may not be honored.honored and may be difficult to enforce.
Patent litigation is widespread in the pharmaceutical and biotechnology industry, and any patent litigation in which we become involved could harm our business.
Costly litigation might be necessary to protect a patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue any such litigation or to protect our patent rights. Any adverse outcome in litigation with respect to the infringement or validity of any patents owned by third parties could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using a product or technology. With respect to our in-licensed patents, if we attempt to initiate a patent infringement suit against an alleged infringer, it is possible that our applicable licensor will not participate in or assist us with the suit, and as a result, we may not be able to effectively enforce the applicable patents against the alleged infringers.
We may be unable to obtain or protect our intellectual property rights and we may be liable for infringing upon the intellectual property rights of others, which may cause us to engage in costly litigation and, if unsuccessful, could cause us to pay substantial damages and prohibit us from selling our products.
At times, we may monitor patent filings for patents that might be relevant to some of our products and product candidates in an effort to guide the design and development of our products to avoid infringement, but may not have conducted an exhaustive search. We may not be able to successfully challenge the validity of third-party patents and could be required to pay substantial damages, possibly including treble damages, for past infringement and attorneys’ fees if it is ultimately determined that our products infringe such patents. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties.
Moreover, third parties may challenge the patents that have been issued or licensed to us. We do not believe that PIXUVRI, pacritinib or any of the other compounds we are currently developing infringe upon the rights of any third parties nor do we believe that they are materially infringed upon by third parties; however, thereThere can be no assurance that our technologyproduct candidates or technologies will not be found in the future to infringe upon the rights of others or be infringed upon by others. In such a case, others may assert infringement claims against us, and should we be found to infringe upon their patents, or otherwise impermissibly utilize their intellectual property, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent rights.damages. In addition to any damages we might have to pay, we may be required to obtain licenses from the holders of this intellectual property, enter into royalty agreements or redesign our compounds so as not to utilize this intellectual property, each of which may prove to be uneconomical or otherwise impossible. Conversely, we may not always be able to successfully pursue our claims against others that infringe upon our technology and the technology exclusively licensed from any third parties. Thus, the proprietary nature of our technology or technology licensed by us may not provide adequate protection against competitors.
Furthermore, our employees may be subject to claims that we or these employees have used or disclosed trade secrets or other proprietary information of the former employers. If we are unsuccessful in our defense of such claims, in addition to paying monetary damages, we may lose the right to use valuable intellectual property rights relating to our product candidates or technologies. A loss of key research personnel work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if infringementsuch claims against us are without merit, or if we challenge the validity of issued patents that are asserted against us, lawsuits in which such claims could be asserted or challenges could be made take significant time, may, even if resolved in our favor, be expensive and divert management attention from other business concerns.activities requiring attention. Uncertainties resulting from the initiation and continuation of any litigation relating to intellectual property could limit our ability to continue our operations.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, enforcing and defending patents on our product or product candidates in all countries throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors may not be able to prevent third parties from practicing our and our licensors’ inventions in all countries outside the United States, or from selling or importing products made using our and our licensors’ inventions in and into the United States or other jurisdictions. Competitors may use our and our licensors’ technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we and our licensors have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product and product candidates and our and our licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Risks Related to Our Common Stock
The illegal distributionmarket price of shares of our common stock is extremely volatile, which may affect our ability to raise capital in the future and sale by third partiesmay subject the value of counterfeit versionsyour investment in our securities to sudden decreases.
The market price for securities of biopharmaceutical and biotechnology companies, including ours, historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. For example, during the 12-month period ended March 10, 2021, our stock price ranged from a productlow of $0.62 to a high of $4.03. Fluctuations in the market price or stolen product couldliquidity of our common stock may harm the value of your investment in our common stock. The Nasdaq Stock Market, or the Nasdaq, and biopharmaceutical companies in particular, have a negative impact on our reputationexperienced extreme price and business.
Third parties might illegally distribute and sell counterfeitvolume fluctuations that have often been unrelated or unfit versionsdisproportionate to the operating performance of a product that do not meet our rigorous manufacturing and testing standards. A patient who receives a counterfeit or unfit product may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit product sold under our brand name.these companies. In addition, theftsbroad market and industry factors may negatively affect the market price of inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold through unauthorized channels, could adversely impact patient safety, our reputation andcommon stock, regardless of our business.actual operating performance.
We may owe additional amounts for VATrelatednot be able to maintain our operations in Europe.
Our European operations are subject to the VAT which is usually applied to all goods and services purchased and sold throughout Europe. The VAT receivable was $4.8 million and $4.4 million as of December 31, 2017 and December 31, 2016, respectively. On April 14, 2009, December 21, 2009 and June 25, 2010, the ITA issued notices of assessment to CTI (Europe) basedlisting on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003, 2005, 2006 and 2007. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services
performed by CTI (Europe). The assessments, including interest and penalties, for the years 2003, 2006 and 2007 are €0.5 million, €2.5 million and €0.8 million, respectively. While we are defending ourselves against the assessments both on procedural grounds andNasdaq, or trading on the meritsNasdaq may otherwise be halted or suspended, which may negatively impact the price of the case, there can be no assurances that we will be successful in such defense. The 2005 VAT assessment was decided in favor of the Company by the Italian Supreme Court, with no further potential liabilities for the Company. Further information pertaining to these cases can be found in Part I, Item 3, "Legal Proceedings," and is incorporated by reference herein. If the final decision of the Italian Supreme Court is unfavorable to us, or if,our common stock.
We have in the interim, the ITA were to make a demand for payment and we were to be unsuccessful in suspending collection efforts, we may be requested to pay to the ITA an amount up to €3.9 million or approximately $4.7 million converted using the currency exchange rate as of December 31, 2017, plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment.
We are currently subject to certain regulatory and legal proceedings,past and may in the future fail to comply with the Nasdaq requirements. If our common stock ceases to be subjectlisted for trading on the Nasdaq for any reason, it may harm our stock price, increase the volatility of our stock price, decrease the level of trading activity and make it more difficult for investors to buy or sell shares of our common stock. Our failure to maintain a listing on the Nasdaq may constitute an event of default under our loan and security agreement and any future indebtedness, which would accelerate the maturity date of such debt or trigger other obligations. In addition, certain institutional investors that are not permitted to own securities of non-listed companies may be required to sell their shares adversely affecting the market price of our common stock. If we are not listed on the Nasdaq, our ability to raise capital will be adversely impacted. Additionally, for so long as our non-affiliate public float does not exceed $75 million, the amount of securities that we may sell pursuant to registration statements on Form S-3 will be limited to the equivalent of one-third of our public float, which will limit our ability to file or use shelf registration statements on Form S-3 and further limit our ability to raise capital. We have relied significantly on shelf registration statements on Form S-3 for most of our financings in recent years, so any such limitations may harm our ability to raise the capital we need.
Future financing, strategic and other activities may require us to increase the number of authorized shares in our certificate of incorporation. An inability to secure requisite stockholder approval for such increases could materially and adversely impact our ability to fund our operations.
At our 2020 annual meeting of stockholders, we sought and received approval of an amendment to our certificate of incorporation to increase the total number of authorized shares and the total number of authorized shares of our common stock and we may seek approval to increase the number of authorized shares again in the future. Without future additional proceedings and/or allegationsincreases in the number of wrong-doing,authorized shares, we may be constrained in our ability to raise capital when needed, and may lose important business opportunities, which could adversely affect our financial performance, growth and ability to continue our operations. Even if we obtain approval to further increase the number of authorized shares, we are required under the Nasdaq Marketplace Rules to obtain stockholder approval for certain issuances of additional equity securities. However, we might not be successful in obtaining the required stockholder approval for any future issuance that requires stockholder approval pursuant to applicable rules and regulations. If we are unable to obtain financing or our financing options are limited due to stockholder approval difficulties, such failure may harm our financial conditionability to continue operations.
Anti-takeover provisions in our charter documents, under Delaware law and operating results.in other applicable instruments could make removal of incumbent management or an acquisition of us, which may be beneficial to our stockholders, more difficult.
We are currently,Provisions of our certificate of incorporation and bylaws may in the future be, subject to regulatory matters and legal claims, including possible securities, derivative, consumer protection and other types of proceedings pursued by individuals, entities or regulatory bodies. As described in Part I, Item 3, "Legal Proceedings," we are currently in the process of supplying documents in response to a subpoena from the SEC in connection with an investigation into potential federal securities law violations. Litigation is subject to inherent uncertainties, and we have had and may in the future have unfavorable rulings and settlements. Adverse outcomes may result in significant monetary damages or injunctive relief against us. It is possible that our financial condition and operating results could be harmed in any period in which the effect of an unfavorable final outcome becomes probabledeterring or delaying attempts by our stockholders to remove or replace management, to commence proxy contests or to effect changes in control. In addition, as a Delaware corporation, we are subject to Delaware’s anti-takeover statute, which imposes restrictions on some transactions between a corporation and reasonably estimable. If an unfavorable ruling werecertain interested stockholders. Our shareholder rights plan expired pursuant to occurits terms on December 2, 2018, and was not replaced; however, the Board may, subject to its fiduciary duties under applicable law, choose to implement a similar plan in anythe future. Likewise, because our principal executive offices are located in Washington, the anti-takeover provisions of the legal proceedings we areWashington Business Corporation Act may apply to us under certain circumstances now or may be subject to, our business, financial condition, operating results and prospectsin the future. These provisions could be harmed. The ultimate outcomealso have the effect of litigation and other claims is subject to inherent uncertainties, and our view of these matters maydelaying or preventing a change in the future.control of our company.
We cannot predict with certainty the eventual outcome of pending litigation. In addition, negative publicity resulting from any allegations of wrong-doing could harm our business, regardless of whether the allegations are valid or whether there is a finding of liability. Furthermore, we may have to incur substantial time and expense in connection with such lawsuits and management’s attention and resources could be diverted from operating our business as we respond to the litigation. Our insurance is subject to high deductibles and there is no guarantee that the insurance will cover any specific claim that we currently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages. In the event of negative publicity resulting from allegations of wrong-doing and/or an adverse outcome under any currently pending or future lawsuit, our business could be materially harmed.
If we fail to maintain effective internal controls over financial reporting, we may not be able to accurately report our financial results, which could adversely effect on investoraffect our investors' confidence, our business and the trading prices of our securities.
If we fail to maintain the adequacy of our internal controls, we may be unable to provide financial information in a timely and reliable manner within the time periods required for our financial reporting under SEC rules and regulations. Internal controls over financial reporting may not prevent or detect misstatements or omissions in our financial statements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. We have recently implemented a reduction in force in 2018, which may result in changes to occur in our internal controls over financial reporting. The changes could relate to different employees performing internal control activities than those who have previously performed those activities or revisions to our actual control activities as we evaluate the appropriate internal control structure after our workforce reduction. A changing internal control environment increases the risk that our system of internal controls is not designed effectively or that internal control activities will not occur as designed. The occurrence of or failure to remediate a significant deficiency material weakness may adversely affect our reputation and business and the market price of shares of our common stock.
Our net operating losses may not be available
Raising additional capital could cause you to reduce future income tax liability.
We have substantial tax loss carryforwards for U.S. federal income tax purposes, but our ability to use such carryforwards to offset future income or tax liability is limited under section 382 ofincur dilution and could cause the Internal Revenue Code of 1986, as amended, as a result of prior changes in the stock ownership of the Company. Moreover, future changes in the ownershipmarket price of our common stock including those resulting from issuanceto fall.
As of December 31, 2020, options to purchase 15,595,933 shares of our common stock uponwith a weighted-average exercise price of $2.09 per share were outstanding. The exercise of outstanding warrants,any of these options would result in dilution to current stockholders. Further, because we will need to raise additional capital to fund our operations and clinical development programs, we may further limit our ability to use our net operating losses.
Due toin the fact that we have European branches and subsidiaries conducting operations, together with the fact that we are party to certain contractual arrangements denoting monetary amounts in foreign currencies, we are subject to risk regarding currency exchange rate fluctuations.
We are exposed to risks associated with the translation of euro-denominated financial results and accounts into U.S. dollars for financial reporting purposes. The carrying value of the assets and liabilities, as well as the reportedfuture sell substantial amounts of revenuescommon stock or securities convertible into or exchangeable for common stock. Pursuant to our equity incentive plans, our compensation committee is authorized to grant equity-based incentive awards to our employees, directors and expenses, inconsultants. Future option grants and issuances of common stock under our European branches and subsidiaries will be affected by fluctuations in the value of the U.S. dollar as compared to the euro. Any expansion of our commercial operations in Europe (including with regard to sales of PIXUVRI)share-based compensation plans may increase our exposure to fluctuations in foreign currency exchange rates. In addition, certain of our contractual arrangements, such as the Restated Agreement with Servier, denote monetary amounts in foreign currencies, and consequently, the ultimate financial impact to us from a U.S. dollar perspective is subject to significant uncertainty. Furthermore, the referendum in the United Kingdom in June 2016, in which the majority of voters voted in favor of an exit from the European Union has resulted in increased volatility in the global financial markets and caused severe volatility in global currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against the euro. Changes in the value of the U.S. dollar as compared to foreign currencies (in particular, the euro) might have an adverse effect on the market price of our reported operating resultscommon stock.
These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and financial condition.any additional shares of common stock issued in connection with acquisitions, if any, may result in further dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.
We may be unable to obtain the raw materials necessary to produce a particular productIf securities or product candidate.
We mayindustry analysts do not be able to purchase the materials necessary to produce a particular product or product candidate in adequate volume and quality. If any raw material required to produce a product or product candidate is insufficient in quantity or quality, if a supplier fails to deliver in a timely fashion or at allpublish research reports about our business, or if these relationships terminate, we may not be able to qualify and obtain a sufficient supply from alternate sources on acceptable terms, or at all.
Because there is a risk of product liability associated with our compounds, we face potential difficulties in obtaining insurance, and if product liability lawsuits were to be successfully brought against us,they issue an adverse opinion about our business, may be harmed.
Our business exposes us to potential product liability risks inherent in the testing, manufacturing, marketing and sale of human pharmaceutical products. In particular, as a result of the commercialization of PIXUVRI, our risk with respect to potential product liability has increased. If our insurance covering a compound is not maintained on acceptable terms or at all, we might not have adequate coverage against potential liabilities. Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or limit the commercialization of any products we develop. A successful product liability claim could also exceed our insurance coverage and could harm our financial condition and operating results.
We may be subject to claims relating to improper handling, storage or disposal of hazardous materials.
Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations, both internationally and domestically, governing the use, manufacture, storage, handlings, treatment, transportation and disposal of such materials and certain waste products and employee safety and health matters. Although we believe that our safety procedures for handling and disposing of such materials comply with applicable law and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated completely. In the event of such an accident, we could be held liable for any damages that result and any such liability not covered by insurance could exceed our resources. Compliance with environmental, safety and health laws and regulations may be expensive, and current or future environmental regulations may impair our research, development or production efforts.
We depend on sophisticated information technology systems to operate our business and a cyber-attack or other breach of these systems could have a material adverse effect on our business.
We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The size and complexity of our information technology systems makes them vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy or other significant disruption. Any such successful attacks could result in the theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyber-attacks are becoming more sophisticated and frequent. We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. There can be no assurance that these measures and efforts will prevent future interruptions or breakdowns. If we fail to maintain or protect our information
technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to these systems, we could have difficulty preventing, detecting and controlling fraud, have disputes with customers, physicians and other health care professionals, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues or suffer other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition, prospects and cash flows.
Risks Related to the Securities Markets
Sharesmarket price of our common stock are subordinate to existing and any future indebtedness and to any preferred stock we may issue.
Sharesthe trading volume of our common stock rank junior to our existing indebtedness, including under our senior secured term loan agreement and any future indebtedness we may incur, as well as to all creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Our senior secured term loan agreement restricts, and any future indebtedness and preferred stock may restrict, payment of dividends oncould decline.
The trading market for our common stock. Sharesstock is influenced by the research and reports that securities or industry analysts publish about us or our business. If too few securities or industry analysts cover our company, the market price of our common stock will also rank junior to any shares ofwould likely be negatively impacted. If securities and industry analysts who cover us downgrade our preferredcommon stock that we may issue inor publish inaccurate or unfavorable research about our business, the future.
Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the casemarket price of our common stock (i) dividends are payable only when and if declared by our Boardwould likely decline. If one or more of Directors or a duly authorized committeethese analysts cease coverage of our Boardcompany or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause the market price of Directors and (ii) as a corporation, we are restricted to making dividend payments and redemption payments out of legally available assets. We have never paid a dividend on our common stock and have no current intention to pay dividends in the future. Furthermore, our common stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to our shareholders generally.
The market price of sharestrading volume of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of your investment in our securities to sudden decreases.decline.
The market price for securities of biopharmaceutical and biotechnology companies, including ours, historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. For example, during the 12-month period ended February 28, 2018, our stock price ranged from a low of $2.45 to a high of $4.65. Fluctuations in the market price or liquidity of our common stock may harm the value of your investment in our common stock. Factors that may have an impact, which, depending on the circumstances, could be significant, on the market price and marketability of our securities include:
•announcements by us or others of results of clinical trials and regulatory actions, such as the imposition of a clinical trial hold;
•announcements by us or others of serious adverse events that have occurred during administration of our products to patients;
•announcements by us or others relating to our ongoing development and commercialization activities;
•halting or suspension of trading in our common stock on the NASDAQ;
•announcements of technological innovations or new commercial therapeutic products by us, our collaborative partners or our present or potential competitors;
•our issuance of debt or equity securities, which we expect to pursue to generate additional funds to operate our business, or any perception from time to time that we will issue such securities;
•our quarterly operating results;
•liquidity, cash position or financing needs;
•developments or disputes concerning patent or other proprietary rights;
•developments in relationships with collaborative partners;
•acquisitions or divestitures;
•our ability to realize the anticipated benefits of our compounds;
•litigation and government proceedings;
•adverse legislation, including changes in governmental regulation;
•third-party reimbursement policies;
•changes in securities analysts’ recommendations;
•short selling of our securities;
•changes in health care policies and practices;
•a failure to achieve previously announced goals and objectives as or when projected; and
•general economic and market conditions.
Anti-takeover provisions in our charter documents, in our shareholder rights agreement, or rights plan, under Delaware law and in other applicable instruments could make removal of incumbent management or an acquisition of us, which may be beneficial to our shareholders, more difficult.
Provisions of our certificate of incorporation and bylaws may have the effect of deterring or delaying attempts by our shareholders to remove or replace management, to commence proxy contests or to effect changes in control. These provisions include:
•elimination of cumulative voting in the election of directors;
•procedures for advance notification of shareholder nominations and proposals;
•the ability of our Board of Directors to amend our bylaws without shareholder approval; and
•the ability of our Board of Directors to issue shares of preferred stock without shareholder approval upon the terms and conditions and with the rights, privileges and preferences as our Board of Directors may determine.
Pursuant to our rights plan, an acquisition of 20% or more of our common stock by a person or group, subject to certain exceptions, could result in the exercisability of the preferred stock purchase right accompanying each share of our common stock (except those held by a 20% shareholder, which become null and void), thereby entitling the holder to receive upon exercise, in lieu of a number of units of preferred stock, that number of shares of our common stock having a market value of two times the exercise price of the right. The existence of our rights plan could have the effect of delaying, deterring or preventing a third party from making an acquisition proposal for us and may inhibit a change in control that some, or a majority, of our shareholders might believe to be in their best interest or that could give our shareholders the opportunity to realize a premium over the then-prevailing market prices for their shares.
In addition, as a Delaware corporation, we are subject to Delaware’s anti-takeover statute, which imposes restrictions on some transactions between a corporation and certain interested shareholders. Other existing provisions applicable to us that could have an anti-takeover effect include our executive employment agreements and certain provisions of our outstanding equity-based compensatory awards that allow for acceleration of vesting in the event of a change in control.
The foregoing provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We currently lease approximately 66,000 square feet of space at 3101 Western Avenue in Seattle, Washington. The lease commenced in May 2012 and expires in April 2022. Approximately 44,000 square feet of space at this address has been subleased commencing December 2017 and ending April 2022. We also lease approximately 4,700 square feet of warehouse space in Seattle, Washington under a lease expiring in May 2018. We believe our existing and planned facilities are adequate to meet our present requirements. We anticipate that additional space will be available, when needed, on commercially reasonable terms.
Item 3. Legal Proceedings
In April 2009, December 2009Except as set forth in Part II, Item 8, “Financial Statements and June 2010, the Italian Tax Authority, or the ITA, issued notices of assessmentSupplementary Data - Notes to CTIConsolidated Financial Statements - Sede Secondaria, or CTI (Europe), based on the ITA’s audit of CTI (Europe)’s value added tax, or VAT, returns for the years 2003, 2005, 2006Note 14. Commitments and 2007. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). The assessments, including interest and penalties, for the years 2003, 2005, 2006 and 2007 are €0.5 million, €5.5 million, €2.5 million and €0.8 million, respectively. We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We have appealed against all the assessments. As better detailed below, three different procedures have started before the Italian tax courts:
(i)2003 VAT, currently pending before the Supreme Court;
(ii)2005 VAT, decided in favor of CTI with no further potential liabilities for the Company; and
(iii)2006 and 2007 VAT (joined by the judge).
We are defending ourselves against the assessments in the pending procedures (those under (i) and (ii) above) both on procedural grounds and on the merits of the case, although we can make no assurances regarding the ultimate outcome of these cases. If the final decision of the Italian Supreme Court is unfavorable to us, or if, in the interim, the ITA were to make a demand for payment and we were to be unsuccessful in suspending collection efforts, we may be requested to pay the ITA an amount up to €3.9 million or approximately $4.7 million converted using the currency exchange rate as of December 31, 2017, plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment. Following is a summary of the status of the legal proceedings surrounding each respective VAT year return at issue:
•2003 VAT. In September 2011, the Provincial Tax Court issued decision no. 229/3/2011, which (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us, and (iii) found the ITA liable to pay us €10,000, as partial refund of the legal expenses we incurred for our appeal. In October 2012, the ITA appealed this decision. In June 2013, the Regional Tax Court issued decision no. 119/50/13, which accepted the appeal of the ITA and reversed the previous decision of the Provincial Tax Court. We believe that such decision has not carefully taken into account our arguments and the documentation we filed, and therefore appealed such decision in front of the Supreme Court both on procedural grounds and on the merits of the case in January 2014. In January 2014 the Company was provided a notice of payment with which the ITA requested the advance payment of €0.4 million of VAT, interest and penalties. We paid such amount in March 2014.
•2005 VAT. In January 2011, the Provincial Tax Court issued decision No. 4/2010 which (i) partially accepted our appeal and declared that no penalties can be imposed against us, (ii) confirmed the right of the ITA to reassess the VAT (plus interest) in relation to the transactions identified in the 2005 notice of assessment and (iii) repealed the suspension of the notice of deposit payment. Both the ITA and the Company appealed to the higher court against the decision. In October 2012, the Regional Tax Court issued decision no. 127/31/2012, which (i) fully accepted the merits of our appeal and (ii) confirmed that no penalties can be imposed against us. In April 2013, the ITA appealed the decision to the Italian Supreme Court. On January 30, 2018, the Italian Supreme Court issued decision No. 02250/2018 which (i) rejected the appeal of the ITA, (ii) confirmed decision of the Regional Tax Court which ruled fully in our favor, and (iii) due to the novelty of the arguments at stake, compensated the legal expenses incurred by the parties. ITA may not use any ordinary mean of appeal against the Supreme Court decision.
•2006 VAT. In October 2011, the Provincial Tax Court issued decision no. 276/21/2011 (jointly with the 2007 VAT case) in which it (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us, and (iii) found that for the 2006 and 2007 VAT cases the ITA was liable to pay us €10,000 as partial refund of the legal expenses incurred for the appeal. In December 2011, the ITA appealed this decision to the Regional Tax Court. On April 16, 2013, the Regional Tax Court issued decision no. 57/35/13 (jointly with the 2007 VAT case) in which it fully rejected the merits of the ITA’s appeal, declared that no penalties can be imposed against us, and found the ITA liable to pay us €12,000, as partial refund of the legal expenses we incurred for this appeal. In November 2013, the ITA appealed the decision to the Supreme Court.
•2007 VAT. In October 2011, the Provincial Tax Court issued decision no. 276/21/2011 (jointly with the 2006 VAT case described above) in which the Provincial Tax Court (i) fully accepted the merits of our appeal, (ii) declared that no penalties can be imposed against us, and (iii) found that for the 2006 and 2007 VAT cases the ITA was liable to pay us €10,000 as partial refund of the legal expenses incurred for the appeal. In December 2011, the ITA appealed this decision to the Regional Tax Court. On April 16, 2013, the Regional Tax Court issued decision no. 57/35/13 (jointly with the 2006 VAT case) in which it fully rejected the merits of the ITA’s appeal, declared that no penalties can be imposed against us, and found the ITA liable to pay us €12,000, as partial refund of the legal expenses we incurred for this appeal. In November 2013, the ITA appealed the decision to the Supreme Court.
No hearing has been fixed yet for the 2003 and consolidated 2006/2007 VAT cases.
Securities and Exchange Commission Subpoena
We previously disclosed that we had received a subpoena from the SEC in January 2016. We believe that the SEC is seeking to determine whether there have been possible violations of the antifraud and certain other provisions of the federal securities laws related to the Company's disclosures concerning, among other things, the clinical test results of pacritinib. The SEC Staff's letter sent with the subpoena stated that the investigation is a fact-finding inquiry, and the investigation and subpoena do not mean that the SEC has concluded that we or anyone else has violated any law. We are cooperating with this investigation,Contingencies,” which is ongoing.
In re CTI BioPharma Corp. Securities Litigation
On February 10, 2016 and February 12, 2016, class action lawsuits entitled Ahrens v. CTI BioPharma Corp. et al., Case No. 1:16-cv-01044 and McGlothlin v. CTI BioPharma Corp. et al., Case No. C16-216, respectively, were filed in the United States District Court for the Southern District of New York and the United States District Court for the Western District of Washington, respectively, on behalf of shareholders that purchased or acquired the Company’s securities pursuant to our September 24, 2015 public offering and/or shareholders who otherwise acquired our stock between March 4, 2014 and February 9, 2016, inclusive. The complaints assert claims against the Company and certain of our current and former directors and officers for violations of the federal securities laws under Sections 11 and 15 of the Securities Act of 1933, as amended, or the Securities Act, and Sections 10 and 20 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, Plaintiffs’ Securities Act claims allege that the Company’s Registration Statement and Prospectus for the September 24, 2015 public offering contained materially false and misleading statements and failed to disclose certain material adverse facts about the Company’s business, operations and prospects, including with respect to the clinical trials and prospects for pacritinib. Plaintiffs’ Exchange Act claims allege that the Company’s public disclosures were knowingly or recklessly false and misleading or omitted material adverse facts, again with a primary focus on the clinical trials and prospects for pacritinib. On May 2, 2016, the Company filed a motion to transfer the Ahrens case to the United States District Court for the Western District of Washington. The motion was unopposed and grantedincorporated herein by the court on May 19, 2016. On June 3, 2016, the parties filed a joint motion to consolidate the McGlothlin case with the Ahrens case in order to proceed as a single consolidated proceeding. On June 13, 2016, the court granted the motion to consolidate with the action being captioned In re CTI BioPharma Corp. Securities Litigation, Master File No. 2:16-cv-00216-RSL. On September 2, 2016, the court appointed Lead Plaintiffs and Lead Counsel. On September 28, 2016, the court entered a scheduling order, as revised by order entered December 8, 2016, setting November 8, 2016 as the deadline to file a consolidated class action complaint and deadlines for briefing defendants’ motion to dismiss. Briefing concluded on February 22, 2017. The consolidated class action complaint asserts claims similar to those asserted in the initial complaints, although it no longer asserts claims relating to the September 24, 2015 public offering, but adds claims relating to the Company’s October 27, 2015 and December 4, 2015 public offerings. On July 26, 2017,reference, we received a written offer for the global resolution and settlement of the consolidated action in exchange for cash payment of $20.0 million. The Company had insurance coverage related to this matter that covered $18.0 million of the claim. In August 2017, we agreed in principle to the terms of the settlement and submitted the terms and proposed class notice to the court for its
preliminary approval. On October 24, 2017, the court granted preliminary approval, and on February 1, 2018, the court fully and finally approved the settlement and dismissed all claims against the Company with prejudice.
Wei v. James A. Bianco, et al.; England v. James A Bianco, et al; Nahar v. James A. Bianco, et al.; Hill v. James A. Bianco, et al.
On March 14, 2016, a Company shareholder filed the first of four similar derivative lawsuits on behalf of the Company seeking damages for alleged harm to the Company caused by certain current and former officers and directors. The first suit, Wei v. James A. Bianco, et al., 16-2-05818-3, was filed in King County Superior Court, Washington. A second suit, England v. James A. Bianco, et al., 16-2-14422-5, was filed in King County Superior Court, Washington, on June 16, 2016. Two additional derivative suits, Nahar v. James A. Bianco, et al., 2:16-cv-0756, and Hill v. James A. Bianco, et al., 2:16-cv-1250, were filed in the United States District Court for the Western District of Washington on May 24, 2016 and August 9, 2016, respectively. The four suits raise similar allegations and seek similar relief against certain current and former officers and directors, including James A. Bianco, Louis A. Bianco, Jack W. Singer, Bruce J. Seeley, John H. Bauer, Phillip M. Nudelman, Reed V. Tuckson, Karen Ignagni, Richard L. Love, Mary O. Mundinger and Frederick W. Telling. Consistent with the requirements of a derivative action, the Company is named in each suit as a nominal defendant against which no monetary relief is sought. The complaints generally allege claims of: (1) breach of fiduciary duty; (2) abuse of control; (3) gross mismanagement; and (4) waste of corporate assets and (5) unjust enrichment (receiving compensation that was unjust in light of the alleged conduct). Each claim is based on the assertion that the Company made materially false and misleading statements and omitted material information from its disclosures about pacritinib and its safety. Plaintiffs in none of the suits made a pre-suit demand on the current Board to investigate whether to pursue claims against officers or directors, instead claiming demand is excused because the named defendants lack independence, are not disinterested because they lack impartiality, received and want to continue to receive their compensation, have longstanding personal and business relationships, and cannot evaluate a demand since they are facing personal liability. Each of plaintiffs’ suits requested the court to award the Company the damages allegedly sustained as a result of the conduct and to direct the Company and the individual defendants to reform and improve the Company’s corporate governance to avoid future damages. On March 29, 2017 during mediation, the parties to the derivative suits reached an agreementengaged in principle to settle all four suits subject to Board and court approvals. Subject to the terms and conditions in the settlement agreement and court approval, CTI has agreed to adopt certain corporate governance reforms relating to, among other things, the content of CTI-retained independent data monitoring committee charters; engagement if an independent expert or entity to conduct yearly audits of compliance with Good Clinical Practices; the creation of a risk compliance officer position; certain improvements to CTI’s Audit Committee, including the requirement that the Audit Committee review CTI’s periodic public reports to facilitate proper disclosure of risks and risk factors; establishment of an internal audit function that will monitor the Company’s adherence to its policies and procedures, including those related to identification and disclosure of drug candidate safety issues; continuing-education requirements for members of the Board; and improvements to CTI’s nominating committee, compensation committee, and clawback policy. CTI also agreed not to object to an attorneys’ fee application by plaintiffs’ counsel of up to $0.8 million collectively, subject to the terms and conditions in the settlement agreement and court approval. There is no admission of liability or any wrongdoing by any of the individual defendants or CTI. On September 25, 2017, the King County Superior Court entered an order substituting Kevin Hammond for former Lead Plaintiff Gang Wei and Maurio Eley for former Lead Plaintiff Michael England, and the two case captions were amended as reflected above. The parties filed settlement-approval papers on October 26, 2017. On November 21, 2017, the Court preliminarily approved the settlement, and on January 31, 2018, the Court fully and finally approved the settlement and dismissed all claims against the Company and the individual defendants with prejudice.
In connection with the securities litigation and four derivative lawsuits described above, after taking into account our existing insurance coverage, we recorded $2.2 million of settlement expense in Selling, general and administrative expenses in our consolidated statement of operations for the year ended December 31, 2017.
In addition to the items discussed above, we are frommaterial legal proceedings. From time to time, subjectwe may become involved in litigation relating to legal proceedings and claims arising infrom the ordinary course of business. Except as set forth below, we believe that there are no claims or actions pending against us currently, the ultimate disposition of which would have a material adverse effect on our consolidated results of operation, financial condition or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related ShareholderStockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently traded under the symbol “CTIC” on the NASDAQ Capital Market. The following table sets forth, for the periods indicated, the high and low reported sales prices per share of our common stock as reported on the NASDAQNasdaq Capital Market.
|
| | | | | | | |
| High | | Low |
2016 | | | |
First Quarter | $ | 13.20 |
| | $ | 2.51 |
|
Second Quarter | $ | 5.80 |
| | $ | 3.07 |
|
Third Quarter | $ | 4.58 |
| | $ | 3.16 |
|
Fourth Quarter | $ | 5.80 |
| | $ | 3.60 |
|
2017 | | | |
First Quarter | $ | 6.48 |
| | $ | 3.87 |
|
Second Quarter | $ | 4.52 |
| | $ | 2.70 |
|
Third Quarter | $ | 3.84 |
| | $ | 3.07 |
|
Fourth Quarter | $ | 3.45 |
| | $ | 2.45 |
|
On February 28, 2018, the last reported sale price of our common stock on the NASDAQ Capital Market was $4.02 per share. As of February 28, 2018,March 10, 2021, there were 132 shareholders109 stockholders of record of our common stock.
Dividend Policy
We have never declared or paid cash dividends on our common stock and do not currently anticipate declaring or paying cash dividends on our common stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance operations. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and other factors that our Board of Directors may deem relevant.
Sales of Unregistered Securities
Not applicable.
Stock Repurchases in the Fourth Quarter
The following table sets forth information with respect to purchases of our common stock during the three months ended December 31, 2017:
|
| | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
October 1 – October 31, 2017 | 6,799 |
| | $ | 3.31 |
| | — |
| | — |
|
November 1 – November 30, 2017 | 345 |
| | $ | 2.79 |
| | — |
| | — |
|
December 1 – December 31, 2017 | 775 |
| | $ | 2.63 |
| | — |
| | — |
|
Total | 7,919 |
| | $ | 3.22 |
| | — |
| | — |
|
| |
(1) | Represents purchases of shares in connection with satisfying tax withholding obligations on the vesting of restricted stock awards to employees and not pursuant to a publicly announced plan or program. |
Stock Performance Graph
The following graph sets forth the cumulative total shareholder return of our common stock with the cumulative total return of the NASDAQ Stock Index (U.S.) and the NASDAQ Pharmaceutical Index for the five years ended December 31, 2017. The graph assumes $100 was invested in our common stock at the close of market on December 31, 2012. Stockholder return over the indicated period should not be considered indicative of future stockholder returns.
The actual returns shown on the graph above are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/30/2016 | | 12/29/2017 |
CTI BioPharma Corp. | $ | 100.00 |
| | $ | 146.92 |
| | $ | 181.54 |
| | $ | 94.62 |
| | $ | 31.35 |
| | $ | 20.62 |
|
NASDAQ Stock Index (U.S.) | $ | 100.00 |
| | $ | 133.48 |
| | $ | 150.12 |
| | $ | 150.84 |
| | $ | 170.46 |
| | $ | 206.91 |
|
NASDAQ Pharmaceutical Index | $ | 100.00 |
| | $ | 135.68 |
| | $ | 165.28 |
| | $ | 174.27 |
| | $ | 172.37 |
| | $ | 205.33 |
|
The stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into any past or future filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act of 1933 or the Exchange Act.
Item 6. Selected Financial Data
The data set forth below should be read in conjunction with Part II,As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 7, “Management’s Discussion and Analysis301(c) of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto appearing at Item 8 of this Annual Report on Form 10-K.Regulation S-K.
|
| | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands, except per share data) |
Consolidated Statements of Operations Data: | | | |
| | | | | | |
Revenues: | | | |
| | | | | | |
Product sales, net(1) | $ | 853 |
| | $ | 4,127 |
| | $ | 3,472 |
| | $ | 6,909 |
| | $ | 2,314 |
|
License and contract revenue(2) | 24,293 |
| | 53,278 |
| | 12,644 |
| | 53,168 |
| | 32,364 |
|
Total revenues | 25,146 |
| | 57,405 |
| | 16,116 |
| | 60,077 |
| | 34,678 |
|
Operating costs and expenses: | | | | | | | | | |
Cost of product sold(1) | 364 |
| | 1,377 |
| | 1,940 |
| | 895 |
| | 137 |
|
Research and development | 32,866 |
| | 64,961 |
| | 76,627 |
| | 64,596 |
| | 33,624 |
|
Selling, general and administrative | 31,435 |
| | 45,306 |
| | 53,962 |
| | 56,241 |
| | 42,443 |
|
Acquired in-process research and development(3) | — |
| | — |
| | — |
| | 21,859 |
| | — |
|
Other operating (income) expense, net | — |
| | (5,077 | ) | | 253 |
| | 2,719 |
| | — |
|
Total operating costs and expenses, net | 64,665 |
| | 106,567 |
| | 132,782 |
| | 146,310 |
| | 76,204 |
|
Loss from operations | (39,519 | ) | | (49,162 | ) | | (116,666 | ) | | (86,233 | ) | | (41,526 | ) |
Non-operating income (expense): | | | | | | | | | |
Interest expense | (1,872 | ) | | (2,614 | ) | | (2,104 | ) | | (1,947 | ) | | (1,026 | ) |
Amortization of debt discount and issuance costs | (163 | ) | | (214 | ) | | (390 | ) | | (729 | ) | | (513 | ) |
Foreign exchange gain (loss) | 817 |
| | (484 | ) | | (703 | ) | | (4,435 | ) | | 61 |
|
Other non-operating expense | (94 | ) | | (479 | ) | | (900 | ) | | (885 | ) | | (546 | ) |
Total non-operating expense, net | (1,312 | ) | | (3,791 | ) | | (4,097 | ) | | (7,996 | ) | | (2,024 | ) |
Net loss before noncontrolling interest | (40,831 | ) | | (52,953 | ) | | (120,763 | ) | | (94,229 | ) | | (43,550 | ) |
Noncontrolling interest | 161 |
| | 944 |
| | 1,341 |
| | 862 |
| | 807 |
|
Net loss attributable to CTI | (40,670 | ) | | (52,009 | ) | | (119,422 | ) | | (93,367 | ) | | (42,743 | ) |
Deemed dividends on preferred stock | (4,350 | ) | | — |
| | (3,200 | ) | | (2,625 | ) | | (6,900 | ) |
Net loss attributable to common shareholders | $ | (45,020 | ) | | $ | (52,009 | ) | | $ | (122,622 | ) | | $ | (95,992 | ) | | $ | (49,643 | ) |
Basic and diluted net loss per common share(4) | $ | (1.24 | ) | | $ | (1.86 | ) | | $ | (6.51 | ) | | $ | (6.46 | ) | | $ | (4.35 | ) |
Shares used in calculation of basic and diluted net loss per common share(4) | 36,445 |
| | 27,948 |
| | 18,837 |
| | 14,853 |
| | 11,419 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands) |
Consolidated Balance Sheets Data: | | | |
| | | | | | |
Cash, cash equivalents and restricted cash | $ | 43,218 |
| | $ | 44,002 |
| | $ | 128,182 |
| | $ | 70,933 |
| | $ | 71,639 |
|
Working capital | 27,666 |
| | 15,178 |
| | 62,566 |
| | 44,165 |
| | 60,446 |
|
Total assets | 54,886 |
| | 63,843 |
| | 144,197 |
| | 92,122 |
| | 93,464 |
|
Current portion of long-term debt(5) | 444 |
| | 7,949 |
| | 37,371 |
| | 9,014 |
| | 3,155 |
|
Long-term debt, less current portion(5) | 13,575 |
| | 11,311 |
| | 19,124 |
| | 8,198 |
| | 9,893 |
|
Other liabilities | 5,469 |
| | 3,615 |
| | 4,141 |
| | 5,882 |
| | 5,657 |
|
Common stock purchase warrants | — |
| | — |
| | — |
| | 1,445 |
| | 13,461 |
|
Accumulated deficit | (2,195,346 | ) | | (2,150,326 | ) | | (2,098,317 | ) | | (1,975,695 | ) | | (1,879,703 | ) |
Total shareholders’ equity | 16,090 |
| | 7,757 |
| | 47,413 |
| | 38,478 |
| | 42,758 |
|
(1) The amounts relate to commercial sales of PIXUVRI.
(2) The amounts primarily relate to license and development services revenue recognized in connection with the Pacritinib License Agreement, the Servier Original Agreement and the Servier Restated Agreement as well as payments received from Teva upon achievement of sales-based milestones. See Part II, Item 8 "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11. Collaboration, Licensing and Milestone Agreements" for additional information.
(3) The amount in 2014 represents the purchase of certain assets from Chroma Therapeutics Limited. These purchased assets had not reached technological feasibility at the time of acquisition and were therefore expensed to Acquired in-process research and development.
(4) The net loss per share calculation, including the number of shares used in basic and diluted net loss per share, has been adjusted to reflect a one-for-ten reverse stock split on January 1, 2017.
(5) These amounts relate to our senior secured term loan agreements. Also included in 2015 is milestone advance received from Baxalta in June 2015 which obligation was satisfied during the first quarter of 2016. See Part II, Item 8 "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 7. Long-term Debt" for additional information.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, future financial performance, expense levels and liquidity sources, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company focused on the acquisition, development and commercialization of novel targeted therapies covering a spectrum offor blood-related cancers that offer a unique benefit to patients and their healthcare providers. Our goal is to build a profitable company by generating income from products we develop and commercialize, either alone or with partners. We are currently concentratingconcentrate our efforts on treatments that target blood-related cancers where there is an unmet medical need. In particular, we are primarily focused on evaluating pacritinib, our sole product candidate currently in active development, for the treatment of adult patients with myelofibrosis and the further development of PIXUVRI worldwide,myelofibrosis. In addition, we have recently started developing pacritinib for which our partner, Les Laboratoires Servier and Institut de Recherches Internationales Servier, or collectively Servier, has commercialization rights outside the United States.
Key Highlights
Select fiscal year 2017 highlights include:
Research and Development
In August 2017, enrollment was completeduse in the PIX306 Phase 3 trial of PIXUVRI® (pixantrone). The PIX306 trial is evaluating PIXUVRI combined with rituximab in comparison to that of rituximab combined with gemcitabine inhospitalized patients with aggressive B-cell NHL. PIXUVRI has previously been granted conditional marketing authorization fromsevere COVID-19, in response to the European CommissionCOVID-19 pandemic.
Pacritinib is an investigational oral kinase inhibitor with specificity for the treatmentJAK2, IRAK1 and CSF1R. The JAK family of adult patients with multiply relapsed or refractory aggressive B-cell NHL. The trialenzymes is being conducted as a post-authorization requirement of conditional marketing authorization. If positive, the results from this trial could support broader indications. Top-line resultscentral component in signal transduction pathways, which are expected by the end of the first half of 2018.
In July 2017, the first patient was enrolled in PAC203, a Phase 2 clinical trial of pacritinib in patients with primary myelofibrosis who have failed prior ruxolitinib therapy. PAC203 is designedcritical to evaluate the dose response relationship for safety and efficacy (spleen volume reduction at 12 and 24 weeks) of three dose regimens: 100 mg once-daily, 100 mg twice-daily (BID) and 200 mg BID. The 200 mg BID dose regimen was used in the Phase 3 PERSIST-2 trial of pacritinib in patients with myelofibrosis. The trial is expected to enroll up to approximately 105 patients. We expect to complete enrollment by mid-2018. We expect to have interim data from PAC203 by the end of the second quarter of 2018 and topline data in the first quarter of 2019.
In July 2017, the EMA validated the MAA for pacritinib for the treatment of patients with myelofibrosis who have thrombocytopenia (platelet counts less than 100,000 per microliter). Validation confirms that the submission is complete and initiates the centralized review process by the EMA's Committee for Medicinal Products for Human Use.
In April 2017, we announced the expansion of the existing licensenormal blood cell growth and development, collaboration agreement with Servier for PIXUVRI®. Under the expanded agreement, Servier will have rights to PIXUVRI in all markets except in the U.S. where we will retain the commercialization rights. Servier paid us €12.0 million in May 2017 and purchased PIXUVRI drug product for an additional €0.9 million in July 2017. We are eligible to receive up to €75.0 million in additional sales and regulatory milestone payments as well as royalties on net product sales.
Managementinflammatory cytokine expression and Board of Directors
Management
In September 2017, we announced the promotion of David Kirske as Chief Financial Officer, or CFO, of the Company. Mr. Kirske joined the Company earlierimmune responses. Mutations in 2017 and served as the Principal Financial and Accounting Officer priorthese kinases have been shown to being appointed CFO. Mr. Kirske leads CTI BioPharma’s finance, accounting and investor relations teams. Prior to his appointment, Mr. Kirske was an independent chief financial officer consultant since January 2013. As a consultant, he has provided financial management services to public and emerging growth private companies primarily in the biotechnology industry, as well as in the technology and manufacturing industries. Mr. Kirske's financial management experience includes overseeing finance, accounting, operations, and capitalization, in both debt and equity. Prior to his time as a consultant, Mr. Kirske served as Vice President and CFO of Helix BioMedix where he managed all financial and administrative activities. Previously, he was the Treasurer and Corporate Controller for F-5 Networks and Redhook Brewery where he managed both corporate and international entities, and was part of the management teams that led and executed each company’s successful initial public offerings. Earlier in his career, he held a controllership position at Cray Computer. Mr. Kirske holds a B.A. in Business Administration from the University of Puget Sound.
In September 2017, we announced the promotion of Bruce Seeley to Chief Operating Officer of the Company. Mr. Seeley joined the Company in 2015 and served as the Chief Commercial and Administrative Officer and Secretary prior to being appointed Chief Operating Officer. Mr. Seeley has more than 25 years of global commercial experience and a proven track record of successfully launching products in various markets and regulatory environments. Most recently, Mr. Seeley was Senior Vice President and General Manager of Diagnostics at NanoString Technologies Inc., overseeing the launch of the diagnostic product PROSIGNA® for early stage breast cancer. Previously, he was Executive Vice President of Commercial at Seattle Genetics where he built and led the commercial organization, including marketing, sales and managed markets, and successfully launched Seattle Genetic's first product, ADCETRIS®, a targeted therapy for lymphoma. He also previously held key leadership positions in marketing at Genentech (now a member of the Roche Group), where he led the launch of HERCEPTIN® in adjuvant breast cancer. Earlier in his career he held various commercial roles at Aventis Pharmaceuticals Inc. (a part of Sanofi) and Bristol-Myers Squibb Co. Mr. Seeley received a B.A. in Sociology from the University of California at Los Angeles.
In February 2017, we announced the appointment of Adam Craig, M.D., Ph.D., as President and Chief Executive Officer, or CEO, and member of the Company's Board of Directors effective March 20, 2017. Dr. Craig has over 20 years of experience in hematology, oncology and drug development in both the U.S. and Europe. Dr. Craig worked as an independent consultant providing strategic and operational advice and support to CTI BioPharma and other hematology/oncology biotechnology companies. Prior to consulting, Dr. Craig was Chief Medical Officer, or CMO, and Executive Vice President of Development at Sunesis Pharmaceuticals from 2012 to 2016. From 2008 to 2012, Dr. Craig was CMO and Senior Vice President of Chemgenex Pharmaceuticals Ltd. Dr. Craig is a Member of the Royal College of Physicians in the United Kingdom, or U.K., and undertook Post-Graduate Training in Pediatrics and Pediatric Oncology. Dr. Craig earned his Bachelor's and Medical degrees from Charing Cross and Westminster Medical School, University of London, and holds a Ph.D. in Molecular Oncology from Leeds University in the U.K. and an MBA from the Open Business School in the U.K. Dr. Craig recently served as a Product Development Reviewer for the Cancer Prevention Research Institute of Texas.
Board of Directors
In July 2017, Laurent Fischer, M.D. was appointed to the Board of Directors, and in September 2017 he was appointed Chairman of the Board. Dr. Fischer has more than 20 years of experience in developing and commercializing novel medicines in the biopharmaceutical industry and currently serves as liver therapeutic area head at Allergan following its acquisition of Tobira Therapeutics in 2016.
In June 2017, David Parkinson, M.D. was appointed to the Board of Directors. Dr. Parkinson has significant experience in oncology clinical development and is currently President and Chief Executive Officer of Essa Pharmaceuticals, Inc. He and has also served as a venture partner at New Enterprise Associates, Inc., or NEA, since 2012, moving into the role of venture advisor to NEA in 2016.
In January 2017, Michael Metzger was appointed to the Board of Directors. Mr. Metzger has extensive experience leading and growing companies in the biopharmaceutical industry over the last 20 years. Mr. Metzger is currently President and Chief Operating Officer of Syndax Pharmaceuticals, Inc., a publicly traded immuno-oncology biopharmaceutical company. He has served in executive and senior management positions at Regado Biosciences, Mersana Therapeutics, Forest Laboratories and Onconova Therapeutics.
Financial summary
Our revenues are generated from a combination of PIXUVRI sales and collaboration and license agreements. Collaboration revenues reflect the earned amount of upfront payments and milestone payments under our product collaborations. Total revenues were $25.1 million, $57.4 million and $16.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Our loss from operations was $39.5 million, $49.2 million and $116.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. Our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, you should not rely on them as being indicative of our future performance.
See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11. Collaboration, Licensing and Milestone Agreements" for further information relating to our collaboration agreements.
As of December 31, 2017, we had cash, cash equivalents and restricted cash of $43.2 million.
Results of Operations
Years ended December 31, 2017, 2016 and 2015
Product sales, net. Prior to April 2017 when we entered into an Amended and Restated Exclusive License and Collaboration Agreement, or the Restated Agreement, with Servier, we sold PIXUVRI primarily through a limited number of wholesale distributors. Servier is currently responsible for distribution of PIXUVRI in countries other than the U.S. (and its territories and possessions.) We generally record product sales upon receipt of the product by the health care provider or distributor at which time title and risk of loss pass.
Gross sales is defined as our contracted reimbursement price in each country. Gross sales from PIXUVRI for the years ended December 31, 2017, 2016 and 2015 were $1.0 million, $4.2 million and $3.5 million, respectively. Product sales, net represents gross sales, net of provisions for distributor discounts, estimated government-mandated discounts and rebates, trade discounts and estimated product returns. After these provisions, product sales, net from PIXUVRI were $0.9 million, $4.1 million and $3.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The provision for product returns relates to a limited right of return or replacement that we offer to certain customers. Distributor discounts, return and rebates were $0.1 million during the year ended December 31, 2017. There was no material activity related to distributor discounts, returns and rebates during the years ended December 31, 2016 and 2015, and no material balances recorded as of December 31, 2017 and 2016.
The decrease in product sales, net for the year ended December 31, 2017 from the same period in 2016 was primarilybe directly related to the Restated Agreement with Servierdevelopment of a variety of blood-related cancers, including myeloproliferative neoplasms, leukemia and lymphoma. In addition to myelofibrosis, the kinase profile of pacritinib suggests its potential therapeutic utility in April 2017 under which Servier assumed commercialization rightsconditions such as acute myeloid leukemia, or AML, myelodysplastic syndrome, or MDS, chronic myelomonocytic leukemia, or CMML, and chronic lymphocytic leukemia, or CLL, due to PIXUVRIits inhibition of JAK2, IRAK1, FLT3 and CSF1R. We believe pacritinib has the potential to be delivered as a single agent or in all markets except incombination therapy regimens.
We have historically funded our operations through the U.S. The increase in product sales,sale of equity securities, funding received from our licensees and collaborators and debt financing. We do not expect to achieve or sustain profitability for the foreseeable future. We had a net loss of $0.7$52.5 million for the year ended December 31, 2016 compared to the year ended2020 and an accumulated deficit of $2.3 billion as of December 31, 2015 was2020, primarily due to pricing and volume variances between the periods presented, partially offset by a decline in the average exchange rate of the British pound for our pound-denominated sales.
License and contract revenue. License and contract revenue was as follows (in thousands):
|
| | | | | | | | | | | | |
| | Years ended December 31, |
| | 2017 | | 2016 | | 2015 |
Servier | Milestone and license revenue | $ | 12,665 |
| | $ | 7,998 |
| | $ | 1,702 |
|
| Development services revenue | 1,098 |
| | 639 |
| | 103 |
|
| Royalty revenue | 530 |
| | 204 |
| | 24 |
|
| Total Servier | 14,293 |
| | 8,841 |
| | 1,829 |
|
| | | | | | |
Teva | Milestones revenue | 10,000 |
| | — |
| | 10,000 |
|
| Total Teva | 10,000 |
| | — |
| | 10,000 |
|
| | | | | | |
Baxalta | Milestone and license revenue | — |
| | 32,000 |
| | — |
|
| Development services revenue | — |
| | 12,437 |
| | 815 |
|
| Total Baxalta | — |
| | 44,437 |
| | 815 |
|
| | | | | | |
Total license and contract revenue | $ | 24,293 |
| | $ | 53,278 |
| | $ | 12,644 |
|
Servier
In April 2017, in connection with the execution of the Restated Agreement with Servier, we allocated and recorded $11.5 million and $1.3 million of the upfront payment received to license revenue and deferred revenue, respectively. The Restated Agreement with Servier amended and restated in its entirety the Exclusive License and Collaboration Agreement, or the Original Agreement, entered into in September 2014. The remaining deferred revenue balance as of the date of the Restated Agreement relating to the upfront payment under the Original Agreement was $0.6 million, which, along with the $1.3 million of deferred revenue allocated from the Restated Agreement as mentioned above, will be recognized as revenue based upon a proportional performance method.
During the year ended December 31, 2017, we recorded a €1.0 million milestone revenue (or $1.2 million upon conversion from euros as of the date we achieved the milestone) relating to the attainment of a certain regulatory milestone under the Restated Agreement. During the year ended December 31, 2016, we recorded a €7.5 million milestone revenue (or $8.0 million upon conversion from euros as of the date we achieved the milestone) relating to the attainment of a certain
enrollment eventexpenses incurred in connection with our PIX306 study. During the year ended December 31, 2015, we received a €1.5 million milestone payment (or $1.7 million upon conversionresearch programs and from euros as of the date we received the funds) relating to the attainment of reimbursement approval for PIXUVRI in Spain.
Licensegeneral and contract revenue for the years ended December 31, 2017, 2016 and 2015 includes $0.6 million, $0.1 million and $0.1 million, respectively, of development services revenue recognized from the upfront payments we received in connection with the execution of the Restated Agreement in 2017 and the Original Agreement in September 2014. In addition, we recorded revenue of $0.4 million for the reimbursement of expenses related to commercialization transition
under the Restated Agreement during the year ended December 31, 2017. There were no such revenues during the years ended December 31, 2016 and 2015.
In February 2016, we entered into an agreement with one of Servier's affiliates whereby we were to conduct a pharmacokinetic sub-study on behalf of Servier in conjunction with our ongoing clinical trial, PIX-306. During the years ended December 31, 2017 and 2016, $0.1 million and $0.5 million, respectively, of expense reimbursements in relation to this study was included in development services revenue. There was no such revenue during the year ended December 31, 2015. We expect to receive no such development services revenue in future periods as the pharmacokinetic sub-study was completed in September 2017.
Teva
For each of the years ended December 31, 2017 and 2015, we received $10.0 million in milestone payments upon the achievement of worldwide net sales milestones of TRISENOX. We did not receive a milestone payment during the year ended December 31, 2016.
Baxalta
In October 2016, we resumed primary responsibility for the development and commercialization of pacritinib as a result of the termination of the Pacritinib License Agreement. As such, we are no longer eligible to receive cost sharing or milestone payments for pacritinib’s development from Baxalta. For additional information relating to the Pacritinib License Agreement, see Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note11. Collaboration, Licensing and Milestone Agreements."
During the year ended December 31, 2016, we recorded milestone revenue of $32.0 million for achievement of the PERSIST-2 Milestone and the MAA Milestone under the Pacritinib License Agreement. We received the cash advance for these milestone payments in the second quarter of 2015; it was accounted for as long-term debt until the achievement of the associated milestones in the first quarter of 2016. See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 7. Long-term Debt,"for further details. No milestone payments were received during 2015 under the Pacritinib License Agreement.
During the year ended December 31, 2016, we recorded $11.4 million of development services revenue relating to the reimbursable development costs from Baxalta under the terms of the Pacritinib License Agreement. No such revenue was recorded during the same period in 2015.
The license and contract revenue under the Pacritinib License Agreement for the years ended December 31, 2016 and 2015 also included $1.0 million and $0.8 million, respectively, of development services revenue which was recognized based on a proportional performance method from the allocated upfront payment we received in connection with the execution of the Pacritinib License Agreement in 2013.
Operating costs and expenses
Cost of product sold. Cost of product sold is related to sales of PIXUVRI and includes royalty expenses payable under
the agreement with University of Vermont and the Novartis Termination Agreement.
Cost of product sold was $0.4 million, $1.4 million and $1.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Royalty expenses were $0.3 million, $0.2 million and $0.2 million for the same periods.
The decrease in cost of product sold for the year ended December 31, 2017 compared to 2016 was primarily a result of the Restated Agreement we entered into with Servier in April 2017 whereby Servier assumed responsibility for the manufacture and supply of drug products and substances in its respective territories. For additional information, see Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note11. Collaboration, Licensing and Milestone Agreements."
The decrease in cost of product sold by $0.5 million for the year ended December 31, 2016 compared to 2015 was primarily due to a reduction in reserve for excess obsolete or unsalable inventory between periods. Based on assessment of shelf lives and net realizable value of the product, reserves of $0.7 million and $1.3 million were recorded during the years ended December 31, 2016 and 2015, respectively. There was no reserve recorded during the year ended December 31, 2017.
Research and development expenses. Our research and development expenses for compounds under development and preclinical development were as follows (in thousands):
|
| | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 |
Compounds under development: | | | |
| | |
PIXUVRI | $ | 7,419 |
| | $ | 12,009 |
| | $ | 14,465 |
|
Pacritinib | 13,135 |
| | 32,150 |
| | 36,152 |
|
Opaxio | (18 | ) | | 98 |
| | 626 |
|
Tosedostat | (3 | ) | | 1,587 |
| | 920 |
|
Operating expenses | 12,286 |
| | 18,494 |
| | 23,212 |
|
Research and preclinical development | 47 |
| | 623 |
| | 1,252 |
|
Total research and development expenses | $ | 32,866 |
| | $ | 64,961 |
| | $ | 76,627 |
|
Costs for our compounds include external direct expenses such as principal investigator fees, charges from contract research organizations, or CROs, and contract manufacturing fees incurred for preclinical, clinical, manufacturing and regulatory activities associated with preparing the compounds for submissions of NDAs or similar regulatory filings to the FDA, the EMA or other regulatory agencies outside the U.S. and Europe, as well as upfront license fees for acquired technology. Subsequent to receiving a positive opinion for conditional approval of PIXUVRI in the E.U. from the EMA’s CHMP,administrative costs associated with commercial batch production, quality control, stability testing,our operations.
We have incurred significant operating losses to date and certain other manufacturing costsexpect to continue to incur significant expenses and operating losses for at least the next 12 to 24 months. We anticipate that our expenses will increase as we:
•continue our research and clinical development of PIXUVRI were capitalized as inventory. Operating expenses include personnel costspacritinib;
•seek regulatory and an allocation of occupancy, depreciation and amortization expenses associated with developing these compounds. Research and preclinical development costs primarily include costs associated with external laboratory services associated with the compound under development by Aequus Biopharma, Inc. We are not able to capture the total cost of each compound because we do not allocate operating expenses to all of our compounds. External direct costs incurred by us as of December 31, 2017 were $127.8 million for PIXUVRI (excluding costs prior to our 2004 merger with Novuspharma S.p.A, formerly a public pharmaceutical company located in Italy), $128.3 millionmarketing approvals for pacritinib (excluding costsif we successfully complete the remainder of its anticipated clinical development paths;
•maintain, protect and expand our intellectual property portfolio; and
•prepare for pacritinib prior to our acquisitionand execute the commercialization of certain assets from S*BIO in May 2012 and $29.1 million of in-process research and development expenses associated with the acquisition of certain assets from S*BIO), $228.0 million for Opaxio and $13.9 million for tosedostat (excluding costs for tosedostat prior to our co-development and license agreement with Chroma Therapeutics Limited, or Chroma, in 2011 and $21.9 million of inprocess research and development expenses associated with the acquisition of certain assets from Chroma).pacritinib.
Factors Affecting Our Performance
Research and development expenses decreased to $32.9 million for the year ended December 31, 2017 compared to $65.0 million for the year ended December 31, 2016. The decrease of $32.1 million was primarily attributed to to a $19.0 million decrease in pacritinib development costs as a result of the full clinical hold, a $4.6 million reduction of PIXUVRI trial costs and medical affairs and manufacturing activities in the E.U., a $1.6 million decrease in tosedostat drug manufacturing and development costs, a $6.2 million decrease in operating expenses associated with supporting our research and development efforts primarily due to a decline in personnel and a $0.7 million decrease in other development costs.Development Activities
Research and development expenses decreased to $65.0 million for the year ended December 31, 2016 compared to $76.6 million for the year ended December 31, 2015. The decrease of $11.6 million was primarily attributed to a decrease in pacritinib development costs as a result of the full clinical hold, a reduction of PIXUVRI medical affairs and manufacturing activities in the E.U. and a decrease in operating expenses associated with supporting our research and development efforts primarily due to a decline in personnel.
Regulatory agencies, including the FDA and EMA, regulate many aspects of a product candidate’s life cycle, including research and development and preclinical and clinical testing. We will need to commit significant time and resources to develop our current and any future product candidates. Our sole product candidatescandidate currently in active development, pacritinib, and tosedostat areis currently in clinical development and our product PIXUVRI, which is currently being commercialized in parts of Europe, is undergoing a post-authorization trial.two clinical trial pathways. Many drugs in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. We are unable
to provide the nature, timing and estimated costs of the efforts necessary to complete the development of pacritinib
and tosedostat, and to complete the post-authorization PIX306 trial of PIXUVRI, because, among other reasons, we cannot predict with any certainty the pace of patient enrollment of our clinical trials, which is a function of many factors, including the availability and proximity of patients with the relevant condition and the availability of the compounds for use in the applicable trials. We rely on third parties to conduct clinical trials, which may result in delays or failure to complete trials if the third parties fail to perform or meet applicable standards.
Additionally, we continue to evaluate and manage the impact of the COVID-19 global pandemic on our operations and the conduct of our clinical trials, including considerations of the vulnerable nature of the patient population participating in our trials, reduced or halted activities at our clinical trial sites, and an increase in fatalities or other adverse events due to medical problems related to the COVID-19 global pandemic and the benefits of continued patient access to pacritinib. Even after a clinical trial is enrolled, preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval and advancement of this compound through the development process.
Regulatory agencies, including the FDA and EMA, regulate many aspects of a product candidate’s life cycle, including research and development and preclinical and clinical testing. We or regulatory authorities may suspend clinical trials at any time on the basis that the participants are being exposed to unacceptable health risks. For example,In addition, based on February 8, 2016,our interactions with regulatory authorities, we have sought, and may in the FDA placed a fullfuture seek, changes to the protocol of clinical hold on pacritinib.trials if we believe such changes may enhance the probability of approval or are necessary to protect patient safety. Such changes, if any, would impact the size, timing and cost of clinical development. Even if our drugs progressa product candidate progresses successfully through initial human testing in clinical trials, theyit may fail in later stages of development. development, including as a result of a failure to adequately demonstrate safety or efficacy to the satisfaction of applicable regulatory authorities.A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in advanced clinical trials, even after reporting promising results in earlier trials. For these reasons, among others, we cannot estimate the date on which clinical development of ourany product candidatescandidate will be completed, if ever, or when we will generate material net cash inflows from PIXUVRI or be able to begin commercializing pacritinib tosedostat or Opaxio to generate material net cash inflows. In order to generate revenue from any of these compounds, ourany product candidates needcandidate needs to be developed to a stage that will enable us to commercialize, sell or license related marketing rights to third parties.
We may also enter into collaboration agreements for the development and commercialization of our product candidates. We cannot control the amount and timing of resources our collaborators devote to product candidates, which may also result in delays in the development or marketing of products. Because of these risks and uncertainties, we cannot accurately predict when or whether we will successfully complete the development of any of our product candidates or the ultimate product development cost.costs.
The risks and uncertainties associated with completing development on schedule and the consequences to operations, financial position and liquidity if the project is not timely completed are discussed in more detail in our risk factors, which can be found in Part I, Item 1A, “Risk Factors.”Factors” of this Annual Report on Form 10-K.
Selling, generalFinancial Summary
Our license and administrative expenses. Selling, generalcontract revenues reflect the earned amount of upfront payments and administrative expensesmilestone payments under our product collaborations. We did not have any revenue for the year ended December 31, 2020. Total revenues were $31.4$3.3 million for the year ended December 31, 2017 compared2019. Loss from operations was $47.8 million and $40.7 million for the years ended December 31, 2020 and 2019, respectively. Results of operations may vary substantially from year to $45.3year and from quarter to quarter and, as a result, you should not rely on them as being indicative of our future performance.
As of December 31, 2020, we had cash, cash equivalents and short-term investments of $52.5 million.
Results of Operations
Years ended December 31, 2020 and 2019
License and contract revenues. License and contract revenues are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | Years ended December 31, | | |
| | 2020 | | 2019 | | |
Servier | Development services revenue | $ | — | | | $ | 99 | | | |
| Royalty revenue | — | | | 446 | | | |
| Other revenue | — | | | 2,800 | | | |
Total | | $ | — | | | $ | 3,345 | | | |
License and contract revenues for the year ended December 31, 2019 included $0.1 million of development services revenue relating to the reimbursement of certain regulatory agency costs. Other revenue for the year ended December 31, 2019 included a one-time revenue in the amount of $2.2 million recognized in connection with the Asset Purchase Agreement with Les Laboratoires Servier and Institut de Recherches Internationales Servier, or collectively Servier. In addition, other revenue for the year ended December 31, 2019 included $0.6 million of revenue related to transition period activities pursuant to the terms of the Termination Agreement with Servier.
Operating costs and expenses
Research and development expenses. Our research and development expenses for compounds under development and preclinical development were as follows (in thousands):
| | | | | | | | | | | | | |
| Years ended December 31, | | |
| 2020 | | 2019 | | |
Compounds under development: | | | | | |
Pacritinib | $ | 20,463 | | | $ | 16,706 | | | |
PIXUVRI | — | | | 1,290 | | | |
| | | | | |
| | | | | |
Unallocated operating expenses | 5,480 | | | 6,111 | | | |
Total research and development expenses | $ | 25,943 | | | $ | 24,107 | | | |
Costs for our compounds include external direct expenses such as principal investigator fees, charges from contract research organizations, or CROs, and contract manufacturing fees incurred for preclinical, clinical, manufacturing and regulatory activities associated with preparing the compounds for submissions of NDAs or similar regulatory filings to the FDA, the EMA or other regulatory agencies outside the United States and Europe, as well as upfront license fees for acquired technology. Operating expenses include our personnel costs and an allocation of occupancy, depreciation and amortization expenses associated with developing our compounds. We are not able to capture the total cost of each compound because we do not allocate operating expenses to all of our compounds. Cumulative to date external direct costs incurred by us through December 31, 2020 were $183.4 million for pacritinib (excluding costs for pacritinib prior to our acquisition of certain assets from S*BIO in May 2012 and $29.1 million of in-process research and development expenses associated with the acquisition of certain assets from S*BIO). We do not anticipate incurring additional expenses related to PIXUVRI, as the Amended and Restated Exclusive License and Collaboration Agreement, or the Restated Agreement, with Servier was terminated in February 2019, and all of our rights and responsibilities for PIXUVRI were transferred and assigned globally to Servier pursuant to the Asset Purchase Agreement with Servier during the year ended December 31, 2019.
Research and development expenses increased to $25.9 million for the year ended December 31, 2016 and $54.02020 compared to $24.1 million for the year ended December 31, 2015.
2019. The decrease in 2017 from 2016increase of $1.8 million between periods was primarily due to decreases of $11.2 million in personnel costs, $0.7 million in travel costs, $0.2 million in professional fees for marketing initiatives related to our drug candidate, pacritnib, $0.4 million in pacritnib promotional costs previously shared with our collaboration partner, Baxalta, $0.4 million in other professional services associated with PIXUVRI, $1.6 million in legal fees, $0.3 million in general administrative costs and $0.3 million in other expenses. These decreases were offset by $1.2 million primarily relatedattributable to a loss associated with the December 2017 sublease of approximately 44,000 square feet of our office space.
The decrease between 2015 and 2016 was primarily due to decreases in consulting and other professional service costs for PIXUVRI of $4.8$7.8 million professional fees for marketing initiatives related to our drug candidate, pacritnib, of $2.2 million, administrative and travel costs of $2.1 million, primarily due to pacritnib being placed on full clinical hold by the FDA in February 2016, recruiting and other general and administrative consulting fees of $1.9 million, and personel costs of $0.5 million. Offsetting these decreases were $1.4 million in pacritinib promotional costs previously shared with our collaboration partner, Baxalta,increase and a $1.8$5.9 million increase in legal fees.development costs related to the PACIFICA Phase 3 trial and the PRE-VENT Phase 3 trial, respectively, offset by a $8.8 million decrease in development costs from the completion of the PAC203 dosing clinical trial in 2019, a $1.3 million decrease in the PIX306 clinical trial close-out in 2019, a $1.2 million decrease in regulatory and consulting costs as well as a $0.6 million decrease in unallocated operating expenses.
Other operating (income) expense, net. Other net operating income of $5.1General and administrative expenses. General and administrative expenses were $17.6 million for the year ended December 31, 2016 includes a gain of $5.9 million on termination of the Pacritinib License Agreement with Baxalta as well as a $0.8 million expense payable2020 compared to Novartis as a result of a certain enrollment event achieved in December 2016 under the Original Agreement with Servier. Other operating expense of $0.3$19.2 million for the year ended December 31, 2015 relates2019. The decrease of $1.6 million between periods was primarily attributable to payments madea $0.8 million decrease in travel and other expenses, a $0.4 million decrease in tax expenses and a $0.4 million decrease in personnel costs.
Restructuring expenses. In December 2018, we announced a plan to Novartis as a resultreduce our workforce in order to improve efficiencies, reduce costs within the organization and preserve capital for pacritinib development. For the year ended December
31, 2019, we recorded $0.8 million of the milestone achieved under the same agreement in February 2015 relatingrestructuring expenses related to the reimbursement approval for PIXUVRI in Spain.employee separation costs. There waswere no other operating expense or incomesuch expenses for the year ended December 31, 2017. Certain payments are required under2020 as we fully recognized the Novartis Termination Agreement.restructuring expenses during the first quarter of 2019.
Other operating expenses. Other operating expense of $4.2 million for the year ended December 31, 2020 relates to a full provision for uncollectability of our Italian VAT receivables and deposit. See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11. Collaboration, Licensing1. Description of Business and Milestone Agreements" Summary of Significant Accounting Policies - Italian Value Added Tax Receivable for further details. There was no such expense for the year ended December 31, 2019.
Non-operating income and expenses
Interest income. Interest income was $0.2 million and $1.2 million for the years ended December 31, 2020 and 2019, respectively. Interest income was primarily related to our short-term investments and cash equivalent securities. The change was primarily due to decreases in short-term investments and interest rates for the year ended December 31, 2020 as compared to 2019.
Interest expense. Interest expense iswas $0.5 million and $1.0 million for the year ended December 31, 2020 and 2019, respectively. Interest expense was related to our secured term loan. The change between periods primarily relates to a lower average loan principal balance outstanding as well as a lower average interest rate during the year ended December 31, 2020 as compared to 2019.
Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs of $0.5 million for each of the years ended December 31, 2020 and 2019, were primarily related to our senior secured term loans and was $1.9 million, $2.6 million and $2.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Interest expense decreased by $0.7 million between 2016 and 2017 primarily due to the declining principal balance and refinancingloan.
(Loss) gain on dissolution of our senior secured term
loan. Interest expense increased by $0.5 million between 2016 and 2015 primarily due to the additional principal amountssubsidiary. A loss of our senior secured term loan funded in June 2015 and December 2015. See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 7. Long-term Debt"for further details.
Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs for the years ended December 31, 2017, 2016 and 2015 was primarily related to our senior secured term loans.
Foreign exchange gain (loss). The foreign exchange gain was $0.8$3.8 million for the year ended December 31, 2017, and the foreign exchange loss2020 was $0.5 million and $0.7 million for the years ended December 31, 2016 and 2015, respectively. The variances were due to fluctuations in foreign currency exchange rates, primarily related to operationsa loss recognized upon dissolution of our majority-owned subsidiary, Aequus Biopharma, Inc. in our European branches and subsidiaries denominated in foreign currencies.
Other non-operating expense. Other non-operating expenseJune 2020. See Part II, Item 8, Notes to Consolidated Financial Statements, Note 13. Related Party Transactions for further details. A gain of $0.1$1.3 million for the year ended December 31, 2017 primarily relates to a loss on debt extinguishment in connection with the repayment of senior secured term loan from Hercules. Other non-operating expense of $0.5 million for the year ended December 31, 2016 primarily represents the other-than-temporary impairment recognized on our available-for-sale securities during the first quarter of 2016. Other non-operating expense of $0.9 million for the year ended December 31, 20152019 was primarily related to a $1.2 million loss on debt extinguishment in connection with our entry into an amendment to our senior secured term loan agreement, partially offset bygain released from the fair valuecumulative foreign currency translation adjustment of the warrant liability. See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 7. Long-term Debt"for further details.
Deemed dividends on preferred stock. Deemed dividends on preferred stock, approximately $4.4 million and $3.2 million for the years ended December 31, 2017 and 2015, respectively, were related to issuancesaccount upon dissolution of our preferred stock. There were no deemed dividends on preferred stock for the year ended December 31, 2016. See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 8. Preferred Stock" for further details.foreign entity in accordance with ASC 830, Foreign Currency Matters.
Liquidity and Capital Resources
Cash, cash equivalentsSources of Liquidity
We have funded our operations with proceeds from the sales and restricted cash. the issuance of equity securities, payments pursuant to license and collaboration agreements and the incurrence of debt. As of December 31, 2017,2020, we had $43.2$52.5 million in cash, cash equivalents and restricted cash.short-term investments.
Rights offering. In March 2020, we issued 15.7 million shares of our common stock at a $1.00 per share price and 4,429 shares of our Series X Preferred Stock at a $10,000 per share price, collecting net proceeds of $59.1 million upon completion of our rights offering.
At-The-Market Equity Offering. In November 2019, we entered into an Open Market Sale Agreement℠ with Jefferies LLC to sell shares of our common stock, having aggregate sales proceeds of up to $15.0 million, from time to time, through an “at the market” equity offering program under which Jefferies acted as sales agent. In November and December 2020, we sold 2.1 million shares of our common stock for net proceeds of approximately $7.2 million after compensation to Jefferies. As discussed in Note 16. Subsequent Events to our consolidated financial statements, in January 2021 we entered into a new Open Market Sale Agreement℠ with Jefferies LLC to sell shares of our common stock having aggregate sales proceeds of up to $50.0 million, and received approximately $3.0 million in net proceeds as of the date of filing of this Annual Report on Form 10-K.
Loan Agreement. In November 2017, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB, which agreement was amended in May 2018, the proceeds of which were partially used to repay in full all outstanding indebtedness under our Loan and Security Agreement, dated March 26, 2013, as amended, with Hercules Technology Growth Capital, Inc., or Hercules (and certain of its affiliates). As of December 31, 2020, we had an outstanding principal balance under our secured term loan agreement of $4.9 million. We are required to pay interest plus principal payments in the approximate amount of $0.5 million per month until November 1, 2021, with the final principal plus interest payment totaling approximately $0.4 million as well as a back-end fee of $1.4 million. These borrowings are secured by a first priority security interest on substantially all of our personal property except our intellectual property and subject to certain other exceptions. In addition, the secured term loan agreement requires us to comply with restrictive covenants, including those that limit our operating flexibility
and ability to borrow additional funds. A failure to make a required loan payment or a covenant breach could lead to an event of default, and in such case, all amounts then outstanding may become due and payable immediately.
Historical Cash Flows
Net cash used in operating activities. Net cash used in operating activities totaled $39.3was $42.2 million $76.7 million and $95.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease in net cash used in operating activities forduring the year ended December 31, 2017 as2020 compared to $27.8 million for the same period in 20162019. The increase was primarily due to revenue generated in 2019, the decrease in researchtiming of payments and accruals and the 2019 collection of 2018 receivables from license and development and selling, general and administrative expenses, and an increase in license and contract revenue receipts. The decrease in net cash used in operating activities forservices arrangements. During the year ended December 31, 20162019, we received €3.0 million (or $3.3 million using the currency exchange rate as comparedof the date of cash receipt) relating to the same periodattainment of a regulatory milestone in 2015 was primarily dueNovember 2018 under the Restated Agreement with Servier and also collected $10.0 million from Teva relating to increased receipts from license and contract revenue and decreases in spending for research and development and selling, general and administrative expenses, as well as timingthe December 2018 achievement of cash payments related to operating activities between the two periods.a worldwide net sales milestone of TRISENOX.
Net cash used in(used in) provided by investing activities. Net cash used in investing activities totaled $38,000, $0.1was $9.6 million and $0.1 million forduring the yearsyear ended December 31, 2017, 20162020, and 2015, respectively andnet cash provided by investing activities was $28.1 million during the same period in 2019. The change was primarily relatesdue to purchasesthe amounts of property and equipment.short-term investments matured between periods.
Net cash provided by (used in) financing activities. Net cash provided by financing activities totaled $39.0 million and $152.0 million for the years ended December 31, 2017 and 2015, respectively. Net cash used in financing activities was $7.4$61.1 million for the year ended December 31, 2016.
Net cash provided by financing activities for the year ended December 31, 2017 was primarily due to the issuance of our Series N-3 preferred stock in June 20172020, and the proceeds of our senior secured term loan with Silicon Valley Bank, or SVB, partially offset by the repayment of our senior secured term loan with Hercules.
Netnet cash used in financing activities forwas $5.6 million during the year ended December 31, 2016same period in 2019. The change was primarily dueattributable to principal repayments made under the Loan and Security Agreement, or the Loan Agreement, with Hercules as well as the payment of a fee required under the Loan Agreement to Hercules.
Net cash provided by financing activities for the year ended December 31, 2015 was primarily due to the acceleration of the two milestone payments received in the aggregate amount of $32.0 million from Baxalta pursuant to the Pacritinib License Amendment discussed above, as well as due to issuances of common stock, preferred stock and long-term debt. We received
$15.1 million in net proceeds from the issuancecompletion of our common stockrights offering in September 2015. We received $46.7 million inMarch 2020 and the net proceeds from the issuance of our Series N-1 preferred stock in October 2015. We received $52.8 million in net proceeds from the issuance of our Series N-2 preferred stock in December 2015. In June 2015, we entered into the Third Amendment to the Loan Agreement with Hercules, under which we received a total of $5.8 million. Further, we borrowed an additional $5.0 million in December 2015 under the Fourth Amendment to the Loan Agreement. These receipts were offset by repayments to Hercules of $4.7 million made during the six months ended June 30, 2015.at-the-market equity offering.
See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 8. Preferred StockandNote 7. Long-term Debt", which are incorporated herein by reference, for further details.
In October 2016, we resumed primary responsibility for the development and commercialization of pacritinib as a result of the termination of the Pacritinib License Agreement. We currently have no commitments or arrangements for any additional financing to fund the development and commercial launch of pacritinib, and we may need to seek additional funding. The development and commercialization of a major product candidate like pacritinib without a collaborative partner will require a substantial amount of our time and financial resources, and as a result, we could experience a decrease in our liquidity and a new demand on our capital resources. For additional information relating to the Pacritinib License Agreement, see Part II,I, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 11. Collaboration, Licensing and Milestone Agreements." which is incorporated herein by reference.1, “Business - License Agreements - Baxalta” of this Annual Report on Form 10-K.
Capital Resources
We have prepared our consolidated financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. WeHowever, we believe that, as of the date of the filing of this Annual Report on Form 10-K, our present financial resources together with payments projected to be received under certain contractual agreements and our ability to control costs, will only be sufficient to fund our operations throughinto the firstsecond quarter of 2020. However,2021. This raises substantial doubt about our ability to continue as a going concern and we will need to raise substantial additional capital in the near term in order to fund our operations through and beyond the second quarter of 2021 and to continue as a going concern thereafter. See Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on our assessment. Further, we have incurred net losses since inception and expect to generate losses for the foreseeable future, primarily due to research and development costs for PIXUVRI, pacritinib, and tosedostat.pacritinib. Because of our reacquisition of worldwide rights for pacritinib, we are no longer be eligible to receive cost sharing or milestone payments for pacritinib’s development from Baxalta, and losses related to research and development for pacritinib will increase.have increased. We have historically funded our operations through equity financings, borrowings and funds obtained under product collaborations, any or all of which may not be available to us in the future.
As of December 31, 2017,2020, our available cash, cash equivalents and restricted cashshort-term investment totaled $43.2$52.5 million. We had an outstanding principal balance under our senior secured term loan agreement of $16.0 million. In February 2018, we received approximately $64.2$4.9 million in net proceeds from the public offeringas of common stock as discussed in Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 21. Subsequent Events," which is incorporated herein by reference. In addition, we received a $10.0 million milestone payment from Teva Pharmaceutical Industries Ltd. relating to the achievement of a milestone for FDA approval of TRISENOX for first line treatment of acute promyelocytic leukemia.December 31, 2020.
Financial resource forecasts are subject to change as a result of a variety of risks and uncertainties. Changes in manufacturing, developments in and expenses associated with our clinical trials and the other factors identified under “Capital Requirements” below may consume capital resources earlier than planned. Additionally, following our and Servier’s mutual termination of our collaborative agreement, we may notare no longer eligible to receive anticipatedadditional revenues or payments from Servier relating to PIXUVRI. Although we received a $10.0 million milestone payments or achieve projectedpayment from Teva in February 2019, which was recognized as revenue in 2018 relating to the achievement of a worldwide net sales from PIXUVRI.milestone of TRISENOX, the achievement of the remaining milestones is uncertain at this time. Due to these and other factors, the foregoing forecast for the period for which we will have sufficient resources to fund our operations may fail.be inaccurate.
Capital Requirements
We maywill need to acquire additional funds in order to develop our business.business and continue the development of pacritinib. We may seek to raise such capital through public or private equity financings, partnerships, collaborations, joint ventures, disposition of assets, debt financings or restructurings, bank borrowings or other sources of financing. However, we have a limited number of authorized shares of common stock available for issuance and additional funding may not be available on favorable terms or at all. If additional funds are raised by issuing equity securities, substantial dilution to existing shareholdersstockholders may result. If we fail to obtain additional capital when needed, our ability to operate as a going concern will be harmed, and we may be required to delay, scale back or eliminate some or all of our research and development programs and/or reduce our selling, general and administrative expenses, be unable to attract and retain highly qualified personnel, be unable to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms, refrain from making our contractually required payments when due (including debt payments) and/or may be forced to cease operations, liquidate our assets and possibly seek bankruptcy protection.
Our future capital requirements will depend on many factors, including:
•disruptions or other delays to our business and clinical trials resulting from the ongoing worldwide COVID-19 pandemic;
•developments in and expenses associated with our research and development activities;
acquisitions of compounds
•changes in manufacturing;
•our clinical development plans and any changes that we may initiate or that may be requested by the FDA or other assets;regulators;
changes in manufacturing;
•regulatory approval developments;
•our ability to generate sales of PIXUVRI in the U.S.;any approved product;
regulatory approval developments;
•our ability to execute appropriate collaborations for development and commercialization activities;
•our ability to reach milestones triggering payments under certain of our contractual arrangements;
•acquisitions of compounds or other assets;
•litigation and other disputes;
•competitive market developments; and
•other unplanned business developments.
The following table includes information relating to our contractual obligations as of December 31, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
Contractual Obligations | Payments Due by Period |
| Total | | Less than 1 Year | | 1-3 Years | | 4-5 Years | | More than 5 Years |
Operating leases: | |
| | |
| | |
| | |
| | |
|
Facilities (1) | $ | 11,051 |
| | $ | 2,487 |
| | $ | 5,116 |
| | $ | 3,448 |
| | $ | — |
|
Long-term debt (2) | 16,000 |
| | 444 |
| | 10,667 |
| | 4,889 |
| | — |
|
Interest on long-term debt (2) | 2,696 |
| | 1,039 |
| | 1,484 |
| | 173 |
| | — |
|
Purchase commitments (3) | 3,349 |
| | 3,349 |
| | — |
| | — |
| | — |
|
Other obligations (4) | 2,876 |
| | 1,436 |
| | — |
| | 1,440 |
| | — |
|
| $ | 35,972 |
| | $ | 8,755 |
| | $ | 17,267 |
| | $ | 9,950 |
| | $ | — |
|
| |
(1) | In December 2017, we entered into an agreement to sublease approximately 44,000 square feet of our office space. Rental proceeds under this sublease are excluded from contractual obligations and expected to be $0.8 million in fiscal year 2018, $1.4 million in fiscal year 2019, $1.4 million in fiscal year 2020, $1.5 million in fiscal year 2021, and $0.5 million fiscal year 2022. |
| |
(2) | Long-term debt includes the principal payable of $16.0 million under our senior secured term loan. The interest rate on our senior secured term loan floats at a rate per annum equal to the greater of 2.50% above the prime rate and 6.75%. The amounts presented for interest payments in future periods assume a prime rate of 4.50%. See Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 7. Long-term Debt" for further details.
|
| |
(3) | Purchase commitments include obligations related to manufacturing supply, insurance and other purchase commitments. In addition, we have entered into certain clinical trial contracts that are not reflected in the table above as amounts under these contracts, which could be material, are not readily determinable. We anticipate the timing of payments under these contracts to range from less than one year to more than 3 years. |
| |
(4) | Other obligations include $1.4 million in severance payments and a $1.4 million back-end fee due to SVB upon repayment of our senior secured term loan. |
Certain of our licensing agreements obligate us to pay a royalty on net sales of products utilizing licensed compounds. Such royalties are dependent on future product sales and are not provided for in the table above as they are not estimable. See Part I, Item 1, “Business - License Agreements and Additional Milestone Activities” for additional information.
Additional Milestone Activities
In connection with our development and commercialization activities, we have entered into a number of agreements pursuant to which we have agreed to make milestone payments upon certain development, sales-based and other milestone events; assume certain development and other expenses; and pay designated royalties on sales, including the UVM Agreement, the S*BIO Agreement and the Novartis Termination Agreement. In particular, we pay royalties on PIXUVRI net sales pursuant to each of the UVM Agreement and the Novartis Termination Agreement. These agreements are discussed in more detail in Part I, Item 1, “Business - License Agreements and Additional Milestone Activities .”
Impact of Inflation
In the opinion of management, inflation has not had a material effect on our operations including selling prices, capital expenditures and operating expenses.operations.
Critical Accounting Estimates
Management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the U.S.United States in the preparation of our consolidated financial statements. We evaluate our estimates and judgments on an on-going basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates are becoming more challenging. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following estimates are the most critical to us, in that they are important to the portrayal of our consolidated financial statements and require our subjective or complex judgment in the preparation of our consolidated financial statementsstatements:
Research and Development Expenses
We accrue expenses for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. The significant factors used in estimating accruals include the number of patients enrolled, the number of active clinical sites, clinical milestones achieved, the duration for which the patients have been enrolled in the trial, and other criteria
related to the efforts of our vendors. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, review of contractual terms and correspondence with CROs. We base our estimates on the best information available at the time. However, these estimates will be subject to change as additional information becomes available, which will allow us to make a more accurate estimate in future periods. In that event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain. Amounts ultimately incurred in relation to amounts accrued for these services may be substantially higher or lower than our estimates. Depending on the timing of payments to vendors and estimated services provided, we record net prepaid or accrued expenses related to these costs.
Leases
Our operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide a readily determinable implicit rate of return, we use our incremental borrowing rate to derive the present value of lease payments, which is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The other areas that would involve our significant judgment and estimates include the determination of whether an arrangement is a lease or contains a lease, identification of lease modifications and reassessment events, and impairment of right-of-use assets.
Equity-based Compensation Expense
Equity-based compensation expense for all equity-based payment awards made to employees and directors is recognized and measured based on estimated fair values. For option valuations, we have elected to utilize the Black-Scholes valuation method in order to estimate the fair value of options on the date of grant. The risk-free interest rate is based on the implied yield currently available for United States Treasury securities at maturity with an equivalent term. We have not declared or paid dividends on our common stock and do not currently expect to do so in the future. The expected term of options represents the period that our equity-based awards are expected to be outstanding and was determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised options. Consideration was given to the contractual terms of our equity-based awards, vesting schedules and expectations of future employee behavior. Expected volatility is based on the annualized daily historical volatility, including consideration of the implied volatility and market prices of traded options for comparable entities within our industry. These assumptions underlying the Black-Scholes valuation model involve management’s best estimates.
Generally accepted accounting principles for equity-based compensation also require that we recognize compensation expense for only the portion of awards expected to vest. Therefore, we apply an estimated forfeiture rate that we derive from historical employee termination behavior. If the actual number of forfeitures differs from our estimates, adjustments to compensation expense may be required in future periods. For performance-based awards that do not include market-based conditions, we record share-based compensation expense only when the performance-based milestone is deemed probable of achievement. We utilize both quantitative and qualitative criteria to judge whether milestones are probable of achievement. For awards with market-based performance conditions, we recognize the grant-date fair value of the award over the derived service period regardless of whether the underlying performance condition is met.
Contingencies
We are currently involved in various claims and legal proceedings. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates. These revisions in the estimates of the potential liabilities could have a material impact on our consolidated results of operations and financial position.
Revenue Recognition
Our license and collaboration agreements may contain multiple elements as evaluated under ASC 605-25, Revenue Recognition—Multiple-Element Arrangements, including grants of licenses to know-how and patents relating to our product candidates as well as agreements to provide research and development services, regulatory services, manufacturing and commercialization services. Each deliverable under the agreement is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has standalone value to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. This evaluation requires subjective determinations and requires us to make judgments about the selling price of the individual elements and whether such elements are separable from the other aspects of the contractual relationship. Upfront payments for licenses are evaluated to determine if the licensee can obtain standalone value from the license separate from the value of the research and development services and other deliverables in the arrangement to be provided by us. The assessment of multiple element arrangements also requires judgment in order to determine the allocation of revenue to each deliverable and the appropriate point in time, or period of time, that revenue should be recognized. If we determine that the license does not have standalone value separate from the research and development services, the license and the services are combined as one unit of accounting and upfront payments are recorded as deferred revenue in the balance sheet and are recognized as revenue over the estimated performance period that is consistent with the term of performance obligations contained in the collaboration agreement. When standalone value is identified, the related consideration is recorded as revenue in the period in which the license or other intellectual property is delivered.
Our license and collaboration agreements may also contain milestone payments that become due to us upon achievements of certain milestones. Under the milestone method, we recognize revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is an event (1) that can be achieved in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (2) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be
achieved and (3) that would result in additional payments being due to us. A milestone payment is considered substantive when the consideration payable to us for each milestone (1) is consistent with our performance necessary to achieve the milestone or the increase in value to the collaboration resulting from our performance, (2) relates solely to our past performance and (3) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, we consider all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether any portion of the milestone consideration is related to future performance or deliverables.
Share-based Compensation Expense
Share-based compensation expense for all share-based payment awards made to employees and directors is recognized and measured based on estimated fair values. For option valuations, we have elected to utilize the Black-Scholes valuation method in order to estimate the fair value of options on the date of grant. The risk-free interest rate is based on the implied yield currently available for U.S. Treasury securities at maturity with an equivalent term. We have not declared or paid dividends on our common stock and do not currently expect to do so in the future. The expected term of options represents the period that our share-based awards are expected to be outstanding and was determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised options. Consideration was given to the contractual terms of our share-based awards, vesting schedules and expectations of future employee behavior. Expected volatility is based on the annualized daily historical volatility, including consideration of the implied volatility and market prices of traded options for comparable entities within our industry. These assumptions underlying the Black-Scholes valuation model involve management’s best estimates.
For more complex awards, such as our long-term performance awards, or the Long-Term Performance Awards, discussed in the Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 12. Share-Based Compensation" contained herein, we employ a Monte Carlo simulation model to calculate estimated grant-date fair value. For the Long-Term Performance Awards, the average present value is calculated based upon the expected date the award will vest, or the event date, the expected stock price on the event date and the expected current shares outstanding on the event date. The event date, stock price and the shares outstanding are estimated using the Monte Carlo simulation model, which is based on assumptions by management, including the likelihood of achieving milestones and potential future financings. These assumptions impact the fair value of the equity-based award and the expense that will be recognized over the life of the award.
Generally accepted accounting principles for share-based compensation also require that we recognize compensation expense for only the portion of awards expected to vest. Therefore, we apply an estimated forfeiture rate that we derive from historical employee termination behavior. If the actual number of forfeitures differs from our estimates, adjustments to compensation expense may be required in future periods. For performance-based awards that do not include market-based conditions, we record share-based compensation expense only when the performance-based milestone is deemed probable of achievement. We utilize both quantitative and qualitative criteria to judge whether milestones are probable of achievement. For awards with market-based performance conditions, we recognize the grant-date fair value of the award over the derived service period regardless of whether the underlying performance condition is met.
Going Concern
Our financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Recently Issued and Adopted Accounting Pronouncements
For a description of recently issued and adopted accounting pronouncements, including the expected effects on our results of operations and financial condition, refer to Part II, Item 8, "Financial“Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 1. Description of Business and Summary of Significant Accounting Policies,"” which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Market RiskAs a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 305(e) of Regulation S-K.
We are exposed to risks associated with the translation of euro-denominated financial results and accounts into U.S. dollars for financial reporting purposes. The carrying value of the assets and liabilities held in our European branches and subsidiaries will be affected by fluctuations in the value of the U.S. dollar as compared to the euro. In addition, certain of our contractual arrangements, such as the Restated Agreement with Servier, denote monetary amounts in foreign currencies, and consequently, the ultimate financial impact to us from a U.S. dollar perspective is subject to significant uncertainty. Changes in the value of the U.S. dollar as compared to applicable foreign currencies (in particular, the euro) might have an adverse effect on our reported results of operations and financial condition. As the net positions of our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. As of December 31, 2017, we had a net asset balance, excluding intercompany payables and receivables, in our European branches and subsidiaries denominated in euros. If the euro were to weaken 20 percent against the dollar, our net asset balance would decrease by approximately $1.5 million as of this date.
Interest Rate Risk
Our senior secured term loan bears interest at variable rates. Based on the outstanding principal balance under such loan at December 31, 2017 of $16.0 million, a hypothetical increase of 1.0 percent in interest rates would result in additional interest expense of $0.4 million over the next twelve months. For a detailed discussion of our senior secured term loan, including a discussion of the applicable interest rate, refer to the Part II, Item 8, "Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 7. Long-term Debt."
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
CTI BioPharma Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CTI BioPharma Corp. (the “Company”)Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive loss, shareholders’stockholders' equity and cash flows for each of the threetwo years in the period ended December 31, 2017,2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(ii)(collectively(collectively referred to as the “financial statements”).consolidated) financial statements. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2020, in conformity with accounting principlesU.S. generally accepted accounting principles.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the United States of America.
We also have audited, in accordance withfinancial statements, the standardsCompany has suffered losses from operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the Public Company Accounting Oversight Board (United States) ("PCAOB"),events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the Company's internal control over financial reporting asoutcome of December 31, 2017, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 7, 2018, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company'sCompany’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
/s/ Marcum
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accrued Clinical Trial Expenses
| | | | | |
Description of the Matter | As of December 31, 2020, the Company recorded $3.5 million for accrued clinical trial expenses. As described in Note 4 to the consolidated financial statements, the Company’s expense accruals for clinical trials are based on estimates of contracted services provided by third-party vendors not yet billed. Management is required to make estimates of outstanding obligations to those third-party vendors as of period end regardless of how timely invoices are sent to the Company and whether or not billing terms under vendor contracts coincide with the timing of when services are provided. Accrual estimates are based on a number of factors, including management’s knowledge of the research and development programs and clinical activities, invoicing to date, and the provisions in vendor contracts. If possible, the Company obtains information regarding unbilled services directly from its service providers and performs procedures to challenge these estimates based on its internal understanding of the services provided to date. However, the Company may also be required to estimate these services based on information available to its internal clinical or administrative staff if such information is not able to be obtained timely from its service providers.
Auditing accrued clinical trial expenses is complex because of the judgments applied by management to determine the commencement and completion date of vendor tasks and the extent of work performed during the reporting period for services not yet billed by contracted third-party vendors.
|
How We Addressed the Matter in Our Audit | We obtained an understanding of the Company’s process for estimating the accrued clinical trial expenses. To test the estimate of accrued clinical trial expenses, we performed audit procedures that included, among others, direct confirmation of billed and unbilled amounts with a sample of the Company’s third-party vendors. We confirmed progress of contracted clinical activities with third-party vendors and compared such data to the Company’s estimates of progress as reflected in their accrual models. We further tested the accuracy of the calculations; the reliability, completeness and relevance of management’s data utilized; and the reasonableness of the assumptions used in management’s accrual models by testing actual invoices paid to date, agreeing inputs back to contractual terms and holding discussions with clinical or administrative staff outside of the finance function to corroborate progress and estimated level of expended effort incurred by the Company’s third-party vendors. |
/s/ Ernst & Young LLP
Marcum LLP
We have served as the Company’s auditor since 2005.2018.
San Francisco, CASeattle, Washington
March 7, 201817, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of
CTI BioPharma Corp.
Opinion on Internal Control over Financial Reporting
We have audited CTI BioPharma Corp.'s (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2017 and 2016 and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a)(ii), of the Company and our report dated March 7, 2018expressed an unqualified opinion on those financial statements and financial statement schedule.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.
/s/ Marcum LLP
Marcum LLP
San Francisco, CA
March 7, 2018
CTI BIOPHARMA CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
| | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 |
ASSETS | |
| | | ASSETS | | | |
Current assets: | |
| | | Current assets: | | | |
Cash and cash equivalents | $ | 27,218 |
| | $ | 44,002 |
| Cash and cash equivalents | $ | 40,394 | | | $ | 31,144 | |
Restricted cash | 16,000 |
| | — |
| |
Accounts receivable | 4 |
| | 378 |
| |
Receivable from collaborative arrangements | 1,278 |
| | 7,778 |
| |
Inventory, net | 550 |
| | 1,525 |
| |
| Short-term investments | | Short-term investments | 12,057 | | | 2,522 | |
| Prepaid expenses and other current assets | 1,874 |
| | 2,141 |
| Prepaid expenses and other current assets | 1,874 | | | 1,914 | |
Total current assets | 46,924 |
| | 55,824 |
| Total current assets | 54,325 | | | 35,580 | |
Property and equipment, net | 2,365 |
| | 3,023 |
| Property and equipment, net | 719 | | | 1,235 | |
Other assets | 5,597 |
| | 4,996 |
| Other assets | 3,197 | | | 9,465 | |
Total assets | $ | 54,886 |
| | $ | 63,843 |
| Total assets | $ | 58,241 | | | $ | 46,280 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | |
| | | Current liabilities: | | | |
Accounts payable | $ | 2,588 |
| | $ | 7,227 |
| Accounts payable | $ | 1,637 | | | $ | 0 | |
Accrued expenses | 13,890 |
| | 24,765 |
| Accrued expenses | 7,191 | | | 11,606 | |
Current portion of deferred revenue | 912 |
| | 103 |
| |
| Current portion of long-term debt | 444 |
| | 7,949 |
| Current portion of long-term debt | 4,455 | | | 4,812 | |
Other current liabilities | 1,424 |
| | 602 |
| Other current liabilities | 3,755 | | | 2,070 | |
Total current liabilities | 19,258 |
| | 40,646 |
| Total current liabilities | 17,038 | | | 18,488 | |
Deferred revenue, less current portion | 494 |
| | 514 |
| |
| Long-term debt, less current portion | 13,575 |
| | 11,311 |
| Long-term debt, less current portion | 0 | | | 4,455 | |
Other liabilities | 5,469 |
| | 3,615 |
| Other liabilities | 1,174 | | | 5,407 | |
Total liabilities | 38,796 |
| | 56,086 |
| Total liabilities | 18,212 | | | 28,350 | |
Commitments and contingencies |
|
| |
| |
Shareholders' equity: | |
| | | |
Preferred stock, no par value: | | | | |
Commitments and contingencies (Note 14) | | Commitments and contingencies (Note 14) | 0 | | 0 |
Stockholders' equity: | | Stockholders' equity: | | | |
Preferred stock, $0.001 par value per share: | | Preferred stock, $0.001 par value per share: | |
Authorized shares - 33,333 | | | | Authorized shares - 33,333 | |
Series N-3 Preferred Stock, $2,000 stated value per share, 22,500 shares designated, 575 and 0 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 1,090 |
| | — |
| |
Common stock, no par value: | |
| | | |
Authorized shares - 81,500,000 and 41,500,000 at December 31, 2017 and 2016, respectively | |
| | | |
Issued and outstanding shares - 42,969,494 and 28,228,602 at December 31, 2017 and 2016, respectively | 2,222,341 |
| | 2,170,300 |
| |
Accumulated other comprehensive loss | (6,272 | ) | | (6,655 | ) | |
Series O Preferred Stock, 12,575 shares issued and outstanding as of December 31, 2020 and 2019 (Aggregate liquidation preference of $25,150 as of December 31, 2020 and 2019) | | Series O Preferred Stock, 12,575 shares issued and outstanding as of December 31, 2020 and 2019 (Aggregate liquidation preference of $25,150 as of December 31, 2020 and 2019) | 0 | | | 0 | |
Series X Preferred Stock, 4,429 shares and 0 shares issued and outstanding as of December 31, 2020 and 2019, respectively (Aggregate liquidation preference of $44,290 and $0 as of December 31, 2020 and 2019, respectively) | | Series X Preferred Stock, 4,429 shares and 0 shares issued and outstanding as of December 31, 2020 and 2019, respectively (Aggregate liquidation preference of $44,290 and $0 as of December 31, 2020 and 2019, respectively) | 0 | | | 0 | |
Common stock, $0.001 par value per share: | | Common stock, $0.001 par value per share: | | | |
Authorized shares - 166,500,000 and 131,500,000 as of December 31, 2020 and 2019, respectively | | Authorized shares - 166,500,000 and 131,500,000 as of December 31, 2020 and 2019, respectively | | | |
Issued and outstanding shares - 75,896,884 and 57,979,725 as of December 31, 2020 and 2019, respectively | | Issued and outstanding shares - 75,896,884 and 57,979,725 as of December 31, 2020 and 2019, respectively | 76 | | | 58 | |
Additional paid-in capital | | Additional paid-in capital | 2,367,958 | | | 2,299,186 | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | 2 | | | 0 | |
Accumulated deficit | (2,195,346 | ) | | (2,150,326 | ) | Accumulated deficit | (2,328,007) | | | (2,275,556) | |
Total CTI shareholders' equity | 21,813 |
| | 13,319 |
| |
Total CTI stockholders' equity | | Total CTI stockholders' equity | 40,029 | | | 23,688 | |
Noncontrolling interest | (5,723 | ) | | (5,562 | ) | Noncontrolling interest | 0 | | | (5,758) | |
Total shareholders' equity | 16,090 |
| | 7,757 |
| |
Total liabilities and shareholders' equity | $ | 54,886 |
| | $ | 63,843 |
| |
Total stockholders' equity | | Total stockholders' equity | 40,029 | | | 17,930 | |
Total liabilities and stockholders' equity | | Total liabilities and stockholders' equity | $ | 58,241 | | | $ | 46,280 | |
See accompanying notes.
CTI BIOPHARMA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenues: | | | | | |
Product sales, net | $ | 853 |
| | $ | 4,127 |
| | $ | 3,472 |
|
License and contract revenue | 24,293 |
| | 53,278 |
| | 12,644 |
|
Total revenues | 25,146 |
| | 57,405 |
| | 16,116 |
|
Operating costs and expenses: | |
| | |
| | |
|
Cost of product sold | 364 |
| | 1,377 |
| | 1,940 |
|
Research and development | 32,866 |
| | 64,961 |
| | 76,627 |
|
Selling, general and administrative | 31,435 |
| | 45,306 |
| | 53,962 |
|
Other operating (income) expense, net | — |
| | (5,077 | ) | | 253 |
|
Total operating costs and expenses, net | 64,665 |
| | 106,567 |
| | 132,782 |
|
Loss from operations | (39,519 | ) | | (49,162 | ) | | (116,666 | ) |
Non-operating expense: | |
| | |
| | |
|
Interest expense | (1,872 | ) | | (2,614 | ) | | (2,104 | ) |
Amortization of debt discount and issuance costs | (163 | ) | | (214 | ) | | (390 | ) |
Foreign exchange gain (loss) | 817 |
| | (484 | ) | | (703 | ) |
Other non-operating expense | (94 | ) | | (479 | ) | | (900 | ) |
Total non-operating expense, net | (1,312 | ) | | (3,791 | ) | | (4,097 | ) |
Net loss before noncontrolling interest | (40,831 | ) | | (52,953 | ) | | (120,763 | ) |
Noncontrolling interest | 161 |
| | 944 |
| | 1,341 |
|
Net loss attributable to CTI | (40,670 | ) | | (52,009 | ) | | (119,422 | ) |
Deemed dividends on preferred stock | (4,350 | ) | | — |
| | (3,200 | ) |
Net loss attributable to common shareholders | $ | (45,020 | ) | | $ | (52,009 | ) | | $ | (122,622 | ) |
Basic and diluted net loss per common share | $ | (1.24 | ) | | $ | (1.86 | ) | | $ | (6.51 | ) |
Shares used in calculation of basic and diluted net loss per common share | 36,445 |
| | 27,948 |
| | 18,837 |
|
| | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | |
| | | | | |
License and contract revenues | $ | 0 | | | $ | 3,345 | | | |
| | | | | |
| | | | | |
Operating costs and expenses: | | | | | |
| | | | | |
Research and development | 25,943 | | | 24,107 | | | |
General and administrative | 17,626 | | | 19,155 | | | |
| | | | | |
Restructuring expenses | 0 | | | 794 | | | |
Other operating expenses | 4,200 | | | 0 | | | |
Total operating costs and expenses | 47,769 | | | 44,056 | | | |
Loss from operations | (47,769) | | | (40,711) | | | |
Non-operating income (expense): | | | | | |
Interest income | 204 | | | 1,172 | | | |
Interest expense | (511) | | | (1,002) | | | |
Amortization of debt discount and issuance costs | (521) | | | (521) | | | |
Foreign exchange loss | (80) | | | (281) | | | |
(Loss) gain on dissolution of subsidiary | (3,774) | | | 1,320 | | | |
| | | | | |
Total non-operating (income) expense, net | (4,682) | | | 688 | | | |
Net loss before noncontrolling interest | (52,451) | | | (40,023) | | | |
Noncontrolling interest | 0 | | | 3 | | | |
Net loss | $ | (52,451) | | | $ | (40,020) | | | |
| | | | | |
| | | | | |
Basic and diluted net loss per common share | $ | (0.74) | | | $ | (0.69) | | | |
Shares used in calculation of basic and diluted net loss per common share | 71,141 | | | 57,974 | | | |
See accompanying notes.
CTI BIOPHARMA CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
| | | Year Ended December 31, | | Year Ended December 31, | |
| 2017 | | 2016 | | 2015 | | 2020 | | 2019 | |
Net loss before noncontrolling interest | $ | (40,831 | ) | | $ | (52,953 | ) | | $ | (120,763 | ) | Net loss before noncontrolling interest | $ | (52,451) | | | $ | (40,023) | | |
Other comprehensive income (loss): | |
| | |
| | |
| Other comprehensive income (loss): | | | | |
Foreign currency translation adjustments | (3,927 | ) | | 947 |
| | 2,160 |
| Foreign currency translation adjustments | 0 | | | (2,323) | | |
Unrealized foreign exchange gain (loss) on intercompany balance | 4,303 |
| | (1,162 | ) | | (2,585 | ) | |
Other-than-temporary impairment on available-for-sale securities | — |
| | 520 |
| | — |
| |
Net unrealized income (loss) on securities available-for-sale | 7 |
| | (8 | ) | | (28 | ) | |
Unrealized foreign exchange gain on intercompany balance | | Unrealized foreign exchange gain on intercompany balance | 0 | | | 957 | | |
| Net unrealized gain on securities available-for-sale | | Net unrealized gain on securities available-for-sale | 2 | | | 16 | | |
Other comprehensive income (loss) | 383 |
| | 297 |
| | (453 | ) | Other comprehensive income (loss) | 2 | | | (1,350) | | |
Comprehensive loss | (40,448 | ) | | (52,656 | ) | | (121,216 | ) | Comprehensive loss | (52,449) | | | (41,373) | | |
Comprehensive loss attributable to noncontrolling interest | 161 |
| | 944 |
| | 1,341 |
| Comprehensive loss attributable to noncontrolling interest | 0 | | | 3 | | |
Comprehensive loss attributable to CTI | $ | (40,287 | ) | | $ | (51,712 | ) | | $ | (119,875 | ) | Comprehensive loss attributable to CTI | $ | (52,449) | | | $ | (41,370) | | |
See accompanying notes.
CTI BIOPHARMA CORP.
See accompanying notes.
CTI BIOPHARMA CORP.
See accompanying notes.
We operate in a highly regulated and competitive environment. The manufacturing and marketing of pharmaceutical products requires approval from, and is subject to, ongoing oversight by the Food and Drug Administration, or the FDA, in the United States, or the U.S., the European Medicines Agency, or the EMA, in the European Union, or the E.U.,EU, and comparable agencies in other countries. Obtaining approval for a new therapeutic product is never certain, may take many years and may involve the expenditure of substantial resources.
We source our drug products for clinical trials from a concentrated group of third-party contractors. If we are unable to obtain sufficient quantities of source materials, manufacture or distribute our products to customers from existing suppliers and service providers, or obtain the materials or services from other suppliers, manufacturers or distributors, certain research and development and sales activities may be delayed.
We record a tax provision for the anticipated tax consequences of our results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates in effect for the years in which those tax assets and liabilities are expected to be realized or settled. We provide a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.
Certain prior year items have been reclassified to conform to current year presentation.
2. InventoryProperty and Equipment