ANNUAL REPORT
2019
To Our Shareholders:
It is a great privilege to highlight Phathom Pharmaceuticals’ 2019 achievements. A year
that included many “firsts” – beginning with the creation of our company in May 2019
when Takeda Pharmaceutical Company and Frazier Healthcare Partners announced the
collaboration to launch Phathom, a late clinical-stage biotechnology company focused
on innovative treatments for gastrointestinal (GI) diseases and disorders.
Together with the healthcare and GI community, we are excited about the potential of our lead asset,
vonoprazan, a potassium competitive acid blocker (P-CAB) and potentially a first-in-class and best-in-
class therapeutic. In our first six months as a company, we:
» were granted Qualified Infectious Disease Product (QIDP) designation from the FDA for vonoprazan
in combination with both amoxicillin and clarithromycin and in combination with amoxicillin alone for
the treatment of Helicobacter pylori (H. pylori) infection;
»
»
»
»
received FDA Fast Track designation for vonoprazan for the treatment of H. pylori infection;
garnered IND clearance from the FDA for PHALCON-HP and PHALCON-EE – our pivotal Phase 3 trials
for vonoprazan in H. pylori and erosive esophagitis, respectively;
initiated enrollment in both our PHALCON-EE and PHALCON-HP trials; and
raised over $209 million in gross proceeds during our IPO, paving the way for us to grow our organization
with top talent and seasoned leadership to help ensure Phathom is a leader in the GI space.
Our initial development program is focused on two indications: treatment of erosive gastroesophageal
reflux disease or erosive esophagitis (EE) and treatment of H. pylori infection. For patients with either
condition, there is a large unmet need as there has been no new innovative therapies in these spaces for
over 25 years.
Our goal is to change all that and to provide patients and healthcare providers with increased efficacy,
prolonged duration of activity, and ultimately a new treatment paradigm. Vonoprazan has been studied in
more than 18 Phase 3 clinical trials and is approved in more than a dozen countries. In Japan, the market
where vonoprazan was first approved, it is the market leader for both EE and H. pylori.
With vonoprazan as the cornerstone and a team of passionate and experienced employees, we are well
positioned to develop and commercialize vonoprazan while building Phathom into a leading GI company.
While 2020 has thus far presented unprecedented challenges for global healthcare systems as well as the
entire global community, we believe Phathom is poised to be a leading gastrointestinal company. Thank
you for your continued support.
Sincerely,
Terrie Curran
President & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number: 001-39094
PHATHOM PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
100 Campus Drive, Suite 102
Florham Park, New Jersey
(Address of Principal Executive Offices)
82-4151574
(I.R.S. Employer
Identification No.)
07932
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (877) 742-8466
Title of each class
Common Stock, par value $0.0001 per share
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
PHAT
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☒
☒
Accelerated filer
Smaller reporting company
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of October 31, 2019, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately
$366.4 million, based on the closing price of the registrant’s common stock on the Nasdaq Global Select Market of $23.62 per share. The registrant has
elected to use October 31, 2019 as the calculation date, as on June 30, 2019 (the last business day of the registrant’s most recently completed second fiscal
quarter) the registrant was a privately-held concern.
As of March 12, 2020, the registrant had 28,964,506 shares of common stock ($0.0001 par value) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant’s definitive proxy statement for the 2020 annual meeting of stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by
reference into Part III of this Form 10-K.
PHATHOM PHARMACEUTICALS, INC.
TABLE OF CONTENTS
FORM 10-K
For the Year Ended December 31, 2019
INDEX
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
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PART I
This annual report on Form 10-K contains forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of
historical facts contained in this annual report, including statements regarding our future results of operations and
financial position, business strategy, research and development plans and costs, the timing and likelihood of
regulatory filings and approvals, commercialization plans, pricing and reimbursement, the potential to develop
future product candidates, the timing and likelihood of success of the plans and objectives of management for future
operations, and future results of anticipated product development efforts, are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. This annual report on Form 10-K also
contains estimates and other statistical data made by independent parties and by us relating to market size and
growth and other data about our industry. This data involves a number of assumptions and limitations, and you are
cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our
future performance and the future performance of the markets in which we operate are necessarily subject to a high
degree of uncertainty and risk.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,”
“expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-
looking statements in this annual report are only predictions. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends that we believe may
affect our financial condition, operating results, business strategy, and short term and long term business operations
and objectives. These forward-looking statements speak only as of the date of this annual report and are subject to a
number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, “Risk Factors.” The
events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual
results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an
evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for
management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to
publicly update or revise any forward-looking statements contained herein, whether as a result of any new
information, future events, changed circumstances or otherwise.
This annual report includes trademarks, tradenames and service marks that are the property of other
organizations. Solely for convenience, trademarks and tradenames referred to in this annual report appear without
the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the
fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these
trademarks and tradenames.
We maintain a website at www.phathompharma.com, to which we regularly post copies of our press releases
as well as additional information about us. Our filings with the Securities and Exchange Commission, or SEC, are
available free of charge through our website as soon as reasonably practicable after being electronically filed with or
furnished to the SEC. Information contained in our website does not constitute a part of this report or our other
filings with the SEC.
3
Item 1.
Business
Overview
We are a late clinical-stage biopharmaceutical company focused on developing and commercializing novel
treatments for gastrointestinal, or GI, diseases. Our initial product candidate, vonoprazan, is an oral small molecule
potassium-competitive acid blocker, or P-CAB. P-CABs are a novel class of medicines that block acid secretion in
the stomach. Vonoprazan has shown rapid, potent, and durable anti-secretory effects and has demonstrated clinical
benefits over the current standard of care as a single agent in the treatment of gastroesophageal reflux disease, or
GERD, and in combination with antibiotics for the treatment of Helicobacter pylori, or H. pylori, infection. Takeda
Pharmaceutical Company Limited, or Takeda, developed vonoprazan and has received marketing approval in
thirteen countries in Asia and Latin America. Vonoprazan generated over $500 million in net sales in its fourth full
year on the market since its approval in Japan in late 2014. In May 2019, we in-licensed the U.S., European, and
Canadian rights to vonoprazan from Takeda.
We believe we can leverage Takeda’s extensive clinical data, including results from 18 Phase 3 clinical trials,
to advance vonoprazan through pivotal trials in the United States and Europe. We initiated two pivotal Phase 3
clinical trials in the fourth quarter of 2019 for vonoprazan: one for the treatment of erosive GERD (PHALCON-EE),
also known as erosive esophagitis, and a second for the treatment of H. pylori infection (PHALCON-HP). In March
2020, due to global efforts to combat the coronavirus, COVID-19 pandemic, which has resulted in travel restrictions
imposed by many state, local and international governments as well as guidance from the American Society of
Gastrointestinal Endoscopy on limiting endoscopies, which are required in both Phase 3 trials, we announced a
pause in randomization of new patients in our Phase 3 trials. Despite this pause, we still expect to report top-line
data from both trials in 2021. We believe that the successful completion of our Phase 3 clinical trials, together with
the existing clinical data, will support regulatory submissions in 2021 and 2022 for marketing approval for the
treatment of H. pylori infection and erosive esophagitis, respectively. We have received qualified infectious disease
product, or QIDP, and Fast Track designations from the U.S. Food and Drug Administration, or FDA, for
vonoprazan in combination with certain antibiotics for the treatment of H. pylori infection. QIDP designation also
provides potential eligibility for priority review and extension of any regulatory exclusivity awarded, if approved.
Vonoprazan has the potential to be the first gastric anti-secretory agent from a novel class approved in the United
States, Europe, or Canada in over 30 years.
GERD and H. pylori infection are two of the most common acid-related GI diseases and impact millions of
people. The prevalence of GERD is estimated to be 20% of the U.S. population and 15% of the population in the
five major countries in Europe (France, Germany, Italy, Spain and the United Kingdom, or the EU5). GERD is a
disease that develops when the reflux of acidic stomach contents causes troublesome symptoms and/or
complications. Approximately 30% of GERD patients have erosive esophagitis. H. pylori is a bacterial pathogen that
infects approximately 35% of the U.S. population and 45% of the EU5 population. As a result of the chronic
inflammation induced by H. pylori infection, approximately 20% of infected patients will develop a range of
pathologies, including dyspepsia, peptic ulcer disease, gastric cancer, and mucosa-associated lymphoid tissue
(MALT) lymphoma.
Over the last thirty years, the proton pump inhibitor, or PPI, class, has been the standard of care for the
treatment of acid-related GI diseases. PPIs are generally used as a single agent for the treatment of GERD and in
combination with antibiotics for the treatment of H. pylori infection. The PPI class includes drugs such as Prilosec
(omeprazole), Nexium (esomeprazole), and Prevacid (lansoprazole). Prior to the introduction of generic and over-
the-counter, or OTC, alternatives, annual PPI class sales reached approximately $12.5 billion in the United States,
and peak sales for individual brands were approximately $3.7 billion for Prilosec, $3.5 billion for Nexium, and $3.4
billion for Prevacid in the United States.
While PPIs are the current standard of care and have experienced significant commercial success, they have
significant limitations that result in a large unmet medical need. In GERD, PPI therapy is suboptimal for many
patients due to the slow onset and insufficient duration of acid control which can lead to inadequate symptom relief.
Approximately 15% to 45% of GERD patients remain inadequately treated with PPIs. In the treatment of H. pylori
infection, the standard of care consists of a combination of a PPI and at least two oral antibiotics. However,
increasing antibiotic resistance has resulted in declining eradication rates with PPI-based therapy. We believe these
4
unmet medical needs are in part driven by limitations associated with the mechanism of action and pharmacokinetics
of PPIs.
PPIs reduce gastric acid secretion by irreversibly binding to and inhibiting active proton pumps expressed on
the parietal cells. PPIs require activation by gastric acid, but they are unstable in the presence of acid. This
instability, combined with the short circulating half-life of PPIs, limits their efficacy. Additionally, because proton
pumps continuously switch between active and inactive states, multiple doses of PPIs are required to inhibit enough
proton pumps to achieve a clinical benefit. As a result, PPIs have a relatively slow onset of action and limited
potency and duration of effect, which may result in patients experiencing only partial relief, increasing PPI dosage,
and/or cycling through multiple PPIs seeking relief.
Vonoprazan has a differentiated mechanism of action from PPIs. Unlike PPIs, vonoprazan:
•
•
•
•
does not require activation by gastric acid;
is stable in the presence of acid;
binds with a slow dissociation rate to both active and inactive proton pumps; and
has a long plasma half-life that replenishes the drug at the site of action over the course of the day.
These factors have enabled vonoprazan to demonstrate more rapid and potent acid suppression versus the PPI
esomeprazole in human subjects two hours after oral dosing and maintain target acid inhibition over a 24-hour
period in a randomized, open-label, crossover clinical trial. In contrast, PPIs require three to five days to reach
steady state acid suppression and do not reliably maintain target acid inhibition over a 24-hour period. In addition,
vonoprazan demonstrated approximately 10-to-100-fold better acid control compared to esomeprazole.
We believe that vonoprazan’s anti-secretory profile may demonstrate clinically meaningful advantages over
PPIs, such as:
•
•
•
faster, more complete, and more durable healing of erosive esophagitis;
faster, more complete, and more durable control of GERD symptoms;
higher H. pylori eradication rates in combination with antibiotics compared to standard of care triple
therapy and the potential for antibiotic-sparing dual therapy; and
• more flexible dosing, including dosing independent of food and time of day, and the potential for rapid
symptom relief through on-demand dosing.
Vonoprazan has demonstrated clinical advantages over PPIs in the treatment of erosive esophagitis and H.
pylori infection in completed Phase 3 clinical trials conducted in Japan and other Asian countries.
Erosive esophagitis. In two Phase 3 clinical trials conducted in Japan assessing vonoprazan versus the PPI
lansoprazole in the healing and maintenance of healing of erosive esophagitis, vonoprazan met its primary endpoint
in demonstrating non-inferiority to lansoprazole. In a post hoc analysis of the healing trial, vonoprazan demonstrated
faster healing and a superior overall healing rate compared to lansoprazole in patients with more severe erosive
esophagitis. After two weeks of treatment, 88% of erosive esophagitis patients with more severe disease were healed
after treatment with vonoprazan versus 64% with lansoprazole (p=0.0008). In the maintenance of healing trial,
vonoprazan demonstrated lower recurrence rates of erosive esophagitis six months after treatment versus
lansoprazole across all grades of severity of erosive esophagitis. Vonoprazan achieved a 2% recurrence rate
compared to 17% for lansoprazole (p<0.0001).
H. pylori. A Phase 3 clinical trial was conducted in Japan assessing vonoprazan in combination with the
antibiotics amoxicillin and clarithromycin versus lansoprazole in combination with these same antibiotics in first
line treatment of H. pylori infection. In this trial, the vonoprazan-based regimen met its primary endpoint in
demonstrating a non-inferior eradication rate of 93% compared to 76% for lansoprazole-based regimen (p<0.0001)
and was also superior in a post hoc analysis of this trial (p<0.0001). In patients who failed first line therapy,
vonoprazan in combination with the antibiotics metronidazole and amoxicillin demonstrated a 98% eradication rate
as second line therapy.
5
A p-value is the probability that the reported result was achieved purely by chance, such that a p-value of less
than or equal to 0.05 or 0.01 means that there is a 5.0% or 1.0% or less probability, respectively, that the difference
between the control group and the treatment group is purely due to chance. A p-value of 0.05 or less typically
represents a statistically significant result.
We have used this clinical experience to inform our Phase 3 clinical development program in these
indications.
Our founders and management team have deep expertise in developing GI therapeutics, including anti-
secretory agents, and direct experience developing vonoprazan at Takeda. Our Chairman, Tadataka (Tachi) Yamada,
M.D., is the former Chief Medical Officer and Chief Scientific Officer at Takeda. He is the former President of the
American Gastroenterological Association and former Chief of Gastroenterology and Internal Medicine at the
University of Michigan. Our Chief Executive Officer, Terrie Curran, has more than 20 years of experience in the
biopharmaceutical industry. Ms. Curran served as President, Global Inflammation and Immunology (I&I) Franchise
and as a member of the Executive Committee at Celgene Corporation from 2017 to 2019. Ms. Curran joined
Celgene in 2013 as the U.S. Commercial Head of the I&I Franchise, built the capabilities and recruited the teams
that executed the successful launch of OTEZLA, which was sold to Amgen in November 2019 for $13.4 billion.
David Socks, our former Chief Executive Officer and current interim Chief Financial Officer, is the former
Chief Executive Officer of Outpost Medicine, LLC, a GI and urology focused company. Mr. Socks was also
President and Chief Operating Officer of Incline Therapeutics Inc. through its sale to the Medicines Company in
2013, and Senior Vice President, Corporate Development and Strategy of Cadence Pharmaceuticals, Inc. Azmi
Nabulsi, M.D., M.P.H., our Chief Operating Officer, is the former Deputy Chief Medical and Scientific Officer at
Takeda. Our Head of Regulatory, Tom Harris, is the former Senior Vice President and Head of Global Regulatory at
Takeda. Dr. Yamada, Dr. Nabulsi, and Mr. Harris were extensively involved with the development of vonoprazan at
Takeda.
Our Pipeline
The following chart summarizes our current development programs.
6
Our Strategy
Our goal is to be a leader in the development and commercialization of novel treatments for GI diseases. Our
strategy is initially focused on developing and commercializing vonoprazan as a potential first-in-class P-CAB in the
United States, Europe, and Canada for the treatment of acid-related GI diseases. Key elements of this strategy
include:
•
•
•
•
•
Advance the clinical development of vonoprazan in erosive esophagitis and H. pylori infection and seek
marketing approval. We believe we can leverage the existing clinical data and post-marketing
experience, as well as our management team’s experience with vonoprazan, to advance vonoprazan
through our pivotal Phase 3 clinical trials. We initiated single pivotal Phase 3 clinical trials of vonoprazan
in each of erosive esophagitis and H. pylori infection in the fourth quarter of 2019. We expect to report
top-line data from both trials in 2021, and if successful, file regulatory submissions for marketing
approval for the treatment of H. pylori infection in 2021 and for erosive esophagitis in 2022. If approved
by the FDA as a new chemical entity, vonoprazan would receive a five-year period of marketing
exclusivity within the United States and vonoprazan’s QIDP designation would extend the U.S. marketing
exclusivity for an additional five years.
Commercialize vonoprazan in the United States. We plan to independently commercialize vonoprazan,
if approved, in the United States by building a leading specialty gastroenterology commercial
infrastructure to support the adoption of vonoprazan. We believe we can successfully launch vonoprazan
in the United States with a focused specialty sales force targeting high prescribers of PPIs, particularly
gastroenterologists. PPI prescribing is highly concentrated, with approximately 1.5% of U.S. PPI
prescribers (approximately 12,000 total) accounting for approximately 20% of PPI prescriptions and
approximately 6.0% of U.S. PPI prescribers (approximately 50,000 total) accounting for approximately
50% of PPI prescriptions, according to IQVIA. We believe we have an opportunity to achieve significant
share of voice and exposure to physicians given the scarcity of actively marketed anti-secretory
medicines. Given the limitations of PPIs and current unmet need, we believe the commercial opportunity
for vonoprazan is substantial.
Seek commercial partnerships to maximize the vonoprazan opportunity outside of the United States.
We believe there is a significant commercial opportunity for vonoprazan in Europe and Canada. To
address these markets, we plan to seek one or more partners with existing commercial infrastructure and
expertise in these markets. We believe this strategy will allow us to realize the value of the market
opportunity in Europe and Canada while focusing our resources on the U.S. market.
Expand the development of vonoprazan across indications, dosing regimens, and alternative
formulations and packaging. We plan to pursue vonoprazan lifecycle extension strategies in areas with
clear unmet need, clinical rationale, and commercial justification. These strategies may include: (i)
additional indications, including treatment of gastric ulcers and duodenal ulcers, Barrett’s esophagus, and
eosinophilic esophagitis; (ii) flexible dosing regimens, such as on-demand therapy for symptom relief of
GERD; and (iii) alternative formulations and packaging, such as orally disintegrating tablets and other
oral dosage forms for patients with difficulty swallowing, an intravenous formulation for in-hospital
applications, and pre-packaged convenience packs for the treatment of H. pylori infection. Additionally,
we believe that vonoprazan has the ideal profile for an OTC product, including the potential for on-
demand symptom relief and a well-tolerated safety profile.
In-license or acquire additional clinical or commercial stage product candidates for the treatment of
GI diseases in a capital efficient manner. We intend to take advantage of our management team’s GI
expertise to opportunistically in-license or acquire additional innovative therapies for diseases treated by
gastroenterologists. We plan to leverage our development and planned commercial infrastructure to
support multiple assets targeting GI indications.
7
Acid-Related GI Diseases
Overview
Gastric acid is a digestive fluid formed in the stomach. The highly acidic environment of the stomach causes
the unfolding, or denaturing, of food proteins that are subsequently broken down by gastric enzymes. Gastric acid is
secreted by the hydrogen potassium ATPase enzyme, which is known as the proton pump. Proton pumps are
expressed on the channeled surfaces, or canaliculi, of parietal cells in the stomach, which secrete acid. Proton pumps
are continuously synthesized and switch between active and inactive states in response to various stimuli, such as
food. When activated, proton pumps increase acid secretion.
GI diseases where treatment is related to acid control, such as GERD, peptic ulcer disease, Zollinger Ellison
syndrome, and H. pylori infection, are significant medical problems because of their high prevalence, chronic nature
and clinical sequelae. GERD results from the effects of acid on compromised mucosal defenses in the
gastrointestinal tract. The reflux of gastric acid into the esophagus produces frequent and/or severe heartburn,
indigestion, and reflux symptoms. Chronic GERD may damage esophageal tissue and progress to more severe
diseases including erosive esophagitis, Barrett’s esophagus, and esophageal cancer. GERD and related diseases are
associated with impaired quality of life and substantial costs to the healthcare system given their chronic nature and
sequelae. In H. pylori infection, gastric acid limits the effectiveness of antibiotics used to eradicate infection.
Chronic H. pylori infection can lead to dyspepsia, peptic ulcer disease, gastric cancer, and mucosa-associated
lymphoid tissue (MALT) lymphoma.
Prevalence
The prevalence of GI diseases is high. Approximately 20% to 40% of Western adults report chronic heartburn
or regurgitation symptoms potentially related to GERD. We estimate that there are approximately 65 million
individuals in the United States and 50 million individuals in the EU5 with GERD. In the United States, GERD is
the most common gastroenterology-related outpatient diagnosis. Additionally, approximately 35% of the U.S.
population and 45% of the EU5 population are infected with H. pylori. We estimate that there are approximately 115
million individuals in the United States and 145 million individuals in the EU5 infected with H. pylori.
Prevalence of GERD and H. pylori Infection
Treatments
Treatments of acid-related GI diseases aim to provide relief of acute symptoms, healing of damaged tissue,
and prevention of long-term clinical sequelae associated with chronic acid exposure. Gastric acidity is measured by
the pH scale, a logarithmic scale where 7.0 describes a neutral state and lower levels indicate a higher level of
acidity. The pH of the stomach typically ranges from 1.5 to 3.5. In patients with acid-related GI diseases, increasing
gastric pH has been shown to improve mucosal healing rates and provide more rapid symptom relief for patients.
For example, the duration of time that intra-gastric acidity is greater than pH 3.0 correlates with the healing of
duodenal and gastric ulcers, and pH greater than 4.0 is correlated with the healing of erosive esophagitis. Similarly,
in patients with H. pylori infection, a more neutral gastric pH of 5.0 to 7.6 preserves antibiotic function and is
optimal for successful eradication.
8
Drug-induced gastric acid suppression is a key component of the management of acid-related GI diseases.
Three classes of drugs with distinct mechanisms of action are principally used for treatment in the United States and
Europe: antacids, histamine receptor antagonists, or H2RAs, and PPIs.
Antacids
Antacids, first commercially available in the 1930s, directly neutralize gastric acid to raise intra-gastric pH
and can alleviate intermittent, mild symptoms of acid-related GI diseases, such as heartburn, but they are only
effective for a short duration and require frequent administrations per day. In addition, antacids do not significantly
help heal or prevent complications of acid-related diseases. Antacids include commonly-known OTC products, such
as Alka-Seltzer, Pepto-Bismol, Rolaids, and TUMS.
Histamine Receptor Antagonists (H2RAs)
H2RAs, first commercially available in the 1970s, decrease gastric acid secretion in order to raise gastric pH.
H2RAs represented a dramatic improvement over antacids in the control of gastric acid and consequently in the
management of acid-related GI diseases. H2RAs are also generally safe and well-tolerated. Among the H2RA class
were the first commercial blockbuster drugs, Pepcid (famotidine), Tagamet (cimetidine), and Zantac (ranitidine).
Zantac was the world’s highest-selling prescription drug in the mid-1990s, with peak global sales of $3.7 billion and
U.S. sales of $2.2 billion. Prior to the launch of generic H2RAs and increasing competition from PPIs, the H2RA
class achieved sales of approximately $3.5 billion in the United States. H2RAs achieved commercial success despite
clinical limitations, including unreliable 24-hour acid control, poor control of post-meal symptoms, and loss of
efficacy over time.
Proton Pump Inhibitors (PPIs)
PPIs, first commercially available in 1989, offered improved acid control over H2RAs. Pharmacodynamic
data demonstrated that PPIs maintain gastric pH above target levels for a longer duration than H2RAs. A commonly
used benchmark of anti-secretory activity is the percentage of time in a 24-hour period that gastric pH exceeds 4.0,
which we refer to as time above pH 4.0, which ranges from 40% to 71% for PPIs versus 33% for H2RAs.
Given this improved pharmacodynamic profile, PPIs demonstrated improved clinical symptom relief and
healing over H2RAs. In a meta-analysis of results from 33 randomized clinical trials with over 3,000 GERD
patients, a reduction in symptoms was achieved in 83% of patients taking PPIs versus 60% of those on H2RAs. In a
second meta-analysis, the eight-week healing rate in patients with erosive esophagitis was 82% for PPIs versus 52%
for H2RAs.
The PPI class is currently the first-line treatment of acid-related GI diseases. Prior to the introduction and
adoption of generic and OTC alternatives, annual PPI class sales reached approximately $12.5 billion in the United
States, and peak sales for individual brands were approximately $3.7 billion for Prilosec, $3.5 billion for Nexium,
and $3.4 billion for Prevacid. As recently as 2015, the last branded PPI, Dexilant (dexlansoprazole), reached
approximately $530 million in sales in the United States despite limited differentiation from other PPIs. While
Dexilant demonstrated a modest improvement in time above pH 4.0 compared to other PPIs, the approved dose did
not demonstrate consistent superiority in Phase 3 trials against other PPIs on the healing of erosive esophagitis and
has not been tested against PPIs in other indications. We believe that the commercial success of Dexilant highlights
the value to physicians and patients of even incremental improvements over other PPIs.
9
History of Pharmaceutical Agents for Control of Gastric Acid
PPI Limitations
While PPIs provide clinically meaningful symptom relief and healing for millions of patients suffering from
acid-related GI diseases, they are inadequate for many patients. The suboptimal anti-secretory profile of PPIs results
in slow onset of symptom relief, breakthrough nighttime or postprandial heartburn, and treatment failure. A recent
population-based survey with over 70,000 participants in the United States showed that 55% of patients who
reported having GERD symptoms were taking PPIs, with 68% taking them daily, and 54% of daily PPI users
reported persistent symptoms. This is consistent with earlier studies that have shown that approximately 15% to 45%
of GERD patients are inadequately treated with PPIs, experiencing persistent, troublesome symptoms, such as
heartburn and regurgitation. In approximately two thirds of symptomatic GERD patients, reflux symptoms are not
adequately controlled after the first dose of a PPI, and nearly 50% of patients still suffer from symptoms three days
later. Given these limitations, more than 20% of GERD patients on PPI therapy take their PPI twice daily, which is
not FDA approved, or purchase OTC heartburn treatments in addition to their prescription medicine. In a survey of
approximately 1,000 GERD patients and 1,000 physicians, approximately one third of GERD patients reported
persistent symptoms and were dissatisfied with PPI therapy and 35% of physicians perceived patients as somewhat
satisfied to completely dissatisfied with PPI treatment. In addition, in July 2019 we conducted a U.S. market
research study of 100 gastroenterologists and 100 primary care physicians who commonly prescribe PPIs and treat
patients with GERD and H. pylori infection. Surveyed physicians reported that approximately 25% of patients are
not satisfied on PPIs.
In patients with more severe grades of erosive esophagitis, studies with PPIs have reported failure rates of
healing of esophageal erosions exceeding 25%. Additionally, recurrence of erosions is common in healed erosive
esophagitis patients receiving maintenance PPI therapy. One study reported recurrence in 15% to 23% of patients
with less severe erosive esophagitis and 24% to 41% of patients with more severe erosive esophagitis. We believe
that these limitations of PPIs are in part driven by their mechanism of action and pharmacokinetics.
10
Mechanistic Differences Between PPIs and Vonoprazan
PPIs
After oral dosing, PPIs reach the gastric parietal cells through the bloodstream. PPIs are prodrugs that are
converted to their active form in the acidic environment of the secretory canaliculus of the parietal cell but degrade
quickly because their active form is unstable in acid. For example, the half-life of omeprazole (Prilosec) is less than
10 minutes at pH 2.0. The active form of a PPI blocks acid production by covalently binding to active proton pumps
that have moved to the surface of the secretory canaliculi after activation of the parietal cell with stimuli, such as a
meal. Because PPIs bind only to actively secreting pumps, it is generally recommended that they be administered 30
to 60 minutes before a meal to achieve maximal efficacy. Once covalently bound to the proton pumps, the active PPI
molecule is no longer available to bind to newly synthesized or activated proton pumps. Furthermore, given the
relatively short plasma half-life of most PPIs of one to two hours, resupply of additional PPI molecules from the
bloodstream is limited, and newly activated pumps are not inhibited. Due to this profile, PPI dosing over several
days is required to inhibit enough proton pumps to increase gastric pH to a clinically meaningful threshold, and PPIs
have a limited window of efficacy leading to incomplete acid suppression over the 24-hour dosing interval. In
addition, PPIs are primarily metabolized by CYP2C19, an enzyme which has significant interpatient metabolic
variability based on genotype. As a result, PPI exposure levels in some patients may not achieve target levels,
potentially reducing clinical efficacy.
Vonoprazan
Vonoprazan has a differentiated mechanism of action from PPIs. When vonoprazan reaches gastric parietal
cells from the bloodstream, it accumulates in the secretory canaliculus where the proton pumps are present in their
active state. In contrast to most PPIs, vonoprazan does not require gastric acid for activation, is stable in the
presence of gastric acid, reversibly binds to proton pumps in both their inactive and active states, and remains in the
secretory canaliculus where it continues to inhibit acid secretion over an extended period. Vonoprazan’s prolonged
effect is also maintained through a slow dissociation rate from the proton pumps and resupply from the bloodstream
due to its seven-hour half-life. These characteristics allow vonoprazan to rapidly achieve target 24-hour acid
suppression within two hours of a single dose, unlike PPIs that require three to five days to achieve stable acid
suppression. In addition, vonoprazan is primarily metabolized by CYP3A4/5, an enzyme which has less genetic
variability than CYP2C19, and may exhibit more consistent activity than PPIs across U.S. and European
populations.
The mechanistic and pharmacologic differences of PPIs and vonoprazan are summarized in the table below.
11
Vonoprazan Pharmacodynamics vs. PPIs
Vonoprazan’s more rapid, potent, and durable anti-secretory effects versus the PPI esomeprazole (Nexium)
were demonstrated in a randomized, open-label, crossover clinical trial comparing 20 mg of once daily, or QD,
vonoprazan to 20 mg QD of esomeprazole in 20 healthy volunteers. As shown below, vonoprazan achieved rapid
and potent pH control on Day 1 relative to esomeprazole (left). Vonoprazan maintained pH approximately 1 to 2
units higher than esomeprazole at Day 7 (right), which represents a 10-to-100-fold reduction in acidity.
Improved Onset and Potency of pH Control of Vonoprazan vs. Esomeprazole at Day 1 and Day 7
This improved potency and duration of pH control with vonoprazan, as measured by time above pH 4.0, was
evident not only at Day 1, but also at Day 7 when esomeprazole had reached its steady-state (see table below).
Improved Time Above pH 4.0 of Vonoprazan vs. Esomeprazole at Day 1 and Day 7
Vonoprazan for the Potential Treatment of Acid-Related GI Diseases
Given the shortcomings of PPI therapy, we believe that there is a significant unmet medical need for a safe
and effective anti-secretory agent with rapid, potent, and durable activity. Vonoprazan was developed in markets
outside of the United States by Takeda through an extensive clinical program, including 18 Phase 3 clinical trials.
As of December 2019, over 6,000 subjects were exposed to vonoprazan in completed and ongoing clinical trials. In
head-to-head Phase 3 trials versus a PPI, vonoprazan demonstrated faster onset of healing in more severe erosive
esophagitis patients, lower recurrence rates of erosions in erosive esophagitis patients across all levels of severity,
and a superior eradication rate in combination with antibiotics in patients with H. pylori infection than PPI-based
triple therapy. Vonoprazan received marketing approval in Japan in late 2014 and generated over $500 million in net
sales in its fourth full year on the market in Japan. In the fourth quarter of 2019, we initiated a single pivotal Phase 3
clinical trial of vonoprazan in each of erosive esophagitis and H. pylori infection. In March 2020, due to global
efforts to combat the COVID-19 pandemic, we paused randomization of new patients in our Phase 3 trial. Despite
this pause, we still expect to report top-line data from both trials in 2021, and if successful, file regulatory
submissions for marketing approval for the treatment of H. pylori infection in 2021 and for erosive esophagitis in
2022.
12
Vonoprazan in GERD
Based on the significant unmet medical need, previous Phase 3 trial results, and commercial potential, we
have prioritized the development of vonoprazan in GERD in:
•
•
the healing of erosive esophagitis and relief of heartburn; and
the maintenance of healing of erosive esophagitis and relief of heartburn.
GERD Disease Overview
GERD is one of the most prevalent diseases of any kind and is the most prevalent GI disease, affecting
approximately 20% of the U.S. population and approximately 15% of the European population. We estimate there
are approximately 65 million individuals with GERD in the United States and 50 million individuals with GERD in
the EU5. GERD is a disease that develops when the reflux of acidic stomach contents into the esophagus causes
troublesome symptoms and/or complications, and the term covers a spectrum of diseases, including erosive
esophagitis, non-erosive reflux disease, and Barrett’s esophagus. These diseases are detailed below:
•
Erosive esophagitis: Approximately 30% of GERD patients have erosive esophagitis, which is classified
by erosions in the gastric mucosa caused by acidic reflux of stomach contents into the esophagus. Erosive
esophagitis is commonly graded by the Los Angeles classification system, which characterizes the extent
of erosions in the esophagus and is graded on a scale of increasing severity from A to D, with D being the
most severe. Approximately 10% to 20% of erosive esophagitis patients have the more severe Los
Angeles Class C or D disease.
• Non-erosive reflux disease (NERD): Approximately 60% of GERD patients have NERD, which is
classified by an endoscopically normal esophagus, but abnormal gastric acid exposure in the esophagus
and persistent symptoms.
•
Barrett’s esophagus: Approximately 10% of GERD patients have Barrett’s esophagus, which is
classified by endoscopic and histological evidence of metaplasia or dysplasia in the mucosal cell lining in
the lower portion of the esophagus; approximately 1% of patients annually progress to esophageal cancer.
GERD patients typically present with heartburn and reflux symptoms. Based on these symptoms, patients are
typically treated first-line with PPIs prior to a diagnostic endoscopy for specific disease classification of erosive
esophagitis, NERD or Barrett’s esophagus. Clinical guidelines suggest that endoscopy only be performed in patients
who continue to have symptoms despite a four- to-eight-week course of daily PPIs or have alarm symptoms,
including GI bleeding, anemia, weight loss, chest pain, or difficult or painful swallowing. Our market research
suggests that most patients are treated empirically based on symptoms rather than based on endoscopic
characterization of disease.
13
GERD Treatment Paradigm
Approximately 80% of GERD patients are pharmacologically treated with prescription or OTC medications.
PPIs are currently the most effective anti-secretory agents available in the United States and Europe for relieving
GERD symptoms and healing erosions in gastric mucosa. Our market research suggests that approximately 80% of
patients who are pharmacologically treated receive PPIs, and approximately 75% of PPI use is prescription rather
than OTC. The majority of PPI use is chronic, with more than 70% of patients prescribed PPIs for daily use.
According to IQVIA NDTI, there were approximately 120 million oral PPI prescriptions written in the United States
and 6.1 billion doses prescribed for the 12 months ended May 31, 2019.
While PPIs provide clinically meaningful symptom relief and healing for millions of patients suffering from
acid-related GI diseases, they are inadequate for many patients. The suboptimal anti-secretory profile of PPIs results
in slow onset of symptom relief, breakthrough nighttime or postprandial heartburn, and treatment failure. Results of
a recent population-based survey with over 70,000 participants in the United States showed that 55% of patients
who reported having GERD symptoms were taking PPIs, with 68% taking them daily, and 54% of daily PPI users
reported persistent symptoms. This is consistent with earlier studies that have shown that approximately 15% to 45%
of GERD patients are inadequately treated with PPIs, experiencing persistent, troublesome symptoms, such as
heartburn and regurgitation. In approximately two thirds of symptomatic GERD patients, reflux symptoms are not
adequately controlled after the first dose of a PPI, and nearly 50% of patients still suffer from symptoms three days
later. Given these limitations, more than 20% of GERD patients on PPI therapy are taking their PPI twice daily,
which is not FDA approved, or purchasing OTC heartburn treatments in addition to their prescription medicine. In a
survey of approximately 1,000 GERD patients and 1,000 physicians, approximately one-third of GERD patients
reported persistent symptoms and were dissatisfied with PPI therapy and 35% of physicians perceived patients as
somewhat satisfied to completely dissatisfied with PPI treatment. In our U.S. market research study, physicians
highlighted control of nighttime and daytime heartburn symptoms and efficacy in the healing and maintenance of
healing of esophageal erosions as key unmet needs in GERD and reported that approximately 25% of patients are
not satisfied on PPIs.
There are few treatment options for GERD patients who are inadequately managed on PPI therapy. Our U.S.
market research survey reported that 26% of patients who are unsatisfied with therapy on a given PPI will switch to
a different PPI to improve symptom control or heal esophageal erosions; however, physicians surveyed did not
believe there are meaningful differences in outcomes between PPIs. Even though safety and efficacy of twice daily
dosing of PPIs has not been evaluated in large controlled clinical studies and is not included on the label for any
PPIs, surveyed physicians reported that 23% of patients resort to this dosing regimen given dissatisfaction of once
daily PPIs. A limited number of patients proceed to a surgical procedure, such as Nissen fundoplication. However,
this procedure results in postoperative morbidity of 5% to 20%, as well as a two- to six-week recovery period and a
median hospital stay of two days.
Vonoprazan has the potential to be the first gastric anti-secretory agent from a novel class approved in the
United States, Europe, or Canada in over 30 years. Our U.S. market research survey reported that physicians would
prefer to use vonoprazan in 59% of all of their GERD patients and believe that vonoprazan’s mechanism of action
and gastric pH control is meaningfully improved over PPIs, that vonoprazan could be a more effective treatment
than PPIs in healing and maintenance of healing of esophageal erosions, and that vonoprazan would improve their
ability to treat GERD patients.
Clinical Data for Vonoprazan in GERD
Four Phase 3 clinical trials have been completed comparing vonoprazan to PPIs in erosive esophagitis: a
healing trial in Japan; a maintenance of healing trial in Japan; a healing trial in Asia (China, Taiwan, and Korea);
and a maintenance of healing trial in Asia. In addition to these Phase 3 trials, several published investigator-
sponsored studies have compared vonoprazan to PPIs across dosing regimens and endpoints. Results of these
clinical trials are summarized below.
14
Healing of Erosive Esophagitis Clinical Trials in Japan and Asia
In a Phase 3 multicenter, randomized, double-blind, parallel group trial, 409 patients in Japan with
endoscopically confirmed erosive esophagitis were randomized to receive vonoprazan 20 mg QD or lansoprazole 30
mg QD for up to eight weeks. The primary endpoint was the non-inferiority of the percent of patients with healed
erosive esophagitis up to Week 8, as assessed by endoscopy. Non-inferiority is intended to show that the effect of a
new treatment is not worse than the active control by more than a specified margin, while superiority is intended to
show that one treatment is more effective than a comparator by any margin.
Design of Japan Phase 3 Clinical Trial for the Healing of Erosive Esophagitis
Vonoprazan achieved the primary endpoint of non-inferiority versus lansoprazole on the percent of patients
with healed erosive esophagitis up to Week 8 (99% vs. 96%, p<0.0001). Further, a post hoc analysis demonstrated
that vonoprazan was superior to lansoprazole on the percent of patients with healed erosive esophagitis up to Week
8 (p=0.0337). In the subset of 147 patients with more severe erosive esophagitis of Los Angeles Class C or D,
vonoprazan healing was also shown to be superior (99% vs. 88%, p=0.0082). We believe this result is due to the
improved acid control of vonoprazan over lansoprazole, and we believe lansoprazole is representative of the PPI
class.
Vonoprazan further demonstrated a more rapid clinical effect versus lansoprazole with a superior healing rate
at Week 2 (91% vs. 82%, p<0.0001 for non-inferiority and p=0.0132 in a post hoc superiority analysis). The
treatment effect was more pronounced in the more severe patients with Los Angeles Class C or D disease (88% vs.
64%, p=0.0008 for superiority). Of the seven patients who failed lansoprazole treatment and continued into the
additional treatment period, six healed with four weeks of treatment of 40 mg vonoprazan QD.
Results of Japan Phase 3 Clinical Trial in the Healing of Erosive Esophagitis
In addition, in the lead-in period of the Japan Phase 3 maintenance of healing clinical trial discussed below,
patients were treated with vonoprazan 20 mg for up to eight weeks before proceeding into treatment for the
maintenance of healing of erosive esophagitis. The healing rate at Week 2 and through Week 8 during this lead-in
healing period was 91% and 99%, respectively.
15
In another multicenter, randomized, double-blind, parallel group Phase 3 clinical trial in China, Taiwan,
Korea, and Malaysia, 481 patients with endoscopically confirmed erosive esophagitis were randomized to receive
vonoprazan 20 mg QD or lansoprazole 30 mg QD for eight weeks. Vonoprazan achieved the primary endpoint of
non-inferiority versus lansoprazole on the percent of patients with healed erosive esophagitis up to Week 8, 92% and
91%, respectively (95% confidence interval of treatment difference of -3.8% to 6.1%). The difference in healing
rates of 1% between the treatment groups had a confidence interval of -3.8 to 6.1, which means that statistically
there is 95% certainty that the true difference in healing rates lies within this range of values. Non-inferiority was
established in this trial as the lower bound (-3.8%) of the confidence interval was greater than the pre-established
non-inferiority margin of -10%.
Maintenance of Healing of Erosive Esophagitis Clinical Trials in Japan and Asia
In a multicenter, randomized, double-blind, parallel-group Phase 3 clinical trial in Japan, 627 patients with
erosive esophagitis were treated with vonoprazan 20 mg QD for two, four, or eight weeks. After this lead-in period,
a total of 607 patients with healed erosive esophagitis, of whom 124 had Los Angeles Class C or D disease, were
randomized to receive vonoprazan 10 mg QD, vonoprazan 20 mg QD, or lansoprazole 15 mg QD for 24 weeks. The
primary endpoint was the percent of patients with recurrence of erosive esophagitis at Week 24 as assessed by
endoscopy.
Design of Japan Phase 3 Clinical Trial in Maintenance of Healing of Erosive Esophagitis
Vonoprazan achieved the primary endpoint of non-inferiority versus lansoprazole on the percent of patients
with recurrence of erosive esophagitis during the 24-week maintenance period. Patients on lansoprazole had a 17%
recurrence rate of erosive esophagitis after 24 weeks of daily treatment, versus 5% for patients on vonoprazan 10 mg
and 2% for patients on vonoprazan 20 mg (p<0.0001 for non-inferiority of both vonoprazan doses vs. lansoprazole).
Both vonoprazan doses were superior to lansoprazole in a post hoc analysis (p=0.0002 for vonoprazan 10 mg and
p<0.0001 for vonoprazan 20 mg). As shown below, the superiority of each dose of vonoprazan to lansoprazole was
demonstrated in both Los Angeles Class A and B patients, as well as the more severe Los Angeles Class C and D
patients. We believe this result demonstrates the improved potency and durability of vonoprazan versus lansoprazole
in all patients with erosive esophagitis.
16
Results of Japan Phase 3 Clinical Trial in Maintenance of Healing of Erosive Esophagitis
In a second multicenter, randomized, double-blind, parallel-group Phase 3 clinical trial in China, Malaysia,
Taiwan, and Korea, patients with healed erosive esophagitis, 20.6% of whom had Los Angeles Class C or D disease
prior to EE healing, were randomized to receive vonoprazan 10 mg QD, vonoprazan 20 mg QD, or lansoprazole 15
mg QD for 24 weeks. The primary endpoint was the percent of patients with recurrence of erosive esophagitis at
Week 24 as assessed by endoscopy. Recurrence rates were 25.5% for lansoprazole 15 mg QD, 13.3% for
vonoprazan 10 mg QD, and 12.3% for vonoprazan 20 mg QD. Both doses of vonoprazan were superior to
lansoprazole in preventing endoscopic recurrence (95% confidence interval of treatment difference of -20.3% to -
4.3% for vonoprazan 10mg QD as compared to lansoprazole 15mg QD and -21.3% to -5.3% for vonoprazan 20 mg
QD as compared to lansoprazole 15mg QD).
Symptom Relief
We believe the rapid pharmacodynamic effects of vonoprazan may provide complete and sustained heartburn
relief more quickly compared to PPIs. A double-blind, randomized, investigator-sponsored clinical trial in 32
patients with erosive esophagitis compared the effects of vonoprazan 20 mg and lansoprazole 30 mg on the time to
achieve complete heartburn relief, defined as seven days without heartburn symptoms. Vonoprazan demonstrated a
faster time to complete heartburn relief than lansoprazole, and this complete relief was most pronounced for
nighttime heartburn. The results of the trial are summarized below. We plan to evaluate a similar endpoint in our
ongoing Phase 3 clinical trial.
Faster Onset and Higher Rate of Complete Heartburn Relief
17
On-Demand Dosing
We believe the rapid onset of action of vonoprazan may also enable on-demand, or as needed, use for the
relief of symptoms as an alternative to chronic daily treatment. In two open-label, investigator-sponsored clinical
trials in Japan, one in erosive esophagitis and a second in NERD, the effectiveness of vonoprazan as an on-demand
therapy was compared to that of daily PPI therapy with a number of different PPIs. In both clinical trials, patients
utilized approximately 80% fewer doses of vonoprazan compared to PPIs but demonstrated similar levels of patient
satisfaction.
Our Erosive Esophagitis Phase 3 Program
We initiated PHALCON-EE, a single Phase 3 clinical trial of vonoprazan to assess the healing of erosive
esophagitis and relief of heartburn, and the maintenance of healing of erosive esophagitis and relief of heartburn in
the fourth quarter of 2019. Our investigational new drug, or IND, application for vonoprazan in erosive esophagitis
was accepted by the FDA in September 2019.
We plan to enroll approximately 1,000 patients with endoscopically confirmed erosive esophagitis in this
clinical trial and enrich the clinical trial for more severe patients, targeting 30% Los Angeles Class C or D patients.
The clinical trial will have both a healing phase and a maintenance phase. As patients will be re-randomized
between the healing phase and the maintenance phase, each phase will be analyzed independently and have
independent primary and secondary endpoints.
• Healing phase: During the healing phase, patients will be randomized 1:1 to receive either vonoprazan
20 mg QD or lansoprazole 30 mg QD for up to eight weeks. The lansoprazole 30 mg QD dose is
recommended in the FDA prescribing information for lansoprazole. The primary endpoint for this phase
is the percentage of patients with complete healing of erosive esophagitis by Week 8 as assessed by
endoscopy with a primary analysis of non-inferiority. If non-inferiority is demonstrated, then an analysis
for superiority will also be performed. Key secondary endpoints include: the percentage of patients with
complete healing of erosive esophagitis at Week 2; percentage of patients with Los Angeles Class C or D
erosive esophagitis disease with complete healing at Week 2 and Week 8; percentage of patients with
onset of complete heartburn relief by Day 3 of treatment; and the percentage of 24-hour heartburn free
days over the healing phase.
• Maintenance phase: Patients with complete healing of erosive esophagitis at Week 2 or Week 8 in the
healing phase will be re-randomized 1:1:1 into the maintenance phase. During this phase, patients will
receive either vonoprazan 10 mg QD, vonoprazan 20 mg QD, or lansoprazole 15 mg QD for 24 weeks.
The lansoprazole 15 mg QD dose is recommended in the FDA prescribing information for the
maintenance of healing indication. The primary endpoint for this phase is the percentage of patients who
maintain complete healing after 24 weeks as assessed by endoscopy with a primary analysis of non-
inferiority. If non-inferiority is demonstrated, then an analysis for superiority will also be performed. Key
secondary endpoints include the percentage of patients with Los Angeles Class C or D erosive esophagitis
disease who maintain complete healing after 24 weeks and the percentage of 24-hour heartburn free days
over the maintenance phase.
18
Our Phase 3 trial design is modeled after the successful Phase 3 clinical trials conducted in Japan and Asia
with limited differences other than combining both the healing and maintenance of erosive esophagitis into a single
study. In Japan and Asia, separate clinical trials were conducted for each of these indications. We believe we can
simplify patient recruitment by conducting a single clinical trial and re-randomizing patients between phases.
Design for PHALCON-EE Phase 3 Erosive Esophagitis Clinical Trial
We expect to report top-line data from this trial in 2021 and, if successful, file a regulatory submission for
marketing approval in 2022.
Vonoprazan in Combination with Antibiotics for the Treatment of H. pylori Infection
Disease Burden and Outcomes
H. pylori is a bacterial pathogen that infects approximately 35% of the U.S. population and 45% of the EU5
population. We estimate that there are approximately 115 million individuals in the United States and 145 million
individuals in the EU5 infected with H. pylori, and we believe there are approximately 2.5 million patients treated
for H. pylori infection in the United States each year. As a result of the chronic inflammation induced by H. pylori
infection, approximately 20% of infected patients develop a range of pathologies including dyspepsia, peptic ulcer
disease, gastric cancer, and mucosa-associated lymphoid tissue (MALT) lymphoma. Gastric cancer is the third most
common cause of cancer-related death worldwide, and over 80% of gastric cancers are attributed to H. pylori
infection. Globally there are more than one million new cases of gastric cancer and approximately 782,000 deaths
each year. Eradication of H. pylori infection has been proven to reduce the incidence of gastric cancer, and the
American College of Gastroenterologists, or ACG, guidelines recommend treatment for all patients diagnosed with
H. pylori infection.
H. pylori eradication rates have fallen from >90% in the 1990s to current rates of <80% due to increasing
antibiotic resistance. In 2017, the World Health Organization (WHO) listed H. pylori among the 16 antibiotic-
resistant bacteria that pose the greatest threat to human health and designated H. pylori as a Class 1 carcinogen,
meaning that it is a definite known cause of cancer. In 2014, the FDA added H. pylori to the agency’s list of
qualifying pathogens that have the potential to pose a serious threat to public health under the GAIN Act. We
believe that vonoprazan-based treatment regimens have the potential to restore eradication rates to greater than 90%
in the United States and Europe given the clinical and post-marketing experience in the Japanese market.
19
A recent study compiled real-world health insurance claims data in Japan from 2008 to 2016 for H. pylori
eradication. Prior to vonoprazan’s approval in late 2014, the H. pylori eradication rate across Japan fell to below
80% as shown in the figure below. Approximately one year after vonoprazan’s launch, the eradication rate increased
to greater than 85%. From January 2015 to March 2016, the eradication rate with PPI-containing regimens in Japan
was between 78% and 82% while the eradication rate with vonoprazan-containing regimens was 91% across all
claims in this analysis.
Eradication Rate of H. pylori Infection in Japan Before and After Launch of Vonoprazan
In Japan, vonoprazan-containing regimens have become the most common first line treatment. One-year post
launch, approximately 80% of all treated H. pylori-infected patients received vonoprazan-based regimens.
Current Treatment Paradigm in the United States and Europe
The ACG treatment guidelines for H. pylori infection recommend using PPIs in conjunction with antibiotics to
improve antibiotic efficacy against H. pylori infection. The use of anti-secretory agents enhances the effect of
antibiotics in two ways. First, anti-secretory agents increase gastric pH, which in turn increases the stability of the
antibiotics. For example, amoxicillin and clarithromycin are chemically unstable at the low pH typically found in the
human stomach. Second, several antibiotics, including amoxicillin and clarithromycin, are most potent against H.
pylori at the time of maximum bacterial replication, which occurs at pH 6.0 to 7.0. H. pylori is in a dormant state at
lower pH values, which reduces the effectiveness of the antibiotics.
The table below shows the minimum inhibitory concentration of antibiotic required to eradicate 90% of H.
pylori in vitro, or MIC90. As pH increases, the amount of antibiotic required for 90% eradication decreases
substantially.
H. pylori MIC90 Values as a Function of pH
20
A triple therapy regimen (PPI, clarithromycin, and either amoxicillin or metronidazole) is the most commonly
used in clinical practice for the first-line treatment of H. pylori infection. However, H. pylori eradication rates with
PPI triple therapy have fallen from >90% in the 1990s to current levels of <80%, primarily due to increased
resistance of H. pylori to clarithromycin and metronidazole. A recent meta-analysis indicates that U.S. resistance
rates measured from 2012 to 2016 were 20% for clarithromycin, 29% for metronidazole, and 19% for levofloxacin.
These figures represent a marked increase from 2009 to 2011 for both clarithromycin and metronidazole, for which
resistance was 9% for clarithromycin, 21% for metronidazole, and 11% for levofloxacin. H. pylori resistance to
amoxicillin remains low despite its use in most triple therapy regimens; resistance is generally <2% among isolates
in the United States and Europe. There is a similar trend of increasing resistance to key antibiotics in Europe.
Given the declining eradication rates for H. pylori, quadruple therapy is recommended as first-line treatment
in areas with known high rates of clarithromycin or metronidazole resistance; however, our U.S. market research
study reported that physicians prescribe quadruple therapy to only 17% of first-line patients. The surveyed
physicians are concerned with patient adherence to treatment and patient compliance and tolerability issues
associated with dosing multiple drugs at multiple times throughout the day. Further, geographic patterns of
resistance in the United States are poorly understood and treatment is largely empiric, with susceptibility testing
rarely conducted prior to first-line treatment. Our U.S. market research study reported that only 8% and 16% of
physicians conduct resistance testing prior to prescribing treatment for first-line and second-line H. pylori infection,
respectively.
In our U.S. market research study, physicians highlighted the need for more effective and simpler first-line
treatment options. For the treatment of H. pylori infection, surveyed physicians highlighted the declining eradication
rate and low patient compliance rate with treatment regimens as key unmet needs, and 93% of these physicians
believe that vonoprazan offers clinically meaningful benefits over PPIs. Surveyed physicians reported that they
would prefer to use vonoprazan dual or triple therapy in, on average, 67% of first-line and 69% of second-line
patients with H. pylori infection.
Phase 3 Clinical Trial in Japan of Vonoprazan in Combination with Antibiotics to Treat H. pylori Infection
A randomized, double-blind, multicenter Phase 3 clinical trial in H. pylori-positive patients was completed in
Japan. Patients with H. pylori infection and a history of gastric or duodenal ulcer who had not previously received
H. pylori treatment were eligible for inclusion in the clinical trial. A total of 650 patients were randomized to receive
seven days of:
•
•
vonoprazan triple therapy: vonoprazan 20 mg twice daily, or BID, amoxicillin 750 mg BID, and
clarithromycin (200 mg or 400 mg) BID; or
lansoprazole triple therapy: lansoprazole 30 mg BID, amoxicillin 750 mg BID, and clarithromycin (200
mg or 400 mg) BID.
21
Patients who did not achieve H. pylori eradication after first-line treatment received a second-line regimen of
vonoprazan 20 mg BID, amoxicillin 750 mg BID, and metronidazole 250 mg BID for seven days.
Design of Japan Phase 3 H. pylori Treatment Clinical Trial
The primary endpoint of the clinical trial was confirmed H. pylori eradication determined by 13C-urea breath
test, a standard test for the diagnosis of H. pylori, four weeks after the completion of treatment. The primary analysis
was non-inferiority, and key secondary endpoints included the second line eradication rate and eradication rate in
antibiotic-resistant subgroups.
Vonoprazan-based triple therapy demonstrated a non-inferior eradication rate of 93% compared to 76% for
lansoprazole-based triple therapy (p<0.0001). Post hoc analyses indicated that vonoprazan-based triple therapy was
superior to lansoprazole-based triple therapy (p<0.0001). Patients who were not eradicated on vonoprazan-based
triple therapy or lansoprazole-based triple therapy were treated with a triple therapy regimen of vonoprazan,
amoxicillin, and metronidazole. In this second-line setting, the H. pylori eradication rate with vonoprazan triple
therapy was 98%. Across first- and second-line patients, the H. pylori eradication rate in clarithromycin resistant
strains was higher with vonoprazan-based triple therapy (82%) than with lansoprazole-based triple therapy (40%) as
shown below. We believe that this result is significant, as H. pylori antibiotic resistance testing is rare in the United
States, and H. pylori treatment is generally empiric.
Results of Japan Phase 3 Clinical Trial in the Treatment of H. pylori Infection
22
Other Studies of Vonoprazan in H. pylori Treatment
A meta-analysis of 14 studies in Japan with over 14,636 patients found that the pooled eradication rates of
vonoprazan-containing regimens were superior to those of PPI-containing regimens in a first-line setting (85% vs.
68%, p<0.00001). Subgroup analysis further indicated the superiority of vonoprazan in patients with either
clarithromycin-resistant strains (82% vs. 41%, p<0.00001) or clarithromycin-susceptible strains (95% vs 90%,
p=0.006). A second study retrospectively confirmed that empiric vonoprazan-based triple therapy was non-inferior
to PPI-based triple therapy based on H. pylori antibiotic susceptibility testing.
In addition to demonstrating superiority to PPIs in triple therapy regimens, vonoprazan was studied in a dual
therapy regimen with amoxicillin in three investigator-initiated clinical trials in Japan.
The first trial involving 67 Japanese patients assessed vonoprazan dual therapy (vonoprazan 20 mg BID in
combination with amoxicillin 500 mg three times daily, or TID, for seven days) compared to vonoprazan triple
therapy (vonoprazan 20 mg BID in combination with amoxicillin 750 mg BID and clarithromycin 200 mg BID for
seven days). As shown below, vonoprazan dual therapy was similarly efficacious to vonoprazan triple therapy
(eradication rates of 94% in both treatment arms).
Results of Vonoprazan Dual and Triple Therapy in the Treatment of H. pylori Infection
A second clinical trial compared vonoprazan-based dual therapy to esomeprazole or rabeprazole PPI-based
triple therapy. This clinical trial enrolled 81 Japanese patients including 40 first-line treatment patients and 41
second-line treatment patients who had failed standard therapy and compared vonoprazan dual therapy and PPI
triple therapy in both first- and second-line therapy. Patients assigned to vonoprazan dual therapy were treated with
vonoprazan 20 mg BID in combination with amoxicillin 500 mg TID for seven days. Patients assigned to PPI triple
therapy were treated first-line with esomeprazole 20 mg or rabeprazole 10 mg BID, amoxicillin 750 mg BID, and
clarithromycin 200 mg BID or second-line with esomeprazole 20 mg or rabeprazole 10 mg BID, amoxicillin 750 mg
BID, and metronidazole 250 mg BID for seven days. As shown below, dual therapy with vonoprazan was
efficacious in both first- and second-line therapy with eradication rates of 95% and 90%, respectively, versus 81%
and 85% for PPI-based triple therapies.
23
Results of Vonoprazan Dual and PPI Triple Therapy in the Treatment of H. pylori Infection
Most recently, a third clinical trial assessed vonoprazan dual therapy (vonoprazan 20 mg BID in combination
with amoxicillin 750 mg BID) compared to vonoprazan triple therapy (vonoprazan 20 mg BID in combination with
amoxicillin 750 mg BID and clarithromycin 200 mg BID) for seven days. This randomized and multi-center clinical
trial included 335 patients. Vonoprazan dual therapy demonstrated a similar eradication rate to vonoprazan triple
therapy (85% and 89%, respectively). Efficacy of vonoprazan dual therapy was maintained in subjects with
clarithromycin-resistant infection (92% eradication rate in the dual therapy arm).
Antibiotic resistance is a significant clinical issue, and we believe that vonoprazan has the potential to address
the growing resistance to H. pylori by eradicating infection after first-line of treatment. Vonoprazan dual therapy has
further potential for improved convenience and compliance over triple or quadruple therapy regimens, and
importantly, spares the use of clarithromycin, metronidazole, and levofloxacin, representing an opportunity both for
effective treatment and sound antibiotic stewardship through the avoidance of additional antibiotics to which H.
pylori is known to acquire resistance. Less frequent use of these antibiotics, which have important roles aside from
the treatment of H. pylori infection, may help to limit the spread of resistance among other pathogenic bacteria
within populations.
Our H. pylori Phase 3 Program
We initiated PHALCON-HP, a Phase 3 clinical trial of vonoprazan for the treatment of H. pylori infection in
the fourth quarter of 2019. Our INDs for vonoprazan in treatment of H. pylori infection were accepted by the FDA
in September 2019. We have received QIDP and Fast Track designations from the FDA for vonoprazan in
combination with both amoxicillin and clarithromycin and in combination with amoxicillin alone for the treatment
of H. pylori infection. Subject to limited exceptions, QIDP designation extends any non-patent marketing exclusivity
by an additional five years, and also provides potential eligibility for priority review.
We plan to enroll approximately 975 patients with H. pylori infection as assessed by 13C-urea breath test in
this clinical trial. The clinical trial will compare vonoprazan dual therapy and vonoprazan triple therapy regimens
each head-to-head with a standard of care lansoprazole triple therapy regimen. Patients will be randomized in a 1:1:1
manner into the three treatment arms as follows:
•
•
•
vonoprazan dual therapy: vonoprazan 20 mg BID and amoxicillin 1 g TID for 14 days;
vonoprazan triple therapy: vonoprazan 20 mg BID, amoxicillin 1 g BID and clarithromycin 500 mg BID
for 14 days; and
PPI triple therapy: lansoprazole 30 mg BID, amoxicillin 1 g BID and clarithromycin 500 mg BID for 14
days.
24
The primary endpoint for this trial is the percentage of patients with successful eradication of H. pylori
infection as assessed by 13C-urea breath test four weeks after completion of treatment. The primary analysis will
assess the non-inferiority of vonoprazan dual therapy to lansoprazole triple therapy and vonoprazan triple therapy to
lansoprazole triple therapy excluding patients who have H. pylori infection that is resistant to clarithromycin or
amoxicillin. We will also conduct secondary analyses for superiority in all patients regardless of antibiotic resistance
and in patients with clarithromycin-resistant H. pylori infection.
Our Phase 3 trial design is modeled after the successful Phase 3 clinical trial conducted in Japan. Key
differences include:
•
•
•
Inclusion of patients with H. pylori infection and dyspeptic symptoms. Our clinical trial will enroll
patients with active H. pylori infection and dyspeptic symptoms. The Japan Phase 3 trial enrolled patients
with H. pylori infection and a history of gastric or duodenal ulcers;
Treatment duration and antibiotic doses. Standard of care regimens in Western countries include higher
doses of antibiotics and a longer duration of treatment (typically 14 days) than in Japan (typically seven
days); and
Inclusion of dual therapy arm. Vonoprazan dual therapy has only been studied in investigator-initiated
clinical trials and not yet in a pivotal trial.
Our clinical trial design conforms to standard of care treatment regimens in the United States and Europe and
follows the ACG treatment guidelines.
Design for PHALCON-HP Phase 3 H. pylori Clinical Trial
We expect to report top-line data from this trial in 2021 and, if successful, file a regulatory submission for
marketing approval in 2021.
Vonoprazan Pharmacokinetics and Pharmacodynamics in Japanese vs. non-Japanese Subjects
The vonoprazan pharmacokinetic and pharmacodynamic profile is similar between Japanese and non-Japanese
subjects as assessed in two randomized, double-blind, placebo-controlled Phase 1 clinical trials in healthy
volunteers. Sixty Japanese subjects in the first study and 48 non-Japanese subjects in the second study, of whom
85% were Caucasian, received doses from 10 mg up to 40 mg QD for seven consecutive days. At all doses,
pharmacokinetics between the two populations were similar. In addition, the pharmacodynamics were similar
between Japanese and non-Japanese subjects as shown in the figure below. On Day 7, mean time above pH 4.0 for
vonoprazan 20 mg QD was 83% for Japanese subjects and 85% for non-Japanese subjects. Night-time 12-hour time
above pH 4.0 was 73% for Japanese subjects and 75% for non-Japanese subjects. We believe that these results show
that vonoprazan has a similar profile in Japanese and non-Japanese subjects.
25
Comparative Pharmacodynamics of Vonoprazan in Japanese and non-Japanese Subjects
Summary of Vonoprazan Safety Data
Safety in Clinical Studies
As of December 2019, over 6,000 subjects have been exposed to vonoprazan in completed and ongoing Phase
1 to 3 clinical trials. The doses studied have ranged from 1 to 120 mg with durations up to one year. The most
commonly reported adverse events, or AEs, in the clinical development program for vonoprazan, as reflected in the
Japanese prescribing information published by Japan’s Pharmaceuticals and Medical Devices Agency, or PMDA,
were diarrhea, constipation, nausea, elevated liver enzymes, rash, and eosinophilia. All such events had an incidence
rate of less than 5.0% other than diarrhea in the treatment of H. pylori which had an incidence rate of 10.6% in
combination with antibiotics. No dose-related increase in treatment-emergent AEs, or TEAEs, or serious AEs was
observed. The safety profile of vonoprazan and incidence of TEAEs, drug-related TEAEs, and TEAEs leading to
drug discontinuation were similar between vonoprazan and lansoprazole across studies.
Certain earlier generation P-CABs previously under development by other companies may have been
discontinued in-part due to their hepatic safety profile. These hepatic safety concerns may be compound-specific and
not generalizable to the P-CAB class. It is notable that vonoprazan is based on a pyrrole chemical structure and is
chemically distinct from previously discontinued P-CABs that were based on an imidazole structure. Vonoprazan
has had a similar hepatic safety profile to lansoprazole across all clinical studies conducted by Takeda, in which
1.0% of subjects treated with vonoprazan 10 mg or 20 mg and 0.8% of subjects treated with lansoprazole 15 mg or
30 mg had ALT or AST elevations greater than three times the upper limit of normal or bilirubin elevations greater
than two times the upper limit of normal.
Vonoprazan Post-Marketing Safety in Japan
The most recent post-marketing safety report from December 2019 includes an estimate of over 25 million
patients who have received vonoprazan in Japan since its launch. Based on the post-marketing experience, the
clinically significant adverse reactions section of the Japanese prescribing information for vonoprazan was updated
to include skin reactions such as toxic epidermal necrolysis, Steven-Johnson syndrome, and erythema multiforme;
and events of pancytopenia, agranulocytosis, leukocytopenia, and thrombocytopenia. The incidence of these
reactions was considered extremely rare (less than 1 in 100,000 patients) and a causal relationship to vonoprazan
could not be ruled out.
Serious hepatic adverse events have also been observed among patients exposed to vonoprazan in Japan in the
post-marketing setting. These cases were typically confounded by comorbidities or other concomitant medications
and believed to be idiosyncratic reactions. The incidence of these events was considered extremely rare (less than 1
in 100,000 patients). post-marketing safety data, including the December 2019 post-marketing safety report and the
reported hepatic safety events, have been submitted to the PMDA. To date, there have been no changes to the Japan
prescribing information related to hepatic safety.
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Vonoprazan Launch in Japan
Vonoprazan Regulatory Status
Vonoprazan first received approval in Japan on December 26, 2014 as TAKECAB® for the following
indications:
• Healing and maintenance of healing of erosive esophagitis;
• Adjunct to antibiotics in H. pylori treatment;
• Gastric ulcer;
• Duodenal ulcer;
•
•
Prevention of recurrence of gastric ulcer or duodenal ulcer during low-dose aspirin administration; and
Prevention of recurrence of gastric ulcer or duodenal ulcer during nonsteroidal anti-inflammatory drug
(NSAID) administration.
Vonoprazan was subsequently approved in Japan in February 2016 for the treatment of H. pylori in
combination packs with antibiotics (Vonosap Pack 400, Vonosap Pack 800, and Vonopion Pack), and as VOCINTI
in the Philippines (October 2017), Singapore (March 2018), Thailand (July 2018), Argentina (September 2018),
Peru (September 2018), South Korea (March 2019), Taiwan (March 2019), Malaysia (May 2019), Ecuador
(December 2019), China (December 2019) and Indonesia (February 2020). Vonoprazan is currently under review
for approval by regulatory authorities in additional countries in Latin America and Asia.
Vonoprazan Commercialization in Japan
Vonoprazan was approved in Japan in December 2014. In its fourth full year on the market vonoprazan
generated $524 million in net sales, a 20% increase over the prior year. In addition, in the quarter ended December
31, 2019, vonoprazan generated $189 million in net sales, a 20.8% increase over the corresponding quarter from the
prior fiscal year.
Vonoprazan Net Sales Since Approval
27
We believe that the market dynamic for anti-secretory agents in Japan is similar to that in the United States. In
both countries, the anti-secretory market is largely genericized. Ahead of the vonoprazan launch in Japan, all PPIs,
other than Nexium, were available as generics. As of 2017, generic drugs in Japan represent approximately 70% of
the market by volume, compared to the United States where generics are approximately 90% of the market by
volume. Additionally, the Japanese government set a goal to increase generic use to 80% by 2020. Although
vonoprazan and Dexilant are priced at a premium to generic PPIs in Japan and the United States, respectively, both
have experienced commercial success.
Vonoprazan Commercial Opportunity and Strategy
The market for prevention and treatment of acid-related GI diseases in the United States and Europe is large.
There were approximately 120 million oral PPI prescriptions written in the United States and 6.1 billion doses
prescribed for the 12 months ended May 31, 2019. We estimate that there are approximately 65 million individuals
with GERD in the United States and 50 million individuals with GERD in the EU5, of whom 15% to 45% are
inadequately treated with PPIs. In addition, we estimate that there are approximately 115 million individuals in the
United States infected with H. pylori, of which 2.5 million are treated each year, and 145 million individuals in the
EU5 infected with H. pylori.
Over many decades of use, multiple drug classes and individual drugs have demonstrated the substantial
commercial opportunity for therapies treating acid-related GI diseases. H2RAs including Axid, Pepcid, Tagamet,
and Zantac provided the first significant improvement in disease management over antacids and as a class reached
$3.5 billion in annual sales. After H2RAs, PPIs emerged as the new standard of care. Prior to the introduction of
generic and OTC alternatives, annual PPI class sales reached approximately $12.5 billion in the United States, and
peak sales for individual brands were approximately $3.7 billion for Prilosec, approximately $3.5 billion for
Nexium, and $3.4 billion for Prevacid.
As recently as 2015, the last branded PPI, Dexilant, reached approximately $530 million in sales in the United
States despite limited differentiation from other PPIs. As of June 30, 2019, Dexilant was priced at a significant
premium to generic PPIs on the market. Even with premium pricing, Dexilant obtained broad insurance coverage
and favorable access. As of June 30, 2019, approximately 90% of commercially covered lives and 80% of Medicare
covered lives had access to Dexilant. Furthermore, of those commercially covered lives, 65% had unrestricted
access to the drug without prior authorization or step edits and 35% of patients had access at the lowest branded cost
tier. We believe that, if approved in our markets, vonoprazan will be the first of the next generation of anti-secretory
therapies to improve the standard of care for acid-related GI diseases by providing a safe and effective treatment
option for the millions of patients in need of more potent, rapid, or durable acid suppression. Additionally, we
believe the potential differentiation of vonoprazan compared to PPIs could result in attractive market access and
formulary positioning.
In July 2019, we conducted a U.S. market research study which surveyed 100 gastroenterologists and 100
primary care physicians who commonly prescribe PPIs and treat patients with GERD and H. pylori infection. For
the treatment of GERD, surveyed physicians highlighted control of nighttime and daytime heartburn symptoms and
efficacy in the healing and maintenance of healing of esophageal erosions as key unmet needs. These physicians
reported that vonoprazan’s mechanism of action and gastric pH control is considered meaningfully improved over
PPIs and that vonoprazan could be a more effective treatment than PPIs in healing and maintenance of healing of
esophageal erosions. These physicians would prefer to use vonoprazan in, on average, 59% of all of their GERD
patients. For the treatment of H. pylori infection, surveyed physicians highlighted the declining eradication rate and
low patient compliance rate with treatment regimens as key unmet needs, and 93% of these physicians believe that
vonoprazan offers clinically meaningful benefits over PPIs. Surveyed physicians reported that they would prefer to
use vonoprazan dual or triple therapy in, on average, 67% of first-line and 69% of second-line patients with H.
pylori infection.
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Sales and Marketing
We do not currently have our own marketing, sales, or distribution capabilities. We plan to independently
commercialize vonoprazan in the United States by building a leading specialty gastroenterology-focused
commercial infrastructure to support the adoption of vonoprazan. We believe we can successfully launch
vonoprazan in the United States with a focused specialty sales force targeting high prescribers of PPIs, particularly
gastroenterologists. PPI prescribing is highly concentrated with approximately 1.5% of U.S. PPI prescribers
(approximately 12,000 total) accounting for approximately 20% of PPI prescriptions and approximately 6.0% of
U.S. PPI prescribers (approximately 50,000 total) accounting for approximately 50% of PPI prescriptions, according
to IQVIA. We believe we have an opportunity to achieve significant share of voice and exposure to physicians given
the scarcity of actively marketed anti-secretory medicines.
To address the commercial opportunity for vonoprazan in Europe and Canada, we plan to seek one or more
partners with existing commercial infrastructure and expertise in these markets. Additional clinical trials of
vonoprazan may be required to obtain regulatory approval and/or ensure access to these markets.
Additional Vonoprazan Development Opportunities
Indications
While we are initially focused on the development of vonoprazan for the treatment of erosive esophagitis and
the treatment of H. pylori infection, we believe there are opportunities to expand the use of vonoprazan to other
indications in our licensed territories. For example, in Japan, vonoprazan is also approved for the treatment of
gastric ulcers, treatment of duodenal ulcers, prevention of recurrence of gastric ulcer or duodenal ulcer during low-
dose aspirin administration, and prevention of recurrence of gastric ulcer or duodenal ulcer during NSAID
administration.
In addition to those indications for which vonoprazan is approved in Japan, we believe there are additional
opportunities to develop vonoprazan for the treatment of GI diseases.
NERD. We believe that there is opportunity to broadly position vonoprazan’s use in GERD with an indication
in NERD, also known as symptomatic GERD, in addition to an indication in erosive esophagitis. We may develop
vonoprazan in NERD with daily and/or on-demand, or as-needed, dosing regimens. We believe the rapid onset of
action of vonoprazan may enable on-demand use for the management of GERD-related symptoms as an alternative
to chronic daily treatment with PPIs. An on-demand dosing regimen may be especially attractive in NERD, as
NERD patients have symptoms related to acid, but do not have esophageal erosions which require chronic treatment
for healing. In an open-label, investigator-sponsored clinical trial in Japan in NERD patients, on-demand treatment
with vonoprazan was compared to daily treatment with PPIs. Patients utilized approximately 80% fewer doses of
vonoprazan compared to PPIs, but demonstrated similar levels of satisfaction.
Takeda conducted two Phase 3 multicenter, randomized, double-blind, parallel group trials with vonoprazan in
Japanese patients with endoscopically confirmed NERD. In the first clinical trial, vonoprazan demonstrated a
significant reduction in symptom severity versus placebo (p=0.0139), and in the second trial, vonoprazan
demonstrated a faster onset of symptom relief versus placebo (p=0.0003). However, the studies did not show a
statistically significant difference in the primary endpoint of proportion of days over a 4-week period without
heartburn between vonoprazan and placebo (p=0.0504 and p=0.0643). In the first clinical trial, Takeda enrolled
patients with symptoms including a three-week history of heartburn or regurgitation with two or more days of
heartburn per week, or a three-week history of any acid-reflux symptoms of moderate or higher severity. In the
second clinical trial, patients with a three-week history of recurrent heartburn with two or more days of heartburn
per week were enrolled. In contrast, all PPIs approved for NERD in the United States enrolled subjects with greater
than six-month history of heartburn and heartburn on at least four of the seven days immediately preceding
randomization.
In addition, in a Phase 2 clinical trial in European patients with NERD who were partial responders to high
dose PPIs, vonoprazan did not demonstrate superiority versus esomeprazole in the primary endpoint of the
percentage of heartburn free days over the four-week treatment period. We believe this result may have been due to
inclusion of patients with GI disorders unrelated to acid.
29
Other Indications. Barrett’s esophagus and Zollinger Ellison syndrome are severe diseases related to acid
secretion where PPIs are the current standard of care. The improved acid control of vonoprazan relative to PPIs may
lead to improved results over PPIs.
Eosinophilic esophagitis is an autoimmune disease with significant unmet need. Although not approved for
this indication, PPIs are prescribed for the treatment of eosinophilic esophagitis. Vonoprazan demonstrated similar
efficacy to PPIs in an investigator-sponsored clinical trial in Japan. In this clinical trial, 112 patients with
eosinophilic esophagitis were treated with vonoprazan, or the PPI rabeprazole or esomeprazole. Of patients treated
with vonoprazan, 82% had complete relief of symptoms compared to 70% for esomeprazole and 76-78% for
rabeprazole. Similarly, 35% of patients treated with vonoprazan demonstrated complete remission of eosinophilic
esophagitis by histology, compared to 37% for esomeprazole and 31-38% for rabeprazole.
Formulations and Packaging
Orally Disintegrating Tablet. An orally disintegrating tablet, or ODT, formulation for vonoprazan is
currently in development by Takeda. We may conduct one or more Phase I trials to support potential approval of the
ODT formulation. We believe that the ODT represents a meaningful commercial opportunity for patients with
difficulty swallowing, as estimated peak U.S. sales of the lansoprazole ODT formulation were over $450 million.
Intravenous Formulation. We are exploring the potential to develop an intravenous formulation of
vonoprazan for use in acute bleeding, critically ill patients, or other in-hospital applications. Several PPIs have
approved intravenous formulations.
Pediatric Formulation. We are exploring the potential to develop an oral formulation, in addition to an
ODT formulation, for pediatric use.
Convenience Pack for H. pylori. In Japan, vonoprazan is marketed both as a stand-alone medicine as well
as in pre-packaged convenience packs with either clarithromycin and amoxicillin (Vonosap) or metronidazole and
amoxicillin (Vonopion). Pre-packaged products for the treatment of H. pylori infection may improve patient
adherence and treatment outcomes, and we believe there is a meaningful market opportunity for such a product. In
the United States, PrevPac was formerly marketed as a pre-packaged convenience pack of lansoprazole,
clarithromycin, and amoxicillin and achieved peak sales of $150 million.
Over the Counter Use
We believe that vonoprazan has the ideal profile for an OTC product, including the potential for on-demand
symptom relief and a well-tolerated safety profile. The market for OTC heartburn relief is substantial, with 2018
sales of $3.2 billion in the United States.
Competition
The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and
strong emphasis on proprietary products. We face potential competition from many sources, including major
pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and government
agencies and public and private research institutions. If vonoprazan receives marketing approval in the United
States, Europe or Canada, it will compete with existing therapies and new therapies that may become available in
the future.
Some of our competitors, either alone or with their strategic partners, have substantially greater financial,
technical and human resources and significantly greater experience in the discovery and development of product
candidates, obtaining FDA and other regulatory approvals of treatments and commercializing those treatments.
These same competitors may invent technology that competes with vonoprazan. Mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller
number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific
and management personnel and establishing clinical trial sites and subject recruitment for clinical trials, as well as in
acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may
also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies.
30
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize
products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive
than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their
products more rapidly than we may obtain approval for vonoprazan, which could result in our competitors
establishing a strong market position before we are able to enter the market. In addition, we expect that vonoprazan,
if approved, will be priced at a premium over competitive generic products and our ability to compete may be
affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products.
We expect that vonoprazan, if approved for the treatment of erosive esophagitis and treatment of H. pylori
infection, will primarily compete with generic PPIs marketed by multiple pharmaceutical companies in both the
prescription and OTC markets. Additionally, in March 2020, RedHill Biopharma Ltd. launched Talicia, a co-
formulated capsule comprising generic omeprazole, amoxicillin, and rifabutin for the treatment of H. pylori
infection. Ironwood Pharmaceuticals, Inc. is developing IW-3718, a bile acid sequestrant, currently in Phase 3
clinical trials as an adjunct to PPIs for the treatment of patients with persistent GERD.
We are also aware of other P-CABs in territories outside of the United States that, if developed and approved
in our territories, may compete with vonoprazan. Revaprazan is marketed by Yuhan Corporation in South Korea.
Tegoprazan is marketed by CJ Healthcare Corp. in South Korea and is currently in development in Japan by
RaQualia Pharma, Inc. Daewoong Pharmaceutical Co., Ltd., has filed an application for regulatory approval of
fexuprazan in South Korea, Cheil Pharm has opened a Phase 2 trial in South Korea of its P-CAB candidate, JP-1366,
in erosive esophagitis, and Cinclus Pharma AG’s X842 has completed a Phase 1 clinical trial in Europe and is
currently in Phase 2 clinical trials. To our knowledge, none of these compounds have demonstrated superiority to
PPIs on clinical endpoints.
Additionally, we are aware of several clinical-stage PPIs in territories outside of the United States that if
developed and approved in our licensed territories may compete with vonoprazan. These include Dexa Medica’s
DLBS-2411, currently in Phase 3 clinical trials in Indonesia, Sihuan Pharmaceutical’s anaprazole, currently in Phase
3 clinical trials in China, Eisai’s azeloprazole, currently in a Phase 2 clinical trial in Japan, and Sidem Pharma’s
tenatoprazole, currently in Phase 2 clinical trials in Europe and Canada.
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or commercial
quantities of vonoprazan. Vonoprazan is a small molecule that can be manufactured using commercially available
technologies. We currently rely on Takeda to supply us with vonoprazan drug product for clinical use. We intend to
enter into a commercial supply agreement with Takeda, and we are exploring additional options for commercial
supply of vonoprazan from other third party contract manufacturers.
With respect to any future product candidates, we expect to continue to rely on third-party contract
manufacturers to manufacture clinical supplies and commercial quantities of any approved product. Although we
rely on contract manufacturers, we have personnel with manufacturing experience to oversee our relationship with
Takeda.
Intellectual Property
Intellectual property, including patents, trade secrets, trademarks and copyrights, is important to our business.
Our commercial success depends in part on our ability to obtain and maintain proprietary intellectual property
protection for vonoprazan, as well as for future product candidates and novel discoveries, product development
technologies, and know-how. Our commercial success also depends in part on our ability to operate without
infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy
is to develop and maintain protection of our proprietary position by, among other methods, licensing or filing U.S.
and foreign patents and applications relating to our technology, inventions, and improvements that are important to
the development and implementation of our business.
31
Our patent portfolio, comprising patents and patent applications exclusively licensed to us, is built with a goal
of establishing broad protection that generally includes, for the product candidate compound, claims directed to
composition of matter, pharmaceutical compositions or formulations, methods of synthesis, and methods of
treatment using such pharmaceutical compositions or formulations. As of December 31, 2019, our patent portfolio
covering vonoprazan consists solely of exclusively licensed patents and patent applications from Takeda. Subject to
the terms of the license agreement we entered into with Takeda on May 7, 2019, or the Takeda License, we have
licensed from Takeda exclusive rights in the United States, Europe, and Canada to patents and patent applications
covering the composition of matter, formulation, use and/or manufacture of vonoprazan. Our patent portfolio
comprises 11 distinct patent families protecting the technology relating to the compound vonoprazan and its
synthetic intermediates, methods of synthesizing vonoprazan and related compounds, various formulations of
vonoprazan products, as well as methods of treating diseases with vonoprazan and related compounds. As of
December 31, 2019, our portfolio consists of approximately 17 issued U.S. patents, 7 pending U.S. applications, 10
issued European patents subsequently validated in individual European countries, 7 pending European applications,
3 issued Canadian patents, 5 pending Canadian applications, and one pending PCT application. The issued patents
and pending applications have nominal expiration dates ranging from 2024 to 2038, without accounting for any
available patent term adjustments or extensions. The issued U.S. patent covering the composition of matter of
vonoprazan is expected to expire in August 2028, not including patent term extension. The issued U.S. patent
covering the formulation of vonoprazan is expected to expire in August 2030, not including patent term extension.
The term of individual patents in our portfolio depends upon the legal term of patents in the countries in which
they are obtained. In most countries in which we file, including the United States, the patent term is 20 years from
the earliest date of filing a non-provisional patent application. In the United States, the term of a patent may be
eligible for patent term adjustment, which permits patent term restoration as compensation for delays incurred at the
USPTO during the patent prosecution process. In addition, for patents that cover an FDA-approved drug, the Drug
Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term
extension of up to five years beyond the expiration of the patent. While the length of the patent term extension is
related to the length of time the drug is under regulatory review, patent term extension cannot extend the remaining
term of a patent beyond a total of 14 years from the date of product approval, and only one patent per approved drug
may be extended under the Hatch-Waxman Act. Similar provisions are available in Europe and other foreign
jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products
receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to
seek any available patent term extension to any issued patents we may be granted in any jurisdiction where such
extensions are available; however, there is no guarantee that the applicable authorities, including the FDA in the
United States, will agree with our assessment of whether such extensions should be granted, and if granted, the
length of such extensions.
The patent positions of companies like ours are generally uncertain and involve complex legal and factual
questions. The relevant patent laws and their interpretation outside of the United States is also uncertain. Changes in
either the patent laws or their interpretation in the United States and other countries may diminish our ability to
protect our technology or product candidates and could affect the value of such intellectual property. In particular,
our ability to stop third parties from making, using, selling, offering to sell or importing products that infringe our
intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our
technology, inventions and improvements. We cannot guarantee that patents will be granted with respect to any of
our licensed pending patent applications or with respect to any patent applications we may file in the future, nor can
we be sure that any patents that may be granted to us or Takeda in the future will be commercially useful in
protecting our products, the methods of use or manufacture of those products. Moreover, issued patents do not
guarantee the right to practice our technology in relation to the commercialization of our products. Issued patents
only allow us to block potential competitors from practicing the claimed inventions of the issued patents.
Further, patents and other intellectual property rights in the pharmaceutical and biotechnology space are
evolving and involve many risks and uncertainties. For example, third parties may have blocking patents that could
be used to prevent us from commercializing vonoprazan and any future product candidates and practicing our
proprietary technology, and any issued patents may be challenged, invalidated or circumvented, which could limit
our ability to stop competitors from marketing related products or could limit the term of patent protection that
otherwise may exist for vonoprazan and any future product candidates. In addition, the scope of the rights granted
under any issued patents may not provide us with protection or competitive advantages against competitors with
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similar technology. Furthermore, our competitors may independently develop similar technologies that are outside
the scope of the rights granted under any issued patents. For these reasons, we may face competition with respect to
vonoprazan and any future product candidates. Moreover, because of the extensive time required for development,
testing and regulatory review of a potential product, it is possible that, before any particular product candidate can
be commercialized, any patent protection for such product may expire or remain in force for only a short period
following commercialization, thereby reducing the commercial advantage the patent provides.
It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers
and other advisors to execute confidentiality agreements upon the commencement of employment or consulting
relationships with us, and for employees and consultants to enter into invention assignment agreements with us.
These agreements provide that all confidential information developed or made known to the individual during the
course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in
specific circumstances. Where applicable, the agreements provide that all inventions to which the individual
contributed as an inventor shall be assigned to Phathom, and as such, will become our property. There can be no
assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade
secrets in the event of unauthorized use or disclosure of such information.
Further, we have filed for and are pursuing trademark protection for our company name “Phathom
Pharmaceuticals” in the United States and foreign jurisdictions.
License Agreement with Takeda Pharmaceutical Company Limited
On May 7, 2019, we and Takeda entered into the Takeda License. Pursuant to the Takeda License, Takeda
granted us an exclusive, sublicensable (with Takeda’s reasonable consent) license under certain patents and know
how relating to vonoprazan and owned or controlled by Takeda during the term of the Takeda License to
commercialize vonoprazan products using specified formulations for all human therapeutic uses in the United States,
Europe and Canada, and a non-exclusive license under such patents and know how to develop and manufacture such
vonoprazan products anywhere in the world (subject to Takeda’s consent as to each country) for the purposes of
commercializing the vonoprazan products in the United States, Europe and Canada. We granted Takeda a non-
exclusive, royalty-free, sublicensable license under our rights in any patents and know-how that are necessary or
useful to enable Takeda to develop and manufacture vonoprazan products anywhere in the world for the purposes of
commercialization outside United States, Europe and Canada. We also granted Takeda an exclusive, royalty-free
license under our rights in certain patents and know-how owned or controlled by us and necessary for the
exploitation of vonoprazan products, in each case for Takeda to commercialize any vonoprazan product outside of
the United States, Canada, and Europe and for purposes other than human therapeutic use.
During the term of the Takeda License, we and our affiliates are not permitted to commercialize any
pharmaceutical product, other than vonoprazan, that treats acid-related disorders, except for certain generic and OTC
competing products in specified circumstances. We will be responsible, at our cost, for the development,
manufacture and commercialization of the vonoprazan products. We are required to use commercially reasonable
efforts to develop and commercialize the vonoprazan products in our licensed territory.
Under the Takeda License, Takeda has the sole right and authority, with our input, to prepare, file, prosecute,
and maintain all Takeda and joint patents on a worldwide basis at its own cost. We are responsible, at our cost, for
preparing, filing, prosecuting, and maintaining patents on inventions made solely by us in connection with
vonoprazan, subject to input from Takeda. We have the first right to enforce the licensed patent rights with respect
to certain infringing products in the United States, Europe and Canada.
We paid Takeda upfront consideration consisting of a cash payment of $25.0 million, 1,084,000 shares of
common stock and a warrant to purchase 7,588,000 shares of common stock, or the Takeda Warrant. We agreed to
make milestone payments to Takeda upon achieving certain tiered aggregate annual net sales of licensed products in
the United States, Europe and Canada up a total maximum milestone amount of $250.0 million. We also agreed to
make tiered royalty payments in the low double digits to the mid-teens on net sales of licensed products, subject to
specified offsets and reductions. Royalties will be payable, on a product-by-product and country-by-country basis
from the first commercial sale of such product in such country, until the latest of expiration of the licensed patents
covering the applicable product, expiration of regulatory exclusivity in such country, or 15 years following first
commercial sale in such country.
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The Takeda License will continue until the expiration of the obligation to pay royalties in all countries and on
all products. We may terminate the Takeda License in its entirety without cause upon six months’ prior written
notice. We and Takeda may terminate the Takeda License in the case of the other party’s insolvency, or upon prior
written notice within a specified time period for the other party’s material uncured breach. Takeda may terminate the
Takeda License in its entirety if we challenge the licensed patents, or if we assist any third party in challenging such
patents.
In connection with the Takeda License, we entered into a clinical manufacturing and supply agreement with
Takeda whereby Takeda provides certain quantities of vonoprazan.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and other countries
extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval,
labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import
of products such as those we are developing. A new drug must be approved by the FDA through the NDA process
before it may be legally marketed in the United States.
U.S. Drug Development Process
In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act, or the FDCA,
and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with
appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and
financial resources. Failure to comply with the applicable U.S. requirements at any time during the product
development process, approval process or after approval may subject an applicant to administrative or judicial
sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an
approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production
or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal
penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
The process required by the FDA before a drug may be marketed in the United States generally involves the
following:
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completion of preclinical laboratory tests, animal studies and formulation studies in accordance with
Good Laboratory Practice, or GLP, regulations and other applicable regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
approval by an independent institutional review board, or IRB, at each clinical site before each trial may
be initiated;
performance of adequate and well-controlled human clinical trials in accordance with Good Clinical
Practice, or GCP, regulations to establish the safety and efficacy of the proposed drug for its intended use;
submission to the FDA of an NDA;
satisfactory completion of an FDA advisory committee review, if applicable;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug
is produced to assess compliance with current GMP, or cGMP, requirements to assure that the facilities,
methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
FDA review and approval of the NDA to permit commercial marketing of the product for particular
indications for use in the United States.
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Once a pharmaceutical candidate is identified for development, it enters the preclinical testing stage.
Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal
studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information
and analytical data, to the FDA as part of the IND. An IND is a request for authorization from the FDA to
administer an investigational new drug product to humans. The sponsor will also include a protocol detailing, among
other things, the objectives of the first phase of the clinical trial, the parameters to be used in monitoring safety, and
the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation. Some preclinical
testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after
receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In
such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns
about on-going or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not
begin or continue until the FDA notifies the sponsor that the hold has been lifted. Submission of an IND therefore
may or may not result in FDA authorization to begin a clinical trial.
All clinical trials must be conducted under the supervision of one or more qualified investigators in
accordance with GCP regulations, which include the requirement that all research subjects provide their informed
consent in writing for their participation in any clinical trial. They must be conducted under protocols detailing,
among other things, the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the
safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND as
well as any subsequent protocol amendments, and timely safety reports must be submitted to the FDA and the
investigators for serious and unexpected adverse events. An IRB at each institution participating in the clinical trial
must review and approve each protocol before a clinical trial commences at that institution and must also approve
the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal
representative, monitor the study until completed and otherwise comply with IRB regulations.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase 1: The product candidate is initially introduced into healthy human volunteers and tested for
safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an
early indication of its effectiveness. In the case of some products for severe or life-threatening diseases,
such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy
volunteers, the initial human testing is often conducted in patients. Sponsors sometimes designate their
Phase 1 clinical trials as Phase 1a or Phase 1b. Phase 1b clinical trials are typically aimed at confirming
dosing, pharmacokinetics and safety in larger number of patients. Some Phase 1b studies evaluate
biomarkers or surrogate markers that may be associated with efficacy in patients with specific types of
diseases.
Phase 2: This phase involves clinical trials in a limited patient population to identify possible adverse
effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases
and to determine dosage tolerance and appropriate dosage.
Phase 3: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an
expanded patient population, generally at geographically dispersed clinical study sites. These clinical
trials are intended to establish the overall risk-benefit ratio of the product candidate and provide, if
appropriate, an adequate basis for product labeling.
Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing
approval. These trials are used to gain additional experience from the treatment of patients in the intended
therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a
condition of approval of an NDA.
The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that
the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the
IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition, some
clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data
safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move
forward at designated check points based on access to certain data from the trial.
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During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain
points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted.
Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share
information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to
reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2
trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will
support approval of the new drug.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop
additional information about the chemistry and physical characteristics of the drug and finalize a process for
manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing
process must be capable of consistently producing quality batches of the product candidate and, among other things,
the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In
addition, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate
that the product candidate does not undergo unacceptable deterioration over its shelf life.
While the IND is active and before approval, progress reports summarizing the results of the clinical trials and
nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and
written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected
adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar
drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important
increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator
brochure.
There are also requirements governing the reporting of ongoing clinical trials and completed trial results to
public registries. Sponsors of certain clinical trials of FDA-regulated products are required to register and disclose
specified clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the
product, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial
is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials
after completion. Disclosure of the results of these trials can be delayed until the new product or new indication
being studied has been approved.
NDA Review and Approval Process
The results of product development, preclinical and other non-clinical studies and clinical trials, along with
descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling
and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the
product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be
obtained under certain limited circumstances. The FDA reviews an NDA to determine, among other things, whether
a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and
preserve the product’s identity, strength, quality and purity. Under the Prescription Drug User Fee Act, or PDUFA,
guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA
for a new molecular entity to review and act on the submission. This review typically takes twelve months from the
date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after
it the application is submitted. The FDA conducts a preliminary review of all NDAs within the first 60 days after
submission, before accepting them for filing, to determine whether they are sufficiently complete to permit
substantive review The FDA may request additional information rather than accept an NDA for filing. In this event,
the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review
before the FDA accepts it for filing.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a
panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a
recommendation as to whether the application should be approved and under what conditions. The FDA is not
bound by the recommendations of an advisory committee, but it considers such recommendations carefully when
making decisions. Before approving an NDA, the FDA will inspect the facility or facilities where the product is
manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product
within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical
trial sites to assure compliance with GCP requirements.
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After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval
letter authorizes commercial marketing of the drug with prescribing information for specific indications. A
Complete Response Letter indicates that the review cycle of the application is complete and the application will not
be approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the NDA
identified by the FDA and may require additional clinical data, such as an additional pivotal Phase 3 trial or other
significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a
Complete Response Letter is issued, the sponsor must resubmit the NDA or, addressing all of the deficiencies
identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may
decide that the NDA does not satisfy the criteria for approval.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and
dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the
product. In addition, the FDA may require a sponsor to conduct Phase 4 testing, which involves clinical trials
designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and
surveillance programs to monitor the safety of approved products which have been commercialized. The FDA may
also place other conditions on approval including the requirement for a risk evaluation and mitigation strategy, or
REMS, to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must
submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS
could include medication guides, physician communication plans or elements to assure safe use, such as restricted
distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or
marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Marketing
approval may be withdrawn for non-compliance with regulatory requirements or if problems occur following initial
marketing.
The Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric clinical trials for most
drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of
administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the
sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the
product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for
each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral
of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several
reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are
complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin.
The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a
deferral current or fails to submit a request for approval of a pediatric formulation.
Expedited Development and Review Programs
A sponsor may seek approval of its product candidate under programs designed to accelerate FDA’s review
and approval of new drugs and biological products that meet certain criteria. The FDA has a Fast Track designation
program that is intended to expedite or facilitate the process for reviewing new drug products that meet certain
criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended to treat a serious or life-
threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or
condition. Unique to a Fast Track product, the FDA may consider for review sections of the NDA on a rolling basis
before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of
the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the
sponsor pays any required user fees upon submission of the first section of the NDA.
Any product submitted to the FDA for approval, including a product with a Fast Track designation, may also
be eligible for other types of FDA programs intended to expedite development and review, such as priority review
and accelerated approval. A product is eligible for priority review if it has the potential to provide safe and effective
therapy where no satisfactory alternative therapy exists or a significant improvement in the safety or effectiveness of
the treatment, diagnosis or prevention of a serious disease or condition. The FDA will attempt to direct additional
resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate
the review. The FDA endeavors to review applications with priority review designations within six months of the
filing date as compared to ten months for review of new molecular entity NDAs under its current PDUFA review
goals. Priority review designation does not change the scientific/medical standard for approval or the quality of
evidence necessary to support approval.
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In addition, a product may be eligible for accelerated approval. Drug products intended to treat serious or life-
threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product has
an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can
be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of
the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require
that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical
trials. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional
materials, which could adversely impact the timing of the commercial launch of the product. FDA may withdraw
approval of a drug or indication approved under accelerated approval if, for example, the confirmatory trial fails to
verify the predicted clinical benefit of the product.
The FDA can also designate a drug as a “breakthrough therapy.” A sponsor may seek FDA designation of a
product candidate as a “breakthrough therapy” if the product is intended, alone or in combination with one or more
other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates
that the product may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. If the FDA
designates a breakthrough therapy, it may take actions appropriate to expedite the development and review of the
application, which may include holding meetings with the sponsor and the review team throughout the development
of the therapy; providing timely advice to, and interactive communication with, the sponsor regarding the
development of the drug to ensure that the development program to gather the nonclinical and clinical data
necessary for approval is as efficient as practicable; involving senior managers and experienced review staff, as
appropriate, in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the FDA
review team to facilitate an efficient review of the development program and to serve as a scientific liaison between
the review team and the sponsor; and considering alternative clinical trial designs when scientifically appropriate,
which may result in smaller trials or more efficient trials that require less time to complete and may minimize the
number of patients exposed to a potentially less efficacious treatment. The designation includes all of the Fast Track
program features, which means that the sponsor may file sections of the NDA for review on a rolling basis if certain
conditions are satisfied, including an agreement with FDA on the proposed schedule for submission of portions of
the application and the payment of applicable user fees before the FDA may initiate a review. The breakthrough
therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted
to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will work
to expedite the development and review of such drug.
Fast Track designation, priority review and breakthrough therapy designation do not change the standards for
approval but may expedite the development or approval process. Even if a product qualifies for one or more of these
programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that
the time period for FDA review or approval will not be shortened. Vonoprazan has received Fast Track designation
for the treatment of H. pylori infection in combination with both amoxicillin and clarithromycin and with
amoxicillin alone and is potentially eligible for priority review, which we plan to explore. We may also explore
some of these expedited development and review programs for future product candidates, as appropriate.
Post-Approval Requirements
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is
not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown
problems with a product may result in restrictions on the product or even complete withdrawal of the product from
the market. After approval, some types of changes to the approved product, such as adding new indications, certain
manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Drug
manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to
register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with cGMP regulations and other laws and
regulations. In addition, the FDA may impose a number of post-approval requirements as a condition of approval of
an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and
surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.
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Any drug products manufactured or distributed by us or our partners pursuant to FDA approvals will be
subject to pervasive and continuing regulation by the FDA, including, among other things, record-keeping
requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety and efficacy
information, drug sampling and distribution requirements, complying with certain electronic records and signature
requirements, and complying with FDA promotion and advertising requirements. The FDA strictly regulates
labeling, advertising, promotion and other types of information on products that are placed on the market and
imposes requirements and restrictions on drug manufacturers, such as those related to direct-to-consumer
advertising, the prohibition on promoting products for uses or in patient populations that are not described in the
product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and
promotional activities involving the internet.
Discovery of previously unknown problems or the failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market
as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time
during the product development process, approval process or after approval, may subject an applicant or
manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could
include refusal to approve pending applications, withdrawal of an approval, clinical holds on post-approval clinical
trials, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or
distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or
communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties.
Marketing Exclusivity
Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing
applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to
the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the
FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or
ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not approve or
even accept for review an abbreviated new drug application, or ANDA, or an NDA submitted under Section
505(b)(2), or 505(b)(2) NDA, submitted by another company for another drug based on the same active moiety,
regardless of whether the drug is intended for the same indication as the original innovative drug or for another
indication, where the applicant does not own or have a legal right of reference to all the data required for approval.
However, an application may be submitted after four years if it contains a certification of patent invalidity or non-
infringement to one of the patents listed with the FDA by the innovator NDA holder.
The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an
existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by
the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications,
dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug
received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving
ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use.
Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant
submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and
adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric
exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity
if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a
written request does not require the sponsor to undertake the described clinical trials.
Additionally, under the GAIN Act, the FDA may designate a product as a “qualified infectious disease
product,” or QIDP. In order to receive this designation, a drug must qualify as an antibacterial or antifungal drug for
human use intended to treat serious or life-threatening infections, including those caused by either (1) an
antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens, or (2) a so-called
“qualifying pathogen” found on a list of potentially dangerous, drug-resistant organisms established and maintained
by the FDA under the law. A sponsor must request such designation before submitting a marketing application. FDA
granted QIDP designation for vonoprazan for the treatment of H. pylori infection in combination with both
amoxicillin and clarithromycin, and with amoxicillin alone, respectively.
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The benefits of QIDP designation include potential eligibility for priority review and Fast Track designation,
and an extension by an additional five years of any non-patent marketing exclusivity period awarded, such as a five-
year exclusivity period awarded for a new molecular entity. This extension is in addition to any pediatric exclusivity
extension that may be awarded, and the extension will be awarded only to a drug first approved on or after the date
of enactment. The GAIN Act provisions prohibit the grant of an exclusivity extension where the application is a
supplement to an application for which an extension is in effect or has expired, is a subsequent application for a
specified change to an approved product, or is an application for a product that does not meet the definition of QIDP
based on the uses for which it is ultimately approved.
U.S. Healthcare Fraud and Abuse Laws and Compliance Requirements
In addition to FDA regulation of pharmaceutical products, U.S. federal and state healthcare laws and
regulations restrict business practices in the pharmaceutical industry. These laws may impact, among other things,
our current and future business operations, including our clinical research activities, and constrain the business or
financial arrangements and relationships with healthcare providers and other parties. These laws include anti-
kickback and false claims laws, civil monetary penalties laws, data privacy and security laws, and physician
payment transparency laws. In addition to the federal laws summarized below, we may also be subject to similar
state and local laws and regulations that may apply to business practices, including but not limited to, research,
distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-
governmental third-party payors, including private insurers, or by patients themselves.
The federal Anti-Kickback Statute prohibits, among other things, individuals or entities from knowingly and
willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or
in kind to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease
or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. A
person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have
committed a violation. In addition, the government may assert that a claim including items or services resulting from
a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False
Claims Act and the civil monetary penalties statute.
The federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary
penalties laws prohibit, among other things, any individual or entity from knowingly presenting, or causing to be
presented, a false claim for payment to the federal government, knowingly making, using or causing to be made or
used a false record or statement material to a false or fraudulent claim to the federal government, or from knowingly
making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal
criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any
healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing
or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with
the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the healthcare fraud statute implemented under
HIPAA or specific intent to violate it in order to have committed a violation.
The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and
medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS,
information related to payments or other transfers of value made to physicians, certain other health care
professionals beginning in 2022, and teaching hospitals, and applicable manufacturers and applicable group
purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their
immediate family members.
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Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry,
such as state anti-kickback and false claims laws, which may apply to business practices, including but not limited
to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves; state laws
that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws and regulations
that require drug manufacturers to file reports relating to pricing and marketing information or which require
tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and
entities; and state and local laws that require the registration of pharmaceutical sales representatives.
Violation of any of such laws or any other governmental regulations that apply may result in significant
criminal, civil and administrative penalties including damages, fines, imprisonment, disgorgement, additional
reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement
to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits
and future earnings, disgorgement, exclusion from participation in government healthcare programs and the
curtailment or restructuring of our operations.
U.S. Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidate for which
we may seek regulatory approval. Sales in the United States will depend, in part, on the availability of sufficient
coverage and adequate reimbursement from third-party payors, which include government health programs such as
Medicare, Medicaid, TRICARE and the Veterans Administration, as well as managed care organizations and private
health insurers. Prices at which we or our customers seek reimbursement for vonoprazan and any future product
candidates can be subject to challenge, reduction or denial by third-party payors.
The process for determining whether a third-party payor will provide coverage for a product is typically
separate from the process for setting the reimbursement rate that the payor will pay for the product. In the United
States, there is no uniform policy among payors for coverage or reimbursement. Decisions regarding whether to
cover any of a product, the extent of coverage and amount of reimbursement to be provided are made on a plan-by-
plan basis. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their
own coverage and reimbursement policies, but also have their own methods and approval processes. Therefore,
coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage
determination process is often a time-consuming and costly process that can require manufacturers to provide
scientific and clinical support for the use of a product to each payor separately, with no assurance that coverage and
adequate reimbursement will be applied consistently or obtained in the first instance.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-
effectiveness of medical products and services, in addition to their safety and efficacy. Adoption of price controls
and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and
measures, could further limit sales of any product that receives approval. Third-party payors may not consider
vonoprazan and any future product candidates to be medically necessary or cost-effective compared to other
available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate
margin over cost or may not enable us to maintain price levels sufficient to realize an appropriate return on our
investment in drug development. Additionally, decreases in third-party reimbursement for any product or a decision
by a third-party payor not to cover a product could reduce physician usage and patient demand for the product.
U.S. Healthcare Reform
In the United States, there has been, and continues to be, several legislative and regulatory changes and
proposed changes regarding the healthcare system that could prevent or delay marketing approval of product
candidates, restrict or regulate post-approval activities, and affect the profitable sale of product candidates.
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Among policy makers and payors in the United States, there is significant interest in promoting changes in
healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access.
In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by major legislative initiatives. In March 2010, the Patient Protection and Affordable Care
Act, or the Affordable Care Act, was passed, which substantially changed the way healthcare is financed by both
governmental and private insurers, and significantly affected the pharmaceutical industry. The Affordable Care Act,
increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to
23.1%; required collection of rebates for drugs paid by Medicaid managed care organizations; required
manufacturers to participate in a coverage gap discount program, in which manufacturers must agree to offer point-
of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; imposed a non-
deductible annual fee on pharmaceutical manufacturers or importers who sell certain “branded prescription drugs” to
specified federal government programs, implemented a new methodology by which rebates owed by manufacturers
under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or
injected; expanded eligibility criteria for Medicaid programs; creates a new Patient-Centered Outcomes Research
Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with
funding for such research; and established a Center for Medicare Innovation at the CMS to test innovative payment
and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug
spending.
Since its enactment, there have been judicial and political challenges to certain aspects of the Affordable Care
Act. For example, the Tax Cuts and Jobs Act of 2017, or Tax Act, includes a provision repealing, effective January
1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act, on certain individuals
who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the
“individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the
Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the Affordable
Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable
Care Act, are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that the
individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the
remaining provisions of the Affordable Care Act are invalid as well. It is unclear how these decisions, subsequent
appeals, if any, and other efforts to challenge, repeal or replace the Affordable Care Act, will impact the Affordable
Care Act.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was
enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year,
which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the
Bipartisan Budget Act of 2018, will remain in effect through 2029 unless additional Congressional action is taken.
On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things,
reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period
for the government to recover overpayments to providers from three to five years.
Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers
set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and
enacted federal and state legislation designed to, among other things, bring more transparency to product pricing,
review the relationship between pricing and manufacturer patient programs, and reform government program
reimbursement methodologies for pharmaceutical products. Further, the Trump Administration released a
“Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to
increase manufacturer competition, increase the negotiating power of certain federal healthcare programs,
incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of
pharmaceutical products paid by consumers. Individual states in the United States have also become increasingly
active in implementing regulations designed to control pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and
transparency measures, and, in some cases, designed to encourage importation from other countries and bulk
purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding
procedures to determine which drugs and suppliers will be included in their healthcare programs Furthermore, there
has been increased interest by third party payors and governmental authorities in reference pricing systems and
publication of discounts and list prices.
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Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and
varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and
governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our
products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals
by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product
in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States
apply similarly in the context of the European Union, or EU, the approval process varies between countries and
jurisdictions and can involve additional product testing and additional administrative review periods. The time
required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to
obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in
another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact
the regulatory process in others.
To market a medicinal product in the European Economic Area, or EEA (which is comprised of the 28
Member States of the EU plus Norway, Iceland and Liechtenstein), we must obtain a Marketing Authorization, or
MA. There are two types of marketing authorizations:
•
the Community MA, which is issued by the European Commission through the Centralized Procedure,
based on the opinion of the Committee for Medicinal Products for Human Use of the EMA and which is
valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types
of products, such as biotechnology medicinal products, orphan medicinal products, advanced therapy
products, and medicinal products containing a new active substance indicated for the treatment certain
diseases, such as AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases.
The Centralized Procedure is optional for products containing a new active substance not yet authorized
in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or
which are in the interest of public health in the EU; and
• National MAs, which are issued by the competent authorities of the Member States of the EEA and only
cover their respective territory, are available for products not falling within the mandatory scope of the
Centralized Procedure. Where a product has already been authorized for marketing in a Member State of
the EEA, this National MA can be recognized in another Member State through the Mutual Recognition
Procedure. If the product has not received a National MA in any Member State at the time of application,
it can be approved simultaneously in various Member States through the Decentralized Procedure.
Under the above described procedures, before granting the MA, the EMA or the competent authorities of the
Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific
criteria concerning its quality, safety and efficacy.
Data and marketing exclusivity
In the EEA, new products authorized for marketing, or reference products, qualify for eight years of data
exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity
period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in
the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU
during a period of eight years from the date on which the reference product was first authorized in the EU. The
market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in
the EU until 10 years have elapsed from the initial authorization of the reference product in the EU. The 10-year
market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those 10
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.
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Pediatric investigation plan
In the EEA, marketing authorization applications for new medicinal products not authorized have to include
the results of studies conducted in the pediatric population, in compliance with a pediatric investigation plan, or PIP,
agreed with the EMA’s Pediatric Committee, or PDCO. The PIP sets out the timing and measures proposed to
generate data to support a pediatric indication of the drug for which marketing authorization is being sought. The
PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are
sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide
pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the
product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended
occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over
existing treatments for pediatric patients. Once the marketing authorization is obtained in all Member States of the
EU and study results are included in the product information, even when negative, the product is eligible for six
months’ supplementary protection certificate extension.
Clinical trials
Clinical trials of medicinal products in the European Union must be conducted in accordance with European
Union and national regulations and the International Conference on Harmonization, or ICH, guidelines on GCPs.
Additional GCP guidelines from the European Commission, focusing in particular on traceability, apply to clinical
trials of advanced therapy medicinal products. If the sponsor of the clinical trial is not established within the
European Union, it must appoint an entity within the European Union to act as its legal representative. The sponsor
must take out a clinical trial insurance policy, and in most EU countries, the sponsor is liable to provide ‘no fault’
compensation to any study subject injured in the clinical trial.
Prior to commencing a clinical trial, the sponsor must obtain a clinical trial authorization from the competent
authority, and a positive opinion from an independent ethics committee. The application for a clinical trial
authorization must include, among other things, a copy of the trial protocol and an investigational medicinal product
dossier containing information about the manufacture and quality of the medicinal product under investigation.
Currently, clinical trial authorization applications must be submitted to the competent authority in each EU Member
State in which the trial will be conducted. Under the new Regulation on Clinical Trials, which is currently expected
to take effect in 2020, there will be a centralized application procedure where one national authority takes the lead in
reviewing the application and the other national authorities have only a limited involvement. Any substantial
changes to the trial protocol or other information submitted with the clinical trial applications must be notified to or
approved by the relevant competent authorities and ethics committees. Medicines used in clinical trials must be
manufactured in accordance with cGMP. Other national and European Union-wide regulatory requirements also
apply.
Data privacy and security laws
Pharmaceutical companies may be subject to U.S. federal and state health information privacy, security and
data breach notification laws, which may govern the collection, use, disclosure and protection of health-related and
other personal information. In the U.S., HIPAA imposes privacy, security and breach reporting obligations with
respect to individually identifiable health information upon “covered entities” (health plans, health care
clearinghouses and certain health care providers), and their respective business associates, individuals or entities that
create, received, maintain or transmit protected health information in connection with providing a service for or on
behalf of a covered entity. HIPAA mandates the reporting of certain breaches of health information to HHS, affected
individuals and if the breach is large enough, the media. Entities that are found to be in violation of HIPAA as the
result of a breach of unsecured PHI, a complaint about privacy practices or an audit by the Department of Health and
Human Services, or HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or
additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action
plan with HHS to settle allegations of HIPAA non-compliance. Even when HIPAA does not apply, according to the
Federal Trade Commission or the FTC, failing to take appropriate steps to keep consumers’ personal information
secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade
Commission Act, or the FTCA, 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be
reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and
complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
Individually identifiable health information is considered sensitive data that merits stronger safeguards. The FTC’s
guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA
Security Rule.
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In addition, certain state laws govern the privacy and security of health information in certain circumstances,
some of which are more stringent, broader in scope or offer greater individual rights with respect to protected health
information, or PHI, than HIPAA and many of which may differ from each other in significant ways and may not
have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can
result in the imposition of significant civil and/or criminal penalties and private litigation. For example, California
recently enacted legislation, the California Consumer Privacy Act, or CCPA, which went into effect January 1,
2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides
new privacy rights to California residents, including the right to opt out of certain disclosures of their information.
The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially
increasing risks associated with a data breach. Although the law includes limited exceptions, including for
“protected health information” maintained by a covered entity or business associate, it may regulate or impact our
processing of personal information depending on the context.
We are also subject to laws and regulations in non-U.S. countries covering data privacy and the protection of
health-related and other personal information. EU member states and other jurisdictions have adopted data
protection laws and regulations, which impose significant compliance obligations. Laws and regulations in these
jurisdictions apply broadly to the collection, use, storage, disclosure, processing and security of personal information
that identifies or may be used to identify an individual, such as names, contact information, and sensitive personal
data such as health data. These laws and regulations are subject to frequent revisions and differing interpretations
and have generally become more stringent over time.
As of May 25, 2018, Regulation 2016/676, known as the General Data Protection Regulation, or GDPR,
replaced the Data Protection Directive with respect to the processing of personal data in the European Union. The
GDPR imposes many requirements for controllers and processors of personal data, including, for example, higher
standards for obtaining consent from individuals to process their personal data, more robust disclosures to
individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications,
limitations on retention and secondary use of information, increased requirements pertaining to health data and
pseudonymized (i.e., key-coded) data and additional obligations when we contract third-party processors in
connection with the processing of the personal data. The GDPR allows EU member states to make additional laws
and regulations further limiting the processing of genetic, biometric or health data. Failure to comply with the
requirements of GDPR and the applicable national data protection laws of the EU member states may result in fines
of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever
is higher, and other administrative penalties.
Employees
As of March 16, 2020, we had 25 full-time employees, 4 of whom have a Ph.D. or M.D. None of our
employees are represented by labor unions or covered by collective bargaining agreements. We consider our
relationship with our employees to be good.
Corporate Information
We were originally incorporated under the laws of the state of Delaware on January 9, 2018 under the name
North Bridge IV, Inc. On March 13, 2019, we changed our name to Phathom Pharmaceuticals, Inc. and merged
YamadaCo IIA, Inc., a Delaware corporation, or YamadaCo, with and into our company, with Phathom
Pharmaceuticals, Inc. as the surviving entity, or the Merger. References throughout this annual report to Phathom
Pharmaceuticals, Inc. include North Bridge IV, Inc. prior to the Merger. Our principal executive offices are located
at 100 Campus Drive, Suite 102, Florham Park, New Jersey 07932, and our telephone number is (877) 742-8466.
Available Information
Our internet address is www.phathompharma.com. Our investor relations website is located at
https://investors.phathompharma.com.com. We make available free of charge on our investor relations website
under “Financials and Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, our directors’ and officers’ Section 16 reports and any amendments to those reports as soon as reasonably
practicable after filing or furnishing such materials to the SEC. They are also available for free on the SEC’s website
at www.sec.gov. The information in or accessible through the SEC and our website are not incorporated into, and
are not considered part of, this filing.
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Item 1A.
Risk Factors
You should carefully consider the following risk factors, together with the other information contained in this
annual report on Form 10-K, including our financial statements and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” before making a decision to purchase
or sell shares of our common stock. We cannot assure you that any of the events discussed in the risk factors below
will not occur. These risks could have a material and adverse impact on our business, results of operations,
financial condition and growth prospects. If that were to happen, the trading price of our common stock could
decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may
impair our business operations or financial condition.
Risks Related to Our Limited Operating History, Financial Position and Capital Requirements
We have a limited operating history, have incurred significant operating losses since our inception and expect to
incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if
we achieve profitability, we may not be able to sustain it.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree
of risk. We are a late clinical-stage biopharmaceutical company with a limited operating history upon which you can
evaluate our business and prospects. We commenced operations in 2018, and to date, we have focused primarily on
organizing and staffing our company, business planning, raising capital, in-licensing our initial product candidate,
vonoprazan, meeting with regulatory authorities, and preparing for our Phase 3 clinical trials of vonoprazan. As a
company, we have not yet demonstrated an ability to successfully complete any clinical trials, obtain regulatory
approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct
sales and marketing activities necessary for successful product commercialization. Consequently, any predictions
made about our future success or viability may not be as accurate as they could be if we had a history of successfully
developing and commercializing biopharmaceutical products.
We have incurred significant operating losses since our inception. If vonoprazan is not successfully developed
and approved in the United States, Europe and/or Canada, we may never generate any revenue. We have incurred
cumulative net losses since our inception and, as of December 31, 2019, we had an accumulated deficit of $256.4
million. Substantially all of our losses have resulted from expenses incurred in connection with in-licensing and
developing vonoprazan and from general and administrative costs associated with our operations. Vonoprazan and
any future product candidates will require substantial additional development time and resources before we will be
able to apply for or receive regulatory approvals and begin generating revenue from product sales. We expect to
continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially as we
continue our development of, seek regulatory approval for, and potentially commercialize vonoprazan and seek to
identify, assess, acquire, in-license, or develop additional product candidates.
To become and remain profitable, we must succeed in developing and eventually commercializing products
that generate significant revenue. This will require us to be successful in a range of challenging activities, including
completing clinical trials and preclinical studies of vonoprazan and any future product candidates, obtaining
regulatory approval for these product candidates and manufacturing, marketing and selling any products. We are
only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we
do, may never generate revenues that are significant enough to achieve profitability. In addition, we have not yet
demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by
companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Because of the
numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to
accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
basis. Our failure to become and remain profitable would depress the value of our company and could impair our
ability to raise capital, expand our business, continue our product development efforts, diversify our product
candidate pipeline or even continue our operations. A decline in the value of our company could also cause you to
lose all or part of your investment.
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We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary
capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product
development programs, commercialization efforts or other operations.
The development of biopharmaceutical product candidates is capital-intensive. We expect our expenses to
increase in connection with our ongoing activities, particularly as we conduct our Phase 3 clinical trials of
vonoprazan and seek regulatory approval for vonoprazan. In addition, if vonoprazan receives approval and is
commercialized, we will be required to make milestone and royalty payments to Takeda, from whom we have in-
licensed the rights to develop and commercialize vonoprazan in the United States, Europe, and Canada pursuant to
the Takeda License. Furthermore, if and to the extent we seek to acquire or in-license additional product candidates
in the future, we may be required to make significant upfront payments, milestone payments, and/or licensing
payments. If we obtain regulatory approval for vonoprazan or any future product candidate, we also expect to incur
significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Because
the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to
successfully complete the development and commercialization of vonoprazan or any future product candidate.
Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If
we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate
our research and development programs or any future commercialization efforts.
We believe that our existing cash and cash equivalents will enable us to fund our operations for at least the
next 24 months. In particular, we expect that these funds will allow us to complete our Phase 3 clinical trials of
vonoprazan in the treatment of erosive esophagitis and H. pylori infection. We have based these estimates on
assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our operating plans and other demands on our cash resources may change as a result of many factors currently
unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or
debt financings or other capital sources, including potentially collaborations, licenses and other similar
arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic
considerations even if we believe we have sufficient funds for our current or future operating plans. Attempting to
secure additional financing may divert our management from our day-to-day activities, which may adversely affect
our ability to develop vonoprazan or any future product candidates.
Our future capital requirements will depend on many factors, including:
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the initiation, type, number, scope, results, costs and timing of, our clinical trials of vonoprazan, and
preclinical studies or clinical trials of other potential product candidates we may choose to pursue in the
future, including feedback received from regulatory authorities;
delays and cost increases as a result of the recent COVID-19 outbreak;
the costs and timing of manufacturing for vonoprazan or any future product candidates, including
commercial scale manufacturing if any product candidate is approved;
the costs, timing and outcome of regulatory review of vonoprazan or any future product candidates;
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a
public company, including enhanced internal controls over financial reporting;
the costs associated with hiring additional personnel and consultants as our business grows, including
additional executive officers, clinical development personnel and commercial personnel;
the timing and amount of the milestone or other payments we must make to Takeda and any future
licensors;
the costs and timing of establishing or securing sales and marketing capabilities if vonoprazan or any
future product candidate is approved;
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-
party payors and adequate market share and revenue for any approved products;
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patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or
adequate reimbursement from third-party payors;
the terms and timing of establishing and maintaining collaborations, licenses and other similar
arrangements; and
the costs associated with any products or technologies that we may in-license or acquire.
Conducting clinical trials and preclinical studies is a time consuming, expensive, and uncertain process that
takes years to complete, and we may never generate the necessary data or results required to obtain regulatory
approval and achieve product sales. In addition, vonoprazan and other potential product candidates, if approved,
may not achieve commercial success. Our commercial revenues, if any, would initially be derived from sales of
vonoprazan, which we do not expect to be commercially available in our licensed territories for many years, if at all.
Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.
Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek
additional capital due to favorable market conditions or strategic considerations, even if we believe we have
sufficient funds for our current or future operating plans.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to
relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs
through equity offerings, our loan and security agreement, or the Loan Agreement, with Silicon Valley Bank, or
SVB, as administrative and collateral agent, and lenders SVB and WestRiver Innovation Lending Fund VIII, L.P., or
WestRiver, debt financings, or other capital sources, including potential collaborations, licenses and other similar
arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences
that adversely affect your rights as a common stockholder. Our Loan Agreement includes, and any future debt
financing and preferred equity financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or
declaring dividends.
If we raise funds through future collaborations, licenses and other similar arrangements, we may have to
relinquish valuable rights to our future revenue streams, research programs or product candidates or grant licenses
on terms that may not be favorable to us and/or that may reduce the value of our common stock.
Risks Related to the Development and Regulatory Approval of Product Candidates
We currently depend entirely on the success of vonoprazan, which is our only product candidate. If we are unable
to advance vonoprazan in clinical development, obtain regulatory approval and ultimately commercialize
vonoprazan, or experience significant delays in doing so, our business will be materially harmed.
We currently only have one product candidate, vonoprazan, which we in-licensed from Takeda. Our business
presently depends entirely on our ability to successfully develop, obtain regulatory approval for, and commercialize
vonoprazan in a timely manner. This may make an investment in our company riskier than similar companies that
have multiple product candidates in active development that may be able to better sustain failure of a lead product
candidate. We initiated two pivotal Phase 3 clinical trials in the fourth quarter of 2019 for vonoprazan: one for the
treatment of erosive esophagitis, and a second for the treatment of H. pylori infection. Our assumptions about
vonoprazan’s development and commercial potential are based in large part on the development and commercial
experience of vonoprazan in Japan and other Asian countries. However, our assumptions may prove to be wrong,
and we may encounter a materially and adversely different development and commercial experience. The success of
vonoprazan will depend on several factors, including the following:
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acceptance by the FDA or by comparable foreign regulatory authorities of our proposed design of the
Phase 3 clinical trials of vonoprazan and any future clinical trials;
successful enrollment in clinical trials and completion of clinical trials with favorable results;
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the willingness of the FDA, the European Medicines Agency, or EMA, and other comparable foreign
regulatory authorities to accept the data from our Phase 3 clinical trials and preclinical studies and clinical
trials conducted outside of our licensed territories by Takeda and independent investigators as part of the
basis for review and approval of vonoprazan
demonstrating safety and efficacy to the satisfaction of applicable regulatory authorities;
the outcome, timing and cost of meeting regulatory requirements established by the FDA, EMA, and
other comparable foreign regulatory authorities;
receipt of marketing approvals from applicable regulatory authorities, including one or more NDAs from
the FDA and maintaining such approvals;
• making arrangements with Takeda or any future third-party manufacturers for, or establishing,
commercial manufacturing capabilities and receiving/importing commercial supplies approved by FDA
and other regulators from Takeda or any future third-party manufacturer;
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establishing sales, marketing and distribution capabilities and commercializing vonoprazan, if approved,
whether alone or in collaboration with others;
establishment and maintenance of patent and trade secret protection or regulatory exclusivity for
vonoprazan;
• maintaining an acceptable safety profile of vonoprazan following approval; and
• maintaining and growing an organization of people who can develop and, if approved, commercialize,
market, and sell vonoprazan to physicians, patients, healthcare payors, and others in the medical
community.
The success of our business, including our ability to finance our company and generate any revenue in the
future, will primarily depend on the successful development, regulatory approval and commercialization of
vonoprazan, which may never occur. We have not yet succeeded and may not succeed in demonstrating efficacy and
safety for vonoprazan in clinical trials or in obtaining marketing approval thereafter. It may be several years, if at all,
before we have demonstrated the safety and efficacy of a treatment sufficient to warrant approval for
commercialization. If we are unable to develop, or obtain regulatory approval for, or, if approved, successfully
commercialize vonoprazan, we may not be able to generate sufficient revenue to continue our business.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and the results
of prior clinical trials and other investigator-initiated clinical trials of vonoprazan are not necessarily predictive
of our future results. Vonoprazan may not have favorable results in our clinical trials, or receive regulatory
approval on a timely basis, if at all.
Clinical drug development is expensive and can take many years to complete, and its outcome is inherently
uncertain. Our clinical trials may not be conducted as planned or completed on schedule, if at all, and failure can
occur at any time during the preclinical study or clinical trial process. Despite promising preclinical or clinical
results, any product candidate can unexpectedly fail at any stage of preclinical or clinical development. The
historical failure rate for product candidates in our industry is high.
The results from clinical trials or preclinical studies of a product candidate may not predict the results of later
clinical trials of the product candidate, and interim results of a clinical trial are not necessarily indicative of final
results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy
characteristics despite having progressed through preclinical studies and initial clinical trials. In particular, while
vonoprazan has been studied in an extensive clinical program by Takeda, including 18 Phase 3 clinical trials, we do
not know how vonoprazan will perform in future clinical trials, including as a result of differences between the
clinical trials conducted to date by Takeda or other third parties and our Phase 3 clinical trial designs. These
differences include, among other things: including higher doses of antibiotics and longer duration of treatment and
inclusion of a dual therapy arm in our Phase 3 clinical trial for the treatment of H. pylori infection, and conducting a
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single Phase 3 clinical trial for both the healing and maintenance of erosive esophagitis, rather than two separate
trials. Further, the large majority of the clinical development of vonoprazan was conducted in Asian subjects, who
naturally have differences in height, weight, drug metabolism, and potentially, acid-secretory capacity from Western
populations. Although there are data across two Phase 1 clinical trials in healthy volunteers showing that the
vonoprazan pharmacokinetic and pharmacodynamic profile is similar in Japanese and non-Japanese subjects, our
clinical trials of vonoprazan in a broader population comprised of patients in the United States and Europe may not
yield the same results as prior clinical trials. Additionally, Western patients may be more likely to deviate from
clinical trial protocols or drop out of clinical trials than Japanese patients, which may negatively impact the results
of our clinical trials. Further, in our Phase 3 clinical trial for the treatment of H. pylori infection, the vonoprazan
dual therapy arm will not be double-blinded because patients in this arm will be administered amoxicillin three times
daily, versus twice daily for the triple therapy regimens. Both triple therapy regimens will be double-blinded. The
inability to double-blind the dual therapy arm may impact the results of this trial and how regulatory agencies or
healthcare payors interpret such results. For example, the EMA has noted that it expects additional analyses of
treatment compliance and drop-out rates in the dual therapy arm because it will not be double-blinded.
A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks
in clinical development even after the product candidate achieved promising results in earlier clinical trials. The
results of our trials may not be comparable to those achieved previously, whether as a result of differences in trial
design, patient population or otherwise.
Further, the FDA, the EMA, or other comparable foreign regulatory authorities may not view the data from
clinical trials conducted by Takeda and other third parties discussed above, together with our single Phase 3 clinical
trial in each of erosive esophagitis and H. pylori infection, as sufficient to support the regulatory approval of
vonoprazan for the treatment of erosive esophagitis or H. pylori infection. The FDA, EMA, or other comparable
foreign regulatory authorities may also disagree with the adequacy of our trial designs, including as a result of the
differences between our designs and those of Takeda’s Phase 3 clinical trials discussed above. As a result, we could
be required to conduct additional clinical trials prior to seeking and obtaining regulatory approval and our planned
development timeline could materially change. In addition, in July 2019, we received scientific advice from the
EMA on our Phase 3 clinical trial of vonoprazan in the healing and maintenance of healing of erosive esophagitis.
For the healing phase of the study, the EMA recommended that we include an endoscopy to assess healing at Week
4 in addition to the planned endoscopies at Week 2 and Week 8 because the summary of product characteristics for
lansoprazole suggests four weeks of treatment to assess healing in erosive esophagitis. We have decided not to
incorporate this change into the study design given the additional burden on study subjects to return for a third
endoscopy in an eight-week period. This decision may impact the future summary of product characteristics for
vonoprazan or may cause the EMA to require us to conduct additional clinical trials for vonoprazan to support
marketing approval.
In addition, Takeda, a third party over which we have no control, has the right to develop and commercialize
vonoprazan outside of the United States, Europe, and Canada. Takeda has marketing approval for vonoprazan in
certain countries in Asia and Latin America, and Takeda has ongoing clinical trials of vonoprazan in certain
indications that we are also pursuing. If such ongoing trials fail to meet their primary endpoints, have serious
adverse events or encounter other problems, the development potential of vonoprazan could be materially and
adversely affected. In addition, if serious adverse events or other problems occur with patients using vonoprazan
marketed outside of our licensed territories, or if the results of ongoing or future clinical trials of vonoprazan
conducted by Takeda or others generate negative results or results that conflict with the results of our clinical trials,
the FDA, EMA, or other regulatory authorities may delay, limit, or deny approval of vonoprazan, require us to
conduct additional clinical trials as a condition to marketing approval, or withdraw their approval of vonoprazan or
otherwise restrict our ability to market and sell vonoprazan, if approved. In addition, treating physicians may be less
willing to prescribe vonoprazan due to concerns over such trial results or adverse events, which would limit our
ability to commercialize vonoprazan.
For the foregoing reasons, our ongoing clinical trials may not be successful. Any safety concerns observed in
any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of
vonoprazan or any future product candidates in those and other indications, which could have a material adverse
effect on our business, financial condition and results of operations.
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Any difficulties or delays in the commencement or completion, or termination or suspension, of our clinical trials
could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our
commercial prospects.
Before obtaining marketing approval from regulatory authorities for the sale of vonoprazan or any future
product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of vonoprazan or
any future product candidates in humans. In August 2019, we submitted three separate INDs to the FDA for
vonoprazan: one for erosive esophagitis; a second for dual therapy treatment of H. pylori infection; and a third for
triple therapy treatment of H. pylori infection. These three INDs were accepted by the FDA in September 2019. We
initiated two pivotal Phase 3 clinical trials in the fourth quarter of 2019 for vonoprazan: one for the treatment of
erosive esophagitis and a second for the treatment of H. pylori infection.
We will have to submit the results of preclinical studies to the FDA along with other information, including
information about product candidate chemistry, manufacturing and controls and our proposed clinical trial protocol,
as part of an IND for any future product candidates that we advance to clinical development, and we may also be
required to submit regulatory filings to foreign regulatory authorities to the extent we initiate clinical trials outside of
the United States.
We do not know whether our ongoing trials will be completed on schedule, if at all, or if any future clinical
trials will begin on time. The commencement and completion of clinical trials can be delayed for a number of
reasons, including delays related to:
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the FDA, EMA or comparable foreign regulatory authorities disagreeing as to the design or
implementation of our clinical trials and reaching consensus among the FDA and EMA over the design of
the same clinical trial;
any failure or delay in obtaining regulatory authorizations to commence a trial;
any failure or delay in reaching an agreement with contract research organizations, or CROs, and clinical
trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among
different CROs and trial sites;
institutional review boards, or IRBs, refusing to approve, suspending or terminating the trial at an
investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the
trial;
changes to clinical trial protocols;
clinical sites deviating from trial protocols or dropping out of a trial;
• manufacturing or obtaining sufficient quantities of vonoprazan and any future product candidates;
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inability to obtain and deliver sufficient quantities of vonoprazan and any future product candidates, or of
lansoprazole, which is being used in both of our Phase 3 clinical trials, and/or antibiotics, including
amoxicillin and clarithromycin, which are being used in our Phase 3 clinical trial of vonoprazan for the
treatment of H. pylori infection, to clinical sites;
subjects failing to enroll or remain in our trials at the rate we expect, or failing to return for post-
treatment follow-up;
subjects choosing an alternative treatment for the indication for which we are developing vonoprazan and
any future product candidates, or participating in competing clinical trials;
lack of adequate funding to continue the clinical trial;
subjects experiencing severe or unexpected drug-related adverse effects;
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occurrence of serious adverse events in trials of the same class of agents conducted by other companies;
selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the
resulting data;
a facility manufacturing vonoprazan or any future product candidates or any of their components being
ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut
down due to violations of current good manufacturing, or cGMP, regulations or other applicable
requirements, or infections or cross-contaminations of product candidates in the manufacturing process;
any changes to our manufacturing process that may be necessary or desired;
third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not
performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol,
good clinical practices, or GCP, or other regulatory requirements;
third-party contractors not performing data collection or analysis in a timely or accurate manner; or
third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other
government or regulatory authorities for violations of regulatory requirements, in which case we may
need to find a substitute contractor, and we may not be able to use some or all of the data produced by
such contractors in support of our marketing applications.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the
institutions in which such trials are being conducted or by the FDA or comparable foreign regulatory authorities. For
example, in March 2020, due to global efforts to combat the COVID-19 pandemic, which has resulted in travel
restrictions imposed by many state, local and international governments and guidance from the American Society of
Gastrointestinal Endoscopy on limiting endoscopies, which are required in both of our Phase 3 trials, we announced
a pause in randomization of new patients in our Phase 3 trials. The FDA or comparable foreign regulatory
authorities may impose a suspension or termination due to a number of factors, including failure to conduct the
clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial
operations or trial site by the FDA or comparable foreign regulatory authorities, unforeseen safety issues or adverse
side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or
administrative actions or lack of adequate funding to continue the clinical trial. In addition, changes in regulatory
requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these
changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may
impact the costs, timing, or successful completion of a clinical trial.
Further, conducting clinical trials in foreign countries, as we are doing for vonoprazan and may do for any
future product candidates, presents additional risks that may delay completion of our clinical trials. These risks
include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in
healthcare services or cultural customs, managing additional administrative burdens associated with foreign
regulatory schemes, as well as political and economic risks relevant to such foreign countries.
Moreover, principal investigators for our clinical trials currently serve and may continue to serve as scientific
advisors or consultants to us from time to time and receive compensation in connection with such services. Under
certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign
regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial
relationship between us and a principal investigator has created a conflict of interest or otherwise affected
interpretation of the clinical trial. The FDA or comparable foreign regulatory authority may therefore question the
integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be
jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or
comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing
approval of vonoprazan or any future product candidates.
If we experience delays in the completion of, or termination of, any clinical trial of vonoprazan or any future
product candidates, the commercial prospects of vonoprazan and any future product candidates will be harmed, and
our ability to generate product revenues from any of these product candidates will be delayed. Moreover, any delays
in completing our clinical trials will increase our costs, slow down our product candidate development and approval
process and jeopardize our ability to commence product sales and generate revenues.
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In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the
commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a
product candidate. We may make formulation or manufacturing changes to vonoprazan or any future product
candidates, in which case we may need to conduct additional preclinical studies to bridge our modified product
candidates to earlier versions. Any delays to our clinical trials that occur as a result could shorten any period during
which we may have the exclusive right to commercialize vonoprazan or any future product candidates and our
competitors may be able to bring products to market before we do, and the commercial viability of vonoprazan and
any future product candidates could be significantly reduced. Any of these occurrences may harm our business,
financial condition, and prospects significantly.
We may find it difficult to enroll patients in our clinical trials. If we encounter difficulties enrolling patients in
our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may not be able to initiate or continue clinical trials for vonoprazan or any future product candidates if we
are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by
the FDA or similar regulatory authorities outside the United States. Subject enrollment, a significant factor in the
timing of clinical trials, is affected by many factors including the size and nature of the patient population, the
proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial,
the risk that enrolled patients will not complete a clinical trial, our ability to recruit clinical trial investigators with
the appropriate competencies and experience, competing clinical trials and clinicians’ and patients’ perceptions as to
the potential advantages and risks of the product candidate being studied in relation to other available therapies,
including any new drugs that may be approved for the indications we are investigating as well as any drugs under
development. We will be required to identify and enroll a sufficient number of patients for each of our clinical trials.
Potential patients for any planned clinical trials may not be adequately diagnosed or identified with the diseases
which we are targeting or may not meet the entry criteria for such trials. For example, a key secondary analysis in
our Phase 3 clinical trial for the treatment of H. pylori infection is the eradication rate in clarithromycin-resistant
patients. However, because the process of assessing antibiotic resistance to H. pylori takes several weeks, we believe
it is not practical to use resistance as an enrollment criteria in our clinical trial. Therefore, the percentage of
clarithromycin-resistant patients enrolled in this clinical trial is unpredictable and may affect the results of the trial.
We also may encounter difficulties in identifying and enrolling patients with a stage of disease appropriate for our
clinical trials and monitoring such patients adequately during and after treatment. For example, in our Phase 3
clinical trial of vonoprazan in erosive esophagitis, we intend for 30% of the patients to have Los Angeles Class C or
D erosive esophagitis, which are the most severe forms of erosive esophagitis and are estimated to only represent
approximately 10 to 20% of erosive esophagitis patients. We may not be able to initiate or continue clinical trials if
we are unable to locate a sufficient number of eligible patients to participate in the clinical trials required by the
FDA or comparable foreign regulatory authorities. In addition, the process of finding and diagnosing patients may
prove costly as these patients are required to undergo an endoscopy before being diagnosed as having Los Angeles
Class C or D erosive esophagitis.
The timing of our clinical trials depends, in part, on the speed at which we can recruit patients to participate in
our trials, as well as completion of required follow-up periods. The eligibility criteria of our clinical trials further
limits the pool of available trial participants. If patients are unwilling to participate in our trials for any reason,
including the existence of concurrent clinical trials for similar patient or the availability of approved therapies, or we
otherwise have difficulty enrolling a sufficient number of patients, the timeline for recruiting patients, conducting
trials and obtaining regulatory approval of vonoprazan and any future product candidates may be delayed. Further,
public health emergencies, such as the novel strain of coronavirus, COVID-19, which has been declared by the
World Health Organization to be a pandemic, which recently caused us to pause randomization of new patients in
our Phase 3 trials, have and may continue to negatively affect site activation, as well as patient enrollment and
retention. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials would
result in significant delays or may require us to abandon one or more clinical trials altogether.
Our assumptions used in determining expected clinical trial timelines may not be correct, and we may
experience delays in enrollment, which would result in the delay of completion of such trials beyond our expected
timelines.
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Use of vonoprazan or any future product candidates could be associated with side effects, adverse events or other
properties or safety risks, which could delay or preclude approval, cause us to suspend or discontinue clinical
trials, abandon a product candidate, limit the commercial profile of an approved label or result in other
significant negative consequences that could severely harm our business, prospects, operating results and
financial condition.
As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events
associated with vonoprazan’s or any future product candidates’ use. Results of our clinical trials could reveal a high
and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects
caused by vonoprazan and any future product candidates could cause us or regulatory authorities to interrupt, delay
or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the
FDA or comparable foreign regulatory authorities. The drug-related side effects could affect patient recruitment or
the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these
occurrences may harm our business, financial condition, and prospects significantly.
Moreover, if vonoprazan or any other future product candidates are associated with undesirable side effects in
clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their
development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are
less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial
expectations for the product candidate, if approved. We may also be required to modify our study plans based on
findings in our clinical trials.
As of December 2019, more than 6,000 subjects have been exposed to vonoprazan in completed and ongoing
Phase 1 to 3 clinical trials. The doses studied have ranged from 1 to 120 mg with durations up to one year. The most
commonly reported AEs in the clinical development program for vonoprazan, as reflected in the Japanese
prescribing information published by Japan’s Pharmaceutical and Medical Devices Agency, or PMDA, were
diarrhea, constipation, nausea, elevated liver enzymes, rash, and eosinophilia. All such events had an incidence rate
of less than 5.0% other than diarrhea in the treatment of H. pylori which had an incidence rate of 10.6% in
combination with antibiotics. No dose- related increase in TEAEs or SAEs was observed. The safety profile of
vonoprazan and incidence of TEAEs, drug-related TEAEs, and TEAEs leading to drug discontinuation were similar
between vonoprazan and lansoprazole across studies.
Certain earlier generation P-CABs previously under development by other companies may have been
discontinued in part due to their hepatic safety profile. These hepatic safety concerns may be compound-specific and
not generalizable to the P-CAB class. Vonoprazan has had a similar hepatic safety profile to lansoprazole across all
clinical studies conducted by Takeda, in which 1.0% of subjects treated with vonoprazan 10 mg or 20 mg and 0.8%
of subjects treated with lansoprazole 15 mg or 30 mg had ALT or AST elevations greater than three times the upper
limit of normal or bilirubin elevations greater than two times the upper limit of normal. The most recent post-
marketing safety report from December 2019 includes an estimate of over 25 million patients who have received
vonoprazan in Japan since launch. Based on the post-marketing experience, the clinically significant adverse
reactions section of the Japanese prescribing information for vonoprazan was updated to include skin reactions such
as toxic epidermal necrolysis, Steven- Johnson syndrome, and erythema multiforme, and events of pancytopenia,
agranulocytosis, leukocytopenia, and thrombocytopenia. The incidence of these reactions was considered extremely
rare (less than 1 in 100,000 patients) and a causal relationship to vonoprazan could not be ruled out.
Serious hepatic adverse events have also been observed among patients exposed to vonoprazan in Japan in the
post-marketing setting. These cases were typically confounded by comorbidities or other concomitant medications
and are believed to be idiosyncratic reactions. The incidence of these events was considered extremely rare (less
than 1 in 100,000 patients). The post-marketing safety data, including the December 2019 post-marketing safety
report and the reported hepatic safety events, have been submitted to the PMDA. To date, there have been no
changes to the Japan prescribing information related to hepatic safety. We may also observe hepatic-related events
in our clinical trials.
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It is possible that as we test vonoprazan and any future product candidates in our clinical trials, or as the use of
vonoprazan and any future product candidates becomes more widespread if they receive regulatory approval,
illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that
did not occur or went undetected in previous trials, will be reported by patients. If such side effects become known
later in development or upon approval, if any, such findings may harm our business, financial condition and
prospects significantly. Further, if a serious safety issue is identified in connection with use of vonoprazan
commercially or in third-party clinical trials in Asia or elsewhere, such issues may adversely affect the development
potential of vonoprazan or result in regulatory authorities restricting our ability to develop vonoprazan.
In addition, if vonoprazan or any future product candidate receives marketing approval, and we or others later
identify undesirable side effects caused by such products, a number of potentially significant negative consequences
could result, including:
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regulatory authorities may withdraw, suspend or limit approvals of such product, or seek an injunction
against its manufacturer;
• we may be required to recall a product or change the way such product is administered to patients;
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regulatory authorities may require additional warnings on the label, such as a “black box” warning or a
contraindication;
• we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a
medication guide outlining the risks of such side effects for distribution to patients;
• we may be required to change the way a product is distributed or administered, conduct additional clinical
trials or change the labeling of a product or be required to conduct additional post-marketing studies or
surveillance;
• we could be sued and held liable for harm caused to patients;
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sales of the product may decrease significantly or the product could become less competitive; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular
product candidate, if approved, and could significantly harm our business, results of operations and prospects.
As a company, we have never completed a clinical trial or submitted an NDA or comparable foreign regulatory
filing, and may be unable to do so for vonoprazan or any future product candidates.
We are early in our development efforts for vonoprazan, and we will need to successfully complete pivotal
clinical trials in order to obtain FDA, EMA or comparable foreign regulatory approval to market vonoprazan or any
future product candidates. Carrying out late-stage clinical trials and the submission of a successful NDA is a
complicated process. We commenced pivotal Phase 3 clinical trials of vonoprazan in erosive esophagitis and H.
pylori infection in the fourth quarter of 2019. As an organization, we have not yet completed any clinical trials for
vonoprazan or any other product candidates and have limited experience as a company in preparing, submitting and
prosecuting regulatory filings. As a company, we have not previously submitted an NDA, whether for one or
multiple indications, or other comparable foreign regulatory submission for any product candidate. In addition, we
have had limited interactions with the FDA and cannot be certain how many clinical trials of vonoprazan or any
other product candidates will be required or how such trials should be designed. Consequently, we may be unable to
successfully and efficiently execute and complete necessary clinical trials in a way that leads to regulatory
submission and approval of vonoprazan or any future product candidates. We may require more time and incur
greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that
we develop. Failure to complete, or delays in, our ongoing clinical trials, could prevent us from or delay us in
submitting NDAs for and commercializing vonoprazan or any future product candidates.
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Vonoprazan and any future product candidates are subject to extensive regulation and compliance obligations,
which is costly and time consuming, and such regulation may cause unanticipated delays or prevent the receipt of
the required approvals to commercialize vonoprazan and any future product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import,
export, marketing and distribution of vonoprazan and any future product candidates are subject to extensive
regulation by the FDA in the United States, the EMA in the European Union and by comparable foreign regulatory
authorities in other foreign markets. In the United States, we are not permitted to market vonoprazan and any future
product candidates until we receive regulatory approval from the FDA and in Europe, we are not permitted to
market vonoprazan and any future product candidates until we receive regulatory approval from the EMA. The
process of obtaining regulatory approval is expensive, often takes many years following the commencement of
clinical trials and can vary substantially based upon the type, complexity and novelty of the product candidates
involved, as well as the target indications and patient population. The ability of the FDA and EMA to review and
approve new products can be affected by a variety of factors, including government budget and funding levels and
the ability to hire and retain key personnel. In addition, approval policies or regulations may change, and the FDA
and EMA have substantial discretion in the drug approval process, including the ability to delay, limit or deny
approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of
product candidates, regulatory approval is never guaranteed.
Prior to obtaining approval to commercialize a product candidate in the United States or internationally, we
must demonstrate with substantial evidence from adequate and well-controlled clinical trials, and to the satisfaction
of the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their
intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we
believe the nonclinical or clinical data for vonoprazan and any future product candidates are promising, such data
may not be sufficient to support approval by the FDA and comparable foreign regulatory authorities. The FDA or
comparable foreign regulatory authorities, as the case may be, may also require us to conduct additional preclinical
studies or clinical trials for vonoprazan and any future product candidates either prior to or post- approval, or may
object to elements of our clinical development program.
The FDA, EMA or other comparable foreign regulatory authorities can delay, limit or deny approval of a
product candidate for many reasons, including:
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•
•
•
•
such authorities may disagree with the design or implementation of our clinical trials;
negative or ambiguous results from our clinical trials or results may not meet the level of statistical
significance required by the FDA, EMA, or other comparable foreign regulatory agencies for approval;
serious and unexpected drug-related side effects may be experienced by participants in our clinical trials
or in clinical trials conducted by Takeda or others outside of our licensed territories, or by patients using
vonoprazan or drugs similar to vonoprazan;
the population studied in the clinical trial may not be sufficiently broad or representative to assure safety
in the full population for which we seek approval;
such authorities may not accept clinical data from trials which are conducted at clinical facilities or in
countries where the standard of care is potentially different from that of the United States;
• we may be unable to demonstrate to the satisfaction of such authorities that a product candidate is safe
and effective for its proposed indication and that a product candidate’s clinical and other benefits
outweigh its safety risks;
•
•
such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
such authorities may not agree that the data collected from clinical trials of vonoprazan, including data
collected from clinical trials conducted by Takeda and independent investigators outside of our licensed
territories, and any future product candidates are acceptable or sufficient to support the submission of an
NDA or other submission or to obtain regulatory approval, and such authorities may impose requirements
for additional preclinical studies or clinical trials;
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•
•
•
•
•
such authorities may disagree regarding the formulation, labeling and/or the specifications of vonoprazan
and any future product candidates;
approval may be granted only for indications that are significantly more limited than what we apply for
and/or with other significant restrictions on distribution and use;
such authorities may find deficiencies in the manufacturing processes or facilities of Takeda or any future
third-party manufacturers with which we contract for clinical and commercial supplies;
regulations of such authorities may significantly change in a manner rendering our or any of our potential
future collaborators’ clinical data insufficient for approval; or
such authorities may not accept a submission due to, among other reasons, the content or formatting of
the submission.
With respect to foreign markets, approval procedures vary among countries and, in addition to the foregoing
risks, may involve additional product testing, administrative review periods and agreements with pricing authorities.
In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased
cautiousness by the FDA, EMA, and other comparable foreign regulatory authorities in reviewing new drugs based
on safety, efficacy, or other regulatory considerations and may result in significant delays in obtaining regulatory
approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us or any of
our potential future collaborators from commercializing vonoprazan and any future product candidates.
Of the large number of drugs in development, only a small percentage successfully complete the FDA, EMA
or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the
unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market
vonoprazan and any future product candidates, which would significantly harm our business, financial condition,
results of operations and prospects.
Even if we eventually complete clinical trials and receive approval of an NDA or foreign marketing
application for vonoprazan and any future product candidates, the FDA, EMA or other comparable foreign
regulatory authority may grant approval contingent on the performance of costly additional clinical trials, including
confirmatory Phase 3 clinical trials, Phase 4 clinical trials, and/or the implementation of a REMS, which may be
required to ensure safe use of the drug after approval. The FDA, EMA or other comparable foreign regulatory
authority also may approve a product candidate for a more limited indication or patient population than we
originally requested, and the FDA, EMA or other comparable foreign regulatory authority may not approve the
labeling that we believe is necessary or desirable for the successful commercialization of a product. Any delay in
obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that
product candidate and would materially adversely impact our business and prospects.
Designation of vonoprazan as a QIDP, receipt of Fast Track designation, and the potential to receive priority
review, may not actually lead to a faster development or regulatory review, and would not assure FDA approval
of vonoprazan or any future product candidates which may receive such designations.
Vonoprazan has been designated as a QIDP by the FDA for the treatment of H. pylori infection in
combination with both amoxicillin and clarithromycin, and with amoxicillin alone, respectively, and we may seek
QIDP designation for future product candidates. A QIDP is an antibacterial or antifungal drug for human use
intended to treat serious or life-threatening infections, including those caused by either (1) an antibacterial or
antifungal resistant pathogen, including novel or emerging infectious pathogens, or (2) a so-called “qualifying
pathogen” found on a list of potentially dangerous, drug-resistant organisms to be established and maintained by the
FDA under the Generating Antibiotic Incentives Now, or GAIN Act. The benefits of QIDP designation include
eligibility for Fast Track designation, which vonoprazan has received, eligibility for priority review, and an
extension by an additional five years of any non-patent exclusivity period awarded, such as a five-year exclusivity
period awarded for a new chemical entity. This extension is in addition to any pediatric exclusivity extension that
may be awarded. Receipt of QIDP status also does not assure ultimate approval by the FDA or related GAIN Act
exclusivity benefits.
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While vonoprazan has received Fast Track designation for the treatment of H. pylori infection in combination
with both amoxicillin and clarithromycin and with amoxicillin alone, and QIDP designation makes vonoprazan
potentially eligible for priority review, the FDA has broad discretion, so even if we believe vonoprazan is eligible
for priority review, or any future product candidate is eligible for Fast Track designation or priority review status,
the FDA could decide not to grant it. The FDA may withdraw Fast Track designation if it believes that the
designation is no longer supported by data from our clinical development program. The Fast Track designation
program is intended to expedite or facilitate the process for reviewing new drug candidates that meet certain criteria.
Specifically, new drugs are eligible for Fast Track designation if they are intended, alone or in combination with one
or more drugs, to treat a serious or life-threatening disease or condition and demonstrate the potential to address
unmet medical needs for the disease or condition. Fast track designation applies to the combination of the drug
candidate and the specific indication for which it is being studied. With a Fast Track drug candidate, the FDA may
consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the
sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the
NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission
of the first section of the NDA. Priority review means the FDA’s goal is to take action on an application within 6
months (compared to 10 months under standard review) following the NDA filing date. The FDA automatically
grants priority review to the first application or efficacy supplement submitted for a specific drug and indication that
has received the QIDP designation.
Obtaining a QIDP designation, priority review, or Fast Track designation does not change the standards for
product approval but may expedite the development or approval process. Even though the FDA has granted QIDP
and Fast Track designations for vonoprazan, and even if vonoprazan receives priority review designation, it may not
actually result in faster clinical development or regulatory review or approval. Furthermore, QIDP designation, Fast
Track designation, and priority review do not increase the likelihood that vonoprazan will receive marketing
approval in the United States.
We may not be successful in our efforts to expand our pipeline by identifying additional indications and
formulations for which to investigate vonoprazan in the future. We may expend our limited resources to pursue a
particular indication or formulation for vonoprazan and fail to capitalize on product candidates, indications or
formulations that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on specific indications and
formulations for vonoprazan. As a result, we may fail to generate additional clinical development opportunities for
vonoprazan for a number of reasons, including, vonoprazan may in certain indications, on further study, be shown to
have harmful side effects, limited to no efficacy, or other characteristics that suggest it is unlikely to receive
marketing approval and achieve market acceptance in such additional indications. For example, we believe the rapid
onset of action of vonoprazan may enable on-demand, or as needed, use for the management of non-erosive reflux
disease, or NERD. However, two Phase 3 clinical trials of vonoprazan in Japanese patients with endoscopically
confirmed NERD conducted by Takeda did not demonstrate a statistically significant difference in symptom scores
between vonoprazan and placebo. We believe that this result may be due to the selection of patients with mild to
moderate symptoms rather than more frequent and severe symptoms. In addition, Takeda conducted a Phase 2
clinical trial in Europe in 256 patients with NERD who were partial responders to high dose PPIs. Patients were
randomized to receive vonoprazan 20 mg, vonoprazan 40 mg, or esomeprazole 40 mg for four weeks. Neither
vonoprazan dose demonstrated a benefit versus esomeprazole on the primary endpoint of the percentage of
heartburn free days over the treatment period. We believe this result may be due to patient selection. Specifically,
the trial may not have adequately selected for patients with NERD and may have included patients with functional
GI disorders that are unrelated to acid, such as functional dyspepsia or functional heartburn. We may be incorrect in
our beliefs regarding the results of such trials and any future clinical trials we conduct in NERD patients may not
succeed for similar or other reasons, including as a result of our design and enrollment criteria.
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Furthermore, research programs to identify additional indications for vonoprazan require substantial technical,
financial and human resources. We may also pursue additional formulations and packaging for vonoprazan, such as
orally disintegrating tablets and other oral dosage forms for patients with difficulty swallowing, an intravenous
formulation for in-hospital applications, and pre-packaged convenience packs for the treatment of H. pylori
infection. However, we may not successfully develop these additional formulations for chemistry-related, stability-
related or other reasons. If we do not accurately evaluate the commercial potential or target market for vonoprazan
or any future product candidates, we may relinquish valuable rights to that product candidate through future
collaborations, licenses and other similar arrangements in cases in which it would have been more advantageous for
us to retain sole development and commercialization rights to such product candidate.
Additionally, we may pursue additional in-licenses or acquisitions of development-stage assets or programs,
which entails additional risk to us. Identifying, selecting and acquiring promising product candidates requires
substantial technical, financial and human resources expertise. Efforts to do so may not result in the actual
acquisition or license of a particular product candidate, potentially resulting in a diversion of our management’s time
and the expenditure of our resources with no resulting benefit.
We are enrolling patients in Europe in our erosive esophagitis trial, and expect to begin enrollment shortly in our
H. pylori trial. Additionally, we may conduct future clinical trials outside of the United States. However, the FDA
and other comparable foreign regulatory authorities may not accept data from such trials, in which case our
development plans will be delayed, which could materially harm our business.
We are enrolling patients in Europe in our erosive esophagitis trial, expect to begin enrollment shortly in our
H. pylori trial, and we may conduct one or more of our future clinical trials outside the United States. Although the
FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to
certain conditions imposed by the FDA. For example, the FDA requires the clinical trial to have been conducted in
accordance with GCPs, and the FDA must be able to validate the data from the clinical trial through an onsite
inspection if it deems such inspection necessary. In addition, when clinical trials are conducted only at sites outside
of the United States, the FDA generally does not provide advance comment on the clinical protocols for the trials,
and therefore there is an additional potential risk that the FDA could determine that the study design or protocol for
a non-U.S. clinical trial was inadequate, which would likely require us to conduct additional clinical trials. The FDA
may not accept data from clinical trials conducted outside of the United States. If the FDA does not accept data from
our clinical trials of vonoprazan and any future product candidates, it would likely result in the need for additional
clinical trials, which would be costly and time consuming and delay or permanently halt our development of
vonoprazan and any future product candidates.
Conducting clinical trials outside the United States also exposes us to additional risks, including risks
associated with:
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additional foreign regulatory requirements;
foreign exchange fluctuations;
compliance with foreign manufacturing, customs, shipment and storage requirements;
cultural differences in medical practice and clinical research; and
diminished protection of intellectual property in some countries.
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Interim, top-line and preliminary data from clinical trials that we or others announce or publish from time to
time may change as more patient data become available and are subject to audit and verification procedures that
could result in material changes in the final data.
From time to time, we or others, such as Takeda, may publicly disclose preliminary or top-line data from
clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings
and conclusions are subject to change following a more comprehensive review of the data related to the particular
study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data,
and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line
results that we or others report may differ from future results of the same clinical trials, or different conclusions or
considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data
also remain subject to audit and verification procedures that may result in the final data being materially different
from the preliminary data previously published. As a result, top-line data should be viewed with caution until the
final data are available. From time to time, we or others may also disclose interim data from clinical trials. Interim
data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as
patient enrollment continues and more patient data become available. Adverse differences between preliminary or
interim data and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates,
calculations, conclusions 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 product
candidate or product and our company in general. In addition, the information we choose to publicly disclose
regarding a particular study or clinical trial is based on what is typically extensive information, and you or others
may not agree with what we determine is the material or otherwise appropriate information to include in our
disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to
future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our
business. If the top-line data that we report differ from actual results, or if others, including regulatory authorities,
disagree with the conclusions reached, our ability to obtain approval for, and commercialize, vonoprazan and any
future product candidates may be harmed, which could harm our business, operating results, prospects, or financial
condition.
Risks Related to Our Reliance on Third Parties
We rely on the Takeda License to provide us rights to develop and commercialize vonoprazan in the United
States, Europe, and Canada. If the license agreement is terminated, we would lose our rights to develop and
commercialize vonoprazan.
Pursuant to the Takeda License, we have secured an exclusive license from Takeda to commercialize
vonoprazan products using specified formulations for all human therapeutic uses in the United States, Europe, and
Canada, and a non-exclusive license to develop and manufacture vonoprazan products anywhere in the world
(subject to Takeda’s consent as to each country) for the purposes of commercializing the vonoprazan products in the
United States, Europe, and Canada.
The Takeda License will continue until the expiration of the obligation to pay royalties in all countries and on
all products, unless terminated earlier. We may terminate the Takeda License in its entirety without cause upon prior
written notice. We and Takeda may terminate the Takeda License in the case of the other party’s insolvency or for
the other party’s material uncured breach. Takeda may terminate the Takeda License in its entirety if we challenge
the licensed patents, or if we assist any third party in challenging such patents. In addition, if any of the regulatory
milestones or other cash payments become due under the terms of the Takeda License, we may not have sufficient
funds available to meet our obligations, which would allow Takeda to terminate the Takeda License. If the license
agreement is terminated, we would lose our rights to develop and commercialize vonoprazan, which in turn would
have a material adverse effect on our business, operating results and prospects.
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We rely on third parties to conduct our clinical trials. Any failure by a third party to conduct the clinical trials
according to GCPs and other requirements and in a timely manner may delay or prevent our ability to seek or
obtain regulatory approval for or commercialize vonoprazan and any future product candidates.
We are dependent on third parties to conduct our preclinical and clinical trials, including our ongoing Phase 3
clinical trials of vonoprazan. Specifically, we have used and relied on, and intend to continue to use and rely on,
medical institutions, clinical investigators, CROs and consultants to conduct our clinical trials in accordance with
our clinical protocols and regulatory requirements. These CROs, investigators and other third parties will play a
significant role in the conduct and timing of these trials and subsequent collection and analysis of data. While we
have agreements governing the activities of our third-party contractors, we have limited influence over their actual
performance. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in
accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs
and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to
comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign
regulatory authorities for vonoprazan and any future product candidates that reach clinical development. Regulatory
authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites.
If we or any of our CROs or trial sites fail to comply with applicable GCPs, the clinical data generated in our clinical
trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to
perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be
conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require
us to repeat clinical trials, which would delay the regulatory approval process.
CROs, investigators or other third parties may not devote adequate time and resources to such trials or
perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical
protocols or meet regulatory requirements, or otherwise performs in a substandard manner, our clinical trials may be
extended, delayed, or terminated. In addition, many of the third parties with whom we contract may also have
relationships with other commercial entities, including our competitors, for whom they may also be conducting
clinical trials or other drug development activities that could harm our competitive position. In addition, principal
investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may
receive cash or equity compensation in connection with such services. If these relationships and any related
compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship
may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial
site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or
rejection of any NDA we submit by the FDA. Any such delay or rejection could prevent us from commercializing
vonoprazan and any future product candidates.
If any of our relationships with these third parties terminate, we may not be able to enter into arrangements
with alternative third parties or do so on commercially reasonable terms. Switching or adding additional CROs,
investigators and other third parties involves additional cost and requires management time and focus. In addition,
there is a natural transition period when a new CRO commences work. As a result, delays occur, which can
materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our
relationships with our CROs, investigators and other third parties, we may encounter challenges or delays in the
future and these delays or challenges may have a material adverse impact on our business, financial condition and
prospects.
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We currently rely on Takeda for the manufacture of vonoprazan for clinical development and expect to continue
to do so for the foreseeable future. This reliance on a third party increases the risk that we will not have sufficient
quantities of vonoprazan or such quantities at an acceptable cost, which could delay, prevent or impair our
development or commercialization efforts.
We do not own or operate manufacturing facilities and have no plans to build our own clinical or commercial
scale manufacturing capabilities. Pursuant to the Takeda License, we entered in a clinical manufacturing and supply
agreement with Takeda for the supply of vonoprazan for our clinical trials. In addition, we have the option to
negotiate in good faith to enter into a commercial supply agreement with Takeda for the commercial supply of
vonoprazan, and we are exploring additional options for commercial supply of vonoprazan from other third party
contract manufacturers. As a result, we currently rely, and expect to continue to rely, on Takeda for the manufacture
of vonoprazan and related raw materials for clinical development, as well as for commercial manufacture if
vonoprazan receives marketing approval. However, we may not be able to enter into a commercial supply agreement
with Takeda or other third parties on acceptable terms, or at all. The facilities used by Takeda to manufacture
vonoprazan must be approved by the FDA for the manufacture of vonoprazan pursuant to inspections that may be
conducted after we submit marketing authorizations to the FDA and comparable foreign regulatory authorities. We
do not control the manufacturing process of, and are completely dependent on, Takeda for compliance with cGMP
requirements for manufacture of drug products. If Takeda, or any other third party manufacturer we contract with in
the future, cannot successfully manufacture material that conforms to our specifications and the strict regulatory
requirements of the FDA or others, including requirements related to the manufacturing of high potency compounds,
they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we
have no control over Takeda’s ability to maintain adequate quality control, quality assurance and qualified
personnel. If the FDA or a comparable foreign regulatory authority does not approve of facilities of the third-party
manufacturer for the manufacture of vonoprazan or if it withdraws any such approval in the future, we may need to
find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory
approval for or market vonoprazan, if approved. Our failure, or Takeda’s failure, to comply with applicable
regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties,
delays, suspension or withdrawal of approvals, seizures or recalls of product candidates or products, operating
restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our
products. Furthermore, Takeda may choose to prioritize the manufacture of vonoprazan for its markets over the
manufacture of vonoprazan for our licensed markets.
Our or Takeda’s failure, or the failure of any future third-party manufacturer, to execute on our manufacturing
requirements, to do so on commercially reasonable terms and comply with cGMP could adversely affect our
business in a number of ways, including:
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an inability to initiate and continue clinical trials of vonoprazan or any future product candidates;
delay in submitting regulatory applications, or receiving marketing approvals, for vonoprazan and any
future product candidates;
subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by
regulatory authorities;
requirements to cease development or to recall batches of vonoprazan and any future product candidates;
and
in the event of approval to market and commercialize vonoprazan or any future product candidates, an
inability to meet commercial demands for vonoprazan or any future product candidates.
Reliance on third-party manufacturers entails additional risks, including:
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failure of third-party manufacturers to comply with regulatory requirements and maintain quality
assurance;
breach of the manufacturing agreement by the third party;
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failure to manufacture our product according to our specifications;
failure to manufacture our product according to our schedule or at all;
• misappropriation of our proprietary information, including our trade secrets and know-how; and
•
termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for
us.
Vonoprazan and any products that we may develop may compete with other product candidates and products
for access to manufacturing facilities. Moreover, there may be a limited number of manufacturers that operate under
cGMP regulations and that might be capable of manufacturing for us.
Any performance failure on the part of Takeda or any future manufacturers could delay clinical development
or marketing approval, and any related remedial measures may be costly or time consuming to implement. We do
not currently have arrangements in place for redundant supply or a second source for all required raw materials used
in the manufacture of vonoprazan and any future product candidates. If Takeda cannot perform as agreed, we may
be required to replace Takeda and we may be unable to replace them on a timely basis or at all. Further, Takeda and
any other third-party manufacturers we may use may experience manufacturing or shipping difficulties due to
resource constraints or as a result of natural disasters, labor disputes, unstable political environments, or public
health emergencies such as the recent coronavirus, COVID-19, outbreak. If Takeda or other third-party
manufacturers were to encounter any manufacturing or shipping difficulties or delays due to these factors, our ability
to provide vonoprazan to patients in clinical trials, or to provide product for treatment of patients if approved, would
be jeopardized.
Our current and anticipated future dependence upon others for the manufacture of vonoprazan or any future
product candidates or products may adversely affect our future profit margins and our ability to commercialize any
products that receive marketing approval on a timely and competitive basis.
Our reliance on third parties, including Takeda, requires us to share our trade secrets, which increases the
possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we currently rely on Takeda to manufacture vonoprazan and to perform quality testing, we must, at
times, share our proprietary technology and confidential information, including trade secrets, with them. We seek to
protect our proprietary technology, in part, by entering into confidentiality agreements, consulting agreements or
other similar agreements with our advisors, employees and consultants prior to beginning research or disclosing
proprietary information. These agreements typically limit the rights of the third parties to use or disclose our
confidential information. Despite the contractual provisions employed when working with third parties, the need to
share trade secrets and other confidential information increases the risk that such trade secrets become known by our
competitors, are intentionally or inadvertently incorporated into the technology of others or are disclosed or used in
violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade
secrets and despite our efforts to protect our trade secrets, a competitor’s discovery of our proprietary technology
and confidential information or other unauthorized use or disclosure would impair our competitive position and may
have a material adverse effect on our business, financial condition, results of operations and prospects.
We may seek to enter into collaborations, licenses and other similar arrangements and may not be successful in
doing so, and even if we are, we may not realize the benefits of such relationships.
We may seek to enter into collaborations, joint ventures, licenses and other similar arrangements for the
development or commercialization of vonoprazan and any future product candidates, due to capital costs required to
develop or commercialize vonoprazan and any future product candidates or manufacturing constraints. We may not
be successful in our efforts to establish such collaborations for vonoprazan and any future product candidates
because vonoprazan and any future product candidates may be deemed to be at too early of a stage of development
for collaborative effort or third parties may not view vonoprazan and any future product candidates as having the
requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, we face
significant competition in seeking appropriate strategic partners, and the negotiation process can be time consuming
and complex. Further, any future collaboration agreements may restrict us from entering into additional agreements
with potential collaborators. Following a strategic transaction or license, we may not achieve an economic benefit
that justifies such transaction.
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Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not
be favorable to us, and we may not be able to maintain such collaborations if, for example, development or approval
of a product candidate is delayed, the safety of a product candidate is questioned or sales of an approved product
candidate are unsatisfactory.
In addition, any potential future collaborations may be terminable by our strategic partners, and we may not be
able to adequately protect our rights under these agreements. Furthermore, strategic partners may negotiate for
certain rights to control decisions regarding the development and commercialization of vonoprazan and any future
product candidates, if approved, and may not conduct those activities in the same manner as we do. Any termination
of collaborations we enter into in the future, or any delay in entering into collaborations related to vonoprazan or any
future product candidates, could delay the development and commercialization of vonoprazan or any future product
candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on
our business, financial condition and results of operations.
Risks Related to Commercialization of Vonoprazan and Any Future Product Candidates
Even if we receive regulatory approval for vonoprazan and any future product candidates, we will be subject to
ongoing regulatory obligations and continued regulatory review, which may result in significant additional
expense. Additionally, vonoprazan and any future product candidates, if approved, could be subject to labeling
and other restrictions on marketing or withdrawal from the market, and we may be subject to penalties if we fail
to comply with regulatory requirements or if we experience unanticipated problems with vonoprazan and any
future product candidates, if approved.
Following potential approval of vonoprazan or any future product candidates, the FDA, EMA or other
comparable regulatory authority may impose significant restrictions on a product’s indicated uses or marketing or
impose ongoing requirements for potentially costly and time consuming post-approval studies, post-market
surveillance or clinical trials to monitor the safety and efficacy of the product. The FDA may also require a REMS
as a condition of approval of vonoprazan or any future product candidates, which could include requirements for a
medication guide, physician communication plans or additional elements to ensure safe use, such as restricted
distribution methods, patient registries and other risk minimization tools. In addition, if the FDA, EMA or a
comparable foreign regulatory authority approves vonoprazan or any future product candidates, the manufacturing
processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export
and recordkeeping for our products will be subject to extensive and ongoing regulatory requirements. These
requirements include submissions of safety and other post-marketing information and reports, registration, as well as
continued compliance with cGMPs and GCP requirements for any clinical trials that we conduct post-approval.
Later discovery of previously unknown problems with our products, including adverse events of unanticipated
severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with
regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market
or voluntary or mandatory product recalls;
restrictions on product distribution or use, or requirements to conduct post-marketing studies or clinical
trials
fines, restitutions, disgorgement of profits or revenues, warning letters, untitled letters or holds on clinical
trials;
refusal by the FDA or comparable foreign regulatory authority to approve pending applications or
supplements to approved applications filed by us or suspension or revocation of approvals;
product seizure or detention, or refusal to permit the import or export of our products; and
injunctions or the imposition of civil or criminal penalties.
The occurrence of any event or penalty described above may inhibit our ability to commercialize vonoprazan
and any future product candidates and generate revenue and could require us to expend significant time and
resources in response and could generate negative publicity.
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In addition, if vonoprazan or any future product candidate is approved, our product labeling, advertising and
promotion will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates
the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses
that are not approved by the FDA as reflected in the product’s approved labeling. However, companies may share
truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. If we
receive marketing approval for vonoprazan or any future product candidate, physicians may nevertheless prescribe it
to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-
label uses, we may become subject to significant liability. The FDA and other agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted
off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal
fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-
label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions
under which specified promotional conduct is changed or curtailed.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may
be enacted that could prevent, limit or delay regulatory approval of vonoprazan and any future product candidates. If
we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies,
or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have
obtained and we may not achieve or sustain profitability.
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative or executive action, either in the United States or internationally. The policies of the
FDA and of other regulatory authorities may change and additional governmental regulations may be enacted that
could prevent, limit or delay regulatory approval of vonoprazan or any future product candidates. For example,
certain policies of the current U.S. administration may impact our business and industry. Namely, the current U.S.
administration has taken several executive actions, including the issuance of a number of Executive Orders, that
could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory
and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and
approval of marketing applications. It is difficult to predict how these executive actions, including the Executive
Orders, will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory
authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and
implementation activities in the normal course, our business may be negatively impacted.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or
policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may
have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects,
financial condition and results of operations.
Non-compliance by us or any future collaborator with regulatory requirements, including safety monitoring or
pharmacovigilance, and with requirements related to the development of products for the pediatric population can
also result in significant financial penalties.
The commercial success of vonoprazan or any future product candidates will depend upon the degree of market
acceptance of such product candidates by physicians, patients, healthcare payors and others in the medical
community.
Vonoprazan and any future product candidates may not be commercially successful. The commercial success
of vonoprazan or any future product candidates, if approved, will depend significantly on the broad adoption and use
of such product by physicians and patients for approved indications. The degree of market acceptance of vonoprazan
or any future products, if approved, will depend on a number of factors, including:
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demonstration of clinical efficacy and safety compared to other more-established products;
the indications for which vonoprazan or any future product candidates are approved;
the limitation of our targeted patient population and other limitations or warnings contained in any FDA-
approved labeling;
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acceptance of a new drug for the relevant indication by healthcare providers and their patients;
the pricing and cost-effectiveness of our products, as well as the cost of treatment with our products in
relation to alternative treatments and therapies;
our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from
government healthcare programs, including Medicare and Medicaid, private health insurers and other
third-party payors;
the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with our products in
the absence of sufficient third-party coverage or adequate reimbursement;
any restrictions on the use of our products, and the prevalence and severity of any adverse effects;
potential product liability claims;
the timing of market introduction of our products as well as competitive drugs;
the effectiveness of our or any of our potential future collaborators’ sales and marketing strategies; and
unfavorable publicity relating to the product.
If vonoprazan or any future product candidate is approved but does not achieve an adequate level of
acceptance by physicians, hospitals, healthcare payors or patients, we may not generate sufficient revenue from that
product and may not become or remain profitable. Our efforts to educate the medical community and third-party
payors regarding the benefits of our products may require significant resources and may never be successful.
With respect to vonoprazan, Takeda has the right to develop and commercialize the product outside of the
United States, Europe, and Canada and has received marketing approval for vonoprazan in certain countries in Asia
and Latin America. We have little or no control over Takeda’s commercialization activities with respect to
vonoprazan outside of our licensed territories even though those activities could impact our ability to successfully
commercialize vonoprazan. For example, Takeda can make statements or use promotional materials with respect to
vonoprazan outside of our licensed territories that are inconsistent with our positioning of the product in the United
States, Europe, and Canada, and could sell vonoprazan in foreign countries at prices that are dramatically lower than
the prices we would charge in our licensed territories. These activities and decisions, while occurring outside of our
licensed territories, could harm our commercialization strategy. In addition, product recalls or safety issues with
vonoprazan outside our licensed territories could result in serious damage to the brand and impair our ability to
successfully market vonoprazan in our licensed territories.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of
off-label uses. If we are found or alleged to have improperly promoted off-label uses, we may become subject to
significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about
prescription products, as vonoprazan and any future product candidates would be, if approved. In particular, a
product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as
reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians
may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are
found to have promoted such off-label uses, we may become subject to significant liability. The federal government
has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several
companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent
decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot
successfully manage the promotion of vonoprazan or any future product candidates, if approved, we could become
subject to significant liability, which would materially adversely affect our business and financial condition.
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The successful commercialization of vonoprazan or any future product candidates, if approved, will depend in
part on the extent to which governmental authorities and health insurers establish coverage, adequate
reimbursement levels and favorable pricing policies. Failure to obtain or maintain coverage and adequate
reimbursement for our products could limit our ability to market those products and decrease our ability to
generate revenue.
The availability of coverage and the adequacy of reimbursement by governmental healthcare programs, such
as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be
able to afford prescription medications such as vonoprazan or any future product candidate, if approved. Our ability
to achieve coverage and acceptable levels of reimbursement for our products by third-party payors will have an
effect on our ability to successfully commercialize those products. Even if we obtain coverage for a given product
by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments
that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the
European Union or elsewhere will be available for any product that we may develop, and any reimbursement that
may become available may be decreased or eliminated in the future.
Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and
many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent
generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider our products
as substitutable and only offer to reimburse patients for the less expensive product. Even if we are successful in
demonstrating improved efficacy or improved convenience of administration with our products, pricing of existing
drugs may limit the amount we will be able to charge for our products. These payors may deny or revoke the
reimbursement status of a given product or establish prices for new or existing marketed products at levels that are
too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is
not available or is available only at limited levels, we may not be able to successfully commercialize our products
and may not be able to obtain a satisfactory financial return on products that we may develop.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved
products. In the United States, third-party payors, including private and governmental payors, such as the Medicare
and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. Some
third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they
will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party
payors will decide with respect to the coverage and reimbursement for our products.
Obtaining and maintaining reimbursement status is time consuming, costly and uncertain. The Medicare and
Medicaid programs increasingly are used as models for how private payors and other governmental payors develop
their coverage and reimbursement policies for drugs. However, no uniform policy for coverage and reimbursement
for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for
products can differ significantly from payor to payor. As a result, the coverage determination process will require us
to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that
coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore,
rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that
changes in these rules and regulations are likely.
Outside the United States, international operations are generally subject to extensive governmental price
controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in
Europe and other countries has and will continue to put pressure on the pricing and usage of our products. In many
countries, the prices of medical products are subject to varying price control mechanisms as part of national health
systems. Other countries allow companies to fix their own prices for medical products but monitor and control
company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount
that we are able to charge for our products. Accordingly, in markets outside the United States, the reimbursement for
our products may be reduced compared with the United States and may be insufficient to generate commercially
reasonable revenue and profits.
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Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or
reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for
newly approved products and, as a result, they may not cover or provide adequate payment for our products. We
expect to experience pricing pressures in connection with the sale of any of our products due to the trend toward
managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.
The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and
other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of
new products.
We face significant competition, and if our competitors develop technologies or product candidates more rapidly
than we do or their technologies are more effective, our ability to develop and successfully commercialize
products may be adversely affected.
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary and novel products and product candidates. Our competitors have
developed, are developing or may develop products, product candidates and processes competitive with vonoprazan.
Any product candidates that we successfully develop and commercialize will compete with existing therapies and
new therapies that may become available in the future. We believe that a significant number of products are
currently under development, and may become commercially available in the future, for the treatment of GI diseases
for which we may attempt to develop vonoprazan or any future product candidates. Our competitors include larger
and better funded pharmaceutical, biopharmaceutical, biotechnological and therapeutics companies. Moreover, we
may also compete with universities and other research institutions who may be active in the indications we are
targeting and could be in direct competition with us. We also compete with these organizations to recruit
management, scientists and clinical development personnel, which could negatively affect our level of expertise and
our ability to execute our business plan. We will also face competition in establishing clinical trial sites, enrolling
patients for clinical trials and in identifying and in-licensing new product candidates. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large
and established companies.
We expect that vonoprazan, if approved for the treatment of erosive esophagitis and treatment of H. pylori
infection, will primarily compete with generic PPIs marketed by multiple pharmaceutical companies in both the
prescription and OTC markets. Additionally, in March 2020, RedHill Biopharma Ltd. launched Talicia, a co-
formulated capsule comprising generic omeprazole, amoxicillin, and rifabutin for the treatment of H. pylori
infection. Ironwood Pharmaceuticals, Inc. is developing IW-3718, a bile acid sequestrant, currently in Phase 3
clinical trials as an adjunct to PPIs for the treatment of patients with persistent GERD.
We are also aware of other P-CABs in territories outside of the United States that, if developed and approved
in our territories, may compete with vonoprazan. Revaprazan is marketed by Yuhan Corporation in South Korea.
Tegoprazan is marketed by CJ Healthcare Corp. in South Korea and is currently in development in Japan by
RaQualia Pharma, Inc. Daewoong Pharmaceutical Co., Ltd. has filed an application for regulatory approval for
fexuprazan in South Korea, Cheil Pharm has opened a Phase 2 trial in South Korea of its P-CAB candidate, JP-1366,
in erosive esophagitis, and Cinclus Pharma AG’s X842 has completed a Phase 1 clinical trial in Europe and is
currently in Phase 2 clinical trials.
Additionally, we are aware of several clinical-stage PPIs in territories outside of the United States that if
developed and approved in our licensed territories may compete with vonoprazan. These include Dexa Medica’s
DLBS-2411, currently in Phase 3 clinical trials in Indonesia, Sihuan Pharmaceutical’s anaprazole, currently in Phase
3 clinical trials in China, Eisai’s azeloprazole, currently in a Phase 2 clinical trial in Japan, and Sidem Pharma’s
tenatoprazole, currently in Phase 2 clinical trials in Europe and Canada.
In July 2012, the Food and Drug Administration Safety and Innovation Act was passed, which included the
GAIN Act. The GAIN Act is intended to provide incentives for the development of new, qualified infectious disease
products. In December 2016, the 21st Century Cures Act was passed, providing additional support for the
development of new infectious disease products. These incentives may result in more competition in the market for
new antibiotics and may cause pharmaceutical and biotechnology companies with more resources than we have to
shift their efforts towards the development of product candidates that could be competitive with vonoprazan or any
future product candidates.
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Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and
supply resources or experience than we do. If we successfully obtain approval for vonoprazan or any future product
candidate, we will face competition based on many different factors, including the safety and effectiveness of our
products, the ease with which our products can be administered and the extent to which patients accept relatively
new routes of administration, the timing and scope of regulatory approvals for these products, the availability and
cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position.
Competing products could present superior treatment alternatives, including by being more effective, safer, more
convenient, less expensive or marketed and sold more effectively than any products we may develop. Competitive
products may make any products we develop obsolete or noncompetitive before we recover the expense of
developing and commercializing vonoprazan or any future product candidates. If we are unable to compete
effectively, our opportunity to generate revenue from the sale of our products we may develop, if approved, could be
adversely affected.
If the market opportunities for vonoprazan or any future products are smaller than we believe they are, our
revenue may be adversely affected, and our business may suffer.
The precise incidence and prevalence for all the conditions we aim to address with vonoprazan or any future
product candidates are unknown. Our projections of both the number of people who have these diseases, as well as
the subset of people with these diseases who have the potential to benefit from treatment of vonoprazan or any
future product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety
of sources, including the scientific literature, surveys of clinics or market research, and may prove to be incorrect.
Further, new trials may change the estimated incidence or prevalence of these diseases. The total addressable market
across vonoprazan and any future product candidates will ultimately depend upon, among other things, the diagnosis
criteria included in the final label for each of vonoprazan and any future product candidates approved for sale for
these indications, the availability of alternative treatments and the safety, convenience, cost and efficacy of
vonoprazan and any future product candidates relative to such alternative treatments, acceptance by the medical
community and patient access, drug pricing and reimbursement. The number of patients in the United States and
other major markets and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable
to treatment with our products or new patients may become increasingly difficult to identify or gain access to, all of
which would adversely affect our results of operations and our business.
We currently have no marketing and sales organization and have no experience as a company in
commercializing products, and we may have to invest significant resources to develop these capabilities. If we are
unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell
our products, we may not be able to generate product revenue.
We have no internal sales, marketing or distribution capabilities, nor have we commercialized a product. If
vonoprazan or any future product candidates ultimately receive regulatory approval, we must build a marketing and
sales organization with technical expertise and supporting distribution capabilities to commercialize each such
product in major markets, which will be expensive and time consuming, or collaborate with third parties that have
direct sales forces and established distribution systems, either to augment our own sales force and distribution
systems or in lieu of our own sales force and distribution systems. We plan to independently commercialize
vonoprazan in the United States by building a leading specialty gastroenterology commercial infrastructure to
support the adoption of vonoprazan and we plan to seek one or more partners with existing commercial
infrastructure and expertise in Europe and Canada. We have no prior experience as a company in the marketing, sale
and distribution of biopharmaceutical products and there are significant risks involved in building and managing a
marketing and sales organization, including our ability to hire, retain and incentivize qualified individuals, generate
sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a
geographically dispersed sales and marketing team.
Any failure or delay in the development of our internal sales, marketing and distribution capabilities would
adversely impact the commercialization of these products. We may not be able to enter into collaborations or hire
consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable
financial terms, or at all. In addition, our product revenues and our profitability, if any, may be lower if we rely on
third parties for these functions than if we were to market, sell and distribute any products that we develop
ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary
resources and attention to sell and market our products effectively. If we are not successful in commercializing
vonoprazan or any future product candidates, either on our own or through arrangements with one or more third
parties, we may not be able to generate any future product revenue and we would incur significant additional losses.
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Our future growth may depend, in part, on our ability to operate in foreign markets, particularly Europe and
Canada, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future growth may depend, in part, on our ability to develop and commercialize vonoprazan and any
future product candidates in foreign markets, particularly Europe and Canada. We are not permitted to market or
promote vonoprazan and any future product candidates before we receive regulatory approval from applicable
regulatory authorities in foreign markets, and we may never receive such regulatory approvals for vonoprazan or any
future product candidates. To obtain separate regulatory approval in any other countries we must comply with
numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things,
clinical trials, commercial sales, pricing and distribution of vonoprazan and any future product candidates. If we
obtain regulatory approval of vonoprazan and any future product candidates and ultimately commercialize our
products in foreign markets, we would be subject to additional risks and uncertainties, including:
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different regulatory requirements for approval of drugs in foreign countries;
reduced protection for intellectual property rights;
the existence of additional third-party patent rights of potential relevance to our business;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, public health emergencies or political instability in particular
foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling
internationally;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues,
and other obligations incident to doing business in another country;
foreign reimbursement, pricing and insurance regimes;
• workforce uncertainty in countries where labor unrest is common;
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production shortages resulting from any events affecting raw material supply or manufacturing
capabilities internationally; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters
including earthquakes, typhoons, floods and fires.
Risks Related to Our Business Operations and Industry
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict
and could cause our operating results to fall below expectations or any guidance we may provide.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to
predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are
outside of our control, including, but not limited to:
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the timing and cost of, and level of investment in, research, development, regulatory approval and
commercialization activities relating to vonoprazan or any future product candidates, which may change
from time to time;
coverage and reimbursement policies with respect to vonoprazan or any future product candidates, if
approved, and potential future drugs that compete with such products, if approved;
the cost of manufacturing vonoprazan or any future product candidates, which may vary depending on the
quantity of production and the terms of our agreements with Takeda and any future third-party
manufacturers;
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters
such as earthquakes, typhoons, floods and fires or public health emergencies or pandemics such as the
recent coronavirus outbreak;
the timing and amount of the milestone or other payments we will be required to pay to Takeda pursuant
to the Takeda License;
expenditures that we may incur to acquire, develop or commercialize additional product candidates and
technologies;
the level of demand for any approved products, which may vary significantly;
future accounting pronouncements or changes in our accounting policies; and
the timing and success or failure of preclinical studies or clinical trials for vonoprazan or any future
product candidates or competing product candidates, or any other change in the competitive landscape of
our industry, including consolidation among our competitors or partners.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly
and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be
meaningful. Investors should not rely on our past results as an indication of our future performance.
This variability and unpredictability could also result in our failing to meet the expectations of industry or
financial analysts or investors for any period. If our revenue or operating results fall below the expectations of
analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the
market are below the expectations of analysts or investors, the price of our common stock could decline
substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue
or earnings guidance we may provide.
Our business is subject to risks arising from epidemic diseases, such as the recent global outbreak of the COVID-
19 coronavirus.
The recent outbreak of the coronavirus, COVID-19, which has been declared by the World Health
Organization to be a pandemic has spread across the globe and is impacting worldwide economic activity. A
pandemic, including COVID-19 or other public health epidemic, poses the risk that we or our employees,
contractors, including our CROs, suppliers, and other partners may be prevented from conducting business activities
for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that
may be requested or mandated by governmental authorities. In March 2020, due to efforts to combat the COVID-19
pandemic, which has resulted in travel restrictions imposed by many state, local and international governments and
guidance from the American Society of Gastrointestinal Endoscopy limiting endoscopies, which are required in both
of our Phase 3 trials, we announced a pause in randomization of new patients in our Phase 3 trials. While it is not
possible at this time to estimate the full impact that COVID-19 could have on our business, the continued spread of
COVID-19 and the measures taken by the governments of countries affected could, in addition to disrupting our
clinical trial randomization, disrupt the supply chain and the manufacture or shipment of drug substance and finished
drug product for vonoprazan for use in our clinical trials, cause patients to discontinue the trial adversely affecting
our trials results, ultimately lead to a discontinuation of the trials prior to their completion, impede our future clinical
trial recruitment, testing, monitoring, data collection and analysis and other related activities, which could delay our
ongoing clinical trials and increase development costs and have a material adverse effect on our business, financial
condition and results of operations. The COVID-19 pandemic and mitigation measures have also had an adverse
impact on global economic conditions which could have an adverse effect on our business and financial condition,
including impairing our ability to raise capital when needed. The extent to which the COVID-19 pandemic impacts
our results will depend on future developments that are highly uncertain and cannot be predicted, including new
information that may emerge concerning the severity of the virus and the actions to contain its impact.
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Our indebtedness may limit our flexibility in operating our business and adversely affect our financial health and
competitive position, and all of our obligations under our indebtedness are secured by substantially all of our
assets, excluding our intellectual property and certain other assets. If we default on these obligations, our lenders
could foreclose on our assets.
In May 2019, we entered into the Loan Agreement with SVB and WestRiver. We borrowed $25.0 million, or
Term Loan A, at the inception of the Loan Agreement and in March 2020 we borrowed an additional $25.0 million,
or Term Loan B, and which we collectively refer to as the Term Loans. All obligations under the Term Loans are
secured by a first priority lien on substantially all of our assets, excluding intellectual property and certain other
assets. We have agreed not to encumber our intellectual property assets without SVB’s prior written consent unless a
security interest in the underlying intellectual property is necessary to have a security interest in the accounts and
proceeds that are part of the assets securing the Term Loans, in which case our intellectual property will
automatically be included within the assets securing the Term Loans. As a result, if we default on any of our
obligations under the Loan Agreement, SVB could foreclose on its security interest and liquidate some or all of the
collateral, which would harm our business, financial condition and results of operations and could require us to
reduce or cease operations.
In order to service this indebtedness and any additional indebtedness we may incur in the future, we need to
generate cash from our operating activities. Our ability to generate cash is subject, in part, to our ability to
successfully execute our business strategy, as well as general economic, financial, competitive, regulatory and other
factors beyond our control. Our business may not be able to generate sufficient cash flow from operations, and
future borrowings or other financings may not be available to us in an amount sufficient to enable us to service our
indebtedness and fund our other liquidity needs. To the extent we are required to use cash from operations or the
proceeds of any future financing to service our indebtedness instead of funding working capital, capital expenditures
or other general corporate purposes, we will be less able to plan for, or react to, changes in our business, industry
and in the economy generally. This could place us at a competitive disadvantage compared to our competitors that
have less indebtedness.
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The Loan Agreement contains customary affirmative and negative covenants that limit our ability to engage in
certain transactions that may be in our long-term best interest. The affirmative covenants include, among others,
covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports,
maintain insurance coverage and satisfy certain requirements regarding our operating accounts. The negative
covenants include, among others, limitations on our ability to incur additional indebtedness and liens, merge with
other companies or consummate certain changes of control, acquire other companies, engage in new lines of
business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements
or enter into various specified transactions.
While we believe we are currently in compliance with the covenants contained in the Loan Agreement, we
may breach these covenants in the future. Our ability to comply with these covenants may be affected by events and
factors beyond our control. In the event that we breach one or more covenants, the lenders may choose to declare an
event of default and require that we immediately repay all amounts outstanding under the Loan Agreement,
terminate any commitment to extend further credit and foreclose on the collateral. The occurrence of any of these
events could have a material adverse effect on our business, financial condition and results of operations.
We are dependent on the services of our current management and other clinical and scientific personnel, and if
we are not able to retain these individuals or recruit additional management or clinical and scientific personnel,
our business will suffer.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified
management, clinical and scientific personnel. We are highly dependent upon our current senior management team,
our Chairman and our development personnel. The loss of services of any of these individuals or personnel could
delay or prevent the successful development of our product pipeline, completion of our ongoing clinical trials,
initiation or completion of future clinical trials, or the commercialization of vonoprazan or any other future product
candidates. Although we have executed employment agreements or offer letters with each member of our senior
management team, these agreements are terminable at will with or without notice and, therefore, we may not be able
to retain their services as expected. We do not currently maintain “key person” life insurance on the lives of our
executives or any of our employees. This lack of insurance means that we may not have adequate compensation for
the loss of the services of these individuals.
We will continue to expand and need to effectively manage our managerial, operational, financial and other
resources in order to successfully pursue our clinical development and commercialization efforts. We may not be
successful in maintaining our unique company culture and continuing to attract or retain qualified management and
scientific and clinical personnel in the future due to the intense competition for qualified personnel among
pharmaceutical, biotechnology and other businesses. Our industry has experienced a high rate of turnover of
management personnel in recent years. If we are not able to attract, integrate, retain and motivate necessary
personnel to accomplish our business objectives, we may experience constraints that will significantly impede the
achievement of our development objectives, our ability to raise additional capital and our ability to implement our
business strategy.
We have recently substantially increased the size of our organization, and we may encounter difficulties in
managing our growth and expanding our operations successfully.
We have substantially increased our organization from four employees in February 2018 to eighteen full-time
employees as of December 31, 2019. As we continue development and pursue the potential commercialization of
vonoprazan and any future product candidates, as well as function as a public company, we will continue to expand
our financial, development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties
to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional
relationships with various strategic partners, suppliers and other third parties. Our future financial performance and
our ability to develop and commercialize vonoprazan and any future product candidates and to compete effectively
will depend, in part, on our ability to manage our recent substantial growth and any future growth effectively.
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We are subject to various foreign, federal, and state healthcare and privacy laws and regulations, and our failure
to comply with these laws and regulations could harm our results of operations and financial condition.
Our business operations and current and future arrangements with investigators, healthcare professionals,
consultants, third-party payors, patient organizations and customers expose us to broadly applicable foreign, federal
and state fraud and abuse and other healthcare and privacy laws and regulations. These laws may constrain the
business or financial arrangements and relationships through which we conduct our operations, including how we
research, market, sell and distribute any products for which we obtain marketing approval. Such laws include, but
are not limited to:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from
knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any
kickback, bribe or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, to induce
or reward, or in return for, either the referral of an individual for, or the purchase, lease, or order, or
arranging for or recommending the purchase, lease, or order of any good, facility, item or service, for
which payment may be made, in whole or in part, under any U.S. federal healthcare program, such as
Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-
Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the
government may assert that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;
the U.S. civil and criminal federal false claims and civil monetary penalties laws, including the civil False
Claims Act, which can be enforced through civil whistleblower or qui tam actions, which prohibit, among
other things, individuals or entities from knowingly presenting, or causing to be presented, to the federal
government, claims for payment or approval that are false or fraudulent, knowingly making, using or
causing to be made or used, a false record or statement material to a false or fraudulent claim, or from
knowingly making or causing to be made a false statement to avoid, decrease or conceal an obligation to
pay money to the U.S. federal government;
the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes
criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to
execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statement, in connection with the
delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-
Kickback Statute, a person or entity does not need to have actual knowledge of the healthcare fraud
statute implemented under HIPAA or specific intent to violate it in order to have committed a violation;
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of
2009, or HITECH, and its implementing regulations, also impose obligations, including mandatory
contractual terms, with respect to safeguarding the privacy, security and transmission of individually
identifiable health information of covered entities subject to the rule, such as health plans, healthcare
clearinghouses and certain healthcare providers as well as their business associates that perform certain
services for or on their behalf involving the use or disclosure of individually identifiable health
information;
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the U.S. federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs,
devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for
Medicare & Medicaid Services, or CMS, information related to certain payments and other “transfers of
value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors) and teaching hospitals, as well as ownership and investment interests held by the
physicians described above and their immediate family members; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which
may apply to our business practices, including but not limited to, research, distribution, sales and
marketing arrangements and claims involving healthcare items or services reimbursed by non-
governmental third-party payors, including private insurers, or by the patients themselves; state laws that
require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise
restrict payments that may be made to healthcare providers and other potential referral sources; state laws
and regulations that require drug manufacturers to file reports relating to pricing and marketing
information or which require tracking gifts and other remuneration and items of value provided to
physicians, other healthcare providers and entities; state and local laws that require the registration of
pharmaceutical sales representatives; state and foreign laws governing the privacy and security of health
information in some circumstances, many of which differ from each other in significant ways and often
are not preempted by HIPAA; state and foreign governments that have enacted or proposed requirements
regarding the collection, distribution, use, security, and storage of personally identifiable information and
other data relating to individuals (including the EU General Data Protection Regulation 2016/679, or
GDPR, and the California Consumer Privacy Act, or CCPA), and federal and state consumer protection
laws are being applied to enforce regulations related to the online collection, use, and dissemination of
data, thus complicating compliance efforts.
We may also be subject to additional regulation in the conduct of our business. For example, we may be
subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S.
companies and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly,
corrupt or improper payments or anything else of value to foreign government officials, employees of public
international organizations and foreign government owned or affiliated entities, candidates for foreign political
office, and foreign political parties or officials thereof.
In addition, California recently enacted the CCPA, which creates new individual privacy rights for California
consumers (as defined in the law) and places increased privacy and security obligations on entities handling certain
personal data of consumers or households. The CCPA requires covered companies to provide new disclosure to
consumers about such companies’ data collection, use and sharing practices, provide such consumers new ways to
opt-out of certain sales or transfers of personal information, and provide consumers with additional causes of action.
The CCPA went into effect on January 1, 2020, and the California Attorney General may bring enforcement actions
for violations beginning July 1, 2020. The CCPA was amended on September 23, 2018, and it remains unclear what,
if any, further modifications will be made to this legislation or how it will be interpreted. As currently written, the
CCPA may impact our business activities and exemplifies the vulnerability of our business to the evolving
regulatory environment related to personal data and protected health information.
Ensuring that our internal operations and business arrangements with third parties comply with applicable
healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will
conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or
case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found
to be in violation of any of the laws described above or any other governmental laws and regulations that may apply
to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages,
fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar
programs in other countries or jurisdictions, disgorgement, imprisonment, contractual damages, reputational harm,
additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar
agreement to resolve allegations of non-compliance with these laws, diminished profits and the curtailment or
restructuring of our operations. Further, defending against any such actions can be costly, time consuming and may
require significant financial and personnel resources. Therefore, even if we are successful in defending against any
such actions that may be brought against us, our business may be impaired. If any of the physicians or other
providers or entities with whom we expect to do business are found not to be in compliance with applicable laws,
they may be subject to significant criminal, civil or administrative sanctions, including exclusion from government
funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to
operate our business and our results of operations.
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Enacted and future legislation and healthcare reform measures may increase the difficulty and cost for us to
obtain marketing approval for and commercialize vonoprazan and any future product candidates and may affect
the prices we may set.
In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a
number of legislative and regulatory changes and proposed changes to the healthcare system, including cost-
containment measures that may reduce or limit coverage and reimbursement for newly approved drugs and affect
our ability to profitably sell any product candidates for which we obtain marketing approval. In particular, there
have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce
healthcare costs and improve the quality of healthcare.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act, collectively the Affordable Care Act, was enacted in the United States. Among
the provisions of the Affordable Care Act of importance to our potential product candidates, the Affordable Care
Act includes:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription
drugs and biologic agents, which is apportioned among these entities according to their market share in
certain government healthcare programs;
a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-
sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare
Part D;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs,
respectively;
a methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for drugs that are inhaled, infused, instilled, implanted or injected;
an extension of a manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who
are enrolled in Medicaid managed care organizations;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing
program;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct
comparative clinical effectiveness research, along with funding for such research; and
establishment of a Center for Medicare Innovation at CMS to test innovative payment and service
delivery models to lower Medicare and Medicaid spending, potentially including prescription drug
spending.
Since its enactment, there have been judicial and political challenges to certain aspects of the Affordable Care
Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. For
example, the Tax Cuts and Jobs Act of 2017, or Tax Act, includes a provision repealing, effective January 1, 2019,
the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to
maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual
mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District
Court Judge, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and
therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are
invalid as well. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit held that the individual
mandate is unconstitutional and remanded the case back to the district court to determine whether the remaining
provisions of the Affordable Care Act are invalid as well. It is unclear how these decisions, subsequent appeals, if
any, and other efforts to challenge, repeal or replace the Affordable Care Act will impact the Affordable Care Act
and our business.
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In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was
enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year,
which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute will remain in
effect through 2029 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer
Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several
providers, including hospitals, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years.
Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing
practices in light of the rising cost of prescription drugs. Such scrutiny has resulted in several recent congressional
inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more
transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and
reform government program reimbursement methodologies for products.
At the federal level, the Trump administration’s budget proposal for fiscal year 2020 contains further drug
price control measures that could be enacted during the 2020 budget process or in other future legislation, including,
for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part
B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for
low-income patients. While proposed measures will require authorization through additional legislation to become
effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative
and/or administrative measures to control drug costs.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to
control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional
healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what
pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare
programs. Furthermore, there has been increased interest by third party payors and governmental authorities in
reference pricing systems and publication of discounts and list prices. These reforms could reduce the ultimate
demand for vonoprazan and any future product candidates, if approved, or put pressure on our product pricing,
which could negatively affect our business, results of operations, financial condition and prospects.
Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina
Right to Try Act of 2017, or Right to Try Act, was signed into law. The law, among other things, provides a federal
framework for certain patients to access certain investigational new drug products that have completed a Phase 1
clinical trial. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and
without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug
manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.
We expect that these new laws and other healthcare reform measures that may be adopted in the future may
result in more rigorous coverage criteria, new payment methodologies and additional downward pressure on the
price that we receive for any approved product. Any reduction in reimbursement from Medicare or other
government programs may result in a similar reduction in payments from private payors. The implementation of cost
containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain
profitability or commercialize vonoprazan and any future product candidates, if approved.
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We and any of our third-party manufacturers or suppliers may use potent chemical agents and hazardous
materials, and any claims relating to improper handling, storage or disposal of these materials could be time
consuming or costly.
We and any of our third-party manufacturers or suppliers will use biological materials, potent chemical agents
and may use hazardous materials, including chemicals and biological agents and compounds that could be
dangerous to human health and safety of the environment. Our operations and the operations of our third-party
manufacturers and suppliers also produce hazardous waste products. Federal, state and local laws and regulations
govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance
with applicable environmental laws and regulations may be expensive, and current or future environmental laws and
regulations may impair our product development efforts. In addition, we cannot eliminate the risk of accidental
injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste
insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage
for damages and fines arising from biological or hazardous waste exposure or contamination. In the event of
contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our
resources, and our clinical trials or regulatory approvals could be suspended.
Although we maintain workers’ compensation insurance for certain costs and expenses we may incur due to
injuries to our employees resulting from the use of hazardous materials or other work- related injuries, this insurance
may not provide adequate coverage against potential liabilities. We do not maintain insurance for toxic tort claims
that may be asserted against us in connection with our storage or disposal of biologic, hazardous or radioactive
materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and
safety laws and regulations, which have tended to become more stringent over time. These current or future laws
and regulations may impair our research, development or production efforts. Failure to comply with these laws and
regulations also may result in substantial fines, penalties or other sanctions or liabilities, which could materially
adversely affect our business, financial condition, results of operations and prospects.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to
limit commercialization of our products.
We face an inherent risk of product liability as a result of the clinical trials of vonoprazan and any future
product candidates and will face an even greater risk if we commercialize vonoprazan and any future product
candidates. For example, we may be sued if vonoprazan and any future product candidates allegedly cause injury or
are found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers
inherent in the product candidate, negligence, strict liability and a breach of warranties. Claims may be brought
against us by clinical trial participants, patients or others using, administering or selling products that may be
approved in the future. Claims could also be asserted under state consumer protection acts.
If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities
or be required to limit or cease the commercialization of our products. Even a successful defense would require
significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may
result in:
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decreased demand for our products;
injury to our reputation and significant negative media attention;
• withdrawal of clinical trial participants;
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costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
significant negative financial impact;
the inability to commercialize vonoprazan and any future product candidates; and
a decline in our stock price.
We currently maintain product liability insurance coverage in connection with our clinical trials, but do not
maintain such insurance coverage for commercialization of vonoprazan and any future product candidates.
Insurance coverage is increasingly expensive. Our inability to obtain and retain sufficient product liability insurance
at an acceptable cost to protect against potential product liability claims could prevent or inhibit the
commercialization of vonoprazan and any future product candidates. Although we plan to maintain such insurance,
any claim that may be brought against us could result in a court judgment or settlement in an amount that is not
covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our
insurance policies have, and future policies will also have various exclusions, and we may be subject to a product
liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated
in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have,
or be able to obtain, sufficient capital to pay such amounts.
We and others, including any of our potential future collaborators, will be required to report to regulatory
authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so
would result in sanctions that would materially harm our business.
If we or any of our potential future collaborators are successful in commercializing vonoprazan or any future
product candidates, the FDA and foreign regulatory authorities would require that we and Takeda (with respect to
vonoprazan) and any of our current or potential future collaborators, report certain information about adverse
medical events if those products may have caused or contributed to those adverse events. The timing of our
obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the
event. We, Takeda and any of our potential future collaborators or CROs may fail to report adverse events within the
prescribed timeframe. If we, Takeda or any of our potential future collaborators or CROs fail to comply with such
reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution,
the imposition of civil monetary penalties, seizure of our products or delay in approval or clearance of future
products.
Our internal computer systems, or those of any of our CROs, manufacturers, other contractors or consultants or
potential future collaborators, may fail or suffer security breaches, which could result in a material disruption of
our product development programs.
The United States federal and various state and foreign governments have adopted or proposed requirements
regarding the collection, distribution, use, security, and storage of personally identifiable information and other data
relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations
related to the online collection, use, and dissemination of data. Despite the implementation of security measures, our
internal computer systems and those of our current and any future CROs and other contractors, consultants and
collaborators are vulnerable to damage from computer viruses, cybersecurity threats, unauthorized access, natural
disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause
interruptions in our operations or result in the unauthorized disclosure of or access to personally identifiable
information or individually identifiable health information (violating certain privacy laws such as GDPR), it could
result in a material disruption of our development programs and our business operations, whether due to a loss of
our trade secrets or other similar disruptions. Some of the federal, state and foreign government requirements
include obligations of companies to notify individuals of security breaches involving particular personally
identifiable information, which could result from breaches experienced by us or by our vendors, contractors, or
organizations with which we have formed strategic relationships. Even though we may have contractual protections
with such vendors, contractors, or other organizations, notifications and follow-up actions related to a security
breach could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer
confidence, hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing
customers. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in
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our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. We also rely on
third parties to manufacture vonoprazan and any future product candidates, and similar events relating to their
computer systems could also have a material adverse effect on our business. To the extent that any disruption or
security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of
confidential or proprietary information, we could incur liability, the further development and commercialization of
vonoprazan and any future product candidates could be delayed, and we could be subject to significant fines,
penalties or liabilities for any noncompliance to certain privacy and security laws.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and
expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water
shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or
manmade disasters or business interruptions, for which we are predominantly self-insured. We rely on third-party
manufacturers to produce vonoprazan and any future product candidates. Our ability to obtain clinical supplies of
vonoprazan and any future product candidates could be disrupted if the operations of these suppliers were affected
by a man-made or natural disaster or other business interruption. The occurrence of any of these business disruptions
could seriously harm our operations and financial condition and increase our costs and expenses.
Our employees and independent contractors, including principal investigators, CROs, consultants and vendors,
may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements.
We are exposed to the risk that our employees and independent contractors, including principal investigators,
CROs, consultants and vendors may engage in misconduct or other illegal activity. Misconduct by these parties
could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate: (i) the laws
and regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of
true, complete and accurate information to such regulatory bodies, (ii) manufacturing standards, including cGMP
requirements, or (iii) federal and state healthcare, security, fraud and abuse laws, data privacy and security laws, and
other similar non-U.S. laws that require the true, complete and accurate reporting of financial information or data.
Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the
course of clinical trials, the creation of fraudulent data in our preclinical studies or clinical trials, or illegal
misappropriation of product, which could result in regulatory sanctions and cause serious harm to our reputation. It
is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we
take to detect and prevent this activity may not be effective 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 be in
compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could
allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are
not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our
business and financial results, including, without limitation, the imposition of significant civil, criminal and
administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare,
Medicaid and other U.S. federal healthcare programs or healthcare programs in other jurisdictions, integrity
oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, contractual damages,
reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could
adversely affect our ability to operate our business and our results of operations.
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We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws
and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability
to compete in domestic and international markets. We could face criminal liability and other serious
consequences for violations, which could harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration
Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the
U.S. Treasury Department’s Office of Foreign Assets Controls, and anti-corruption and anti-money laundering laws
and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery
statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-
bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are
interpreted broadly and prohibit companies and their employees, agents, clinical research organizations, contractors
and other collaborators and partners from authorizing, promising, offering, providing, soliciting or receiving,
directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We
may engage third parties for clinical trials outside of the United States, to sell our products abroad once we enter a
commercialization phase, and/or to obtain necessary permits, licenses, patent registrations and other regulatory
approvals. We have direct or indirect interactions with officials and employees of government agencies or
government-affiliated hospitals, universities and other organizations. We can be held liable for the corrupt or other
illegal activities of our employees, agents, clinical research organizations, contractors and other collaborators and
partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the
laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment,
the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation,
reputational harm and other consequences.
We may engage in strategic transactions that could impact our liquidity, increase our expenses and present
significant distractions to our management.
From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases
and out-licensing or in-licensing of intellectual property, products or technologies, similar to our approach in in-
licensing and acquiring our current product candidates. Any future transactions could increase our near and long-
term expenditures, result in potentially dilutive issuances of our equity securities, including our common stock, or
the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development
expenses, any of which could affect our financial condition, liquidity and results of operations. Additional potential
transactions that we may consider in the future include a variety of business arrangements, including spin-offs,
strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Future
acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at
all. These transactions may never be successful and may require significant time and attention of management. In
addition, the integration of any business that we may acquire in the future may disrupt our existing business and may
be a complex, risky and costly endeavor for which we may never realize the full benefits of the acquisition.
Accordingly, although we may not undertake or successfully complete any additional transactions of the nature
described above, any additional transactions that we do complete could have a material adverse effect on our
business, results of operations, financial condition and prospects.
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Risks Related to Our Intellectual Property
Our success depends on our ability to protect our intellectual property and our proprietary technologies.
Our commercial success depends in part on our ability to obtain and maintain patent protection and trade
secret protection for vonoprazan and any future product candidates, proprietary technologies and their uses as well
as our ability to operate without infringing upon the proprietary rights of others. If we are unable to protect our
intellectual property rights or if our intellectual property rights are inadequate for our technology or vonoprazan or
any future product candidates, our competitive position could be harmed. We generally seek to protect our
proprietary position by filing patent applications in the United States and abroad related to vonoprazan or any future
product candidates, proprietary technologies and their uses that are important to our business. We do not currently
own any issued patents or pending patent applications. We also seek to protect our proprietary position by acquiring
or in-licensing relevant issued patents or pending patent applications from third parties. We have in-licensed from
Takeda a number of United States, European, and Canadian patents and patent applications relating to the compound
vonoprazan as well as the use and manufacture of vonoprazan products.
Pending patent applications cannot be enforced against third parties practicing the technology claimed in such
applications unless, and until, patents issue from such applications, and then only to the extent the issued claims
cover the technology. There can be no assurance that our future patent applications or the patent applications of our
current and future licensors will result in patents being issued or that issued patents will afford sufficient protection
against competitors with similar technology, nor can there be any assurance that the patents if issued will not be
infringed, designed around or invalidated by third parties.
Even issued patents may later be found invalid or unenforceable or may be modified or revoked in
proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for
our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our
rights or permit us to gain or keep any competitive advantage. These uncertainties and/or limitations in our ability to
properly protect the intellectual property rights relating to vonoprazan and any future product candidates could have
a material adverse effect on our financial condition and results of operations.
We cannot be certain that the claims in our licensor’s U.S. pending patent applications, corresponding
international patent applications and patent applications in certain foreign countries will be considered patentable by
the United States Patent and Trademark Office, or USPTO, courts in the United States or by the patent offices and
courts in foreign countries, nor can we be certain that the claims in our licensor’s issued patents will not be found
invalid or unenforceable if challenged.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance
that we or any of our potential future collaborators will be successful in protecting vonoprazan and any future
product candidates by obtaining and defending patents. These risks and uncertainties include the following:
•
•
•
•
the USPTO and various foreign governmental patent agencies require compliance with a number of
procedural, documentary, fee payment and other provisions during the patent process, the noncompliance
with which can result in abandonment or lapse of a patent or patent application, and partial or complete
loss of patent rights in the relevant jurisdiction;
patent applications may not result in any patents being issued;
patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or
otherwise may not provide any competitive advantage;
our competitors, many of whom have substantially greater resources than we do and many of whom have
made significant investments in competing technologies, may seek or may have already obtained patents
that will limit, interfere with or block our ability to make, use and sell vonoprazan and any future product
candidates;
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•
•
there may be significant pressure on the U.S. government and international governmental bodies to limit
the scope of patent protection both inside and outside the United States for disease treatments that prove
successful, as a matter of public policy regarding worldwide health concerns; and
countries other than the United States may have patent laws less favorable to patentees than those upheld
by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing
products.
The patent prosecution process is also expensive and time consuming, and we and our licensor may not be
able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or
in all jurisdictions where protection may be commercially advantageous. It is also possible that we and our licensor
will fail to identify patentable aspects of our research and development output before it is too late to obtain patent
protection. Moreover, in some circumstances such as under the Takeda License, we do not have the right to control
the preparation, filing and prosecution of patent applications, or to maintain the patents, directed to technology that
we license from third parties. We may also require the cooperation of our licensors in order to enforce the licensed
patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be
prosecuted and enforced in a manner consistent with the best interests of our business.
We cannot be certain that patent prosecution and maintenance activities by our licensors have been or will be
conducted in compliance with applicable laws and regulations, which may affect the validity and enforceability of
such patents or any patents that may issue from such applications. If they fail to do so, this could cause us to lose
rights in any applicable intellectual property that we in-license, and as a result our ability to develop and
commercialize products or product candidates may be adversely affected and we may be unable to prevent
competitors from making, using and selling competing products.
In addition, although we enter into non-disclosure and confidentiality agreements with parties who have
access to patentable aspects of our research and development output, such as our employees, outside scientific
collaborators, CROs, third-party manufacturers, consultants, advisors and other third parties, any of these parties
may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our
ability to seek patent protection.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights
from third parties, including our rights in vonoprazan licensed from Takeda, or otherwise experience disruptions
to our business relationships with our licensors, we could lose license rights that are important to our business.
We are a party to the Takeda License under which we are granted rights to intellectual property that are
important to our business and we may enter into additional license agreements in the future with other third parties.
The Takeda License imposes, and we expect that any future license agreements where we in-license intellectual
property, will impose on us, various development, regulatory and/or commercial diligence obligations, payment of
milestones and/or royalties and other obligations. If we fail to comply with our obligations under these agreements,
or we are subject to bankruptcy-related proceedings, the licensor may have the right to terminate the license, in
which event we would not be able to market products covered by the license. Additionally, if a future license
agreement includes a sublicense from a third party who is not the original licensor of the intellectual property at
issue, then we must rely on our direct licensor to comply with its obligations under the primary license agreements
under which such licensor obtained rights in the applicable intellectual property, where we may have no relationship
with the original licensor of such rights. If such a licensor fails to comply with its obligations under its upstream
license agreement, the original third-party licensor may have the right to terminate the original license, which may
terminate our sublicense. If this were to occur, we would no longer have rights to the applicable intellectual property
unless we are able to secure our own direct license with the owner of the relevant rights, which we may not be able
to do on reasonable terms, or at all, which may impact our ability to continue to develop and commercialize
vonoprazan and any future product candidates incorporating the relevant intellectual property.
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We may need to obtain further licenses from third parties to advance our research or allow commercialization
of vonoprazan and any future product candidates, and we cannot provide any assurances that third-party patents do
not exist which might be enforced against vonoprazan and any future product candidates in the absence of such a
license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able
to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed
to us. In that event, we may be required to expend significant time and resources to develop or license replacement
technology. If we are unable to do so, we may be unable to develop or commercialize the affected product
candidates, which could materially harm our business and the third parties owning such intellectual property rights
could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay
royalties and/or other forms of compensation.
Licensing of intellectual property is of critical importance to our business and involves complex legal,
business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property
subject to a license agreement, including:
•
the scope of rights granted under the license agreement and other interpretation-related issues;
• whether and the extent to which our technology and processes infringe on intellectual property of the
licensor that is not subject to the licensing agreement;
•
•
•
•
our right to sublicense patents and other rights to third parties;
our diligence obligations with respect to the use of the licensed technology in relation to our development
and commercialization of vonoprazan and any future product candidates, and what activities satisfy those
diligence obligations;
our right to transfer or assign the license; and
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property
by our licensors and us and our partners.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our
current licensing arrangements on acceptable terms, we may not be able to successfully develop and commercialize
the affected product candidates, which would have a material adverse effect on our business.
In addition, certain of our agreements may limit or delay our ability to consummate certain transactions, may
impact the value of those transactions, or may limit our ability to pursue certain activities. For example, if we choose
to sublicense or assign to any third parties our rights under our existing license agreement with Takeda with respect
to any licensed product, we may be required to wait for a certain period or until the occurrence of certain funding or
development milestones.
If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection,
our ability to prevent our competitors from commercializing similar or identical product candidates would be
adversely affected.
The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and
factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope,
validity, enforceability and commercial value of our patent rights are highly uncertain. Our in-licensed pending and
future patent applications may not result in patents being issued which protect vonoprazan or any future product
candidates or which effectively prevent others from commercializing competitive product candidates.
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Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is
issued, and its scope can be reinterpreted after issuance. Even if patent applications we own in the future or license
currently issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent
competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage.
Any future patents that we own or license, now or in the future, may be challenged or circumvented by third parties
or may be narrowed or invalidated as a result of challenges by third parties. Consequently, we do not know whether
vonoprazan or any future product candidates will be protectable or remain protected by valid and enforceable
patents. Our competitors or other third parties may be able to circumvent our future patents or the patents of our
current and future licensors by developing similar or alternative technologies or products in a non-infringing manner
which could materially adversely affect our business, financial condition, results of operations and prospects.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our
future patents or the patents of our current and future licensors may not cover vonoprazan or any future product
candidates or may be challenged in the courts or patent offices in the United States and abroad. We may be subject
to a third party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation,
revocation, reexamination, post-grant review, or PGR, and inter partes review, or IPR, or other similar proceedings
in the USPTO or foreign patent offices challenging our patent rights. The outcome following legal assertions of
invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be
certain that there is no invalidating prior art, of which we or our predecessors and the patent examiner were unaware
during prosecution. There is no assurance that all potentially relevant prior art relating to our in-licensed patents and
patent applications has been found. There is also no assurance that there is not prior art of which we, our
predecessors or licensors are aware, but which we do not believe affects the validity or enforceability of a claim in
our in-licensed patents and patent applications, which may, nonetheless, ultimately be found to affect the validity or
enforceability of a claim. An adverse determination in any such submission, proceeding or litigation could reduce
the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize
vonoprazan or any future product candidates and compete directly with us, without payment to us. It is possible that
defects of form in the preparation or filing of our or our current and future licensors’ patents or patent applications
may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope,
or requests for patent term adjustments. If there are material defects in the form, preparation, prosecution, or
enforcement of our future patents or future patent applications or our current and future licensors’ patents or patent
applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid,
enforceable patents.
Any loss of patent rights, loss of exclusivity or in patent claims being narrowed, invalidated or held
unenforceable could limit our ability to stop others from using or commercializing similar or identical technology
and products, or limit the duration of the patent protection of vonoprazan or any future product candidates, which
could materially and adversely impact our business. Such proceedings also may result in substantial cost and require
significant time from our scientists and management, even if the eventual outcome is favorable to us. In addition, if
the breadth or strength of protection provided by our future patents and future patent applications or the patents and
patent applications of our current and future licensors is threatened, regardless of the outcome, it could dissuade
companies from collaborating with us to license, develop or commercialize vonoprazan or any future product
candidates.
The patent protection and patent prosecution for vonoprazan or any future product candidates may be dependent
on third parties.
We may rely on third parties to file and prosecute patent applications and maintain patents and otherwise
protect the licensed intellectual property under certain current and future license agreements, such as the Takeda
License. Under such arrangements, we may not have primary control over these activities for certain of licensed
patents or patent applications and other intellectual property rights. We cannot be certain that such activities by third
parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and
enforceable patents or other intellectual property rights. In addition, our current and future licensors may not be fully
cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, which could
compromise such patent rights. We may in the future enter into license agreements where the licensors may have the
right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents
and even if we are permitted to pursue such enforcement or defense, we will require the cooperation of our licensors.
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We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of
such patents or defense of such claims to protect our interests in the licensed patents. Even if we are not a party to
these legal actions, an adverse outcome could harm our business because it might prevent us from continuing to
license intellectual property that we may need to operate our business. If any of our licensors or any of our future
licensors or future collaborators fail to appropriately prosecute and maintain patent protection for patents covering
vonoprazan or any future product candidates, our ability to develop and commercialize those product candidates
may be adversely affected and we may not be able to prevent competitors from making, using and selling competing
products.
In addition, even where we have the right to control prosecution of patent applications or enforcement of
patents we have acquired or licensed from third parties, we may still be adversely affected or prejudiced by actions
or inactions of our predecessors or licensors and their counsel that took place prior to us assuming control over such
activities.
Third parties may retain certain rights to the technology that they license to us, including the right to use the
underlying technology for noncommercial academic and research use, to publish general scientific findings from
research related to the technology, and to make customary scientific and scholarly disclosures of information
relating to the technology. For example, under the Takeda License, Takeda retained the rights to the inventions in all
countries other than the United States, Europe, and Canada. Takeda also retained the right to development certain
drug products that contain vonoprazan where vonoprazan is not the only active pharmaceutical ingredient. It is
difficult to monitor whether our predecessors or licensors limit their use of the technology to these uses, and we
could incur substantial expenses to enforce our rights to our licensed technology in the event of misuse.
If we are limited in our ability to utilize acquired or licensed technologies, or if we lose our rights to critical
in-licensed technology, we may be unable to successfully develop, out-license, market and sell our products, which
could prevent or delay new product introductions. Our business strategy depends on the successful development of
licensed and acquired technologies into commercial products. Therefore, any limitations on our ability to utilize
these technologies may impair our ability to develop, out-license or market and sell our product candidate.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual
property rights have limitations and may not adequately protect our business or permit us to maintain our
competitive advantage. For example:
•
others may be able to develop products that are similar to vonoprazan or any future product candidates
but that are not covered by the claims of the patents that we own in the future or license;
• we or our current and future licensors or predecessors might not have been the first to make the inventions
covered by the issued patents or patent applications that we own in the future or license;
• we or our current and future licensors or predecessors might not have been the first to file patent
applications covering certain of the claimed inventions;
•
•
•
others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights;
it is possible that the pending patent applications we own or license will not lead to issued patents;
issued patents that we own in the future or license may be held invalid or unenforceable, as a result of
legal challenges by our competitors;
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•
our competitors might conduct research and development activities in countries where we do not have
patent rights and then use the information learned from such activities to develop competitive products for
sale in our major commercial markets;
• we may not develop additional proprietary technologies that are patentable; and
•
the patents of others may have an adverse effect on our business.
Should any of these events occur, it could significantly harm our business, results of operations and prospects.
Our commercial success depends significantly on our ability to operate without infringing the patents and other
proprietary rights of third parties. Claims by third parties that we infringe their proprietary rights may result in
liability for damages or prevent or delay our developmental and commercialization efforts.
Our commercial success depends in part on avoiding infringement of the patents and proprietary rights of third
parties. However, our research, development and commercialization activities may be subject to claims that we
infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Other
entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale
or import vonoprazan and any future product candidates and products that may be approved in the future, or impair
our competitive position. There is a substantial amount of litigation, both within and outside the United States,
involving patent and other intellectual property rights in the biopharmaceutical industry, including patent
infringement lawsuits, oppositions, reexaminations, IPR proceedings and PGR proceedings before the USPTO and/
or foreign patent offices. Numerous third-party U.S. and foreign issued patents and pending patent applications exist
in the fields in which we are developing product candidates. There may be third-party patents or patent applications
with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or
manufacture of vonoprazan and any future product candidates.
As the biopharmaceutical industry expands and more patents are issued, the risk increases that vonoprazan and
any future product candidates may be subject to claims of infringement of the patent rights of third parties. Because
patent applications are maintained as confidential for a certain period of time, until the relevant application is
published we may be unaware of third-party patents that may be infringed by commercialization of vonoprazan and
any future product candidates, and we cannot be certain that we were the first to file a patent application related to a
product candidate or technology. Moreover, because patent applications can take many years to issue, there may be
currently pending patent applications that may later result in issued patents that vonoprazan and any future product
candidates may infringe. In addition, identification of third-party patent rights that may be relevant to our
technology is difficult because patent searching is imperfect due to differences in terminology among patents,
incomplete databases and the difficulty in assessing the meaning of patent claims. In addition, third parties may
obtain patents in the future and claim that use of our technologies infringes upon these patents. Any claims of patent
infringement asserted by third parties would be time consuming and could:
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•
•
•
•
•
•
result in costly litigation that may cause negative publicity;
divert the time and attention of our technical personnel and management;
cause development delays;
prevent us from commercializing vonoprazan and any future product candidates until the asserted patent
expires or is held finally invalid or not infringed in a court of law;
require us to develop non-infringing technology, which may not be possible on a cost-effective basis;
subject us to significant liability to third parties; or
require us to enter into royalty or licensing agreements, which may not be available on commercially
reasonable terms, or at all, or which might be non-exclusive, which could result in our competitors
gaining access to the same technology.
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Although no third party has asserted a claim of patent infringement against us as of the date of this annual
report, others may hold proprietary rights that could prevent vonoprazan and any future product candidates from
being marketed.
Any patent-related legal action against us claiming damages and seeking to enjoin activities relating to
vonoprazan and any future product candidates or processes could subject us to potential liability for damages,
including treble damages if we were determined to willfully infringe, and require us to obtain a license to
manufacture or develop vonoprazan and any future product candidates. Defense of these claims, regardless of their
merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from
our business. We cannot predict whether we would prevail in any such actions or that any license required under any
of these patents would be made available on commercially acceptable terms, if at all. Moreover, even if we or our
future strategic partners were able to obtain a license, the rights may be nonexclusive, which could result in our
competitors gaining access to the same intellectual property. In addition, we cannot be certain that we could redesign
vonoprazan and any future product candidates or processes to avoid infringement, if necessary. Accordingly, an
adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could
prevent us from developing and commercializing vonoprazan and any future product candidates, which could harm
our business, financial condition and operating results.
Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively
than we can because they have substantially greater resources. Furthermore, because of the substantial amount of
discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk
that some of our confidential information could be compromised by disclosure. In addition, any uncertainties
resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to
raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial
condition and prospects.
We may not be successful in obtaining or maintaining necessary rights to vonoprazan and any future product
candidates through acquisitions and in-licenses.
Because our development programs may in the future require the use of proprietary rights held by other third
parties, the growth of our business may depend in part on our ability to acquire, in-license, or use these third-party
proprietary rights. We may be unable to acquire or in-license any compositions, methods of use, processes or other
third-party intellectual property rights from third parties that we identify as necessary for vonoprazan and any future
product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and
a number of more established companies are also pursuing strategies to license or acquire third-party intellectual
property rights that we may consider attractive. These established companies may have a competitive advantage
over us due to their size, cash resources and greater clinical development and commercialization capabilities. In
addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also
may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an
appropriate return on our investment. If we are unable to successfully obtain rights to required third-party
intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon
development of that program and our business and financial condition could suffer.
We may be involved in lawsuits to protect or enforce our future patents or the patents of our current and future
licensors, which could be expensive, time consuming and unsuccessful. Further, our future issued patents or the
patents of our current and future licensors could be found invalid or unenforceable if challenged in court.
Competitors may infringe our intellectual property rights or those of our current and future licensors. To
prevent infringement or unauthorized use, we and/or any such licensors may be required to file infringement claims,
which can be expensive and time consuming. In addition, in a patent infringement proceeding, a court may decide
that a patent we own or license is not valid, is unenforceable and/or is not infringed. If we or any of our current and
future licensors were to initiate legal proceedings against a third party to enforce a patent directed at vonoprazan and
any future product candidates, the defendant could counterclaim that our patent or the patent of our current or future
licensor is invalid and/or unenforceable in whole or in part. In patent litigation, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include an alleged failure to
meet any of several statutory requirements, including lack of novelty, obviousness, written description, non-
enablement, or obviousness-type double patenting. Grounds for an unenforceability assertion could include an
allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or
made a misleading statement during prosecution.
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If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least
part, and perhaps all, of the patent protection on such product candidate. In addition, if the breadth or strength of
protection provided by our future patents and future patent applications or those of our current and future licensors is
threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or
future product candidates. Such a loss of patent protection would have a material adverse impact on our business.
Even if resolved in our favor, litigation or other legal proceedings relating to our intellectual property rights
may cause us to incur significant expenses and could distract our technical and management personnel from their
normal responsibilities. Such litigation or proceedings could substantially increase our operating losses and reduce
the resources available for development activities or any future sales, marketing or distribution activities. We may
not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our
competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because
of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or
other proceedings could compromise our ability to compete in the marketplace.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation or other legal proceedings relating to our intellectual property rights, there is a risk that some of our
confidential information could be compromised by disclosure during this type of litigation or other proceedings.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the
market price of our common shares to decline.
During the course of any intellectual property litigation, there could be public announcements of the initiation
of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If
securities analysts or investors regard these announcements as negative, the perceived value of our existing products,
programs or intellectual property could be diminished. Accordingly, the market price of shares of our common stock
may decline. Such announcements could also harm our reputation or the market for our future products, which could
have a material adverse effect on our business.
Derivation or interference proceedings may be necessary to determine priority of inventions, and an unfavorable
outcome may require us to cease using the related technology or to attempt to license rights from the prevailing
party.
Derivation or interference proceedings provoked by third parties or brought by us or declared by the USPTO
or similar proceedings in foreign patent offices may be necessary to determine the priority of inventions with respect
to our future patents or future patent applications or those of our current and future licensors. An unfavorable
outcome could require us to cease using the related technology or to attempt to license rights to it from the
prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially
reasonable terms. Our defense of such proceedings may fail and, even if successful, may result in substantial costs
and distract our management and other employees. In addition, the uncertainties associated with such proceedings
could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials,
continue our research programs, license necessary technology from third parties or enter into development or
manufacturing partnerships that would help us bring vonoprazan and any future product candidates to market.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our
future patent applications or those of our current and future licensors and the enforcement or defense of our
future issued patents or those of our current and future licensors.
On September 16, 2011, the Leahy-Smith America Invents Act, or Leahy-Smith Act, was signed into law. The
Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect
the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-
Smith Act, the United States transitioned in March 2013 to a “first inventor to file” system in which, assuming that
other requirements of patentability are met, the first inventor to file a patent application will be entitled to the patent
regardless of whether a third party was first to invent the claimed invention. A third party that files a patent
application in the USPTO after March 2013 but before us could therefore be awarded a patent covering an invention
of ours even if we had made the invention before it was made by such third party. This will require us to be
cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to
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obtain and maintain valid and enforceable patents depends on whether the differences between our technology and
the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States
and most other countries are confidential for a period of time after filing or until issuance, we may not be certain that
we or our current and future licensors are the first to either (1) file any patent application related to vonoprazan and
any future product candidates or (2) invent any of the inventions claimed in the patents or patent applications.
The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications
will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to
the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO
administered post-grant proceedings, including PGR, IPR, and derivation proceedings. An adverse determination in
any such submission or proceeding could reduce the scope or enforceability of, or invalidate, our patent rights,
which could adversely affect our competitive position.
Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in
United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence
in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be
insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt
to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged
by the third party as a defendant in a district court action. Thus, the Leahy-Smith Act and its implementation could
increase the uncertainties and costs surrounding the prosecution of our future patent applications or those of our
current and future licensors and the enforcement or defense of our future issued patents or those of our current and
future licensors, all of which could have a material adverse effect on our business, financial condition, results of
operations and prospects.
Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby
impairing our ability to protect vonoprazan and any future product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve a high
degree of technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is
costly, time consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent
laws in the United States and other countries may diminish the value of our intellectual property and may increase
the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of
issued patents. We cannot predict the breadth of claims that may be allowed or enforced in our future patents or in
third-party patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that
is unfavorable to us. For example, a new bill (Terminating the Extension of Rights Misappropriated Act H.R. 3199)
percolating through the United States Congress aims to reduce the term of certain drug patents in order to ease
generic entry and increase competition. Evolving judicial interpretation of patent law could also adversely affect our
business. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing
the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain
situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this
combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on
decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions,
the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to
obtain new patents or to enforce the existing licensed patents and the patents we might obtain or license in the
future.
We may be subject to claims challenging the inventorship or ownership of our future patents, the patents of our
current and future licensors, or other intellectual property.
We may also be subject to claims that former employees or other third parties have an ownership interest in
our future patents, the patents of our current and future licensors or other intellectual property. Litigation may be
necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Such an
outcome could have a material adverse effect on our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and distraction to management and other employees.
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Patent terms may be inadequate to protect our competitive position on vonoprazan and any future product
candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural
expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may
be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering vonoprazan
and any future product candidates are obtained, once the patent life has expired, we may be open to competition
from competitive products. Given the amount of time required for the development, testing and regulatory review of
product candidates, patents protecting vonoprazan and any future product candidates might expire before or shortly
after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights
to exclude others from commercializing products similar or identical to ours.
If we do not obtain patent term extension for vonoprazan and any future product candidates, our business may be
materially harmed.
Depending upon the timing, duration and specifics of FDA marketing approval of vonoprazan and any future
product candidates, one or more of our U.S. patents or those of our current and future licensors, may be eligible for
limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, or the
Hatch-Waxman Amendments. The Hatch- Waxman Amendments permit a patent restoration term of up to five years
as compensation for patent term lost during product development and the FDA regulatory review process. A
maximum of one patent may be extended per FDA approved product as compensation for the patent term lost during
the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a
total of 14 years from the date of product approval and only those claims covering such approved drug product, a
method for using it or a method for manufacturing it may be extended. Patent term extension may also be available
in certain foreign countries upon regulatory approval of vonoprazan and any future product candidates. However, we
may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the
applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to
obtain patent term extension or restoration or the term of any such extension is less than we request, our competitors
may obtain approval of competing products following our patent expiration, and our revenue could be reduced,
possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development
and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the
case.
We may not be able to protect our intellectual property rights throughout our licensed territories.
Although we have issued patents and pending patent applications in the United States and certain other
countries in which we intend to commercialize our products, filing, prosecuting and defending patents in all relevant
countries throughout the could be prohibitively expensive, and our 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 may not be able to prevent third parties from practicing our inventions in all countries outside the
United States or from selling or importing products made using our inventions in and into the United States or other
jurisdictions. Competitors may use our 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 have
patent protection but enforcement is not as strong as that in the United States. These products may compete with
vonoprazan or any future product candidates, and our patents, the patents of our current and future licensors or other
intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property
rights in foreign jurisdictions. The legal systems of many foreign countries do not favor the enforcement of patents
and other intellectual property protection, which could make it difficult for us to stop the infringement of our
intellectual property rights or marketing of competing products in violation of our proprietary rights. Proceedings to
enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention
from other aspects of our business, could put our future patents or the patents of our current and future licensors at
risk of being invalidated or interpreted narrowly and our future patent applications or the patent applications of our
current and future licensors at risk of not issuing and could provoke third parties to assert claims against us. We may
not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be
commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may
be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
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Many countries have compulsory licensing laws under which a patent owner may be compelled to grant
licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies
or government contractors. In these countries, the patent owner may have limited remedies, which could materially
diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents
relevant to our business, our competitive position may be impaired, and our business, financial condition, results of
operations and prospects may be adversely affected.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary,
fee payment and other requirements imposed by regulations and governmental patent agencies, and our patent
protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or
applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of our
future patents and/or future applications and those of our current and future licensors. We have systems in place to
remind us to pay these fees, and we rely on third parties to pay these fees when due. Additionally, the USPTO and
various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other
similar provisions during the patent application process. We employ reputable law firms and other professionals to
help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in
accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent
rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our
business.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be
harmed.
In addition, we rely on the protection of our trade secrets, including unpatented know-how, technology and
other proprietary information to maintain our competitive position. Although we have taken steps to protect our
trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and
confidential information and inventions agreements with employees, consultants and advisors, we cannot provide
any assurances that all such agreements have been duly executed, and any of these parties may breach the
agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain
adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade
secret is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, some courts inside
and outside the United States are less willing or unwilling to protect trade secrets.
Moreover, third parties may still obtain this information or may come upon this or similar information
independently, and we would have no right to prevent them from using that technology or information to compete
with us. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of this
information may be greatly reduced and our competitive position would be harmed. If we cannot otherwise maintain
the confidentiality of our proprietary technology and other confidential information, then our ability to protect our
trade secret information may be jeopardized.
We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our
employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former
employers.
As is common in the biopharmaceutical industry, in addition to our employees, we engage the services of
consultants to assist us in the development of vonoprazan and any future product candidates. Many of these
consultants, and many of our employees, were previously employed at, or may have previously provided or may be
currently providing consulting services to, other biopharmaceutical companies including our competitors or potential
competitors. We may become subject to claims that we, our employees or a consultant inadvertently or otherwise
used or disclosed trade secrets or other information proprietary to their former employers or their former or current
clients. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in
addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could
adversely affect our business. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to our management team and other employees.
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If our trademarks and trade names are not adequately protected, then we may not be able to build name
recognition in our markets of interest and our business may be adversely affected.
We intend to use registered or unregistered trademarks or trade names to brand and market ourselves and our
products. Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or
determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade
names, which we need to build name recognition among potential partners or customers in our markets of interest.
At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build
brand identity and possibly leading to market confusion. In addition, there could be potential trade name or
trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of
our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name
recognition based on our trademarks and trade names, then we may not be able to compete effectively and our
business may be adversely affected. We may license our trademarks and trade names to third parties, such as
distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may
be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize
our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or
protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other
intellectual property may be ineffective and could result in substantial costs and diversion of resources and could
adversely affect our financial condition or results of operations.
Any collaboration arrangements that we have or may enter into in the future may not be successful, which could
adversely affect our ability to develop and commercialize our products.
The success of our collaboration arrangements will depend heavily on the efforts and activities of our
collaborators and partners. Under the Takeda License, for example, Takeda has certain obligations with respect to
assisting with the transition of information and materials to us as well as providing clinical and commercial supply
of the vonoprazan product. Collaborations and partnerships are subject to numerous risks, which may include that:
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collaborators have significant discretion in determining the efforts and resources that they will apply to
collaborations;
collaborators may not pursue development and commercialization of our products or may elect not to
continue or renew development or commercialization programs based on trial or test results, changes in
their strategic focus due to the acquisition of competitive products, availability of funding or other
external factors, such as a business combination that diverts resources or creates competing priorities;
collaborators could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or product candidates;
a collaborator with marketing, manufacturing and distribution rights to one or more products may not
commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;
• we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;
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collaborators may not properly maintain or defend our intellectual property rights or may use our
intellectual property or proprietary information in a way that gives rise to actual or threatened litigation
that could jeopardize or invalidate our intellectual property or proprietary information or expose us to
potential liability;
disputes may arise between us and a collaborator that causes the delay or termination of the research,
development or commercialization of our current or future products or that results in costly litigation or
arbitration that diverts management attention and resources;
collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue
further development or commercialization of the applicable current or future products;
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collaborators may own or co-own intellectual property covering our products that results from our
collaborating with them, and in such cases, we would not have the exclusive right to develop or
commercialize such intellectual property; and
a collaborator’s sales and marketing activities or other operations may not be in compliance with
applicable laws resulting in civil or criminal proceedings.
Intellectual property discovered through government funded programs may be subject to federal regulations such
as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance
with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S.
manufacturers.
We may acquire or license in the future intellectual property rights that have been generated through the use of
U.S. government funding or grant. Pursuant to the Bayh-Dole Act of 1980, the U.S. government has certain rights in
inventions developed with government funding. These U.S. government rights include a non-exclusive, non-
transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S.
government has the right, under certain limited circumstances, to require us to grant exclusive, partially exclusive, or
non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not
been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs;
or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to
as “march-in rights”). The U.S. government also has the right to take title to these inventions if the grant recipient
fails to disclose the invention to the government or fails to file an application to register the intellectual property
within specified time limits. Intellectual property generated under a government funded program is also subject to
certain reporting requirements, compliance with which may require us to expend substantial resources. In addition,
the U.S. government requires that any products embodying any of these inventions or produced through the use of
any of these inventions be manufactured substantially in the United States. This preference for industry may be
waived by the federal agency that provided the funding if the owner or assignee of the intellectual property can show
that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that
would be likely to manufacture substantially in the United States or that under the circumstances domestic
manufacture is not commercially feasible. This preference for U.S. industry may limit our ability to contract with
non-U.S. product manufacturers for products covered by such intellectual property.
Risks Related to Our Common Stock
An active, liquid and orderly market for our common stock may not be maintained.
Prior to our IPO, there had been no public market for our common stock. Our common stock only recently
began trading on Nasdaq, but we can provide no assurance that we will be able to develop an active trading market
for our common stock. Even if an active trading market is developed, it may not be sustained. The lack of an active
market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider
reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our
ability to acquire other businesses or technologies using our shares as consideration, which, in turn, could materially
adversely affect our business.
The trading price of the shares of our common stock has been, and is likely to continue to be, highly volatile, and
purchasers of our common stock could incur substantial losses.
Our stock price has been and is likely to continue to be volatile. The stock market in general and the market
for stock of biopharmaceutical companies in particular have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be
able to sell their common stock at or above the price at which they paid. The market price for our common stock
may be influenced by those factors discussed in this “Risk Factors” section and many others, including:
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our ability to enroll patients in our ongoing and future clinical trials;
results of our clinical trials and preclinical studies, the results of clinical trials conducted by Takeda and
others for vonoprazan, and the results of trials of our competitors or those of other companies in our
market sector;
regulatory approval of vonoprazan and any future product candidates, or limitations to specific label
indications or patient populations for its use, or changes or delays in the regulatory review process;
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any termination or loss of rights under the Takeda License;
regulatory developments in the United States and foreign countries;
changes in the structure of healthcare payment systems, especially in light of current reforms to the U.S.
healthcare system;
the success or failure of our efforts to acquire, license or develop additional product candidates;
innovations or new products developed by us or our competitors;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures
or capital commitments;
• manufacturing, supply or distribution delays or shortages;
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any changes to our relationship with any manufacturers, suppliers, licensors, future collaborators or other
strategic partners;
achievement of expected product sales and profitability;
variations in our financial results or those of companies that are perceived to be similar to us;
• market conditions in the biopharmaceutical sector and issuance of securities analysts’ reports or
recommendations;
trading volume of our common stock;
an inability to obtain additional funding;
sales of our stock by insiders and stockholders, including Takeda;
general economic, industry and market conditions, public health emergencies or other events or factors,
many of which are beyond our control;
additions or departures of key personnel;
intellectual property, product liability or other litigation against us;
changes in our capital structure, such as future issuances of securities and the incurrence of additional
debt; and
changes in accounting standards, policies, guidelines, interpretations or principles.
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In addition, in the past, stockholders have initiated class action lawsuits against biopharmaceutical companies
following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us,
could cause us to incur substantial costs and divert management’s attention and resources, which could have a
material adverse effect on our business, financial condition and results of operations.
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Our failure to meet the continued listing requirements of the Nasdaq could result in a delisting of our common
stock.
If we fail to satisfy the continued listing requirements of the Nasdaq, such as the corporate governance
requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock.
Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability
to sell or purchase our common stock when you wish to do so. In the event of a delisting, any action taken by us to
restore compliance with listing requirements may not allow our common stock to become listed again, stabilize the
market price or improve the liquidity of our common stock, prevent our common stock from dropping below the
Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
Our executive officers, directors and principal stockholders, if they choose to act together, have the ability to
control or significantly influence all matters submitted to stockholders for approval. Furthermore, many of our
current directors were appointed by our principal stockholders.
Our executive officers, directors and greater than 5% stockholders, in the aggregate, own a majority of our
outstanding common stock. Furthermore, many of our current directors were appointed by our principal
stockholders. As a result, such persons or their appointees to our board of directors, acting together, have the ability
to control or significantly influence all matters submitted to our board of directors or stockholders for approval,
including the appointment of our management, the election and removal of directors and approval of any significant
transaction, as well as our management and business affairs. This concentration of ownership may have the effect of
delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business
combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting
to obtain control of our business, even if such a transaction would benefit other stockholders.
We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a
return on your investment will depend on appreciation, if any, in the price of our common stock.
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will
retain future earnings for the development, operation and expansion of our business and do not anticipate declaring
or paying any cash dividends for the foreseeable future. In addition, under the terms of the Loan Agreement, we are
prohibited from paying any cash dividends without the consent of the lenders. Any return to stockholders will
therefore be limited to the appreciation of their stock. Shares of our common stock may not appreciate in value or
even maintain the price at which stockholders have purchased their shares.
Sales of a substantial number of shares of our common stock by our existing stockholders, including Takeda, in
the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these
sales might occur could significantly reduce the market price of our common stock and impair our ability to raise
adequate capital through the sale of additional equity securities.
In connection with our IPO, our officers, directors and holders of substantially all of our outstanding securities
entered into lock-up agreements with the underwriters pursuant to which they may not, with limited exceptions, for a
period of 180 days from the date of the prospectus for the IPO, offer, sell or otherwise transfer or dispose of any of
our securities, without the prior written consent of Goldman Sachs & Co. LLC, Jefferies LLC and Evercore Group
L.L.C. The underwriters may permit our officers, directors and other securityholders who are subject to the lock-up
agreements to sell shares prior to the expiration of the lock-up agreements, subject to limitations. Sales of these
shares, or perceptions that they will be sold, could cause the trading price of our common stock to decline. After the
lock-up agreements expire, these shares of common stock will be eligible for sale in the public market of which
13,452,229 shares are held by directors, executive officers and other affiliates and will be subject to volume
limitations under Rule 144 under the Securities Act.
In addition, as of December 31, 2019, up to 11,974,974 shares of common stock that are either subject to
outstanding options, warrants or other rights or reserved for future issuance under our employee benefit plans will
become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules,
exercise limitations, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional
shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of
our common stock could decline.
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The holders of 12,069,916 shares of our outstanding common stock, or approximately 41.7% of our total
outstanding common stock as of December 31, 2019, will be entitled to rights with respect to the registration of their
shares under the Securities Act, subject to vesting and the 180-day lock-up agreements described above. In addition,
Takeda is entitled to the same rights with respect to the registration of 7,588,000 shares of our common stock
underlying the Takeda Warrant. Registration of these shares under the Securities Act would result in the shares
becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined
in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse
effect on the trading price of our common stock.
We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements
applicable to emerging growth companies and smaller reporting company may make our common stock less
attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and may remain an emerging growth
company until the last day of the fiscal year following the fifth anniversary of the completion of our IPO. However,
if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer” as
defined in Rule 12b-2 under the Exchange Act, our annual gross revenues exceed $1.07 billion or we issue more
than $1.0 billion of non-convertible debt in any three- year period, we will cease to be an emerging growth company
prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted
and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies
that are not emerging growth companies. These exemptions include:
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being permitted to provide only two years of audited financial statements, in addition to any required
unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” disclosure;
not being required to comply with the auditor attestation requirements in the assessment of our internal
control over financial reporting pursuant to the Sarbanes-Oxley Act;
not being required to comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements, unless the SEC,
determines the new rules are necessary for protecting the public;
reduced disclosure obligations regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved.
Investors may find our common stock less attractive if we rely on these exemptions. If some investors find our
common stock less attractive as a result, there may be a less active trading market for our common stock and our
stock price may be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company
can take advantage of an extended transition period for complying with new or revised accounting standards. This
allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise
apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we
will be subject to the same new or revised accounting standards as other public companies that are not emerging
growth companies.
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller
reporting company even after we are no longer an emerging growth company. We may take advantage of certain of
the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled
disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million
measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million
during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is
less than $700.0 million measured on the last business day of our second fiscal quarter.
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We incur significant costs as a result of operating as a public company, and our management will be required to
devote substantial time to new compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a
private company. We are subject to the reporting requirements of the Exchange Act, which require, among other
things, that we file with the SEC, annual, quarterly and current reports with respect to our business and financial
condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to
implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including
requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate
governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory “say on pay” voting
requirements that will apply to us when we cease to be an emerging growth company. Stockholder activism, the
current political environment and the current high level of government intervention and regulatory reform may lead
to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact
the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to substantially increase our legal and
financial compliance costs and to make some activities more time consuming and costly. If these requirements divert
the attention of our management and personnel from other business concerns, they could have a material adverse
effect on our business, financial condition and results of operations. The increased costs will decrease our net
income or increase our net loss, and may require us to reduce costs in other areas of our business. For example, we
expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. We
cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements.
The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to
serve on our board of directors, our board committees or as executive officers.
If securities or industry analysts do not publish research or reports or publish unfavorable research or reports
about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or
industry analysts publish about us, our business, our market or our competitors. If no securities or industry analysts
commence or continue coverage of our company, the trading price for our stock would be negatively impacted. In
the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades
our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to
regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading
volume to decline.
If we fail to maintain proper and effective internal control over financial reporting, our ability to produce
accurate and timely financial statements could be impaired, investors may lose confidence in our financial
reporting and the trading price of our common stock may decline.
Pursuant to Section 404 of Sarbanes-Oxley, our management will be required to report upon the effectiveness
of our internal control over financial reporting beginning with the annual report for our fiscal year ending December
31, 2020. When we lose our status as an “emerging growth company” and reach an accelerated filer threshold, our
independent registered public accounting firm will be required to attest to the effectiveness of our internal control
over financial reporting. The rules governing the standards that must be met for management to assess our internal
control over financial reporting are complex and require significant documentation, testing and possible remediation.
To comply with the requirements of being a reporting company under the Exchange Act, we are in the process of
implementing additional financial and management controls, reporting systems and procedures; and hiring
additional accounting and finance staff. If we or, if required, our auditors are unable to conclude that our internal
control over financial reporting is effective, investors may lose confidence in our financial reporting and the trading
price of our common stock may decline.
98
There could be material weaknesses or significant deficiencies in our internal control over financial reporting
in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to
accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our
internal control over financial reporting is effective, or if our independent registered public accounting firm
determines we have a material weakness or significant deficiency in our internal control over financial reporting
once that firm begin its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our
financial reports, the market price of our common stock could decline, and we could be subject to sanctions or
investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our
internal control over financial reporting, or to implement or maintain other effective control systems required of
public companies, could also restrict our future access to the capital markets.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may
consider favorable and may lead to entrenchment of management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions
that could significantly reduce the value of our shares to a potential acquiror or delay or prevent changes in control
or changes in our management without the consent of our board of directors. The provisions in our charter
documents include the following:
•
•
•
•
•
•
•
•
•
•
•
a classified board of directors with three-year staggered terms, which may delay the ability of
stockholders to change the membership of a majority of our board of directors;
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect
director candidates;
the exclusive right of our board of directors, unless the board of directors grants such right to the
stockholders, to elect a director to fill a vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies
on our board of directors;
the required approval of at least 66-2/3% of the shares entitled to vote to remove a director for cause, and
the prohibition on removal of directors without cause;
the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine
the price and other terms of those shares, including preferences and voting rights, without stockholder
approval, which could be used to significantly dilute the ownership of a hostile acquiror;
the ability of our board of directors to alter our amended and restated bylaws without obtaining
stockholder approval;
the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend or repeal our
amended and restated bylaws or repeal the provisions of our amended and restated certificate of
incorporation regarding the election and removal of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an
annual or special meeting of our stockholders;
an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the
exclusive forum for certain actions and proceedings;
the requirement that a special meeting of stockholders may be called only by the board of directors, which
may delay the ability of our stockholders to force consideration of a proposal or to take action, including
the removal of directors; and
advance notice procedures that stockholders must comply with in order to nominate candidates to our
board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may
discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s
own slate of directors or otherwise attempting to obtain control of us.
99
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General
Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any
holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other
exceptions, the board of directors has approved the transaction.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of
Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our
stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us
or our directors, officers or employees.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court
of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our
behalf under Delaware statutory or common law, including any action asserting a breach of fiduciary duty, any
action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and
restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us
that is governed by the internal affairs doctrine; provided, that, this provision would not apply to suits brought to
enforce a duty or liability created by the Securities Act or the Exchange Act, or any other claim for which the federal
courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section
27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability
created by the Exchange Act or the rules and regulations thereunder. The choice of forum provisions in our amended
and restated certificate of incorporation may limit a stockholder’s ability to bring a claim in a judicial forum that it
finds favorable for disputes with us or our directors, officers or other employees, which may discourage such
lawsuits against us and our directors, officers and other employees. By agreeing to these provisions, however,
stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and
regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’
certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these
types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our
amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur
additional costs associated with resolving such action in other jurisdictions, which could adversely affect our
business and financial condition.
Our ability to use net operating loss carryforwards and other tax attributes may be limited.
We have incurred substantial losses during our history and do not expect to become profitable in the near
future, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused
losses will carry forward to offset future taxable income, if any, until such unused losses expire (if at all).
Under recently enacted U.S. tax legislation, federal net operating loss, or NOL, carryforwards generated in
periods after December 31, 2017, may be carried forward indefinitely but may only be used to offset 80% of our
taxable income annually. Our NOL carryforwards are subject to review and possible adjustment by the Internal
Revenue Service, or the IRS, and state tax authorities. Under Section 382 of the Internal Revenue Code of 1986, as
amended, or the Code, our federal NOL carryforwards may become subject to an annual limitation in the event of
certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of
50 percentage points. Our ability to utilize our NOL carryforwards and other tax attributes to offset future taxable
income or tax liabilities may be limited as a result of ownership changes, including potential changes in connection
with our IPO or future offerings. Similar rules may apply under state tax laws. We have not yet determined the
amount of the cumulative change in our ownership resulting from our IPO or other transactions, or any resulting
limitations on our ability to utilize our NOL carryforwards and other tax attributes. If we earn taxable income, such
limitations could result in increased future tax liability to us and our future cash flows could be adversely affected.
We have recorded a full valuation allowance related to our NOLs and other deferred tax assets due to the uncertainty
of the ultimate realization of the future benefits of those assets.
100
Recent U.S. tax legislation may materially adversely affect our financial condition, results of operations and cash
flows.
The Tax Act has significantly changed the U.S. federal income taxation of U.S. corporations, including by
reducing the U.S. corporate income tax rate and revising the rules governing NOLs. Many of these changes became
effective beginning in 2018, without any transition periods or grandfathering for existing transactions. The
legislation is unclear in many respects and may continue to be subject to potential amendments and technical
corrections, as well as interpretations and implementing regulations by the U.S. Treasury Department and the IRS,
which have lessened or increased certain adverse impacts of the legislation and may do so in the future. We continue
to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us.
We urge our investors to consult with their legal and tax advisors with respect to such legislation and the potential
tax consequences of investing in our common stock.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in
the market price of its securities. This risk is especially relevant for us, because biotechnology and pharmaceutical
companies have experienced significant stock price volatility in recent years. If we face such litigation, it could
result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
Item 1B.
Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our corporate offices are located in Buffalo Grove, Illinois, and Florham Park, New Jersey. We believe that
our facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available
in the future on commercially reasonable terms, if required.
For additional information, see Note 6, Lease Commitments included in Item 15 of this Annual Report on
Form 10-K.
Item 3. Legal Proceedings
We are not currently subject to any material legal proceedings. From time to time, we may be involved in
legal proceedings or subject to claims incident to the ordinary course of business. Regardless of the outcome, such
proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of
resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Item 4. Mine Safety Disclosures
Not applicable.
101
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock has been publicly traded on the Nasdaq Global Select Market under the symbol “PHAT”
since our initial public offering on October 25, 2019, which was completed at a price to the public of $19.00 per
share. Prior to our initial public offering, there was no public market for our common stock.
Holders of Common Stock
As of March 10, 2020, there were 28,964,506 shares of our common stock outstanding held by approximately
40 holders of record of our common stock. This number was derived from our shareholder records and does not
include beneficial owners of our common stock whose shares are held in the name of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We intend to retain future earnings, if
any, to finance the operation of our business and do not anticipate paying any cash dividends in the foreseeable
future. Any future determination related to dividend policy will be made at the discretion of our board of directors
after considering our financial condition, results of operations, capital requirements, business prospects and other
factors the board of directors deems relevant, and subject to the restrictions contained in any future financing
instruments. In addition, under the terms of our Loan Agreement, we are prohibited from paying any cash dividends
without the consent of the lenders.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III of this annual report on Form 10-K for information about our equity compensation
plans which is incorporated by reference herein.
Performance Graph
Not applicable.
Unregistered Sales of Equity Securities
From January 1, 2019 through December 31, 2019, we issued and sold the equity securities described below.
1. In March 2019, we issued 1,491,072 shares of common stock to Frazier Life Sciences IX, L.P., or FLS IX,
at a purchase price of $0.0002958 per share pursuant to a stock purchase agreement.
2. In March 2019, we issued 1,743,072 shares of our restricted common stock to certain of our founders at a
purchase price of $0.0002958 per share pursuant to restricted stock purchase agreements.
3. From April 2019 to May 2019, we issued 781,780 shares of our restricted common stock to certain of our
employees and consultants at a purchase price of $0.0002958 per share pursuant to restricted stock purchase
agreements.
4. In May 2019, we granted 16,260 shares of our restricted common stock under our existing 2019 equity
incentive plan to a consultant in connection with services provided to us by such person.
5. In May 2019, we issued 1,084,000 shares of common stock to Takeda pursuant to a stock issuance
agreement and a warrant to purchase 7,588,000 shares of our common stock with an exercise price of $0.00004613
per share as partial consideration for the Takeda License.
102
6. In May 2019, we issued convertible promissory notes in an aggregate principal amount of $90.3 million to
FLS IX and other investors pursuant to a note purchase agreement. The notes automatically converted into an
aggregate of 6,107,918 shares of our common stock immediately prior to the closing of our initial public offering.
7. In May 2019, we issued warrants to purchase 16,446 shares of common stock to Silicon Valley Bank and
WestRiver Innovation Lending Fund VIII, L.P. at an exercise price of $15.20 per share.
8. In August 2019, we granted stock options to purchase an aggregate of 906,224 shares of our common stock
at a price of $6.95 per share, to certain of our employees and directors in connection with services provided to us by
such persons.
9. In September 2019, we granted stock options to purchase an aggregate of 494,304 shares of our common
stock at a price of $13.04 per share, to certain of our employees and directors in connection with services provided
to us by such persons.
The securities described in paragraphs (1) and (5) through (7) above were issued to investors in reliance upon
the exemption from the registration requirements of the Securities Act, as set forth in Section 4(a)(2) under the
Securities Act and Regulation D promulgated thereunder relative to transactions by an issuer not involving any
public offering, to the extent an exemption from such registration was required. All holders of securities described
above represented to us in connection with their purchase or issuance that they were accredited investors and were
acquiring the securities for their own account for investment purposes only and not with a view to, or for sale in
connection with, any distribution thereof and that they could bear the risks of the investment and could hold the
securities for an indefinite period of time. The holders received written disclosures that the securities had not been
registered under the Securities Act and that any resale must be made pursuant to a registration statement or an
available exemption from such registration.
The restricted common stock, stock options and the common stock issuable upon the exercise of such options
as described in paragraph (2), (3), (4), (8) and (9) above were issued pursuant to written compensatory plans or
arrangements with our employees and directors, in reliance on the exemption from the registration requirements of
the Securities Act provided by Rule 701 promulgated under the Securities Act or the exemption set forth in Section
4(a)(2) under the Securities Act and Regulation D promulgated thereunder relative to transactions by an issuer not
involving any public offering. All recipients either received adequate information about us or had access, through
employment or other relationships, to such information.
All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. All of the
foregoing securities included appropriate legends setting forth that the securities had not been registered and the
applicable restrictions on transfer. No underwriters were involved in the foregoing sales of securities.
Use of Proceeds
On October 24, 2019, our registration statement on Form S-1 (File No. 333-234020) was declared effective by
the SEC for our initial public offering. At the closing of the offering on October 29, 2019, we sold 10,997,630 shares
of common stock, which included the exercise in full by the underwriters of their option to purchase 1,434,473
additional shares, at an initial public offering price of $19.00 per share and received gross proceeds of $209.0
million, which resulted in net proceeds to us of approximately $191.5 million, after deducting underwriting
discounts and commissions of approximately $14.6 million and offering-related transaction costs of approximately
$2.9 million. None of the expenses associated with the initial public offering were paid to directors, officers, persons
owning ten percent or more of any class of equity securities, or to their associates, or to our affiliates. Goldman
Sachs & Co. LLC, Jefferies LLC and Evercore Group L.L.C. acted as joint book-running managers for the offering.
There has been no change in our planned use of proceeds from our initial public offering contained in our
quarterly report on Form 10-Q for the quarter ended September 30, 2019.
103
Issuer Repurchases of Equity Securities
The following table summarizes the repurchases of our common stock during the three months ended
December 31, 2019:
Period
October 1, 2019 – October 31, 2019 ...
November 1, 2019 – November 30,
2019 ..................................................
December 1, 2019 – December 31,
2019 ..................................................
Total.....................................................
Total Number of
Shares
Purchased (1)
Average Price
Paid Per Share
—
—
17,560 $
0.0003
—
17,560 $
—
0.0003
Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Plans or
Programs
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
—
—
—
—
—
—
—
—
(1)
In November 2019, we repurchased 17,560 shares of our common stock at the original purchase price of the shares for an aggregate purchase price of $5.20.
Item 6. Selected Financial Data
The following tables set forth our selected financial data as of, and for the periods ended on, the dates
indicated. We have derived the statement of operations data from our audited financial statements included
elsewhere in this annual report. You should read this data together with our financial statements and related notes
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere
in this annual report. Our historical results for any prior period are not indicative of our future results.
(in thousands)
Operating expenses:
Years Ended
December 31,
2019
2018
Research and development............................... $
In-process research and development ..............
General and administrative ..............................
Total operating expenses .......................................
Loss from operations .............................................
Other income (expense):
20,374 $
78,897
6,944
106,215
(106,215)
1,089
(4,177)
(96,272)
Interest income.................................................
Interest expense................................................
Change in fair value of warrant liabilities........
Change in fair value of convertible
promissory notes ...........................................
Other income (expense) ...................................
Total other income (expense) ................................
Net loss .................................................................. $
Net loss per share, basic and diluted (1) ........................... $
Weighted-average shares of common stock
outstanding, basic and diluted ............................ 11,366,916
(49,546)
(10)
(148,916)
(255,131) $
(22.45) $
20
—
1,205
1,225
(1,225)
—
(13)
—
(50)
—
(63)
(1,288)
(0.21)
6,051,675
(1)
See Note 1 "Organization, Basis of Presentation and Summary of Significant Accounting Policies" to our financial statements included
in Item 15 of this annual report for further details on the calculation of basic and diluted net loss per share attributable to common
stockholders.
104
(in thousands)
Balance Sheets Data
Cash and cash equivalents..................................... $
Working capital (1).................................................
Total assets ............................................................
Total liabilities ......................................................
Common stock ......................................................
Accumulated deficit ..............................................
Total stockholders' equity (deficit) .......................
As of December 31,
2019
2018
243,765 $
251,853
257,178
29,223
2
(256,419)
227,955
879
(1,286)
902
2,188
—
(1,288)
(1,286)
(1) We define working capital as current assets less current liabilities. See our financial statements included in Item 15 of this annual report
for further details regarding our current assets and current liabilities.
105
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 financial statements and related notes included elsewhere in this annual report. This discussion and
analysis contains forward-looking statements based upon our current beliefs, plans and expectations that involve
risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other
parts of this annual report.
Overview
We are a late clinical-stage biopharmaceutical company focused on developing and commercializing novel
treatments for GI diseases. Our initial product candidate, vonoprazan, is an oral small molecule P-CAB. P-CABs are
a novel class of medicines that block acid secretion in the stomach. Vonoprazan has shown rapid, potent, and
durable anti-secretory effects and has demonstrated clinical benefits over the current standard of care as a single
agent in the treatment of GERD, and in combination with antibiotics for the treatment of H. pylori infection. Takeda
developed vonoprazan and has received marketing approval in thirteen countries in Asia and Latin America.
Vonoprazan generated over $500 million in net sales in its fourth full year on the market since its approval in Japan
in late 2014. In May 2019, we in-licensed the U.S., European, and Canadian rights to vonoprazan from Takeda. We
initiated two pivotal Phase 3 clinical trials in the fourth quarter of 2019 for vonoprazan: one for the treatment of
erosive GERD, also known as erosive esophagitis, and a second for the treatment of H. pylori infection. We believe
that the successful completion of our Phase 3 clinical trials, together with the existing clinical data, will support
regulatory submissions in 2021 and 2022 for marketing approval for the treatment of H. pylori infection and erosive
esophagitis, respectively. We have received QIDP and Fast Track designations from the FDA, for vonoprazan in
combination with certain antibiotics for the treatment of H. pylori infection. QIDP designation also provides
potential eligibility for priority review and extension of any regulatory exclusivity awarded if approved. If
approved, we plan to independently commercialize vonoprazan in the United States. We also plan to seek
commercial partnerships for vonoprazan in Europe and Canada, expand development of vonoprazan across
indications, dosing regimens and alternative formulations and packaging, and in-license or acquire additional
clinical or commercial stage product candidates for the treatment of GI diseases in a capital efficient manner.
We commenced our operations in 2018 and have devoted substantially all of our resources to date to
organizing and staffing our company, business planning, raising capital, in-licensing our initial product candidate,
vonoprazan, meeting with regulatory authorities, preparing for our planned Phase 3 clinical trials of vonoprazan, and
providing other general and administrative support for these operations. Our operations to date have been funded
primarily through the issuance of convertible promissory notes, commercial bank debt and the proceeds from our
initial public offering. From our inception through December 31, 2019, we have raised aggregate gross proceeds of
$90.3 million from the issuance of convertible promissory notes, $25.0 million of commercial bank debt and net
proceeds from our initial public offering of $191.5 million from the sale of 10,997,630 shares of common stock,
which included the exercise in full by the underwriters of their option to purchase 1,434,473 additional shares at a
public offering price of $19.00 per share, after deducting underwriting discounts, commissions and offering costs.
As of December 31, 2019, we had cash and cash equivalents of $243.8 million. Based on our current operating plan,
we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements
through at least the next 24 months.
106
We do not have any products approved for sale and have incurred net losses since our inception. Our net
losses for the years ended December 31, 2019 and 2018 were $255.1 million and $1.3 million, respectively. Our net
losses for the year ended December 31, 2019 included non-cash charges related to the change in fair value of
warrant liabilities of $96.3 million, the change in fair value of convertible promissory notes of $49.5 million, the
issuance to Takeda of 1,084,000 shares of our common stock at a fair value of $5.9 million and the issuance of the
Takeda Warrant at an initial fair value of $47.9 million. As of December 31, 2019, we had an accumulated deficit of
$256.4 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the
timing of our clinical development activities, other research and development activities and pre-commercialization
activities. We expect our expenses and operating losses will increase substantially as we advance vonoprazan
through clinical trials, seek regulatory approval for vonoprazan, expand our clinical, regulatory, quality,
manufacturing and commercialization capabilities, incur significant commercialization expenses for marketing,
sales, manufacturing and distribution if we obtain marketing approval for vonoprazan, protect our intellectual
property, expand our general and administrative support functions, including hiring additional personnel, and incur
additional costs associated with operating as a public company.
We have never generated any revenue and do not expect to generate any revenues from product sales unless
and until we successfully complete development and obtain regulatory approval for vonoprazan, which will not be
for several years, if ever. Accordingly, until such time as we can generate significant revenue from sales of
vonoprazan, if ever, we expect to finance our cash needs through equity offerings, our Loan Agreement, debt
financings, or other capital sources, including potential collaborations, licenses and other similar arrangements.
However, we may be unable to raise additional funds or enter into such other arrangements when needed on
favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a
negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and market product candidates that we
would otherwise prefer to develop and market ourselves.
Financial Operations Overview
Our combined financial statements include the accounts of Phathom (the receiving entity) and YamadaCo IIA
prior to being merged into a single entity effective March 13, 2019. Phathom and YamadaCo IIA were entities under
common control of Frazier Life Sciences IX, L.P., or Frazier, as a result of, among other things, Frazier’s: (i)
ownership of a majority of the outstanding capital stock of both companies; (ii) financing of both companies; (iii)
control of the board of directors of both companies; and (iv) management of both companies. Both Phathom and
YamadaCo IIA were formed for the purpose of identifying potential assets around which to form an operating
company. As the merged entities were under common control, the combined financial statements report the financial
position, results of operations and cash flows of Phathom and YamadaCo IIA as though the transfer of net assets and
equity interests had occurred at the beginning of 2018. All intercompany accounts and transactions have been
eliminated in combination.
License Agreement with Takeda
On May 7, 2019, we and Takeda entered into the Takeda License, pursuant to which we in-licensed the U.S.,
European, and Canadian rights to vonoprazan. During the term of the Takeda License, we and our affiliates are not
permitted to commercialize any pharmaceutical product, other than vonoprazan, that treats acid-related disorders,
except for certain generic and OTC competing products in specified circumstances. We will be responsible at our
cost for the development, manufacture and commercialization of vonoprazan products. We are required to use
commercially reasonable efforts to develop and commercialize the vonoprazan products in our licensed territory.
Under the Takeda License, Takeda has the sole right and authority, with our input, to prepare, file, prosecute,
and maintain all Takeda and joint patents on a worldwide basis at its own cost. We are responsible, at our cost, for
preparing, filing, prosecuting, and maintaining patents on inventions made solely by us in connection with
vonoprazan, subject to input from Takeda.
107
We paid Takeda upfront consideration consisting of a cash fee of $25.0 million, 1,084,000 shares of our
common stock, the Takeda Warrant to purchase 7,588,000 shares of our common stock at an exercise price of
$0.00004613 per share, and issued Takeda a right to receive an additional common stock warrant, or the Takeda
Warrant Right, if Takeda’s fully-diluted ownership of the Company represented less than a certain specified
percentage of the fully-diluted capitalization, including shares issuable upon conversion of then outstanding
convertible promissory notes, calculated immediately prior to the closing of our IPO. The Takeda Warrant Right
expired upon completion of our IPO, and no additional warrant was issued. We agreed to make milestone payments
to Takeda upon achieving certain tiered aggregate annual net sales of licensed products in the United States, Europe
and Canada up to a total maximum milestone amount of $250.0 million. We also agreed to make tiered royalty
payments at percentages in the very low to mid double digits on net sales of licensed products, subject to specified
offsets and reductions. Royalties will be payable, on a product-by-product and country-by-country basis from the
first commercial sale of such product in such country, until the latest of expiration of the licensed patents covering
the applicable product, expiration of regulatory exclusivity in such country, or 15 years following first commercial
sale in such country.
Components of Results of Operations
Operating Expenses
Research and Development
To date, our research and development expenses have related to the development of vonoprazan. Research and
development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be
used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
•
•
•
salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals
involved in research and development efforts;
external research and development expenses incurred under agreements with CROs, and consultants to
conduct and support our ongoing clinical trials of vonoprazan; and
costs related to the manufacturing of vonoprazan for our clinical trials.
We plan to substantially increase our research and development expenses for the foreseeable future as we
continue the development of vonoprazan. We cannot determine with certainty the timing of initiation, the duration
or the completion costs of current or future clinical trials and nonclinical studies of vonoprazan or any future product
candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and
preclinical development timelines, the probability of success and development costs can differ materially from
expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations,
when such arrangements will be secured, if at all, and to what degree such arrangements would affect our
development plans and capital requirements.
Our future clinical development costs may vary significantly based on factors such as:
•
•
•
•
•
per patient trial costs;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
108
•
•
•
•
•
•
•
the number of patients that participate in the trials;
the number of doses evaluated in the trials;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the phase of development of the product candidate; and
the efficacy and safety profile of the product candidate.
In-Process Research and Development
In-process research and development expenses relate to the Takeda License, and include the $78.9 million
purchase price of the acquired research and development assets. The purchase price of the Takeda License consisted
of the following: (i) $25.0 million in cash; (ii) issuance to Takeda of 1,084,000 shares of our common stock at a fair
value of $5.9 million; (iii) issuance of the Takeda Warrant at an initial fair value of $47.9 million; (iv) issuance of
the Takeda Warrant Right, with a nominal initial fair value due to the low probability of issuance; and (v) $0.1
million of transaction costs incurred by us. The fair value of the Takeda Warrant and Takeda Warrant Right were
determined using the methodologies described below under “Change in Fair Value of Warrant Liabilities.”
General and Administrative
General and administrative expenses consist of salaries and employee-related costs, including stock-based
compensation, for personnel in executive, finance and other administrative functions, legal fees relating to
intellectual property and corporate matters, and professional fees for accounting and consulting services. We
anticipate that our general and administrative expenses will increase in the future to support our continued research
and development activities, pre-commercial preparation activities for vonoprazan and, if any future product
candidate receives marketing approval, commercialization activities. We also anticipate increased expenses related
to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and
SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as
a public company.
Interest Income
Interest income consists of interest on our money market fund.
Interest Expense
Interest expense consists of (i) interest on our convertible promissory notes at per annum interest rates ranging
from 1.68% to 6.00% and (ii) interest on our outstanding commercial bank debt at a floating per annum interest rate
which was 7.25% as of December 31, 2019, and amortization of the commercial bank debt discount recorded in
connection with the fair value of warrants issued to the lenders, the debt issuance costs incurred and the obligation to
make a final payment fee.
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Change in Fair Value of Warrant Liabilities
In connection with the Takeda License, we issued the Takeda Warrant and Takeda Warrant Right, or together
the Takeda Warrants. Prior to increasing the number of authorized shares of our common stock in October 2019, the
Takeda Warrants are accounted for as liabilities as they did not meet all the conditions for equity classification due
to (i) insufficient authorized shares for the Takeda Warrant and (ii) the Takeda Warrant Right not being indexed to
our own stock. We adjusted the carrying value of the Takeda Warrants to their estimated fair value at each reporting
date, with any change in fair value of the warrant liabilities recorded as an increase or decrease to change in fair
value of warrant liabilities in the combined statements of operations.
The fair value of the Takeda Warrants was derived from the model used to estimate the fair value of our
common stock prior to our IPO. On October 11, 2019, we increased our authorized shares of common stock to
50,000,000, and as a result, there were sufficient authorized shares of common stock for us to settle the Takeda
Warrant. As such, we recorded an adjustment to the fair value of the Takeda Warrant as of October 11, 2019, and
reclassified the balance from warrant liabilities to additional paid-in capital. Additionally, upon closing of the IPO,
the Takeda Warrant Right expired without effect since no fair value had been allocated to it.
In connection with the entry into the Loan Agreement, we issued the lenders warrants to purchase our capital
stock, or the Lender Warrants. The Lender Warrants are accounted for as liabilities as they contain a holder put right
under which the lenders could require us to pay cash in exchange for the warrants. We adjust the carrying value of
the Lender Warrants to their estimated fair value at each reporting date, with any change in fair value of the warrant
liabilities recorded as an increase or decrease to change in fair value of warrant liabilities in the combined statements
of operations. Prior to our IPO, the fair value of the Lender Warrants was estimated using a probability-weighted
model considering IPO and non-IPO scenarios. The IPO scenarios utilized a binomial lattice model to estimate a
distribution of total equity values as of a projected IPO date. The non-IPO scenario utilized the repurchase price
associated with the warrant put right discounted to present value based on venture capital rates of return and the term
associated with the put right. Subsequent to our IPO, the Lender Warrants are accounted for at fair value using the
Black-Scholes option-pricing model with an expected term equal to the remaining contractual term of the warrants.
The Lender Warrants will continue to be accounted for as liabilities adjusted to fair value at each reporting date,
until the lender put right expires.
Change in Fair Value of Convertible Promissory Notes
We issued convertible promissory notes in 2018 and 2019 for which we elected the fair value option. We
adjust the carrying value of our convertible promissory notes to their estimated fair value at each reporting date, with
any change in fair value of the convertible promissory notes recorded as an increase or decrease to change in fair
value of convertible promissory notes in our combined statements of operations.
Prior to their exchange into convertible promissory notes issued in May 2019, the fair value of convertible
promissory notes issued from inception through April 2019 was estimated using a scenario-based analysis that
estimated the fair value of the convertible promissory notes based on the probability-weighted present value of
expected future investment returns, considering possible outcomes available to the noteholders, including
conversions in subsequent equity financings, change of control transactions, settlement and dissolution. The fair
value of the convertible promissory notes issued in May 2019 is estimated using a scenario-based analysis that
estimates the fair value of the convertible promissory notes based on the probability-weighted present value of
expected future investment returns, considering each of the possible outcomes available to the noteholders,
including various IPO, settlement, equity financing, corporate transaction and dissolution scenarios.
The notes issued in May 2019 and related accrued interest thereon were converted into 6,107,918 shares
immediately prior to the completion of the IPO.
110
Results of Operations
Comparison of the Years Ended December 31, 2019 and 2018
The following table summarizes our results of operations for the years ended December 31, 2019 and 2018 (in
thousands):
Years Ended
December 31,
2019
2018
Change
Operating expenses:
Research and development..................................... $
In-process research and development ....................
General and administrative ....................................
20,374 $
78,897
6,944
Total operating expenses ............................................. 106,215
Loss from operations ................................................... (106,215)
Other income (expense):
20,354
20 $
78,897
—
1,205
5,739
1,225 104,990
(1,225) (104,990)
Interest income.......................................................
Interest expense......................................................
Change in fair value of warrant liabilities..............
Change in fair value of convertible
promissory notes .................................................
Other income (expense) .........................................
(49,546)
(10)
Total other income (expense) ...................................... (148,916)
Net loss ........................................................................ $ (255,131) $
1,089
(4,177)
(96,272)
—
(13)
—
1,089
(4,164)
(96,272)
(50)
(49,496)
(10)
—
(63) (148,853)
(1,288) $ (253,843)
Research and Development Expenses. The $20.4 million of research and development expenses for the year
ended December 31, 2019 consisted of $16.0 million of expenses for the clinical development of vonoprazan, $2.3
million of personnel-related expenses, $1.7 million of consulting expenses, and $0.4 million of expenses related to
regulatory requirements. We had minimal research and development expenses for the year ended December 31,
2018 as we had not yet entered into the Takeda License.
In-Process Research and Development Expenses. The $78.9 million of in-process research and development
expenses for the year ended December 31, 2019 consisted of the purchase price for the research and development
assets we acquired as part of the Takeda License. The purchase price of the Takeda License consisted of the
following: (i) $25.0 million in cash; (ii) issuance to Takeda of 1,084,000 shares of our common stock at a fair value
of $5.9 million as of the date of issuance; (iii) issuance of the Takeda Warrant at an initial fair value of $47.9
million; (iv) issuance of the Takeda Warrant Right, with a nominal initial fair value due to the low probability of
issuance; and (v) $0.1 million of transaction costs incurred by us. We had no in-process research and development
expenses for the year ended December 31, 2018.
General and Administrative Expenses. General and administrative expenses were $6.9 million and $1.2
million for the years ended December 31, 2019 and 2018, respectively. The increase of $5.7 million was due to
increases of $1.8 million in personnel-related expenses, $1.3 million in professional services expenses for
accounting, audit, tax, valuation and other services, $0.9 million in legal fees related to corporate and intellectual
property matters, $0.8 million of insurance premiums related to general operating matters, $0.2 million of consulting
expenses, and $0.7 million of other operating expenses.
Other Income (Expense). Other expense of $148.9 million for the year ended December 31, 2019 consisted of
$96.3 million of other expense related to the increase in the fair value of warrant liabilities, $49.5 million of other
expense related to the increase in the fair value of our convertible promissory notes, $2.6 million of interest expense
on our then outstanding convertible promissory notes, $1.6 million of interest expense on outstanding commercial
bank debt, partially offset by $1.1 million of interest income. Other expense of $63,000 for the year ended
December 31, 2018 consisted of $13,000 of interest expense on our outstanding convertible promissory notes and
$50,000 of other expense related to the increase in fair value of those convertible promissory notes.
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Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our inception and anticipate we
will continue to incur net losses for the foreseeable future. As of December 31, 2019, we had cash and cash
equivalents of $243.8 million.
Commercial Bank Debt
On May 14, 2019, we entered into the Loan Agreement with SVB, as administrative and collateral agent, and
lenders SVB and WestRiver Innovation Lending Fund VIII, L.P.. We borrowed $25.0 million, or Term Loan A, at
the inception of the Loan Agreement and had the right to borrow an additional $25.0 million, or Term Loan B,
which we collectively refer to as the Term Loans. Term Loan B was available through March 31, 2020, provided
that (i) we have received at least $150.0 million of net cash proceeds in connection with the issuance and sale,
subsequent to April 1, 2019, of our equity securities and subordinated debt, (ii) we had initiated Phase 3 clinical
trials for vonoprazan, and (iii) no event of default has occurred. As of December 31, 2019, we had outstanding
principal on the Term Loans of $25.0 million and accrued interest of $0.2 million. In March 2020, we borrowed the
additional $25.0 million available under Term Loan B.
The Term Loans bear interest at a floating rate of the higher of the Wall Street Journal Prime rate plus 1.75%
(6.5% at December 31, 2019) or 7.25%. The monthly payments consist of interest-only through May 31, 2021 or, in
the event of positive data with respect to our Phase 3 clinical trials in both indications for vonoprazan sufficient to
file a NDA, with the FDA, through May 31, 2022. On March 11, 2020, we amended the Loan Agreement to
potentially extend the interest-only payment period. Pursuant to the amendment to the Loan Agreement, the interest-
only payment period, which ends on May 31, 2021, will be extended either (i) until December 31, 2021, if we
receive positive data from our Phase 3 clinical trial in H. pylori infection sufficient to file an NDA with the FDA; or
(ii) until November 30, 2022, if we receive positive data from our Phase 3 clinical trials in both indications for
vonoprazan sufficient to file an NDA with the FDA; provided, in each case, that we had drawn down Term Loan B.
Subsequent to the interest-only period, the Term Loans will be payable in equal monthly installments of principal,
plus accrued and unpaid interest through the maturity date of May 1, 2024. In addition, we are obligated to pay a
final payment fee of 8.25% of the original principal amount of the Term Loans. We may elect to prepay all or a
portion of the Term Loans prior to maturity, subject to a prepayment fee of up to 2.0% of the then outstanding
principal balance and payment of a pro rata portion of the final payment fee. After repayment, no Term Loan
amounts may be borrowed again. The borrowings under the Loan Agreement are collateralized by substantially all
of our assets, excluding intellectual property and certain other assets. We have agreed not to encumber our
intellectual property assets without SVB’s prior written consent unless a security interest in the underlying
intellectual property is necessary to have a security interest in the accounts and proceeds that are part of the assets
securing the Term Loans, in which case our intellectual property will automatically be included within the assets
securing the Term Loans.
The Loan Agreement contains certain customary affirmative and negative covenants and events of default.
The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and
governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain
requirements regarding our operating accounts. The negative covenants include, among others, limitations on our
ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of
control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer
or dispose of assets, amend certain material agreements or enter into various specified transactions. Upon the
occurrence of an event of default, subject to any specified cure periods, all amounts owed by us would begin to bear
interest at a rate that is 4.00% above the rate effective immediately before the event of default and may be declared
immediately due and payable by SVB, as collateral agent. As of December 31, 2019, we were in compliance with all
applicable covenants under the Loan Agreement.
In connection with the Loan Agreement, we issued the Lender Warrants, which became exercisable when we
borrowed Term Loan B in March 2020. The Lender Warrants are exercisable for 16,446 shares of common stock.
The Lender Warrants expire ten years from the date of issuance. The Lender Warrants included a put option
pursuant to which, in the event that we did not draw down Term Loan B on or before March 31, 2020, the warrant
holders could have required us to repurchase the warrants for a total aggregate repurchase price of $0.5 million. The
put right expired when we drew down Term Loan B in March 2020.
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Convertible Note Financings
From January 2018 to April 2019, we issued an aggregate of $2.4 million of convertible promissory notes to
Frazier, or the Frazier Notes, bearing interest at per annum rates ranging from 1.68% to 2.55%. In May 2019, these
notes and related accrued interest were exchanged, at their then fair value of $2.4 million, for the May 2019
convertible promissory notes described below.
On May 7, 2019, we entered into a note purchase agreement under which we issued an aggregate of $90.3
million of unsecured convertible promissory notes, or the May 2019 Notes, resulting in gross proceeds to us of $87.8
million in cash and $2.4 million related to the exchange of the Frazier Notes. Including the conversion of the Frazier
Notes, Frazier purchased $20.0 million of the May 2019 Notes. The May 2019 Notes bear interest at a rate of 6%
per annum and are subordinated to borrowings under our Loan Agreement. The May 2019 Notes were payable upon
demand of the holders of at least 60% of the outstanding principal amount of the May 2019 Notes, including Frazier,
on May 7, 2020, or the Maturity Date, and were due and payable on May 7, 2022, subject to earlier conversion or
repayment in the event we completed certain equity financings or a change of control. The note purchase agreement
included certain customary covenants and events of default. Immediately prior to the completion of our IPO on
October 29, 2019, the May 2019 Notes automatically converted into 6,107,918 shares of common stock,
representing the outstanding principal and interest of the May 2019 notes at the date of automatic conversion.
Funding Requirements
Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient
to meet our anticipated cash requirements through at least the next 24 months. We expect our current cash and cash
equivalents will allow us to complete our ongoing Phase 3 clinical trials of vonoprazan in the treatment of erosive
esophagitis and H. pylori infection. However, our forecast of the period of time through which our financial
resources will be adequate to support our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove
to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing
product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
•
•
•
•
•
•
•
•
•
the initiation, type, number, scope, results, costs and timing of, our clinical trials of vonoprazan, and
preclinical studies or clinical trials of other potential product candidates we may choose to pursue in the
future, including feedback received from regulatory authorities;
delays and cost increases as a result of the COVID-19 outbreak;
the costs and timing of manufacturing for vonoprazan or any future product candidates, including
commercial scale manufacturing if any product candidate is approved;
the costs, timing and outcome of regulatory review of vonoprazan or any future product candidates;
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a
public company, including enhanced internal controls over financial reporting;
the costs associated with hiring additional personnel and consultants as our business grows, including
additional executive officers and clinical development personnel;
the timing and amount of the milestone or other payments we must make to Takeda and any future
licensors;
the costs and timing of establishing or securing sales and marketing capabilities for vonoprazan or any
future product candidate;
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•
•
•
•
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-
party payors and adequate market share and revenue for any approved products;
patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or
adequate reimbursement from third-party payors;
the terms and timing of establishing and maintaining collaborations, licenses and other similar
arrangements; and
costs associated with any products or technologies that we may in-license or acquire.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we
expect to finance our cash needs through equity offerings, the Loan Agreement, debt financings, or other capital
sources, including potential collaborations, licenses and other similar arrangements. To the extent that we raise
additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders
will be or could be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through
collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may
not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds
through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and market our product candidates even
if we would otherwise prefer to develop and market such product candidates ourselves.
Including our existing cash and cash equivalents we believe that we have sufficient working capital on hand to
fund operations such that there is no substantial doubt as to our ability to continue as a going concern at the date the
combined financial statements were issued. There can be no assurance that we will be successful in acquiring
additional funding, that our projections of its future working capital needs will prove accurate, or that any additional
funding would be sufficient to continue operations in future years.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in
thousands):
Years Ended
December 31,
2019
2018
$ Change
Net cash provided by (used in):
Operating activities ................................................ $ (36,510) $
Investing activities .................................................
(25,250)
Financing activities ................................................ 304,646
Net increase (decrease) in cash.................................... $ 242,886 $
—
(1,023) $ (35,487)
(25,250)
1,902 302,744
879 $ 242,007
Operating Activities
Net cash used in operating activities was approximately $36.5 million and $1.0 million for the years ended
December 31, 2019 and 2018, respectively. The net cash used in operating activities for the year ended December
31, 2019 was due to approximately $27.0 million spent on recently commenced research and development activities
and ongoing general and administrative activities as well as a $9.5 million net change in operating assets and
liabilities. The net change in operating assets and liabilities related to a $0.2 million increase in accrued interest on
our commercial bank debt, $0.1 million increase for changes related to our operating right-of-use asset and lease
liabilities and a $2.2 million increase in accounts payable and accrued expenses in support of the growth in our
operating activities, partially offset by a $11.8 million increase in prepaid clinical activities and $0.2 million increase
in other long-term assets. The net cash used in operating activities the year ended December 31, 2018 was primarily
due to approximately $1.2 million spent on general and administrative activities.
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Investing Activities
Net cash used in investing activities for the year ended December 31, 2019 was primarily due to the cash we
paid, including transaction costs, to acquire the Takeda License. We had no investing activities for the year ended
December 31, 2018.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2019 was $304.6 million, due to
$191.5 million of net proceeds from our IPO, $88.3 million of net proceeds from our issuance of convertible
promissory notes, and $24.8 million of net proceeds from our commercial bank debt. Net cash provided by financing
activities for the year ended December 31, 2018 was due to proceeds from our issuance of convertible promissory
notes.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2019 (in thousands):
Payments Due by Period
Total
Less than
1 Year Years
1-3
3-5
Years
More than
5 Years
Long-term debt, including interest
and final payment fee (1) .............. $32,504 $ 1,843 $16,142 $14,519 $
Minimum operating lease
payments...................................... $
367
Total ............................................... $33,464 $ 2,009 $16,489 $14,886 $
347
960
166
—
80
80
(1) Our outstanding long-term debt bears interest at a variable rate. The interest amounts included herein are based on the
interest rate in effect as of December 31, 2019.
Under the Takeda License, we have milestone payment obligations that are contingent upon the achievement
of specified levels of product sales and are required to make certain royalty payments in connection with the sale of
products developed under the agreement. As of December 31, 2019, we are unable to estimate the timing or
likelihood of achieving the milestones or making future product sales and, therefore, any related payments are not
included in the table above.
We enter into contracts in the normal course of business for contract research services, contract manufacturing
services, professional services and other services and products for operating purposes. These contracts generally
provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table
above.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our
combined financial statements, which have been prepared in accordance with generally accepted accounting
principles in the United States, or GAAP. The preparation of our combined financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of
contingent assets and liabilities in our combined financial statements and accompanying notes. We evaluate these
estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 1 to our combined financial
statements, we believe that the following accounting policies are the most critical for fully understanding and
evaluating our financial condition and results of operations.
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Accrued Research and Development Expenses
As part of the process of preparing our combined financial statements, we are required to estimate our accrued
expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders,
communicating with our personnel to identify services that have been performed on our behalf and estimating the
level of service performed and the associated cost incurred for the service when we have not yet been invoiced or
otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based
on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the
service providers and make adjustments, if necessary. The significant estimates in our accrued research and
development expenses include the costs incurred for services performed by our vendors in connection with research
and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our estimates of the services received
and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our
behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may
result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the
level of services provided and result in a prepayment of the research and development expense. In accruing service
fees, we estimate the time period over which services will be performed and the level of effort to be expended in
each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we
adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in
future research and development activities are expensed when the activity has been performed or when the goods
have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our
estimates of the status and timing of services performed differ from the actual status and timing of services
performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there
have been no material differences between our estimates of such expenses and the amounts actually incurred.
In-Process Research and Development
We evaluate whether acquired intangible assets are a business under applicable accounting standards.
Additionally, we evaluate whether the acquired assets have a future alternative use. Intangible assets that do not
have future alternative use, such as the Takeda License, are considered acquired in-process research and
development. When the acquired in-process research and development assets are not part of a business combination,
the value of the consideration paid is expensed on the acquisition date. Future costs to develop these assets are
recorded to research and development expense as they are incurred.
Fair Value of Warrant Liabilities and Convertible Promissory Notes
As described above, our warrant liabilities and convertible promissory notes are revalued at each reporting
period with changes in the fair value of the liabilities recorded as a component of other income (expense) in the
combined statements of operations. There are significant judgments and estimates inherent in the determination of
the fair value of these liabilities. If we had made different assumptions including, among others, those related to the
timing and probability of various corporate scenarios, discount rates, volatilities and exit valuations, the carrying
values of our warrant liabilities and convertible promissory notes, and our net loss and net loss per common share
could have been significantly different.
Leases
At the inception of any contractual arrangements we may enter into, we determine whether the contract
contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to
control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, we
record the associated lease liability and corresponding right-of-use asset upon commencement of the lease using
either the implicit rate or a discount rate based on our credit-adjusted secured borrowing rate commensurate with the
term of the lease. Additionally, we evaluate leases at their inception to determine if they are to be accounted for as
an operating lease or a finance lease. We assess if a lease is accounted for as a finance lease if it meets one of the
following five criteria: the lease has a purchase option that is reasonably certain of being exercised, the present value
of the future cash flows is substantially all of the fair market value of the underlying asset, the lease term is for a
significant portion of the remaining economic life of the underlying asset, the title to the underlying asset transfers at
116
the end of the lease term, or if the underlying asset is of such a specialized nature that it is expected to have no
alternative uses to the lessor at the end of the term. We account for leases that do not meet the finance lease criteria
as operating leases, representing our right to use an underlying asset for the lease term. We also recognize operating
lease liabilities as our obligation to make lease payments arising from the lease. We recognize operating lease
liabilities with a term greater than one year and their corresponding right-of-use assets on the balance sheet at the
commencement date of the lease based on the present value of lease payments over the expected lease term. As
needed, we make certain adjustments to the right-of-use asset for items such as initial direct costs paid or incentives
received. Because our leases do not typically provide an implicit rate, we utilize the rate of interest that we would
have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment. We
recognize lease costs on a straight-line basis over the lease term and variable lease payments as operating expenses
in the period in which the obligation for those payments is incurred. Variable lease payments primarily include
common area maintenance, utilities, real estate taxes, insurance, and other operating costs that are passed on from
the lessor in proportion to the space we lease.
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized
over the requisite service period of the awards (generally the vesting period) on a straight-line basis with forfeitures
recognized as they occur. Through December 31, 2019, our stock-based compensation expense consisted of our
issuance of restricted stock awards, for which the fair value is determined based on the fair value of the underlying
common stock and stock options. As of December 31, 2019, unrecognized stock-based compensation expense was
$6.8 million, which is expected to be recognized over a weighted-average period of approximately 3.75 years.
Other Company Information
JOBS Act
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act,
we can take advantage of an extended transition period for complying with new or revised accounting standards.
This allows an emerging growth company to delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption
and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are
not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including
without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of
Sarbanes-Oxley.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following
the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total
annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a
“large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of
our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal
quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt
securities during the prior three-year period.
Recent Accounting Pronouncements
The information required by this item is included in Note 1, Organization, Basis of Presentation and Summary
of Significant Accounting Policies included in Item 15 of this annual report.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements
as defined under SEC rules.
117
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our cash and cash equivalents consist of cash in readily available checking accounts and money market funds.
As a result, the fair value of our portfolio is relatively insensitive to interest rate changes. Our long-term debt bears
interest at a variable rate. A 10% increase or decrease in the interest rate on our long-term debt would not have a
material effect on our financial position, results of operations or cash flows.
Effects of Inflation
Inflation generally affects us by increasing our cost of labor and research and development contract costs. We
do not believe inflation has had a material effect on our results of operations during the periods presented.
Item 8. Financial Statements and Supplementary Data
The financial statements required pursuant to this item are incorporated by reference herein from the
applicable information included in Item 15 of this annual report and are presented beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In
reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls
also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
Our management, with the participation of our principal executive officer and principal financial officer, has
evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act as of the end of the period covered by this annual report. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls
and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
This annual report does not include a report of management’s assessment regarding internal control over
financial reporting due to a transition period established by the rules of the SEC for newly public companies.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our registered public accounting firm due to an
exemption provided by the JOBS Act for “emerging growth companies.”
118
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the year ended December
31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B.
Other Information
None.
119
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item will be contained in our definitive proxy statement to be filed with the
SEC in connection with our 2020 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which is
expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2019, under the
headings “Election of Directors,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting
Compliance,” and is incorporated herein by reference.
Code of Conduct and Ethics
We have adopted a Code of Conduct and Ethics that applies to our officers, directors and employees, which is
available on our website at www.phathompharma.com. The Code of Conduct and Ethics contains general guidelines
for conducting the business of our company consistent with the highest standards of business ethics and is intended
to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406
of Regulation S-K. In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of
Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including
an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name
of such person who is granted the waiver and the date of the waiver on our website in the future.
Item 11. Executive Compensation
The information required by this item will be set forth in the section headed “Executive Compensation and
Other Information” in our Definitive Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item will be set forth in the section headed “Security Ownership of Certain
Beneficial Owners and Management” in our Definitive Proxy Statement and is incorporated herein by reference.
The information required by Item 201(d) of Regulation S-K will be set forth in the section headed “Executive
Compensation” in our Definitive Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth in the section headed “Certain Relationships and
Related Person Transactions,” “Board Independence” and “Committees of the Board of Directors” in our Definitive
Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be set forth in the section headed “Independent Registered Public
Accountants’ Fees” in our Definitive Proxy Statement and is incorporated herein by reference.
120
Item 15. Exhibits, Financial Statement Schedules
1.
All financial statements.
PART IV
The financial statements of Phathom Pharmaceuticals, Inc., together with the report thereon of Ernst & Young
LLP, an independent registered public accounting firm, are included in this annual report on Form 10-K beginning
on page F-1.
2.
Financial statement schedules.
All schedules have been omitted because the information required to be set forth therein is not applicable or is
shown in the financial statements or notes thereto.
3.
Exhibits
A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this annual
report on Form 10-K and is incorporated herein by reference.
Item 16. Form 10-K Summary
None.
121
Phathom Pharmaceuticals, Inc.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Combined Balance Sheets
Combined Statements of Operations and Comprehensive Loss
Combined Statements of Stockholders’ Equity (Deficit)
Combined Statements of Cash Flows
Notes to Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Phathom Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying combined balance sheets of Phathom Pharmaceuticals, Inc. (the Company)
as of December 31, 2019 and 2018, the related combined statements of operations and comprehensive loss,
stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively
referred to as the "combined financial statements"). In our opinion, the combined financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the
results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits. We are a public accounting firm
registered with the Public 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 audit to obtain reasonable assurance about whether the 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 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 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 financial statements. We believe that our
audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2019
/s/ Ernst & Young LLP
San Diego, California
March 19, 2020
F-2
PHATHOM PHARMACEUTICALS, INC.
Combined Balance Sheets
(in thousands, except share and par value amounts)
December 31,
2019
December 31,
2018
Assets
Current assets:
Cash and cash equivalents ............................................................................. $
Prepaid expenses and other current assets (including related party amounts
of $0 and $19, respectively) .......................................................................
Total current assets..............................................................................................
Property, plant and equipment, net .....................................................................
Operating lease right-of-use assets .....................................................................
Other long-term assets ........................................................................................
Total assets .......................................................................................................... $
243,765 $
11,836
255,601
463
933
181
257,178 $
879
23
902
—
—
—
902
55
170
13
1,950
—
—
2,188
—
—
—
2,188
699 $
2,319
156
—
161
413
3,748
22,777
635
2,063
29,223
2
484,372
(256,419)
227,955
257,178 $
—
2
(1,288)
(1,286)
902
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable (including related party amounts of $200 and $45,
respectively)................................................................................................ $
Accrued expenses (including related party amounts of $308 and $2,
respectively)................................................................................................
Accrued interest (including related party amounts of $0 and $13,
respectively)................................................................................................
Convertible promissory notes payable at fair value (including related party
amounts of $0 and $1,950, respectively)....................................................
Operating lease liabilities, current .................................................................
Warrant liabilities ..........................................................................................
Total current liabilities ........................................................................................
Long-term debt, net of discount ..........................................................................
Operating lease liabilities....................................................................................
Other long-term liabilities ...................................................................................
Total liabilities ....................................................................................................
Commitments and contingencies (Note 4)
Stockholders’ equity (deficit):
Common stock, $0.0001 par value; authorized shares
—400,000,000 at December 31, 2019; issued shares—
28,964,506 at December 31, 2019; outstanding shares—
24,728,258 at December 31, 2019;.............................................................
Additional paid-in capital ..............................................................................
Accumulated deficit.......................................................................................
Total stockholders’ equity (deficit).....................................................................
Total liabilities and stockholders’ equity ............................................................ $
See accompanying notes.
F-3
PHATHOM PHARMACEUTICALS, INC.
Combined Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Operating expenses:
Research and development (includes related party amounts of $1,243
and $0, respectively)................................................................................... $
In-process research and development............................................................
General and administrative (includes related party amounts of $312
and $321, respectively)...............................................................................
Total operating expenses.....................................................................................
Years Ended
December 31,
2019
2018
20,374 $
78,897
6,944
106,215
20
—
1,205
1,225
Loss from operations...........................................................................................
(106,215)
(1,225)
Other income (expense):
Interest income ..............................................................................................
Interest expense (includes related party amounts of $(590) and $(13),
respectively)................................................................................................
Change in fair value of warrant liabilities (includes related party
amounts of ($96,278) and ($0), respectively).............................................
Change in fair value of convertible promissory notes (includes related
party amounts of ($10,941) and ($50), respectively) .................................
Other income (expense).................................................................................
Total other income (expense)..............................................................................
Net loss................................................................................................................ $
Net loss per share, basic and diluted ................................................................... $
Weighted-average shares of common stock outstanding, basic and diluted.......
1,089
(4,177)
(96,272)
—
(13)
—
(49,546)
(10)
(148,916)
(255,131) $
(22.45) $
11,366,916
(50)
—
(63)
(1,288)
(0.21)
6,051,675
See accompanying notes
F-4
PHATHOM PHARMACEUTICALS, INC.
Combined Statements of Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
Additional
Common Stock
Paid-in Accumulated
Shares
Amount
Capital
Deficit
Total
Stockholders’
Equity (Deficit)
—
2
(1,288)
(1,286)
— $
—
(1,288)
(1,288) $
—
—
—
—
—
—
—
—
5,885
144,172
— $
—
—
— $
—
—
—
— $
2
—
2 $
—
—
—
5,885
—
— 144,172
1 191,471
—
191,472
—
1 142,436
—
—
—
—
406
—
—
(255,131)
—
2 $ 484,372 $ (256,419) $
142,437
—
406
(255,131)
227,955
— $
—
—
— $
Balance at December 31, 2017 .................................
Issuance of common stock to founders.....................
Net loss .....................................................................
Balance at December 31, 2018 .................................
Merger of entities under common control into
the Company.......................................................... 6,760,334
Vesting restrictions placed on previously issued
and outstanding common stock ............................. (3,373,408)
Issuance of common stock........................................ 1,491,072
Issuance of common stock in connection with
license agreement................................................... 1,084,000
Conversion of Takeda warrant liability into equity..
—
Issuance of common stock in connection with
initial public offering (IPO), net of issuance costs 10,997,630
Conversion of May 2019 Notes and accrued
interest into common shares .................................. 6,107,918
Vesting of restricted shares....................................... 1,660,712
—
Stock-based compensation........................................
Net loss .....................................................................
—
Balance at December 31, 2019 ................................. 24,728,258 $
See accompanying notes
F-5
PHATHOM PHARMACEUTICALS, INC.
Combined Statements of Cash Flows
(in thousands)
Cash flows from operating activities
Net loss ............................................................................................................................................... $
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.....................................................................................................
Stock-based compensation ..........................................................................................................
Amortization of debt discount .....................................................................................................
Acquired in-process research and development ..........................................................................
Non-cash interest expense (includes related party amounts of $590 and 0, respectively) ..........
Change in fair value of warrant liabilities (includes related party amounts
of $96,278 and $0, respectively) ..............................................................................................
Change in fair value of convertible promissory notes (includes related party
amounts of $10,941 and $50, respectively)..............................................................................
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (includes related party amounts
of $19, and $(19), respectively).........................................................................................
Accounts payable and accrued expenses (includes related party amounts of
$460, and $47, respectively)..............................................................................................
Accrued interest (includes related party amounts of $0 and $13,
respectively).......................................................................................................................
Operating right-of-use asset and lease liabilities ..................................................................
Other long-term assets ..........................................................................................................
Net cash used in operating activities ..................................................................................................
Cash flows from investing activities
Cash paid for purchased in-process research and development .........................................................
Cash paid for property, plant and equipment .....................................................................................
Net cash used in investing activities...................................................................................................
Cash flows from financing activities
Proceeds from initial public offering, net of issuance costs...............................................................
Proceeds from issuance of common stock .........................................................................................
Proceeds from issuance of convertible promissory notes ..................................................................
Net proceeds from issuance of long-term debt...................................................................................
Net cash provided by financing activities ..........................................................................................
Net increase in cash and cash equivalents..........................................................................................
Cash and cash equivalents – beginning of period ..............................................................................
Cash and cash equivalents – end of period......................................................................................... $
Supplemental disclosure of cash flow information
Interest paid ........................................................................................................................................ $
Supplemental disclosure of noncash investing and financing activities
Exchange of accrued interest for convertible promissory notes......................................................... $
Issuance of Takeda Warrants in connection with Takeda License .................................................... $
Issuance of common stock in connection with Takeda License ........................................................ $
Issuance of common stock warrants in connection with long-term debt ........................................... $
Property and equipment purchases included in accounts payable and accrued liabilities ................. $
Final interest payment fee .................................................................................................................. $
Operating lease liabilities arising from obtaining right-of-use assets ................................................ $
Conversion of Takeda Warrants into Equity ...................................................................................... $
Conversion of convertible promissory notes and accrued interest into common shares.................... $
Years Ended
December 31,
2019
2018
(255,131) $
(1,288)
8
406
409
78,897
2,605
96,272
49,546
(11,813)
2,265
156
51
(181)
(36,510)
(25,118)
(132)
(25,250)
191,472
—
88,324
24,850
304,646
242,886
879
243,765 $
1,007 $
27 $
47,894 $
5,885 $
419 $
339 $
2,063 $
796 $
144,172 $
142,437 $
—
—
—
—
—
—
50
(23)
225
13
—
—
(1,023)
—
—
—
—
2
1,900
—
1,902
879
—
879
—
—
—
—
—
—
—
—
—
—
See accompanying notes.
F-6
PHATHOM PHARMACEUTICALS, INC
Notes to Combined Financial Statements
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
Phathom Pharmaceuticals, Inc. (the “Company” or “Phathom”) was incorporated in the state of Delaware in
January 2018 under the name North Bridge IV, Inc. On March 13, 2019, the Company changed its name to Phathom
Pharmaceuticals, Inc. and merged with YamadaCo IIA, Inc. (“YamadaCo”), a Delaware corporation formed in
September 2017, with Phathom being the surviving entity (the “Merger”). All activities of YamadaCo prior to 2018
related to formation and were insignificant. The Company is a late clinical-stage biopharmaceutical company
focused on developing and commercializing novel treatments for gastrointestinal diseases.
On October 29, 2019, the Company completed its initial public offering (the “IPO”) and issued 10,997,630
shares of common stock for net proceeds of approximately $191.5 million.
Stock Split and Conversion
During 2018, without consideration of the forward stock split described immediately below, both the
Company and YamadaCo issued 1,000 shares of common stock at a purchase price of $1.00 per share and had no
other capital transactions prior to the Merger. Immediately prior to the Merger, the Company effected a 1,559.1183-
for-1 forward stock split for each outstanding share of its common stock and, effective upon the closing of the
Merger, each issued and outstanding share of YamadaCo was converted into 1,559.1183 shares of the Company’s
common stock. Upon completion of the Merger, the Company had 6,760,334 shares of common stock outstanding,
with the prior stockholders of each YamadaCo and Phathom holding an equal number of shares. The accompanying
combined financial statements and notes to the combined financial statements give retroactive effect to the forward
stock split and conversion for all periods presented.
On October 11, 2019, the Company effected a 2.168-for-1 forward stock split of its common stock (the
“Forward Stock Split”). The par value of the common stock was not adjusted as a result of the Forward Stock Split
and the authorized shares were increased to 50,000,000 shares of common stock in connection with the Forward
Stock Split. The accompanying combined financial statements and notes to the combined financial statements give
retroactive effect to the Forward Stock Split for all periods presented, unless otherwise indicated.
Basis of Presentation
The Company’s combined financial statements are prepared in accordance with U.S. generally accepted
accounting principles. The accompanying combined financial statements include the accounts of the Company (the
receiving entity) and YamadaCo, prior to the Merger. The Company and YamadaCo were entities under the
common control of Frazier Life Sciences IX, L.P. (“Frazier”) as a result of, among other things, Frazier’s; (i)
ownership of a majority of the outstanding capital stock of both companies, (ii) financing of both companies, (iii)
control of the board of directors of both companies, and (iv) management of both companies. Both the Company and
YamadaCo were formed for the purpose of identifying potential assets around which to form an operating company.
As the merged entities were under common control, the combined financial statements report the financial position,
results of operations and cash flows of the Company and YamadaCo as though the transfer of net assets and equity
interests had occurred at the beginning of 2018. All intercompany accounts and transactions have been eliminated in
combination.
F-7
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Liquidity and Capital Resources
From inception to December 31, 2019, the Company has devoted substantially all of its efforts to organizing
and staffing the Company, business planning, raising capital, in-licensing its initial product candidate, vonoprazan,
meeting with regulatory authorities, and initiating the Phase 3 clinical trials of vonoprazan. The Company has a
limited operating history, has never generated any revenue, and the sales and income potential of its business is
unproven. The Company has incurred net losses and negative cash flows from operating activities since its inception
and expects to continue to incur net losses into the foreseeable future as it continues the development and
commercialization of vonoprazan. From inception to December 31, 2019, the Company has funded its operations
through the issuance of convertible promissory notes, commercial bank debt and the sale of 10,997,630 shares of
common stock for net proceeds of approximately $191.5 million in its IPO.
The accompanying combined financial statements have been prepared assuming the Company will continue as
a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business, and do not include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classification of liabilities that may result from the outcome of this
uncertainty. Management is required to perform a two-step analysis over the Company’s ability to continue as a
going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt
about the Company’s ability to continue as a going concern (Step 1). If management concludes that substantial
doubt is raised, management is also required to consider whether its plans alleviate that doubt (Step 2).
As a result of the IPO that closed on October 29, 2019, management believes that it has sufficient working
capital on hand to fund operations through at least the next twelve months from the date these combined financial
statements were available to be issued. There can be no assurance that the Company will be successful in acquiring
additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that
any additional funding would be sufficient to continue operations in future years.
Use of Estimates
The preparation of the Company’s combined financial statements requires it to make estimates and
assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent
assets and liabilities in the Company’s combined financial statements and accompanying notes. The most significant
estimates in the Company’s combined financial statements relate to accruals for research and development expenses,
and the valuation of convertible promissory notes, warrant liabilities and various other equity instruments. Although
these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future,
actual results could differ materially from those estimates and assumptions.
Fair Value Option
As permitted under Accounting Standards Codification (“ASC”) 825, Financial Instruments, (“ASC 825”),
the Company has elected the fair value option to account for its convertible promissory notes issued since inception.
In accordance with ASC 825, the Company records these convertible promissory notes at fair value with changes in
fair value recorded in the combined statements of operations. As a result of applying the fair value option, direct
costs and fees related to the convertible promissory notes were recognized in earnings as incurred and not deferred.
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and
expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-
recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-
based measurement that should be determined based on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to
develop its own assumptions.
F-8
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents classified
within the Level 1 designation discussed above, prepaid and other current assets, accounts payable, and accrued
liabilities, approximate fair value due to their short maturities. Warrant liabilities and convertible promissory notes
are recorded at fair value on a recurring basis.
The Company has no financial assets measured at fair value on a recurring basis. None of the Company’s non-
financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have
occurred during the periods presented.
Liabilities measured at fair value on a recurring basis are as follows (in thousands):
Fair Value Measurements at
Reporting Date Using:
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
As of December 31, 2018:
Convertible promissory notes............................... $
1,950 $
— $
— $
1,950
As of December 31, 2019:
Warrant liabilities ................................................. $
Total...................................................................... $
413 $
413 $
— $
— $
— $
— $
413
413
The warrant liabilities consist of an issued and outstanding common stock warrant (the “Takeda Warrant”) and
a right to receive an additional common stock warrant (the “Takeda Warrant Right”, and together with the Takeda
Warrant, the “Takeda Warrants”) issued to Takeda Pharmaceutical Company Limited (“Takeda”) in connection with
a May 2019 license agreement (see Note 4) and warrants (the “Lender Warrants”) issued in connection with a loan
and security agreement for commercial bank debt (see Note 7). From inception through October 11, 2019, the date at
which the Company increased its authorized shares of common stock available for issuance, the Takeda Warrants
were accounted for as liabilities as they did not meet all the conditions for equity classification due to (i) insufficient
authorized shares for the Takeda Warrant and (ii) the Takeda Warrant Right not being indexed to the Company’s
own stock. The fair value of the Takeda Warrants was derived from the model used to estimate the fair value the
Company’s common stock (see Note 8) prior to the IPO. The Company continued to record the Takeda warrants at
fair value until October 11, 2019 when the Company’s authorized shares of common stock increased to 50,000,000.
The Company reclassified the full balance from warrant liabilities to additional paid-in capital. Additionally, upon
the closing of the IPO, the Takeda Warrant Right expired without effect since no fair value had been allocated to it.
The Lender Warrants are accounted for as liabilities as they contain a holder put right under which the lenders
could require the Company to pay cash in exchange for the Lender Warrants. Prior to the Company’s IPO, the fair
value of the Lender Warrants was estimated using a probability-weighted model considering IPO and non-IPO
scenarios. The IPO scenarios utilized a binomial lattice model to estimate a distribution of total equity values as of a
projected IPO date. The non-IPO scenario utilized the repurchase price associated with the warrant put right
discounted to present value based on venture capital rates of return and the term associated with the put right.
Following the Company’s IPO, the fair value of the Lender Warrants was estimated on the date of grant using the
Black-Scholes option-pricing model with an expected term equal to the remaining contractual term of the warrants.
The Company estimates its expected stock volatility based on the historical volatility of a set of peer companies,
which are publicly traded, and expects to continue to do so until it has adequate historical data regarding the
volatility of its own publicly-traded stock price. The risk-free interest rate is determined by reference to the U.S.
Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected
term of the award. The Company uses an expected dividend yield of zero based on the fact that the Company has
never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. As of December 31,
2019, the fair value of the Lender Warrants was $0.4 million.
F-9
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
As further described in Note 5, the Company issued convertible promissory notes to Frazier (the “Frazier
Notes”) from January 2018 to April 2019 and issued convertible promissory notes in May 2019 (the “May 2019
Notes”) to investors including Frazier. The Company has elected the fair value option for each of its convertible
promissory note issuances. The fair value of the Frazier Notes was estimated using a scenario-based analysis that
estimated the fair value of the convertible promissory notes based on the probability-weighted present value of
expected future investment returns, considering possible outcomes available to the noteholders, including
conversions in subsequent equity financings, change of control transactions, settlement and dissolution. The fair
value of the May 2019 Notes is estimated using a scenario-based analysis that estimates the fair value of the
convertible promissory notes based on the probability-weighted present value of expected future investment returns,
considering each of the possible outcomes available to the noteholders, including various IPO, settlement, equity
financing, corporate transaction and dissolution scenarios. As of December 31, 2018, the fair value of the Frazier
Notes was $2.0 million and the Frazier Notes were exchanged for May 2019 Notes in May 2019. The principal and
accrued interest of the May 2019 Notes automatically converted into 6,107,918 shares of common stock
immediately prior to the completion of the IPO.
The Company adjusts the carrying value of its warrant liabilities and convertible promissory notes to their
estimated fair value at each reporting date, with any related increases or decreases in the fair value recorded as
change in fair value of warrant liabilities and change in fair value of convertible promissory notes, respectively, in
the combined statements of operations.
Liability
Takeda
Warrants.........
At initial
valuation
date
Fair value method at
initial valuation date
(and relative weighting)
$ 47,894 Financing transactions (40%)
Income approach (60%)
KEY unobservable inputs
Transaction prices per share
Estimated time to liquidity
Discount rate
May 2019 Notes $ 90,250 Financing transactions (40%)
Income approach (60%)
Estimated time to liquidity
Volatility Discount rate
Range
$9.33 - $19.00
0.09 - 1.77 years
7.5%
0.09 - 1.77 years
65%
22.6% - 25%
Fair value at
conversion date
$
144,172
Conversion
Date
October 11,
2019
$
139,847
October 29,
2019
The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant
unobservable inputs (in thousands):
Balance at January 1, 2018 ...................... $
Issuance of convertible promissory
notes.................................................
Change in fair value ...........................
Balance at December 31, 2018 ................
Issuance of convertible promissory
notes.................................................
Exchange of convertible promissory
notes (Note 5) ..................................
Issuance of warrants ...........................
Change in fair value ...........................
Reclass Takeda Warrant into equity
(Note 4)............................................
Conversion of May 2019 Notes into
common shares upon IPO (Note 5) .
Balance at December 31, 2019 ................ $
Warrant
Liabilities
Convertible
Promissory
Notes
— $
—
—
—
—
—
48,313
96,272
—
1,900
50
1,950
90,750
(2,399)
—
49,546
(144,172)
—
—
413 $
(139,847)
—
F-10
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when
purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and
money market funds.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist
primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in
excess of federally insured limits. The Company has not experienced any losses in such accounts and management
believes that the Company is not exposed to significant credit risk due to the financial position of the depository
institutions in which those deposits are held.
Property, Plant, and Equipment, Net
Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation expense is
recognized using the straight-line method over the useful life of the asset. Computer equipment and related software
are depreciated over two to three years. Furniture and fixtures are depreciated over three years. Leasehold
improvements are amortized over the lesser of the lease term or the estimated useful lives of the related
assets. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or
sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any
resulting gain or loss is included in loss from operations.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment, for impairment whenever
events or changes in business circumstances indicate that the carrying amount of the assets may not be fully
recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to
result from the use of the asset and its eventual disposition are less than the carrying amount. The impairment loss, if
recognized, would be based on the excess of the carrying value of the impaired asset over its respective fair value.
No impairment losses have been recorded through December 31, 2019.
Leases
At the inception of a contractual arrangement, the Company determines whether the contract contains a lease
by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the
identified asset in exchange for consideration over a period of time. If both criteria are met, the Company records the
associated lease liability and corresponding right-of-use asset upon commencement of the lease using the implicit
rate or a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease.
The Company additionally evaluates leases at their inception to determine if they are to be accounted for as an
operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five
criteria: the lease has a purchase option that is reasonably certain of being exercised, the present value of the future
cash flows is substantially all of the fair market value of the underlying asset, the lease term is for a significant
portion of the remaining economic life of the underlying asset, the title to the underlying asset transfers at the end of
the lease term, or if the underlying asset is of such a specialized nature that it is expected to have no alternative uses
to the lessor at the end of the term. Leases that do not meet the finance lease criteria are accounted for as an
operating lease. Operating lease assets represent a right to use an underlying asset for the lease term and operating
lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease liabilities with
a term greater than one year and their corresponding right-of-use assets are recognized on the balance sheet at the
commencement date of the lease based on the present value of lease payments over the expected lease term. Certain
adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
As the Company’s leases do not typically provide an implicit rate, the Company utilizes the appropriate incremental
borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized
basis over a similar term and in a similar economic environment. Lease cost is recognized on a straight-line basis
over the lease term and variable lease payments are recognized as operating expenses in the period in which the
obligation for those payments is incurred. Variable lease payments primarily include common area maintenance,
utilities, real estate taxes, insurance, and other operating costs that are passed on from the lessor in proportion to the
space leased by the Company. The Company has elected the practical expedient to not separate between lease and
non-lease components.
F-11
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Research and Development Expenses and Accruals
All research and development costs are expensed in the period incurred and consist primarily of salaries,
payroll taxes, employee benefits, stock-based compensation charges for those individuals involved in research and
development efforts, external research and development costs incurred under agreements with contract research
organizations and consultants to conduct and support the Company’s ongoing clinical trials of vonoprazan, and costs
related to manufacturing vonoprazan for clinical trials.
The Company has entered into various research and development contracts with clinical research
organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on
the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in
advance of or after performance are reflected in the accompanying balance sheets as prepaid expenses or accrued
liabilities, respectively. The Company records accruals for estimated costs incurred for ongoing research and
development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of
the services, including the phase or completion of events, invoices received and contracted costs. Significant
judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting
period. Actual results could differ from the Company’s estimates.
In-Process Research and Development
The Company evaluates whether acquired intangible assets are a business under applicable accounting
standards. Additionally, the Company evaluates whether the acquired assets have a future alternative use. Intangible
assets that do not have future alternative use are considered acquired in-process research and development. When
the acquired in-process research and development assets are not part of a business combination, the value of the
consideration paid is expensed on the acquisition date. Future costs to develop these assets are recorded to research
and development expense as they are incurred.
General and Administrative Expenses
General and administrative expenses consist of salaries, stock-based compensation, facilities and third-party
expenses. General and administrative expenses are associated with the activities of the executive, finance,
accounting, information technology, legal, medical affairs and human resource functions.
Stock-Based Compensation
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized
over the requisite service period of the awards (generally the vesting period) on a straight-line basis. The Company
recognizes forfeitures as they occur.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the
differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in the statement of operations in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more
likely than not to be realized. In making such a determination, management considers all available positive and
negative evidence, including future reversals of existing taxable temporary differences, projected future taxable
income, tax-planning strategies, and results of recent operations. If management determines that the Company would
be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would
make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes.
F-12
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
The Company records uncertain tax positions on the basis of a two-step process whereby (i) management
determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical
merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold,
management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon
ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to
unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the
related tax liability.
Comprehensive Loss
Comprehensive loss is defined as a change in equity during a period from transactions and other events and
circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss
for all periods presented.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial
information is available for evaluation by the chief operating decision maker in making decisions on how to allocate
resources and assess performance. The Company views its operations and manages its business as one operating
segment.
Net Loss Per Share
For the years ended December 31, 2019 and 2018, the net loss per share was recast to include in the numerator
the net losses of both the Company and YamadaCo and include in the denominator the combined weighted-average
outstanding shares of both the Company and YamadaCo. Basic net loss per share is computed by dividing the
combined net loss by the weighted-average number of common shares outstanding for the period, without
consideration for potentially dilutive securities. The Company included 7,588,000 shares of common stock under the
Takeda Warrant in the calculation of basic weighted-average common shares outstanding from the time it became
exercisable at the Company’s IPO because the Takeda Warrant is issuable for little consideration. The Company has
excluded weighted-average unvested shares of 3,593,034 from the weighted-average number of common shares
outstanding for the year ended December 31, 2019. No shares of common stock were unvested during the year
ended December 31, 2018. Diluted net loss per share is computed by dividing the combined net loss by the
weighted-average number of common shares and dilutive common stock equivalents outstanding for the period
determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of
unvested common stock, options, warrants and convertible promissory notes. For all periods presented, there is no
difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the
potentially dilutive securities would be antidilutive.
The following potentially dilutive securities were excluded from the computation of diluted net loss per share
for the periods presented because their inclusion would have been antidilutive:
Years Ended
December 31,
2019
2018
Warrants ...................................................
Stock options ............................................
Shares subject to repurchase ....................
16,446
1,400,528
3,593,034
—
—
—
F-13
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Recently Adopted Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-
Based Payment Accounting. This guidance expands the scope of Topic 718, Compensation—Stock Compensation,
which currently only includes share-based payments to employees, to include share-based payments issued to
nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and
employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to
Non-Employees and is effective for public companies for annual periods beginning after December 15, 2018,
including interim periods within those fiscal years, with early adoption permitted as long as ASU No. 2014-09 has
been adopted by the Company. The Company adopted this guidance effective January 1, 2018, and the adoption did
not have a material impact on the Company's financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to
recognize a lease liability and a right-of-use asset for all leases with lease terms of more than 12 months.
Additionally, certain qualitative and quantitative disclosures will be required in the financial statements. This
guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods
within those fiscal years, and early adoption is permitted. Companies may adopt this guidance using a modified
retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period
in the financial statements. The Company adopted this guidance effective January 1, 2018, and at the time of
adoption, there was no impact on the Company’s financial statements as the Company did not have any leases at the
time of adoption. During 2019, adoption of this standard has resulted in the recognition of operating lease right-of-
use assets of $0.9 million and lease liabilities of $0.8 million as of December 31, 2019. The standard did not
materially impact the Company’s combined statements of operations or combined statements of cash flows.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and
adds disclosure requirements on fair value measurements. The standard is effective for annual periods beginning
after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. The
Company is currently evaluating the impact the adoption of ASU No. 2018-13 will have on the Company’s financial
statements.
2. Balance Sheet Details
Property, Plant and Equipment, net
Property, plant and equipment, net, consist of the following (in thousands):
Years Ended
December 31,
2019
2018
Computer equipment and software .......... $
Furniture and fixtures...............................
Leasehold improvements .........................
Less: accumulated depreciation ...............
Total property, plant and equipment, net . $
152 $
306
13
471 $
(8)
463 $
—
—
—
—
—
—
Depreciation expense for the year ended December 31, 2019 was approximately $8,000. There was no
depreciation expense for the year ended December 31, 2018. No property, plant or equipment was disposed of
during the year ended December 31, 2019.
F-14
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Accrued Expenses
Accrued expenses consist of the following (in thousands):
Years Ended
December 31,
2019
2018
Accrued R&D expenses ........................... $
Accrued compensation expenses..............
Accrued professional & consulting
expenses ................................................
Accrued other ...........................................
Total accrued expenses............................. $
384 $
1,052
478
405
2,319 $
—
76
94
—
170
3. Related Party Transactions
Frazier is a principal stockholder of the Company and is represented on the Company’s board of directors. For
the years ended December 31, 2019 and 2018, the Company conducted its operations within office space controlled
by Frazier and Frazier allocated a portion of the costs associated with this office to the Company. In addition,
Frazier paid for various goods and services, such as employee wages, insurance and expense reimbursements and
various administrative services associated with the operations of the Company and charged the Company for those
expenses. As of December 31, 2019 and 2018, the Company had outstanding accounts payable and accrued
expenses due to Frazier in the amount of $0.1 million and $45,000 respectively, related to these shared operating
expenses. For the years ended December 31, 2019 and 2018, the Company incurred $0.4 million and $0.3 million,
respectively, of shared operating expenses. In addition to the shared operating expenses, the Company issued
convertible promissory notes to Frazier during 2018 and 2019 (see Note 5).
Frazier is a principal stockholder in PCI Pharma Services (“PCI”). In the third quarter of 2019, the Company
engaged PCI for clinical manufacturing services. As of December 31, 2019, the Company had $0.3 million
outstanding accounts payable and accrued expenses related to these manufacturing services. For the year ended
December 31, 2019, the Company incurred $1.1 million of expenses related to services performed by PCI.
Mountain Field LLC (“Mountain Field”) is an entity owned by the chairman of the Company’s board of
directors. During the years ended December 31, 2019 and 2018, the Company charged Mountain Field for certain
rent and payroll related expenses. These shared expenses were allocated based on usage of the related facilities and
time incurred by personnel. As of December 31, 2019, and 2018, the Company had an outstanding accounts
receivable balance from Mountain Field of $0 and $19,000, respectively, related to shared operating expenses. For
the years ended December 31, 2019 and 2018, the Company charged Mountain Field $0.1 million and $4,000,
respectively, for shared expenses.
Takeda became a common stockholder of the Company as of May 7, 2019 in connection with the Takeda
License (see Note 4). In conjunction with the Takeda License, Takeda will provide proprietary supplies for the
Company’s ongoing clinical development of vonoprazan in addition to the exclusive license for the
commercialization of vonoprazan in the United States, Canada and Europe. As of December 31, 2019, the Company
had $0.1 million in outstanding accounts payable and accrued expenses related to these supply services. For the year
ended December 31, 2019, the Company incurred $0.1 million of expenses related to services performed by Takeda.
F-15
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
4. Commitments and Contingencies
License Agreement
On May 7, 2019, the Company entered into a license agreement with Takeda pursuant to which it was granted
an exclusive license to commercialize vonoprazan in the United States, Canada and Europe (the “Takeda License”).
The Company also has the right to sublicense its rights under the agreement, subject to certain conditions. The
agreement will remain in effect, on a country-by-country and product-by-product basis, until the later of (i) the
expiration of the last to expire valid patent claim covering vonoprazan alone or in combination with at least one
other therapeutically active ingredient, (ii) the expiration of the applicable regulatory exclusivity and (iii) 15 years
from the date of first commercial sale, unless earlier terminated. The Company may terminate the Takeda License
upon six months’ written notice. The Company and Takeda may terminate the Takeda License in the case of the
other party’s insolvency or material uncured breach. Takeda may terminate the Takeda License if the Company
challenges, or assists in challenging, licensed patents.
In consideration of the Takeda License, the Company (i) paid Takeda $25.0 million in cash, (ii) issued Takeda
1,084,000 shares of its common stock at a fair value of $5.9 million, (iii) issued the Takeda Warrant to purchase
7,588,000 shares of its common stock at an exercise price of $0.00004613 per share at an initial fair value of $47.9
million, and (iv) issued the Takeda Warrant Right to receive an additional common stock warrant should Takeda’s
fully-diluted ownership of the Company represent less than a certain specified percentage of the fully-diluted
capitalization, including shares issuable upon conversion of then outstanding convertible promissory notes,
calculated immediately before the closing of the Company’s IPO, with a nominal initial fair value due to the low
probability of issuance. The Takeda Warrant Right expired upon completion of the IPO, and no additional warrant
was issued. In addition, the Company is obligated to pay Takeda up to an aggregate of $250.0 million in sales
milestones upon the achievement of specified levels of product sales, and a low double-digit royalty rate on
aggregate net sales of licensed products, subject to certain adjustments. The Company incurred $0.1 million of
transaction costs in connection with the Takeda License. The Takeda Warrant has an exercise price of $0.00004613
per share, expires on May 7, 2029 and becomes exercisable upon (i) certain change of control transactions of the
Company or (ii) the consummation of an IPO by the Company. Following the October 11, 2019 increase in the
Company’s authorized shares of common stock to 50,000,000, the Company recorded a non-cash charge related to
the final fair value adjustment of the Takeda Warrants and reclassified the full balance of $144.2 million from
warrant liabilities to additional paid-in capital. Additionally, upon closing of the IPO, the Takeda Warrant Right
expired without effect since no fair value had been allocated to it.
The transaction has been accounted for as an asset acquisition as substantially all of the fair value is
concentrated in a group of similar assets. The $78.9 million fair value of the consideration paid for these research
and development assets, which have no alternative future use, was recorded as in-process research and development
in the Company’s combined statement of operations for the year ended December 31, 2019.
Contingencies
In the event the Company becomes subject to claims or suits arising in the ordinary course of business, the
Company would accrue a liability for such matters when it is probable that future expenditures will be made and
such expenditures can be reasonably estimated.
5. Convertible Promissory Notes
Frazier Convertible Note Financing
From January 2018 to April 2019, the Company issued the Frazier Notes for an aggregate of $2.4 million and
bearing interest at per annum rates ranging from 1.68% to 2.55%. Of the Frazier Notes, $1.9 million were issued in
2018 and $0.5 million were issued in April 2019. Due to certain embedded features within the Frazier Notes, the
Company elected to account for these notes and all their embedded features under the fair value option. The
Company recorded changes in the fair value of the Frazier Notes in the combined statements of operations until May
2019, when the Frazier Notes and related accrued interest were exchanged, at their then fair value of $2.4 million,
for the May 2019 Notes. For the years ended December 31, 2019 and 2018, the Company recognized $50,000 of
other income and $50,000 of other expense, respectively, in the combined statements of operations related to
changes in the fair value of the Frazier Notes. For the year ended December 31, 2019 and 2018, the Company
recognized $15,000 and $13,000, respectively, of interest expense in connection with the Frazier Notes.
F-16
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
May 2019 Convertible Note Financing
On May 7, 2019, the Company entered into a note purchase agreement under which it issued the unsecured
May 2019 Notes for an aggregate of $90.3 million, resulting in gross proceeds to the Company of $87.8 million in
cash and $2.4 million related to the exchange of the Frazier Notes and related accrued interest for the May 2019
Notes. Including the conversion of the Frazier Notes, Frazier purchased $20.0 million of the May 2019 Notes. The
May 2019 Notes bore interest at a rate of 6% per annum and were subordinated to borrowings under the Company’s
loan and security agreement (see Note 7).
Due to certain embedded features within the May 2019 Notes, the Company elected to account for these notes
and all their embedded features under the fair value option. The outstanding principal and accrued interest of the
May 2019 Notes automatically converted into 6,107,918 shares of common stock immediately prior to the
completion of the IPO on October 29, 2019. In connection with the IPO conversion, the Company recorded a non-
cash charge related to the final fair value adjustment of the convertible promissory notes payable in the amount of
$44.6 million. For the year ended December 31, 2019, the Company recognized $49.5 million of other expense in
the combined statements of operations related to increases in the fair value of the May 2019 Notes. For the year
ended December 31, 2019, the Company recognized $2.6 million of interest expense in connection with the May
2019 Notes.
6. Lease Commitments
In August 2019, the Company entered into a 65-month operating lease for 10,043 rentable square feet of office
space for offices located in Buffalo Grove, Illinois. The lease contains an option to extend the term for one
additional five-year period, which has not been considered in the determination of the right-of-use asset or the lease
liability as the Company did not consider it reasonably certain that it would exercise such option. The lease
commenced in October 2019, the date on which the underlying asset was made available for use to the Company.
The Company's lease provides for fixed monthly payments for the term of the lease, with monthly rent increasing
approximately 3% every 12 months following the commencement date. The total rent expense for the year ended
December 31, 2019 was approximately $51,000.
The following table summarizes supplemental balance sheet information related to leases as of December 31,
2019. The Company had no leases during the year ended December 31, 2018.
Year Ended
December 31,
2019
Assets:
Operating lease right-of-use assets ...................... $
Total right-of-use assets.......................................
Liabilities:
Operating lease liabilities, current .......................
Operating lease liabilities, non-current................
Total operating lease liabilities............................ $
933
933
161
635
796
F-17
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
As of December 31, 2019, the future minimum annual lease payments under the operating lease were as
follows (in thousands):
2020 .................................................................... $
2021 ....................................................................
2022 ....................................................................
2023 ....................................................................
2024 ....................................................................
Thereafter ...........................................................
Total minimum lease payments ............................... $
Less: amount representing interest...........................
Present value of operating lease liabilities...............
Less: operating lease liabilities, current...................
Operating lease liabilities......................................... $
Weighted-average remaining lease term (in years) .
Weighted-average incremental borrowing rate........
166
171
176
181
186
80
960
(164)
796
(161)
635
5.33
7.25%
The table below summarizes the Company’s lease costs, cash payments, and operating lease liabilities arising
from obtaining right-of-use assets under its operating lease obligations during the year ended December 31, 2019:
December 31,
2019
Total operating lease expense.................................
51
Supplemental non-cash information:
Operating lease liabilities arising from obtaining
right-of-use assets ..................................................
796
In December 2019, the Company entered into a 62-month operating lease for 9,420 rentable square feet of
office space in Florham Park, New Jersey. The lease contains an option to extend the term for one additional five-
year period, which will not be considered in the determination of the right-of-use asset or the lease liability as the
Company is not reasonably certain that it would exercise such option. The Company has future minimum lease
payment obligations of approximately $1.7 million related to the leased office space. The lease liability and the
corresponding right-of-use asset associated with this lease obligation will be recorded upon the commencement of
the lease, or the date in which the underlying asset is made available for use to the Company, which had not
occurred as of December 31, 2019.
7. Long-Term Debt
Long-term debt consists of the following (in thousands):
Long-term debt ......................................................... $
Unamortized debt discount .......................................
Long-term debt, net of debt discount........................ $
25,000
(2,223)
22,777
December 31,
2019
F-18
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
On May 14, 2019, the Company entered into a loan and security agreement (the “Loan Agreement”, and all
amounts borrowed thereunder the “Term Loans”) with Silicon Valley Bank (“SVB”), as administrative and
collateral agent, and lenders including SVB and WestRiver Innovation Lending Fund VIII, L.P. (“WestRiver”). The
Company borrowed $25.0 million (“Term Loan A”) at the inception of the Loan Agreement and has the right to
borrow an additional $25.0 million (“Term Loan B”). Term Loan B is available through March 31, 2020, provided
that (i) the Company has received at least $150.0 million of net cash proceeds in connection with the issuance and
sale, subsequent to April 1, 2019, of its equity securities and subordinated debt, (ii) the Company has initiated Phase
3 clinical trials for vonoprazan, and (iii) no event of default has occurred.
The Term Loans bear interest at a floating rate of the higher of the Wall Street Journal Prime rate plus 1.75%
(6.5% at December 31, 2019) or 7.25%. The monthly payments consist of interest-only through May 31, 2021 or, in
the event of positive data with respect to the Company’s Phase 3 clinical trial in both indications for vonoprazan
sufficient to file an NDA with the FDA, through May 31, 2022. Subsequent to the interest-only period, the Term
Loans will be payable in equal monthly installments of principal, plus accrued and unpaid interest through the
maturity date of May 1, 2024. In addition, the Company is obligated to pay a final payment fee of 8.25% of the
original principal amount of the Term Loans. As of December 31, 2019, the final payment fee of $2.1 million has
been recorded as an other long-term liability.
The Company may elect to prepay all or a portion of the Term Loans prior to maturity, subject to a
prepayment fee of up to 2.0% of the then outstanding principal balance and payment of a pro rata portion of the final
payment fee. After repayment, no Term Loan amounts may be borrowed again.
The borrowings under the Loan Agreement are collateralized by substantially all of the Company’s assets,
excluding intellectual property and certain other assets. The Loan Agreement includes affirmative and negative
covenants. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal
existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy
certain requirements regarding its operating accounts. The negative covenants include, among others, limitations on
the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate
certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay
dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified
transactions. The Loan Agreement also contains customary events of default, including bankruptcy, the failure to
make payments when due, and a material adverse change. Upon the occurrence of an event of default, subject to any
specified cure periods, all amounts owed by the Company would begin to bear interest at a rate that is 4.00% above
the rate effective immediately before the event of default and may be declared immediately due and payable by
SVB, as collateral agent. As of December 31, 2019, the Company was in compliance with all applicable covenants
under the Loan Agreement.
In connection with the Loan Agreement, the Company issued the Lender Warrants to purchase stock of the
Company. The Lender Warrants become exercisable only if the Company borrows Term Loan B, and the number,
class and per share price of the shares subject to the warrants is dependent on the terms of certain future equity
financing transactions of the Company, including an IPO. Upon completion of the IPO, the Lender Warrants became
exercisable for 16,446 shares of common stock. The Lender Warrants expire ten years from the date of issuance,
subject to earlier termination on December 31, 2020 if the Company does not draw down Term Loan B on or before
March 31, 2020. The Lender Warrants include a put option pursuant to which, in the event that the Company does
not draw down Term Loan B on or before March 31, 2020, the warrant holders may require that the Company
repurchase the warrants for a total aggregate repurchase price of $0.5 million. The put right is exercisable through
September 30, 2020.
The initial $0.4 million fair value of the Lender Warrants, the $2.1 million final payment fee and $0.2 million
of debt issuance costs have been recorded as debt discount and are being amortized to interest expense using the
effective interest method over the term of the Term Loans. For the year ended December 31, 2019, the Company
recognized $1.6 million of interest expense, including amortization of the debt discount, in connection with the Loan
Agreement. As of December 31, 2019, the Company had outstanding Term Loans of $25.0 million and accrued
interest of $0.2 million.
F-19
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Future minimum principal and interest payments under the Term Loans, including the final payment fee, as of
December 31, 2019 are as follows (in thousands):
Year ending December 31:
2020..................................................................... $
2021.....................................................................
2022.....................................................................
2023.....................................................................
2024.....................................................................
Total principal and interest payments.......................
Less interest and final payment fee ..........................
Long-term debt ......................................................... $
1,843
6,609
9,533
8,920
5,599
32,504
(7,504)
25,000
8. Stockholders’ Equity
Common Stock
In March 2019, subsequent to the Merger, the Company sold 1,491,072 shares of the Company’s common
stock to Frazier.
In March 2019, the founders granted the Company a repurchase right for the 3,373,408 shares of common
stock originally purchased in 2018. The Company has the right, but not the obligation, to repurchase unvested shares
in the event the founder’s relationship with the Company is terminated, subject to certain limitations, at the original
purchase price of the stock. The repurchase right lapsed for 843,352 shares in March 2019 and the repurchase right
for the remaining 2,530,056 shares lapses in equal monthly amounts over the following 48-month period ending in
March 2023. The fair value of the founder shares at the date the repurchase right was granted is being recognized as
stock-based compensation expense on a straight-line basis over the vesting period. As of December 31, 2019,
2,055,684 shares of common stock were subject to repurchase by the Company and the associated repurchase
liability was not significant. The amount of recognized and unrecognized stock-based compensation related to the
founder stock was immaterial for all periods presented.
In May 2019, the Company issued Takeda 1,084,000 shares of common stock in connection with the Takeda
License.
For the period from January 1, 2019 to May 6, 2019, the Company issued 2,524,852 shares of common stock
to various employees and consultants of the Company for aggregate proceeds of approximately $1,000. Upon
issuance, these shares were subject to a repurchase option by the Company at the original purchase price of the
shares. The repurchase rights generally lapse as to 25% of the shares on the first anniversary of the vesting
commencement date, and the repurchase right lapses as to 1/48th of the shares each one-month period thereafter,
subject to the purchaser remaining continuously an employee, consultant or director of the Company. In November
2019, the Company repurchased 17,560 shares at the original purchase price for an aggregate purchase price of
$5.20. As of December 31, 2019, 2,177,861 shares remain available for repurchase by the Company and the
associated repurchase liability was not significant.
On October 29, 2019, upon completion of the IPO, the Company sold 10,997,630 shares of common stock,
which included the exercise in full by the underwriters of their option to purchase 1,434,473 additional shares at a
public offering price of $19.00 per share. The net proceeds were approximately $191.5 million, after deducting
underwriting discounts, commissions and offering costs.
F-20
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Equity Incentive Plan
The Company’s 2019 Equity Incentive Plan (the “Existing Incentive Plan”) provides for the grant of incentive
stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit
awards, and other stock awards to eligible recipients, including employees, directors or consultants of the Company.
The Company had 2,231,739 shares of common stock authorized for issuance under the Existing Incentive Plan, of
which, 1,400,528 stock options and 16,260 restricted stock awards were granted in 2019. As a result of the adoption
of the 2019 Equity Incentive Plan, no further shares are available for issuance under the Existing Incentive Plan.
2019 Incentive Award Plan
In October 2019, the board of directors adopted, and the Company’s stockholders approved the 2019 Equity
Incentive Plan (the “2019 Plan”), which became effective in connection with the IPO. Under the 2019 Plan, the
Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards
to individuals who are then employees, officers, non-employee directors or consultants of the Company or its
subsidiaries. As of December 31, 2019, an aggregate of 2,700,000 shares of the Company’s common stock were
available for issuance under awards granted pursuant to the 2019 Plan. The number of shares initially available for
issuance will be increased by (i) the number of shares subject to stock options or similar awards granted under the
Existing Incentive Plan that expire or otherwise terminate without having been exercised in full after the effective
date of the 2019 Plan and unvested shares issued pursuant to awards granted under the Existing Incentive Plan that
are forfeited to or repurchased by the Company after the effective date of the 2019 Plan, with the maximum number
of shares to be added to the 2019 Plan pursuant to clause (i) above equal to 1,416,788 shares, and (ii) an annual
increase on January 1 of each calendar year beginning in 2020 and ending in 2029, equal to the lesser of (a) 5% of
the shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such
smaller number of shares as determined by the board of directors.
Employee Stock Purchase Plan
In October 2019, the board of directors adopted, and the Company’s stockholders approved, the Employee
Stock Purchase Plan (the “ESPP”), which became effective in connection with the IPO. The ESPP permits
participants to purchase common stock through payroll deductions of up to 20% of their eligible compensation,
which includes a participant’s gross base compensation for services to the Company, including overtime payments
and excluding sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits and
other special payments. A total of 270,000 shares of common stock is initially reserved for issuance under the ESPP.
In addition, the number of shares available for issuance under the ESPP will be annually increased on January 1 of
each calendar year beginning in 2020 and ending in 2029, by an amount equal to the lesser of: (i) 1% of the shares
outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is
determined by the board of directors.
A summary of the Company’s unvested shares is as follows:
Balance at January 1, 2019 ..............................................
—
Vesting restrictions placed on previously
issued shares ............................................................ 3,373,408
Sale of unvested common stock ................................. 2,524,852
16,260
Issuance of unvested restricted stock awards .............
Unvested common stock repurchased ........................
(17,560)
Share vesting .............................................................. (1,660,712)
Balance at December 31, 2019 ........................................ 4,236,248
For accounting purposes, unvested shares of common stock are considered issued, but not outstanding until
they vest.
F-21
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Common stock reserved for future issuance consists of the following:
December 31,
2019
Common stock warrants .................................................. 7,604,446
Stock options outstanding................................................ 1,400,528
Shares available for issuance under the 2019 Incentive
Plan ............................................................................... 2,700,000
Shares available for issuance under the ESPP Plan.........
270,000
Balance at December 31, 2019........................................ 11,974,974
Stock Options
The fair value of each employee and non-employee stock option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The Company, prior to the IPO on October 29, 2019, was a private
company and lacked company-specific historical and implied volatility information. Therefore, it estimated its
expected volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of
historical exercise history, the expected term of the Company’s stock options for employees was determined
utilizing the “simplified” method for awards. The expected term of stock options granted to non-employees was
equal to the contractual term of the option award. The risk-free interest rate was determined by reference to the
U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the
expected term of the award. Expected dividend yield was zero based on the fact that the Company has never paid
cash dividends and does not expect to pay any cash dividends in the foreseeable future.
A summary of the Company’s stock option activity and related information is as follows:
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (in
thousands)
Options
Outstanding
Balance at December 31, 2018
Options granted..................................................... 1,400,528 $
—
Options exercised and shares vested.....................
—
Options cancelled..................................................
Balance at December 31, 2019................................... 1,400,528 $
—
Options exercisable as of December 31, 2019......
9.10
—
—
9.10
—
—
—
—
9.69 $
—
—
—
—
30,874
—
The estimated weighted-average fair value of employee and nonemployee director stock options granted
during 2019 was $5.12. As of December 31, 2019, the Company had $6.8 million of unrecognized stock-based
compensation expense, which is expected to be recognized over a weighted-average period of 3.75 years.
Valuation Assumptions
The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes
option valuation model and the resulting weighted average fair value of stock options granted were as follows:
Years Ended
December 31,
2019
2018
Assumptions:
Expected term (in years) .....................
Expected volatility ..............................
Risk free interest rate ..........................
Dividend yield.....................................
6.07
60.17%
1.58%
—
—
—
—
—
F-22
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
Stock-Based Compensation Expense
Stock-based compensation expense recognized for all equity awards, including founder stock, has been
reported in the combined statements of operations as follows (in thousands):
Years Ended
December 31,
2019
2018
Research and development expense ......... $
General and administrative expense.........
Total ......................................................... $
106 $
300
406 $
—
—
—
9. Income Taxes
A reconciliation between the provision for income taxes and income taxes computed using the U.S. federal
statutory corporate tax rate is as follows (in thousands):
Years Ended
December 31,
2019
2018
Income taxes computed at the statutory
rate......................................................... $
State income taxes, net of federal benefit
Permanent items.......................................
Change in fair value of warrants and
convertible debt.....................................
Research and development credit ............
Change in valuation allowance ................
Other ........................................................
Provision (benefit) for income taxes........ $
(53,578) $
—
552
30,622
(697)
23,046
55
— $
(271)
—
2
12
—
257
—
—
Significant components of the Company’s net deferred tax assets are as follows (in thousands):
Years Ended
December 31,
2019
2018
Deferred tax assets:
Net operating loss carryforwards ....... $
Accruals and reserves .........................
Intangible assets .................................
Other ...................................................
Gross deferred tax assets..........................
Less valuation allowance .........................
Deferred tax assets, net of valuation
allowance .................................................
Deferred tax liabilities:
Other ...................................................
Net deferred tax assets ............................. $
6,322 $
204
16,050
921
23,497
(23,301)
196
(196)
— $
5
16
236
—
257
(257)
—
—
—
Based upon the Company’s history of operating losses, the Company is unable to conclude that it is more
likely than not that the benefit of its deferred tax assets will be realized. Accordingly, the Company has provided a
full valuation allowance for its deferred tax assets as of December 31, 2019 and 2018.
F-23
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
As of December 31, 2019 and 2018, the Company had federal net operating loss carryforwards of
approximately $30.1 million and $23,000, respectively, which are carried over indefinitely.
As of December 31, 2019, the Company has available federal research and development credits of $0.9
million which begin to expire in 2038.
The Company has not completed a formal analysis of the potential impact of Section 382 on its deferred tax
assets as of December 31, 2019. Until this analysis has been completed, the Company has not adjusted any of its
deferred tax assets, including net operating losses or research and development credits. The Company will reassess
the amount of net operating losses and credits subject to limitation under Section 382 when a study is complete. Due
to the existence of the valuation allowance, future changes in the deferred tax assets related to these tax attributes
will not impact the Company’s effective tax rate.
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to
evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon settlement. While the Company believes that it has appropriate support for the positions taken
on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in
determining the adequacy of its provision for income taxes.
The following table summarizes the activity related to the Company's gross unrecognized tax benefits:
Beginning balance .......................................................................... $
Increases related to current year tax positions ..........................
Ending balance................................................................................ $
—
176
176
Year Ended
December 31,
2019
F-24
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
As of December 31, 2019, the Company has gross unrecognized tax benefits of $0.2 million, none of which
would affect the effective tax rate due to a full valuation allowance. The Company does not anticipate any
significant changes in its unrecognized tax benefits over the next 12 months. The Company's policy is to recognize
the interest expense and/or penalties related to income tax matters as a component of income tax expense. The
Company has no accrual for interest or penalties on its balance sheet at December 31, 2019 and has not recognized
interest or penalties in its statement of operations for the year ended December 31, 2019.
The Company is subject to taxation in the United States and California. The Company is not currently under
examination by any taxing authorities. Due to the carryover of tax attributes, the statute of limitations is currently
open for tax years since inception.
10. Quarterly Financial Information (unaudited)
The following table summarizes the unaudited combined financial results of operations for the quarters
indicated:
March 31,
June 30,
September 30,
December 31,
2019 Quarter Ended
(unaudited)
Operating expenses:
Research and development ............. $
In-process research and
development.................................
General and administrative .............
Total operating expenses ......................
Loss from operations ............................
Total other income (expense) ...............
Net loss................................................. $
Net loss per share, basic and diluted .... $
Weighted-average shares of common
stock outstanding, basic and diluted..
429 $
2,772 $
4,469 $
12,704
—
797
1,226
(1,226)
(25)
(1,251) $
78,897
1,345
83,014
(83,014)
(4,748)
(87,762) $
—
1,813
6,282
(6,282)
(61,830)
(68,112) $
—
2,989
15,693
(15,693)
(82,313)
(98,006)
(0.19) $
(13.11) $
(9.30) $
(3.97)
6,585,503
6,694,682
7,326,090 24,706,661
March 31,
June 30,
September 30,
December 31,
2018 Quarter Ended
Operating expenses:
Research and development ............. $
General and administrative .............
Total operating expenses ......................
Loss from operations ............................
Total other income (expense) ...............
Net loss................................................. $
Net loss per share, basic and diluted .... $
Weighted-average shares of common
stock outstanding, basic and diluted..
(unaudited)
— $
255
255
(255)
(5)
(260) $
(0.04) $
— $
251
251
(251)
(3)
(254) $
(0.07) $
6 $
262
268
(268)
(22)
(290) $
(0.04) $
14
437
451
(451)
(33)
(484)
(0.07)
3,886,328
6,760,334
6,760,334
6,760,334
F-25
PHATHOM PHARMACEUTICALS, INC.
Notes to Combined Financial Statements — Continued
11. Subsequent Events
In March 2020, the Company entered into the First Amendment (the “Amendment”) to the Loan Agreement
which amended certain terms of the Loan Agreement, dated as of May 14, 2019.
The Amendment redefined the events that extend the interest-only period of the Loan Agreement. Pursuant to
the Amendment, the interest-only payment period, which ends on May 31, 2021, will be extended either (i) until
December 31, 2021, if the Company receives positive data from its Phase 3 clinical trial in H. pylori infection
sufficient to file an NDA with the FDA; or (ii) until November 30, 2022, if the Company receives positive data from
its Phase 3 clinical trials in both indications for vonoprazan sufficient to file an NDA with the FDA; provided, in
each case, that the Company has drawn down Term Loan B.
Subsequent to the interest-only period, the Term Loans will be payable in equal monthly installments of
principal, plus accrued and unpaid interest through the maturity date of May 1, 2024.
The Company elected to draw the Term Loan B in March 2020 and received the additional $25.0 million of
principal. Upon the Term Loan B draw, the Lender Warrants became exercisable and the put option related to the
Lender Warrants expired.
F-26
EXHIBIT INDEX
Incorporated by Reference
Filed
Herewith
Date
Form
S-1
S-1
9-30-2019
9-30-2019
S-1/A 10-15-2019
9-30-2019
S-1
Number
3.1
3.2
4.1
4.2
Exhibit
Number
Exhibit Description
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#
10.12†
10.13
10.14#
23.1
31.1
Amended and Restated Certificate of Incorporation.
Amended and Restated Bylaws.
Form of Common Stock Certificate.
Warrant to purchase shares of common stock issued to
Takeda Company Limited, dated May 7, 2019
Warrant to purchase stock issued to Silicon Valley Bank,
dated May 14, 2019
Warrant to purchase stock issued to WestRiver Innovation
Lending Fund VIII, L.P., dated May 14, 2019
Note Purchase Agreement, dated May 7, 2019, by and
among the Registrant and the other parties party thereto, as
amended
Description of Registered Securities
Phathom Pharmaceuticals, Inc. 2019 Equity Incentive Plan
Form of Stock Option Grant Notice and Stock Option
Agreement under the Phathom Pharmaceuticals, Inc. 2019
Equity Incentive Plan
Form of Restricted Stock Grant Notice and Restricted
Stock Agreement under Phathom Pharmaceuticals, Inc.
2019 Equity Incentive Plan
Phathom Pharmaceuticals, Inc. 2019 Incentive Award Plan
and form of stock option grant notice and stock option
agreement thereunder
Phathom Pharmaceuticals, Inc. 2019 Employee Stock
Purchase Plan
Non-Employee Director Compensation Policy
Letter Agreement, dated July 21, 2019, by and between
David Socks and the Registrant
Employment Letter Agreement, dated July 21, 2019, by
and between David Socks and the Registrant
Amended and Restated Employment Letter Agreement,
dated September 25, 2019, by and between Azmi Nabulsi,
M.D., M.P.H. and the Registrant
Employment Letter Agreement, dated July 23, 2019, by
and between Aditya Kohli, Ph.D. and the Registrant
Form of Indemnification Agreement for Directors and
Officers
License Agreement, dated May 7, 2019, by and between
Takeda Pharmaceuticals Company Limited and the
Registrant
Loan and Security Agreement, dated May 14, 2019, by and
among Silicon Valley Bank, WestRiver Innovation
Lending Fund VIII, L.P. and the Registrant
Employment Letter Agreement, dated August 29, 2019, by
and between Terrie Curran and the Registrant
Consent of independent registered public accounting firm
Certification of Chief Executive Officer of Phathom
Pharmaceuticals, Inc., as required by Rule 13a-14(a) or
Rule 15d-14(a) under the Securities Exchange Act of
1934, as amended.
122
S-1
9-30-2019
S-1
9-30-2019
S-1/A 10-15-2019
4.3
4.4
4.5
S-1
S-1
9-30-2019
9-30-2019
10.1
10.2
X
S-1
9-30-2019
10.3
S-1/A 10-15-2019
10.4
S-1/A 10-15-2019
S-1/A 10-15-2019
9-30-2019
S-1
10.5
10.6
10.7
S-1
9-30-2019
10.8
S-1
9-30-2019
10.9
S-1
9-30-2019
10.10
S-1
9-30-2019
10.11
S-1
9-30-2019
10.12
S-1
9-30-2019
10.13
S-1
9-30-2019
10.14
X
X
31.2
32.1*
32.2*
Certification of Chief Financial Officer of Phathom
Pharmaceuticals, Inc., as required by Rule 13a-14(a) or
Rule 15d-14(a) under the Securities Exchange Act of
1934, as amended.
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document
101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document
X
X
X
X
X
X
X
X
X
Indicates management contract or compensatory plan.
#
† Confidential treatment has been granted for certain information contained in this Exhibit. Such information has
*
been omitted and filed separately with the SEC.
These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C.
Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are
not to be incorporated by reference into any filing of the Registrant, whether made before or after the date
hereof, regardless of any general incorporation language in such filing.
123
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
PHATHOM PHARMACEUTICALS, INC.
/s/ Terrie Curran
Terrie Curran
Chief Executive Officer
Date: March 19, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Terrie Curran
Terrie Curran
/s/ David Socks
David Socks
Chief Executive Officer and
Director (Principal Executive Officer)
Interim Chief Financial Officer and Director
(Principal Financial and
Accounting Officer)
March 19, 2020
March 19, 2020
/s/ Tadataka Yamada
Tadataka Yamada, M.D.
/s/ Michael F. Cola
Michael F. Cola
/s/ Jonathan Edwards
Jonathan Edwards, Ph.D.
/s/ Heidi Kunz
Heidi Kunz
/s/ Asit Parikh
Asit Parikh, M.D., Ph.D.
/s/ James Topper
James Topper, M.D., Ph.D.
Executive Chairman of the Board of Directors
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
Director
Director
Director
Director
Director
124
CORPORATE INFORMATION
Phathom Pharmaceuticals, Inc.
100 Campus Drive, Suite 102
Florham Park, NJ 07932
877-742-8466
info@phathompharma.com
ANNUAL MEETING
May 21, 2020 at 9:45 a.m. Eastern Time
The annual meeting of stockholders will be held via
live webcast at: www.virtualshareholdermeeting.
com/PHAT2020
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
LEGAL COUNSEL
Latham & Watkins LLP
STOCK INFORMATION
Our common stock is traded on
The Nasdaq Global Select Market
under the symbol PHAT
TRANSFER AGENT
Computershare
PO Box 505000
Louisville, Kentucky 40233-5000
United States
Overnight delivery:
462 South 4th Street, Suite 1600
Louisville, Kentucky 40202
United States
Phone:
Toll free: 800.736.3001
Toll: 781.575.3100
MANAGEMENT
Terrie Curran
Chief Executive Officer & President
Azmi Nabulsi, MD
Chief Operating Officer
David Socks
Chief Financial Officer & Treasurer
Martin Gilligan
Chief Commercial Officer
Joe Hand
Chief Administrative Officer
Tom Harris
SVP, Regulatory Affairs
Aditya Kohli, PhD
Chief Business Officer
Eckhard Leifke, MD
Chief Medical Officer
Larry Miller
General Counsel & Secretary
BOARD OF DIRECTORS
Tadataka (Tachi) Yamada, MD
Chairman of the Board
Venture Partner, Frazier Healthcare
Michael Cola
Chief Executive Officer, Cerecor, Inc.
Terrie Curran
Chief Executive Officer & President
Jon Edwards, PhD*
Partner, Medicxi
Heidi Kunz
Former CFO, Blue Shield California
Asit Parikh, MD, PhD
Senior Vice President and Head of the
Gastroenterology Therapeutic Area Unit, Takeda
James Topper, MD, PhD
Managing General Partner, Frazier Healthcare
David Socks
Chief Financial Officer & Treasurer
Mark Stenhouse
General Manager, Screening Business Unit,
Exact Sciences Corporation
* Dr. Edwards’ term on our Board of Directors ends upon
the conclusion of our Annual Meeting in 2020.
100 Campus Drive, Suite 102, Florham Park, NJ 07932
877-742-8466
info@phathompharma.com