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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2015

OR

o

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: 001-32836

 

MEDIVATION, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

13-3863260

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

525 Market Street, 36th Floor

San Francisco, California 94105

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (415) 543-3470

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

 

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES o   NO x

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 o  NO x

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  x  NO  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

Accelerated filer

 

o

 

 

 

 

 

 

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.).    YES  o    NO  x

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $7.7 billion as of June 30, 2015, based upon the closing sale price on The NASDAQ Global Market reported on June 30, 2015. Excludes an aggregate of 24,807,840 shares of the registrant’s common stock (on a post-split basis) held by officers, directors and affiliated stockholders. For purposes of determining whether a stockholder was an affiliate of the registrant at June 30, 2015, the registrant assumed that a stockholder was an affiliate of the registrant at June 30, 2015 if such stockholder (i) beneficially owned 10% or more of the registrant’s common stock, as determined based on public filings, and/or (ii) was an executive officer or director or was affiliated with an executive officer or director of the registrant at June 30, 2015. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant.

There were 164,233,527 shares of Registrant’s Common Stock, par value $0.01 per share, outstanding as of February 16, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2016 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 in Part III, Items 10-14 of this Form 10-K.

 

 

 

 


MEDIVATION, INC.

2015 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I

 

 

Item 1.

Business

2

Item 1A.

Risk Factors

21

Item 1B.

Unresolved Staff Comments

44

Item 2.

Properties

45

Item 3.

Legal Proceedings

45

Item 4.

Mine Safety Disclosures

45

 

 

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

46

Item 6.

Selected Financial Data

48

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

49

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

67

Item 8.

Financial Statements and Supplementary Data

68

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

68

Item 9A.

Controls and Procedures

68

Item 9B.

Other Information

69

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

70

Item 11.

Executive Compensation

70

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

70

Item 13.

Certain Relationships and Related Transactions, and Director Independence

70

Item 14.

Principal Accounting Fees and Services

70

 

 

 

PART IV

 

 

Item 15.

Exhibits, Financial Statement Schedules

71

 

 

 

Signatures

72

 

 

 

FINANCIAL STATEMENTS

 

 

Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

73

 

Consolidated Balance Sheets

74

 

Consolidated Statements of Operations

75

 

Consolidated Statements of Comprehensive Income (Loss)

76

 

Consolidated Statements of Cash Flows

77

 

Consolidated Statements of Stockholders’ Equity

78

 

Notes to Consolidated Financial Statements

79

 

 

 

i


FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, or Annual Report, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend that these forward-looking statements be subject to the safe harbors created by those provisions. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “may,” “should,” “could,” “expect,” “suggest,” “believe,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” or similar words, or negatives of such terms or other variations on such terms of comparable terminology. These forward-looking statements include, but are not limited to, statements regarding the commercialization of XTANDI ® (enzalutamide) capsules, or XTANDI, the continuation and success of our collaboration with Astellas Pharma, Inc., or Astellas, the timing, progress and results of our clinical trials, and our future drug development activities, including those with respect to talazoparib (which is referred to as MDV3800) and pidilizumab (which is referred to as MDV9300). The forward-looking statements contained in this Annual Report involve a number of risks, uncertainties, and assumptions, many of which are outside of our control. Factors that could cause actual results to differ materially from projected results include, but are not limited to, those discussed in “Risk Factors” included elsewhere in this Annual Report. Readers are expressly advised to review and consider those Risk Factors. Although we believe that the assumptions underlying the forward-looking statements contained in this Annual Report are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that the results anticipated by such statements will occur. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past financial or operations performance is not necessarily indicative of future performance. We disclaim any intention or obligation to update, supplement, or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

1


PART I

 

 

Item 1.

Business.

OVERVIEW

We are a biopharmaceutical company focused on the development and commercialization of medically innovative therapies to treat serious diseases for which there are limited treatment options. We have one commercial product, XTANDI® (enzalutamide) capsules, or XTANDI, through our collaboration with Astellas Pharma, Inc., or Astellas. XTANDI has received marketing approval in the United States, Europe and numerous other countries worldwide for the treatment of patients with metastatic castration-resistant prostate cancer, or mCRPC, and in Japan for the treatment of patients with castration-resistant prostate cancer, or CRPC. We and Astellas are also conducting investigational studies of enzalutamide in prostate cancer, advanced breast cancer, and hepatocellular carcinoma. Under our collaboration agreement with Astellas, we share equally with Astellas all profits (losses) related to U.S. net sales of XTANDI. We also receive royalties ranging from the low teens to the low twenties as a percentage of ex-U.S. XTANDI net sales.  The collaboration also involved certain milestone payments from Astellas to us upon the achievement of defined development, regulatory and sales events, all of which have been achieved as of December 31, 2015.

We seek to become a more fully-integrated biopharmaceutical company through the continued commercialization of XTANDI, the acquisition or in-license and development and commercialization of other product opportunities, and through the advancement of our own proprietary research and development programs. We expect that our future growth may come from both internal research efforts and third-party business development activities. In the fourth quarter of 2015, we acquired all worldwide rights to talazoparib (which we refer to as MDV3800), an orally available poly-ADP ribose polymerase, or PARP, inhibitor, from BioMarin Pharmaceutical Inc., or BioMarin. MDV3800 is currently in a Phase 3 clinical trial for the treatment of patients with germline BRCA, or gBRCA, mutated advanced breast cancer (i.e., advanced breast cancer in patients whose BRCA genes contain germline mutations). We are targeting a number of other indications in which to investigate MDV3800, including breast cancer (beyond gBRCA mutations), prostate cancer, small cell lung cancer, and ovarian cancer. In the fourth quarter of 2014, we licensed exclusive worldwide rights to pidilizumab (which we refer to as MDV9300), an antibody with immune-mediated anti-tumor effects for all potential indications from CureTech, Ltd., or CureTech. Under the license agreement, we are responsible for all development, regulatory, manufacturing, and commercialization activities for MDV9300. We initiated a Phase 2 clinical trial evaluating MDV9300 in patients with relapsed or refractory diffuse large B-cell lymphoma in the fourth quarter of 2015, which is on partial clinical hold pending our revision of certain investigator brochure, protocols and informed consent documents. We submitted the revised documents to the FDA in early February 2016 and the FDA has 30 days thereafter to notify us if the partial hold is lifted.  We also plan to develop MDV9300 in other hematologic malignancies such as multiple myeloma.

In addition to the above activities, we have various internal research and discovery efforts focused in oncology, neurology and other areas. A summary of our commercial product and clinical stage pipeline is provided below:

 

Target/Drug Compound

 

Indication

 

Status

 

 

 

 

 

XTANDI

 

metastatic CRPC

 

Commercial

Enzalutamide

 

non-metastatic CRPC

 

Phase 3

Enzalutamide

 

non-metastatic HSPC (rising PSA)

 

Phase 3

Enzalutamide

 

metastatic HSPC

 

Phase 3 (initiating)

Enzalutamide

 

hepatocellular carcinoma

 

Phase 2

Enzalutamide

 

AR+ TNBC

 

Phase 2

Enzalutamide

 

ER/PR+ & HER2 normal breast cancer

 

Phase 2

Enzalutamide

 

AR+ HER2 amplified breast cancer

 

Phase 2

 

 

 

 

 

Talazoparib (MDV3800)

 

gBRCA mutated advanced HER2 normal breast cancer

 

Phase 3

 

 

 

 

 

Pidilizumab (MDV9300)

 

Relapsed or refractory diffuse large B-cell lymphoma

 

Phase 2 (potentially pivotal)

 

 

 

 

 

MDV4463

 

Nonalcoholic steatohepatitis

 

Phase 1

Additional information regarding XTANDI and our development programs for enzalutamide, MDV3800, MDV9300 and other research and drug discovery programs is included below.

OUR ENZALUTAMIDE PROGRAM

Summary of Our Enzalutamide Program

We and our collaboration partner Astellas have a number of clinical trials for which enrollment is ongoing or completed, including those described in the sections that follow.

2


Prostate Cancer

According to the American Cancer Society, prostate cancer is the most commonly diagnosed cancer in men in the United States, other than skin cancer. The American Cancer Society estimates that approximately 221,000 new cases of prostate cancer were diagnosed, and approximately 28,000 men died of prostate cancer, in the United States alone during 2015. Prostate cancer is thus the second-leading cause of cancer death in men in the United States, after lung cancer. According to the American Cancer Society, about 1 in 7 men will be diagnosed with prostate cancer during his lifetime and about 1 in 38 men will die of prostate cancer.

Prostate cancer is generally seen as a slowly-progressing disease. According to the American Cancer Society, when including all stages of disease, the relative 15-year survival rate is 94%. In the United States, prostate cancer patients are typically managed clinically by two different physician specialties—urologists and oncologists. Urologists typically manage prostate cancer patients for the large majority of a patient’s disease course, starting with the initial diagnosis and continuing for many years until the patient develops castration-resistant disease and symptoms. Once the patient develops symptoms, such as pain from metastases of his prostate cancer to his bone, he is typically referred to an oncologist to manage the final stages of his disease, which typically represent the last 9 to 13 months of the patient’s life.

Prostate cancer is frequently diagnosed at a stage where it is believed to be confined to the prostate gland and its immediate surroundings—i.e., it has not yet spread to other areas of the body. Prostate cancer detected at this stage generally is treated either with prostatectomy (surgical removal of the prostate gland) or with radiation. For most men, these procedures are successful in curing the disease. However, for some men, these procedures are not curative and their prostate cancer continues to spread. This disease progression is typically detected by rising levels of serum prostate-specific antigen, or PSA, a marker of tumor burden in prostate cancer. Men whose disease continues to progress following surgery or radiation are considered to have advanced prostate cancer.

Because the male sex hormone testosterone is the primary fuel of prostate cancer growth, first-line therapy for advanced prostate cancer typically entails treatment with a class of hormonal drugs known as luteinizing-hormone releasing hormone analogs, or LHRH analogs, which reduce testosterone to castrate levels—i.e., the levels that would be achieved following surgical castration. Patients treated with LHRH analogs typically remain on those drugs for the remainder of their lives to keep testosterone levels suppressed to castrate levels. Patients typically respond to LHRH analog treatment, as evidenced by reduced PSA levels. Eventually, however, virtually all advanced prostate cancers will become resistant to LHRH analogs, and the patient’s PSA level will begin to rise. Once a patient progresses beyond hormone sensitive prostate cancer, or HSPC, while being treated with an LHRH analog, he is said to have castration-resistant prostate cancer, or CRPC. The term “castration-resistant” refers to the fact that these patients have had their serum testosterone reduced to castrate levels, and yet their prostate cancers continue to progress.

Once a patient has developed CRPC, the typical second line therapy is a class of hormonal drugs known as anti-androgens, which block the ability of testosterone to bind its receptor, the androgen receptor. Bicalutamide, widely available in generic form, is the most commonly used anti-androgen drug. Like LHRH analogs, bicalutamide typically suppresses tumor growth for a certain period of time, as evidenced by a declining PSA level. However, virtually all prostate cancers become resistant to bicalutamide as well. In addition, once prostate cancer becomes resistant to bicalutamide, the effect of that drug may convert from suppressing tumor growth to fueling tumor growth. For this reason, bicalutamide treatment is typically discontinued once patients begin to progress on the drug.

The next line of treatment for CRPC patients who have failed treatment on both LHRH analogs and anti-androgen drugs is frequently the chemotherapy drug Taxotere® (docetaxel), which has been shown in clinical studies to prolong survival. However, docetaxel is an infused cytotoxic chemotherapy, and thus entails an increased risk of serious adverse effects, including fluid retention, liver toxicity, low white blood cell counts, and death. Prior to 2010, there were no treatments approved by the U.S. Food and Drug Administration, or FDA, for CRPC patients whose prostate cancer had progressed following treatment with docetaxel. These patients typically had only palliative care, or pain reducing, options available to them. Since 2010, four new agents in addition to XTANDI have been approved by the FDA for the treatment of patients with mCRPC: Jevtana® (cabazitaxel); Provenge® (sipuleucel-T); Zytiga® (abiraterone acetate) plus prednisone; and Xofigo® (radium RA-223 dichloride); and others are currently being studied.

Based on the above treatment algorithm, advanced prostate cancer patients are generally subdivided into various sub-populations that regulatory agencies typically consider to be distinct patient populations. Because they view them as distinct, regulatory agencies typically require separate clinical studies in each patient population to grant marketing approval covering that patient population. These sub-populations are defined primarily by two factors: (a) the prior treatments the patient has undergone; and (b) whether the patient has metastatic disease. The sub-populations are the following:

 

Patients with HSPC. Patients in this sub-population have progressive prostate cancer, are not castrate, and have not yet been treated with an LHRH analog drug, an anti-androgen drug or any other hormonal drug for progressive disease. Hormone-sensitive prostate cancer patients may have metastatic or non-metastatic disease.

3


 

Patients with CRPC. Patients with CRPC have advanced prostate cancer that has progressed after treatment with an LHRH analog drug or surgical castration. They may also have failed treatment on an anti-androgen drug, but are not required to have done so. Patients with CRPC may be in turn further subdivided into pre-chemotherapy CRPC patients and post-chemotherapy CRPC patients. Both pre-chemotherapy and post-chemotherapy CRPC patients may have mCRPC or non-metastatic CRPC. Pre-chemotherapy CRPC patients typically constitute a mix of metastatic and non-metastatic disease. However, by the time they have progressed to the post-chemotherapy state, virtually all CRPC patients will have developed metastatic disease.

Our Prostate Cancer Clinical Trials

 

TERRAIN – The Phase 2 TERRAIN trial was initiated in March 2011 and completed enrollment in July 2013. The trial evaluated enzalutamide head-to-head versus bicalutamide, the leading marketed anti-androgen drug, in 375 pre-chemotherapy mCRPC patients. The randomized, double-blind trial was conducted primarily in Europe. The primary endpoint of the trial was progression-free survival, or PFS, defined as time from randomization to centrally determined radiographic progression, skeletal-related event, initiation of new anti-neoplastic therapy or death, whichever occurred first. In January 2015, we and Astellas reported top-line results from the Phase 2 TERRAIN trial. The trial achieved its primary endpoint demonstrating a statistically significant increase in PFS for patients with mCRPC for enzalutamide compared to bicalutamide (Hazard Ratio = 0.44; 95% Confidence Interval (CI): 0.34, 0.57; p < 0.0001). Median PFS was 15.7 months in the enzalutamide group compared to 5.8 months in the bicalutamide group. The median time on treatment in the TERRAIN trial was 11.7 months in the enzalutamide group versus 5.8 months in the bicalutamide group. Serious adverse events were reported in 31.1% of enzalutamide-treated patients and 23.3% of bicalutamide-treated patients. Grade 3 or higher cardiac adverse events were reported in 5.5% of enzalutamide-treated patients versus 2.1% of bicalutamide-treated patients. Two seizures were reported in the enzalutamide group and one in the bicalutamide group. Results from the TERRAIN trial were published in an online issue of Lancet Oncology in January 2016.   We have submitted the results of the TERRAIN trial to regulatory agencies for potential inclusion in the relevant clinical trials sections of the XTANDI label within the current metastatic CRPC indication. The Prescription Drug User Fee Act, or PDUFA, goal date for a decision by the FDA is October 22, 2016.

 

STRIVE – The Phase 2 STRIVE trial was initiated in August 2012 and completed enrollment in March 2014. The trial evaluated enzalutamide head-to-head versus bicalutamide, the leading marketed anti-androgen drug, in 396 pre-chemotherapy CRPC patients. The randomized, double-blind trial enrolled both metastatic and non-metastatic patients and was conducted in the United States. The primary endpoint of the trial was PFS defined as time from randomization to radiographic (bone or soft tissue) progression, PSA progression (defined by Prostate Cancer Working Group 2 criteria), or death due to any cause, whichever occurs first. In April 2015, we and Astellas reported top-line results from the Phase 2 STRIVE trial.  The trial achieved its primary endpoint demonstrating a statistically significant prolongation of PFS for patients with CRPC for enzalutamide compared with bicalutamide (Hazard Ratio = 0.24; 95% CI: 0.18, 0.32; p < 0.0001). Median PFS was 19.4 months in the enzalutamide group compared with 5.7 months in the bicalutamide group. The median time on treatment in the STRIVE trial was 14.7 months in the enzalutamide group versus 8.4 months in the bicalutamide group. Serious adverse events were reported in 29.4% of enzalutamide-treated patients and 28.3% of bicalutamide-treated patients. Grade 3 or higher cardiac adverse events were reported in 5.1% of enzalutamide-treated patients versus 4.0% of bicalutamide-treated patients. One seizure was reported in the trial in the enzalutamide-treated group and none in the bicalutamide-treated group. Results from the STRIVE trial were published in an online issue of Journal of Clinical Oncology in January 2016.  We have submitted the results of STRIVE to regulatory agencies for potential inclusion in the relevant clinical trials sections of the XTANDI label within the current metastatic CRPC indication. The PDUFA goal date for a decision by the FDA is October 22, 2016.

 

PROSPER – The first patient was enrolled in the Phase 3 PROSPER trial in December 2013. The trial is evaluating the safety and efficacy of enzalutamide in patients with non-metastatic CRPC. The PROSPER trial is intended to enroll a high-risk subgroup of patients with prostate cancer who are progressing despite androgen deprivation therapy, but who are asymptomatic with no prior or present evidence of metastatic disease. The Phase 3 randomized, double-blind, placebo-controlled, multi-national trial is designed to enroll approximately 1,560 patients with non-metastatic CRPC. The primary endpoint of the trial is metastasis-free survival.

 

EMBARK – The first patient was enrolled in the Phase 3 EMBARK trial in January 2015. The trial is intended to evaluate the efficacy and safety of enzalutamide alone or in combination with androgen deprivation therapy compared with androgen deprivation therapy alone in patients with high-risk, hormone-sensitive, non-metastatic prostate cancer that has biochemically recurred (rising PSA level) following definitive local therapy with radical prostatectomy and/or radiation. The purpose of the trial is to help determine if enzalutamide can delay or prevent the development of metastatic prostate cancer in high-risk men with a rapidly rising PSA. The trial is designed to enroll approximately 1,860 patients. The primary endpoint of the trial is metastasis-free survival.

 

PLATO – The Phase 4 PLATO trial was initiated in November 2013 and completed enrollment in September 2014. The trial is evaluating the efficacy and safety of continued treatment with enzalutamide plus abiraterone acetate and

4


 

prednisone as compared to abiraterone acetate and prednisone alone in patients with chemotherapy-naive CRPC whose disease has progressed following enzalutamide therapy. The purpose of the trial is to help determine the potential clinical benefit of continued enzalutamide treatment after progression on enzalutamide therapy. The global randomized, double-blind, placebo-controlled trial has enrolled 509 chemotherapy-naive patients with mCRPC. The primary endpoint of the trial is PFS defined as time from randomization to radiographic progression, unequivocal clinical progression, or death, whichever occurs first. Top-line results from PLATO may be available as early as the second half of 2016.

 

M1 HSPC – In January 2016, Astellas initiated start-up activities for a Phase 3 trial in patients with metastatic hormone-sensitive prostate cancer, or mHSPC.  The trial is intended to evaluate the efficacy and safety of enzalutamide in combination with androgen deprivation therapy compared with androgen deprivation therapy alone in approximately 1,100 patients. The primary endpoint of the trial is overall survival.

 

AFFIRM – Our FDA approval in post-chemotherapy mCRPC was based on the results of the AFFIRM trial, a randomized, double-blind Phase 3 trial evaluating XTANDI (160 mg once daily) as compared to placebo in 1,199 post-chemotherapy mCRPC patients. The primary endpoint of the AFFIRM trial was overall survival. Data from the AFFIRM trial were first reported in November 2011 and were published in The New England Journal of Medicine in August 2012. The AFFIRM trial also led to the initial marketing approvals of XTANDI by regulatory authorities in Europe, Japan and numerous other countries worldwide. The open-label extension of this trial is ongoing.

 

PREVAIL – Our FDA approval in pre-chemotherapy mCRPC was based on the results of the PREVAIL trial, a randomized, double-blind, placebo-controlled Phase 3 trial, evaluating enzalutamide (160 mg once daily) as compared to placebo in 1,717 patients with pre-chemotherapy mCRPC. The co-primary endpoints were radiographic PFS and overall survival. Positive results from the PREVAIL trial were first reported in October 2013 and were published in The New England Journal of Medicine in June 2014. The PREVAIL trial also led to expanded marketing approvals by regulatory authorities in Europe, Japan, and numerous other countries worldwide. In July 2015, the FDA approved a label update for XTANDI based on an updated overall survival analysis of the Phase 3 PREVAIL trial. This analysis was conducted when 784 deaths were observed and found an overall survival benefit with a 23% reduction in risk of death (Hazard ratio = 0.77; 95% CI: 0.67, 0.88) and a 4-month improvement in median survival with enzalutamide (35.3 months [95% CI: 32.2, not yet reached]) over placebo (31.3 months [95% CI: 28.8, 34.2]). The open-label extension of this trial is ongoing.

Breast Cancer

According to the American Cancer Society, breast cancer is the most common cancer in women in the United States, other than skin cancer. The American Cancer Society estimates that approximately 234,000 new cases of breast cancer were diagnosed in women, and approximately 41,000 women died of breast cancer, in the United States alone during 2015. Breast cancer is the second-leading cause of cancer death in women in the United States, after lung cancer. According to the American Cancer Society, the chance that breast cancer will be responsible for a woman’s death is about 1 in 36. Death rates from breast cancer have been declining since about 1989, with larger decreases in women younger than 50. These decreases are believed to be the result of earlier detection through screening and increased awareness, as well as improved treatment.

Systemic treatment of recurrent/advanced breast cancer has been shown, in some situations, to prolong survival and/or quality of life, but it is not curative.  Therefore treatments associated with minimal toxicity are preferred.  There are many chemotherapies approved for use in breast cancer.  Most are given as single agents as there is no compelling evidence that combination regimens are superior to sequential single agents once the disease has recurred.  The length of treatment depends on whether the cancer shrinks, how much it shrinks, and how well the treatment is tolerated. A central component of the treatment of breast cancer is full knowledge of its biologic features, which provides information that may predict a patient’s response to therapy. These factors are determined by examination of excised tissue and routinely provided in a written pathology report and are based, in part, on three targeted receptors in breast cancer cells – the estrogen receptor, or ER, progesterone receptor, or PgR, and human epidermal growth factor receptor 2, or HER2. Androgen receptor expression has been observed in the majority of ER/PgR+ (>65%) and HER2 amplified (>50%) breast cancer and in up to one-third of triple negative breast cancer.

The estrogen and progesterone receptors are in the nuclear steroid receptor family and their expression is observed in two-thirds of all breast cancer. There are five commonly used agents approved for use in patients whose tumor express one or both of these receptors: tamoxifen, fulvestrant, exemestane, letrozole and anastrozole. The use of minimally toxic endocrine therapies is preferred to the use of cytotoxic therapy whenever reasonable.  Everolimus and palbociclib have recently been approved in combination with exemestane and with letrozole or fulvestrant, respectively, for the treatment of this subtype of disease that is advanced.

Overexpression of the growth-promoting protein known as HER2 is found in about 20% of breast cancer and, in the absence of HER2 targeted therapy, is associated with a worse prognosis. A number of drugs have been developed that target HER2: trastuzumab, Ado-trastuzumab emtansine and pertuzumab, which are monoclonal antibodies that are administered intravenously, and lapatinib which is administered orally. Breast cancer that is HER2+ may, or may not, also express ER or PgR.

5


Triple negative breast cancer, or TNBC, is a type of breast cancer that is so named by the observation that it lacks expression of the three targeted receptors in breast cancer, namely ER, PgR and HER2.  It is estimated that approximately 20% of women with metastatic breast cancer are in this category.  Triple negative breast cancer has no recognized target and standard therapy is cytotoxic chemotherapy.

Our Breast Cancer Clinical Trials

In April 2012, we and Astellas expanded the clinical development of enzalutamide to include breast cancer. We currently have three Phase 2 clinical trials evaluating enzalutamide in three subsets of breast cancer:

 

AR+, TNBC – This Phase 2 open-label, single arm, multicenter clinical trial evaluated enzalutamide as a single agent for the treatment of advanced androgen receptor positive, or AR+, TNBC. 118 women with advanced TNBC were enrolled in this Simon 2 stage study at sites in the United States, Canada, and Europe. The objective of the study was to evaluate the safety and clinical benefit of enzalutamide, 160 mg/day orally, for advanced TNBC and to identify a biomarker to better select those women more likely to respond to enzalutamide. The primary endpoint of the trial was the clinical benefit rate at 16 weeks, or CBR16, defined as the proportion of evaluable patients with a complete response, or CR, partial response, or PR, or stable disease for at least 16 weeks. Secondary endpoints of the trial included clinical benefit rate at 24 weeks, or CBR24, and PFS, defined as time from the date of first dose of study drug until documented disease progression or death due to any cause, overall survival, and safety.  

The primary endpoint analysis was pre-specified to be conducted in the evaluable patient population, defined as all patients who had at least one follow-up tumor assessment after starting enzalutamide and whose TNBC had at least 10% of the tumor cells stain positive for AR using a central immunohistochemistry, or IHC, assay. The evaluable population was pre-specified based on the hypothesis that patients whose tumor tissue expressed higher levels of AR protein may be more likely to receive benefit from enzalutamide than those whose tumors had less than 10% cells with AR expression. Of the 118 patients enrolled into the study, 75 were evaluable. Analyses for clinical benefit and safety were also conducted in all 118 patients enrolled.

The study met its primary endpoint, achieving a CBR16 of 35% (95% CI: 24, 46), including six CRs or PRs (8%) in the evaluable population based on results as of March 25, 2015. The secondary endpoint of CBR24 was 29% (95% CI: 20, 41), and the median PFS on enzalutamide therapy was 14.7 weeks (95% CI: 8.1, 19.3) in the evaluable population. Using the total intent-to-treat, or ITT, population, CBR16 was achieved in 25% (95% CI: 17, 33) including seven CRs or PRs (6%), CBR24 was achieved in 20% (95% CI: 14, 29), and the median PFS was 12.6 weeks (95% CI: 8.1, 15.7).

Nearly half of the enrolled patients (47%) tested positive for a novel gene expression profile. Of these 56 diagnostic positive women with advanced TNBC, 39% achieved CBR16 (95% CI: 27, 53) and 36% achieved CBR24 (95% CI: 24, 49). Of the 62 women who were diagnostic negative for the novel gene expression profile, 11% achieved a CBR16 (95% CI: 5, 21) and 6% achieved CBR24 (95% CI: 2, 16). Median PFS in the diagnostic positive group was 16.1 weeks (95% CI: 13.3, 27.4) compared with 8.1 weeks in the diagnostic negative group (95% CI: 7.4, 12.6). Over half (n=62) of the ITT patients enrolled received enzalutamide as their first- or second-line treatment and median PFS on enzalutamide in diagnostic positive patients was 40.4 weeks (95% CI: 16.1, not yet reached) whereas it was 9 weeks (95% CI: 7.3, 15.7) in the diagnostic negative group.

An exploratory analysis of overall survival data collected as of September 15, 2015 demonstrated that patients treated with enzalutamide whose tumors tested positive according to the novel diagnostic assay experienced a 13.8-month longer median overall survival duration compared to those patients whose tumors tested negative for the novel gene expression profile. Median overall survival in the diagnostic positive group treated with enzalutamide was 21.3 months (95% CI: 12.9, 21.3) compared with 7.5 (95% CI: 4.8, 11.2) months for the diagnostic negative group treated with enzalutamide.

Multicovariate analyses demonstrated that only diagnostic status (positive) and number of prior lines of therapy (0-1) were statistically significantly and independently associated with both improved PFS and overall survival outcomes.  Additional variables included in the multi-covariate analyses were age (≥65 vs. < 65 years), disease free interval between primary and metastatic disease (≥12 months vs. <12 months), AR IHC (≥10% vs. <10%).

The most common (reported in ≥10% of patients) adverse events reported as related to enzalutamide treatment in the ITT population were fatigue (35%), nausea (26%), decreased appetite (13%), diarrhea (10%), and hot flush (10%).

Additionally, we entered into a collaboration agreement with NanoString Technologies, Inc. and our partner Astellas, in January 2016, to translate our gene expression profile into a companion diagnostic assay using NanoString’s nCounter® Dx Analysis System for potential use as a companion diagnostic test for enzalutamide for TNBC.

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ER+ or PgR+ and HER2 Normal The Phase 2 trial was initiated in December 2013 and completed enrollment of 247 patients in March 2015.  The trial is evaluating exemestane in combination with enzalutamide and exemestane in combination with placebo in women with advanced breast cancer that is estrogen receptor positive, or ER+, or progesterone receptor positive, or PgR+, and HER2 normal. The Phase 2 randomized, double-blind, placebo-controlled, multicenter trial will assess outcomes in two parallel enrolled cohorts. The first cohort enrolled patients who had not previously received hormonal treatment for advanced breast cancer. The second cohort enrolled patients who had previously progressed following one hormonal treatment for advanced disease. The primary endpoint of the trial is PFS in all patients and by cohort and PFS in the subset of patients whose tumors test positive for a diagnostic assay. Top-line results from this trial may be available as early as the second half of 2016.

 

AR+ HER2 Amplified – In August 2014, Astellas initiated a Simon 2 stage Phase 2 clinical trial evaluating the safety and efficacy of adding enzalutamide to trastuzumab in approximately 80 patients with advanced breast cancer that is AR+ and HER2 amplified. Patients must also have previously received and progressed on trastuzumab. The primary endpoint of the trial is clinical benefit rate defined as complete response or partial response or stable disease for at least 24 weeks. The trial met the criteria to proceed to stage 2 which required a minimum of three evaluable patients in the first 21 evaluable patients to achieve CBR24.  Like the TNBC clinical trial, the evaluable population consists of patients with at least one follow-up tumor assessment after starting enzalutamide and whose breast cancer has AR protein expression by central IHC testing in at least 10% of tumor cells.

Hepatocellular Carcinoma

The American Cancer Society estimates that approximately 36,000 new cases of liver cancer were diagnosed in the United States alone during 2015, approximately three-fourths of which were hepatocellular carcinoma, or HCC.  Liver cancer incidence rates are about three times higher in men than in women, and have doubled in each sex over the past two decades.  Common symptoms, which do not usually appear until the cancer is advanced, include abdominal pain and/or swelling, weight loss, weakness, loss of appetite, jaundice and fever.  Enlargement of the liver is the most common physical sign.  The most important risk factors for liver cancer are obesity, diabetes, alcoholic liver disease, chronic infection with hepatitis B virus and/or hepatitis C virus, and tobacco smoking.  Early stage liver cancer can sometimes be treated successfully with partial hepatectomy (surgical removal of the liver); however, only a limited number of patients have sufficient healthy liver tissue for this to be an option.  Liver transplantation may be an option for individuals with small tumors who are not candidates for partial hepatectomy.  Other treatment options include ablation (techniques used to destroy liver tumors without removing them) or embolization (a procedure that injects substances to try to block or reduce the blood flow to cancer cells).  Fewer treatment options exist for patients diagnosed at an advanced stage.  Sorafenib  is a targeted drug approved for the treatment of HCC when it cannot be treated with surgery.

In January 2016, Astellas enrolled the first patient into a Phase 2 trial evaluating enzalutamide in hepatocellular carcinoma. The trial will assess approximately 144 patients with advanced hepatocellular carcinoma that have failed sorafenib or other anti-vascular endothelial growth factor therapies. The primary endpoint of the trial is overall survival.

The Astellas Collaboration Agreement

We have a collaboration agreement with Astellas, or the Astellas Collaboration Agreement, pursuant to which we are collaborating to develop and commercialize XTANDI globally for all indications, dosages, and formulations of enzalutamide. We licensed the intellectual property rights covering XTANDI from the Regents of the University of California, or UCLA or Regents, pursuant to a license agreement described in the section below titled, “License Agreement with UCLA.” Under the Astellas Collaboration Agreement, Astellas paid us a non-refundable, upfront cash payment of $110.0 million in 2009.  As of December 31, 2015, we have earned all development and sales milestone payments under the Astellas Collaboration Agreement, totaling $655.0 million, including $245.0 million, $307.0 million, and $45.0 million in the years ended December 31, 2015, 2014, and 2013, respectively.

In the United States, decisions are generally made by consensus, pre-tax profits and losses are shared equally, and, subject to certain exceptions, development and commercialization costs are also shared equally. Outside the United States, decisions are generally made by Astellas and all development and commercialization costs are borne by Astellas. Astellas retains all ex-U.S. profits and losses, and pays us a tiered royalty ranging from the low teens to the low twenties as a percentage of aggregate net sales of XTANDI outside the United States, or ex-U.S. XTANDI net sales.

The Astellas Collaboration Agreement establishes several joint committees consisting of representatives from both parties that operate by consensus to oversee the collaboration. In the event that a joint committee is unable to reach consensus on a particular issue, then, depending on the issue, a dispute may be decided at the joint committee level by the party with the final decision on the issue or escalated to senior management of the parties. If a dispute is escalated to senior management and no consensus is reached, then the dispute may be decided by the party to whom the contract grants final decision on such issue. Other issues can only be decided by consensus of the parties, and unless and until the parties’ representatives reach agreement on such issue, no decision on such issue will be made, and the status quo will be maintained.

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Unless terminated earlier by us or Astellas pursuant to the terms thereof, the Astellas Collaboration Agreement will remain in effect: (a) in the United States, until such time as Astellas notifies us that Astellas has permanently stopped selling products covered by the Astellas Collaboration Agreement in the United States; and (b) in each other country of the world, on a country-by-country basis, until such time as (i) products covered by the Astellas Collaboration Agreement cease to be protected by patents or regulatory exclusivity in such country and (ii) commercial sales of generic equivalent products have commenced in such country.

We and Astellas are each permitted to terminate the Astellas Collaboration Agreement for an uncured material breach by the other party or for the insolvency of the other party. Astellas has the right to terminate the Astellas Collaboration Agreement unilaterally by advance written notice to us. Following any termination of the Astellas Collaboration Agreement in its entirety, all rights to develop and commercialize XTANDI will revert to us, and Astellas will grant a license to us to enable us to continue such development and commercialization. In addition, except in the case of termination by Astellas for our uncured material breach, Astellas will supply XTANDI to us during a specified transition period.

The Astellas Collaboration Agreement further provides for a standstill period during which Astellas and its Affiliates, as defined in the Astellas Collaboration Agreement, agreed to certain restrictive covenants, including that they would not, directly or indirectly (subject to certain exceptions), unless invited to do so by us, acquire (a) all or substantially all of our consolidated assets or (b) beneficial ownership of more than five percent of any voting securities of us or any subsidiary or Affiliate of us.  The standstill period will expire in September 2016.

Additional information about the Astellas Collaboration Agreement, including geographic financial information, is included in Note 3, “Collaboration Agreement,” to our audited consolidated financial statements included elsewhere in this Annual Report.

License Agreement with UCLA

Under an August 2005 license agreement with UCLA, our subsidiary Medivation Prostate Therapeutics, Inc. holds an exclusive worldwide license under several UCLA patents and patent applications covering XTANDI and related compounds. Under the Astellas Collaboration Agreement, we granted Astellas a sublicense under the patent rights licensed to us by UCLA.

We are required to pay UCLA (a) an annual maintenance fee, (b) $2.8 million in aggregate milestone payments upon achievement of certain development and regulatory milestone events with respect to XTANDI (all of which has been paid as of December 31, 2015), (c) ten percent of all Sublicensing Income, as defined in the agreement, which we earn under the Astellas Collaboration Agreement, and (d) a four percent royalty on global net sales of XTANDI, as defined. Under the terms of the Astellas Collaboration Agreement, we share this royalty obligation equally with Astellas with respect to sales in the United States, and Astellas is responsible for this entire royalty obligation with respect to sales outside of the United States. We are currently involved in litigation with UCLA regarding this agreement. For more information about this litigation, see “Legal Proceedings” in Item 3 of Part I below.

UCLA may terminate the agreement if we do not meet a general obligation to diligently proceed with the development, manufacturing and sale of licensed products, or if we commit any other uncured material breach of the agreement. We may terminate the agreement at any time upon advance written notice to UCLA. If neither party terminates the agreement early, the agreement will continue in force until the expiration of the last-to-expire patent on a country-by-country basis.

MDV3800 (TALAZOPARIB) PROGRAM

In the fourth quarter of 2015, we acquired all worldwide rights to talazoparib (which we refer to as MDV3800) from BioMarin Pharmaceutical Inc., or BioMarin. Upon closing of the transaction, we paid BioMarin an upfront cash payment of $410.0 million.  We also assumed certain costs for ongoing clinical trials of MDV3800, and commitments under certain agreements previously entered into or assumed by BioMarin and assigned to us.  BioMarin is eligible to receive up to an additional $160.0 million upon the achievement of defined regulatory and sales-based milestones, and mid-single digit royalties on net sales of products that contain MDV3800 during the royalty term specified in the asset purchase agreement.  We further entered into a transition services agreement at the closing of the transaction to facilitate the transition of research and development activities relating to MDV3800 from BioMarin to us, including responsibility for the ongoing clinical studies.

MDV3800 is an orally available poly-ADP ribose polymerase, or PARP, inhibitor currently in a Phase 3 clinical trial for the treatment of patients with gBRCA mutated breast cancer. The Phase 3 EMBRACA trial is an open-label, 2:1 randomized, parallel, two-arm study of MDV3800 as compared to the protocol-specified physicians’ choice of chemotherapy (capecitabine, eribulin, gemcitabine or vinorelbine) in gBRCA-mutated locally advanced and/or metastatic breast cancer patients who have received prior chemotherapy for their metastatic disease. The study is enrolling up to 430 patients. The primary objective of the study is to compare PFS of patients treated with MDV3800 as a monotherapy relative to those treated with protocol-specified physicians’ choice. We anticipate fully enrolling this trial by the end of 2016 with top-line results as early as the first half of 2017.  We are targeting a number of other indications in which to investigate MDV3800, including breast cancer (beyond gBRCA mutations), prostate cancer, small cell lung cancer, and ovarian cancer.

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PARP Inhibitors

PARP is a family of proteins involved in a wide range of cellular functions including deoxyribonucleic acid, or DNA, transcription, DNA damage response, genomic stability maintenance, cell cycle regulation, and cell death.  One well-studied area of PARP activity relates to DNA repair. Since DNA is the vehicle by which fundamental information is passed on when a cell divides, it is critical to the viability of cells and human health that DNA damage can be repaired. If a cell’s DNA damage repair system is impaired, the cell will die.

DNA can be damaged as a result of environmental exposure or agents, or through errors introduced during replication.  Cells have a number of different mechanisms to repair damaged DNA. PARPs aid in repair by binding to single-strand breaks in DNA and recruiting additional repair proteins to the site of damage, a process called base excision repair.  PARP inhibitors are thought to block this activity, thus preventing the repair of DNA. PARP inhibitors exert a cytotoxic effect by two mechanisms: (a) catalytic inhibition of PARP enzyme activity and (b) PARP trapping.

A single-stranded DNA break signals PARP protein to attach to DNA, a critical step in DNA repair. Inhibition of PARP’s catalytic activity impairs the recruitment of additional DNA repair proteins critical for base excision repair and single stranded breaks can become double stranded breaks which require homologous recombination for repair. Cells harboring mutations or deficiencies in homologous recombination (e.g., cells with BRCA1/2 mutations), are particularly susceptible to the cytotoxic effects of PARP inhibitors as these cells tend to accumulate double strand breaks that are inaccurately repaired by alternative pathways.

Another potentially important mechanism of action to MDV3800 is the phenomenon called PARP trapping. The attachment and release of PARP molecules to DNA is facilitated by the reduction of nicotinamide adenine dinucleotide to its reduced form.  MDV3800 traps the PARP molecule on the DNA creating a large protein moiety that interferes with the cell’s ability to replicate its DNA thereby causing cell death.

DNA damaging therapies such as radiation and chemotherapy (alkylating agents like temozolomide) modify DNA and initiate PARP-dependent repair processes including base excision repair. Single strand breaks resulting from these therapies create additional sites for PARP to be trapped by MDV3800 thereby further increasing its cytotoxicity. In 2015 in the U.S. alone, approximately 500,000 patients received DNA damaging radiation therapy, while more than 500,000 received DNA damaging chemotherapy. As single-stranded breaks are potential sites for PARP trapping, MDV3800 in combination with these DNA damaging agents may have broad activity beyond tumors harboring BRCA1/2 mutations which represent only a small portion of the total oncology market.

MDV9300 (PIDILIZUMAB) PROGRAM

In the fourth quarter of 2014, we licensed exclusive worldwide rights to MDV9300, an antibody with immune-mediated anti-tumor effects, for all potential indications, from Israel-based CureTech. Under the license agreement, we are responsible for all development, regulatory, manufacturing, and commercialization activities for MDV9300.

MDV9300 was not generated against a single purified recombinant protein but, rather, was generated against a lymphoblast cell line called DAUDI.  Although the molecule was originally understood to work primarily via PD-1 (Programmed Death-1) binding, our work as well as that of others has shown other potential activity as well.  In the year since we acquired rights to the molecule, we conducted testing and characterization work to better identify the binding target and, in late December 2015, we concluded that MDV9300 does not bind PD-1. Clinical and preclinical data continue to indicate that MDV9300 administration is associated with enhanced maturation and survival of T lymphocytes, which may improve adaptive immunity, as well as activation of natural killer cells, which may improve innate immunity that facilitates anti-tumor activity.  Such broad effects on both sides of the immune response are not widely reported with checkpoint inhibitors and may serve to differentiate MDV9300 from other agents in the competitive PD-1 landscape.

Prior to concluding non-binding of PD-1, in the fourth quarter of 2015, we initiated a Phase 2 clinical trial evaluating MDV9300 in patients with relapsed or refractory diffuse large B-cell lymphoma, or DLBCL. The open-label trial is expected to enroll approximately 180 patients with an incomplete response following salvage therapy or autologous stem cell transplantation for relapsed or refractory CD20+ diffuse large B cell lymphoma, transformed indolent lymphoma or primary mediastinal B-cell lymphoma. Patients will be assessed in two parallel cohorts of approximately 90 patients each. One cohort will enroll patients who have received an autologous stem cell transplant, and the second cohort will enroll patients who have received salvage chemotherapy, but are transplant ineligible. MDV9300 will be administered at a dose of 200 mg by IV infusion. The primary endpoint of the trial is best overall response rate.

In early January 2016, we promptly advised FDA of our conclusion that MDV9300 does not bind PD-1, and the agency placed the IND on partial clinical hold and requested that we revise our characterization of MDV9300 in the related investigator brochure, protocols and informed consent documents. The partial clinical hold was not related to concerns regarding the safety of MDV9300.  Under the hold, we may not enroll patients into the Phase 2 DLBCL trial until such documents are revised.  We since submitted the revised documents in early February 2016 to the agency, and the FDA has 30 days thereafter to notify us if the partial hold is lifted.

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Although the Phase 2 clinical trial was initiated in December 2015, no patients have been enrolled to date. Under the partial clinical hold, patients who are currently receiving MDV9300 through investigator-sponsored trials of MDV9300 that cross-reference our IND may continue on treatment, but we must inform those investigators to update their protocols and informed consent documents to state that MDV9300 is not an anti-PD-1 antibody.

In addition, we intend to submit an amendment to the Chemistry, Manufacturing and Controls, or CMC, section of our IND for MDV9300 to provide for larger manufacturing lot sizes to better support our planned clinical activities with MDV9300. We plan to submit the CMC amendment in the first half of 2016 and we intend that patients in our Phase 2 DLBCL trial will be treated with MDV9300 manufactured in accordance with the amended IND.  This decision will also contribute to a later timeline for completion of the Phase 2 DLBCL trial.

We continue to deepen our understanding of the properties of MDV9300, which we believe may differentiate it from the other immuno-oncology agents in development.  Based on clinical and preclinical data, including data from Dr. Benson presented at the American Society of Hematology, we plan to develop MDV9300 in other hematologic malignancies such as multiple myeloma.

RESEARCH AND DRUG DISCOVERY PROGRAMS

An important element of our corporate strategy is to diversify beyond XTANDI to build a portfolio of multiple approved products. To further this strategy, we are investing in a number of research and drug discovery programs, from the discovery stage through early clinical studies. In the discovery stage, we identify disease states of interest and therapeutic approaches that we believe may be safe and effective in treating a disease state. We conduct preclinical studies designed to identify one or more development candidates. A development candidate is a specific product candidate that embodies the therapeutic approach of interest and which we believe may possess the properties necessary to successfully complete the subsequent preclinical and clinical testing required to support an application for marketing approval. Once we identify a development candidate, we conduct any additional preclinical testing required to support an application for regulatory approval to begin human testing.  Once such approval is granted, we may conduct Phase 1 trials where the development candidate is introduced into healthy human subjects or patients with the target indication and tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion, and, if possible, early evidence on effectiveness. Our current internal research and drug discovery programs are focused in oncology, neurology and other areas.

From our research and drug discovery efforts, we have developed a novel small molecule inhibitor of the sterol regulatory element-binding protein, or SREBP, pathway which we refer to as MDV4463.  SREBPs are master regulators of cholesterol and lipid biosynthesis. SREBP modulates the expression of multiple metabolic proteins, including but not limited to PCSK9 and HMG-CoA reductase, the target of all statins.  In some preclinical studies, we have demonstrated that MDV4463 lowers triglycerides, cholesterol, glucose, insulin and weight in animals. MDV4463 also reduced lipids in the liver of animal models of nonalcoholic steatohepatitis, or NASH.  MDV4463 is currently in a Phase 1 trial in healthy volunteers.

Our research and drug discovery activities are conducted largely on an outsourced basis at facilities owned and operated by independent third party contractors, with oversight and monitoring by our employees. In 2015, we constructed certain limited internal research, development and pharmaceutical operations capabilities in laboratory space that is currently leased in San Francisco, California.

INTELLECTUAL PROPERTY

Our success is dependent in part on our ability to protect the products we develop, acquire, or license and we rely on patent protection as well as trade secrets.  

We have an exclusive license to multiple issued patents and pending patent applications covering XTANDI, related compounds and uses thereof, including issued composition of matter patents covering XTANDI in the United States, Europe, and Japan. The terms of these issued XTANDI composition of matter patents have a base expiry in 2027 in the United States and in 2026 in Europe and Japan.  Supplemental Protection Certificates, or SPCs, and patent term extensions are pending or have been granted in Europe and Japan. Certain of the issued U.S. patents are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. U.S. federal law provides that, for a period of five years following approval of a drug containing a new molecular entity, no abbreviated new drug application for a generic version of such drug can be submitted unless the submission contains a Paragraph IV certification stating that the patents listed in the Orange Book are invalid or will not be infringed by the generic version of the drug, in which case the submission may be made four years following the original product approval.  XTANDI was approved by the FDA on August 31, 2012 and was a new molecular entity at the time of its approval.  Companies seeking approval to market a generic version of a reference drug may also seek to challenge the validity of the patents covering such reference drug by filing petitions for inter partes review with the U.S. Patent and Trademark Office.  For more information regarding the review and approval process of generic drugs, see the section below titled “Government Regulation—Abbreviated New Drug Applications and Section 505(b)(2) New Drug Applications.

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We have an exclusive license to multiple issued patents and pending patent applications covering MDV9300, including the antibody and methods of use of MDV9300. In addition, we expect to rely on the 12 years of data exclusivity available for biologic products.  For more information regarding the review and approval of biosimilars, see the section below titled “Government Regulation—Biologics Price Competition and Innovation Act.

Our acquisition of worldwide rights to MDV3800 included issued patents, pending patent applications and know-how covering MDV3800’s composition of matter as well as methods of use and methods of manufacturing MDV3800.  As we continue to develop MDV3800, MDV9300 and product candidates discovered from our own research and drug discovery programs, we will actively seek patent protection for such inventions.  However, the actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.  Other pharmaceutical and biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover technologies similar to the technologies owned or licensed to us.  Because patent applications are confidential for a period of time, we may not know if we were the first to invent or the first to file an application covering an invention that is the subject of our patent applications.  

We rely upon trade secret protection for our confidential and proprietary information. It is our policy to require our employees and consultants, outside collaborators, and other advisors who receive confidential information from us to execute confidentiality agreements upon the commencement of employment, consulting or other relationships with us. 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.

 XTANDI® is a registered trademark of Astellas Pharma, Inc. and is referred to as XTANDI throughout this Annual Report.

COMPETITION

The pharmaceutical and biopharmaceutical industries are highly competitive and require an ongoing, extensive search for technological innovation. These industries are characterized by rapidly evolving technologies, intense competition and a strong emphasis on proprietary products. They also require, among other things, the ability to effectively discover, develop, and obtain regulatory approval for products, as well as the ability to effectively commercialize, market, and promote approved products. Once a product is approved, it must compete successfully against other commercial products primarily on efficacy, safety, tolerability, acceptance by physicians, ease of patient compliance, patent protection, ease of use, price, insurance, and other reimbursement coverage, distribution, and marketing. Many of our competitors are large pharmaceutical companies with considerably greater financial resources, human resources and experience than us.

XTANDI

XTANDI faces and will continue to face intense competition as we market it in its approved indications, develop it across the prostate cancer treatment paradigm and seek additional marketing approvals in new indications. Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of market introduction of some of our potential products or of competitors’ products may be an important competitive factor.

Many products currently compete or are expected to compete with XTANDI for the treatment of advanced prostate cancer.  Products approved for advanced prostate cancer include Casodex® (bicalutamide), which is widely available in generic form and its generic pricing constitutes a competitive advantage relative to any branded drugs that are, or may later be, approved to treat pre-chemotherapy or non-metastatic CRPC or HSPC; Jevtana® (cabazitaxel); Provenge® (sipuleucel-T); Zytiga® (abiraterone acetate) plus prednisone; and Xofigo® (radium RA-223 dichloride).  Drugs still in development for advanced prostate cancer include apalutamide (formerly JNJ-56021927, or JNJ-927, and ARN-509) by Johnson & Johnson’s subsidiary Aragon Pharmaceuticals, or Aragon; ODM-201, which is being developed by Bayer and Orion Corporation; and galeterone (formerly TOK-001) which is being developed by Tokai. For information about certain pending litigation between us and Aragon, among other parties, concerning apalutamide, see “Legal Proceedings” in Item 3 of Part I below.

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Enzalutamide for the Treatment of Breast Cancer

There are many products available or currently in development for patients with breast cancer and which could compete with enzalutamide for the treatment of advanced breast cancer, including the following:

 

Bicalutamide Bicalutamide is approved for prostate cancer and is being studied in several Phase 2 studies in androgen receptor-positive breast cancer.  Positive proof-of-concept with enzalutamide or other drugs targeting androgen receptor signaling may encourage spontaneous use of bicalutamide in breast cancer.

 

IbranceTM (palbociclib) – Pfizer’s kinase inhibitor targeting CDK4/6 is approved in combination with letrozole or with fulvestrant for estrogen receptor-positive, HER2-negative, advanced breast cancer.

 

Pembrolizumab – Merck’s monoclonal antibody targeting PD-1 is being studied in a randomized Phase 3 study comparing the effects of pembrolizumab against investigator’s choice chemotherapy in patients with metastatic triple-negative breast cancer who have received 1-2 prior therapies for metastatic disease.

 

Atezolizumab – Roche’s monoclonal antibody targeting PD-L1 is being studied in a randomized Phase 3 study comparing the effects of atezolizumab in combination with nab-paclitaxel against nab-paclitaxel in patients with previously untreated, metastatic, triple-negative breast cancer.

 

Enobosarm – GTx Therapeutics’ investigational androgen receptor modulator is being studied in a Phase 2 open-label trial to assess preliminary efficacy in advanced triple-negative breast cancer patients whose tumors are deemed positive for androgen receptor expression.

MDV3800

MDV3800 faces competition from other PARP inhibitors, including:

 

Lynparza™ (olaparib) – AstraZeneca’s product is approved for patients with deleterious or suspected deleterious gBRCA mutated advanced ovarian cancer. Olaparib is being studied in a Phase 3 trial comparing the effects of olaparib against investigator’s choice chemotherapy in metastatic, HER2-negative breast cancer patients with deleterious germline BRCA1/2 mutations, and in Phase 2 studies for several other tumor types.

 

Rucaparib – Rucaparib is an investigational PARP inhibitor being developed by Clovis Oncology.  Rucaparib is currently in several clinical studies, including a randomized, double-blind pivotal Phase 3 study in woman with platinum-sensitive, relapsed, high grade serous or endometrioid ovarian fallopian tube, or primary peritoneal cancer comparing the effects of rucaparib against placebo to evaluate whether rucaparib given as a maintenance therapy to platinum-sensitive patients can extend the period of time for which the disease is controlled after a positive outcome with platinum-based chemotherapy. In April 2015, the FDA granted Breakthrough Therapy designation for rucaparib as monotherapy treatment of advanced ovarian cancer in patients who have received at least two lines of prior platinum-containing therapy, with BRCA-mutated tumors, inclusive of both germline BRCA and somatic BRCA.

 

Veliparib - Veliparib is an investigational PARP inhibitor being developed by AbbVie.  It is currently in Phase 3 clinical trials for the treatment of HER2-negative, germline BRCA1/2-mutated breast cancer and non-small cell lung cancer, and Phase 2 studies for a variety of other cancers.

 

Niraparib – Niraparib is an investigational PARP inhibitor being developed by Tesaro. It is currently in Phase 3 clinical trials for ovarian cancer and BRCA+ breast cancer.

MDV9300

The development and commercialization of MDV9300 will face strong competition from other immuno-oncology agents which are currently approved and on the market for certain indications and being developed for additional indications by larger companies with substantial resources and relatively more experience developing, manufacturing, and commercializing biologic molecules. The immuno-oncology field is competitively crowded with more than 100 drug therapy agents, including biologic molecules, vaccines, modified T-cells, and adjuvants, in development for various tumor types and patient populations by larger more experienced companies than ours, such as Bristol Myers Squibb, Roche, AstraZeneca, Pfizer and Merck. Specifically in DLBCL, MDV9300’s development and commercialization may face competition from Bristol Myers Squibb’s monoclonal antibody nivolumab (targeting PD-1), currently being studied in a potentially registrational Phase 2 study in relapsed/refractory DLBCL patients.

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GOVERNMENT REGULATION

Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, safety, storage, tracking, recordkeeping, approval, labeling, pricing, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. A new drug must be approved by the FDA through the new drug application, or NDA, process and a new biologic must be approved by the FDA through the biologics license application, or BLA, process before it can be legally marketed in the United States.

Depending on the circumstances, violations of federal and state healthcare laws, including those described below, can result in penalties, including but not limited to criminal, civil and/or administrative penalties, damages, fines, civil monetary penalties, disgorgement, individual imprisonment, the curtailment or restructuring of operations, and exclusion from participation in federal healthcare programs, among others.

FDA Approval Process

In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act, or FDCA, and in the case of biologics, also under the Public Health Service Act, or PHSA, and implementing regulations. Failure to comply with applicable U.S. law and regulations at any time during the product development process, approval process, or after approval, may subject a company to a variety of administrative or judicial sanctions, such as FDA 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 penalties, and criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug or biologic may be marketed in the United States generally involves the following:

 

completion of preclinical laboratory tests, animal studies and formulation studies according to current Good Laboratory Practices or other applicable regulations;

 

submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;

 

performance of adequate and well-controlled human clinical trials according to current Good Clinical Practices, or cGCP, to establish the safety and efficacy of the proposed drug for its intended use;

 

submission to the FDA of an NDA or BLA after completion of all pivotal clinical trials;

 

satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient, or API, and finished drug product is manufactured and tested to assess compliance with current Good Manufacturing Practices, or cGMP; and

 

FDA review and approval of the NDA or BLA prior to any commercial marketing or sale of the drug in the United States.

Before clinical testing can begin in humans, a sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include a protocol, detailing, among other things, the objectives of the first phase of the clinical trials, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if applicable.

Clinical trials involve the administration of the investigational drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (a) in compliance with federal regulations; (b) in compliance with cGCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (c) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, or Ethics Committee, or EC, for approval. An IRB/EC may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB/EC’s requirements, or may impose other conditions.

Human clinical trials are typically conducted in three sequential phases, but the phases may overlap or be combined:

Phase 1: The product candidate is initially introduced into healthy human subjects or patients with the target indication and tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion, and, if possible, early evidence on effectiveness.

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Phase 2: The product candidate is administered to a limited patient population to identify possible adverse side effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific target indication and to determine dosage tolerance and optimal dosage.

Phase 3: When Phase 2 evaluations demonstrate that a dosage range of the drug is effective and has an acceptable safety profile, Phase 3 clinical trials are undertaken to confirm the clinical efficacy from Phase 2 and to further test for safety in an expanded population at geographically dispersed clinical trial sites.

In the United States, the results of product development, preclinical studies and clinical trials must be submitted to the FDA for review and approval prior to marketing and commercial distribution of the product candidate. The NDA (for a drug) or BLA (for a biologic) must include a substantial amount of data and other information concerning safety and effectiveness (for a drug) and safety, purity and potency (for a biologic) of the compound from laboratory, animal and clinical testing, as well as data and information on manufacturing, product stability, and proposed product labeling.

Once an NDA or BLA is submitted for FDA approval, the FDA will accept the NDA or BLA for filing if deemed complete, thereby triggering substantive review of the application. The FDA can refuse to file any NDA or BLA that it deems incomplete or not properly reviewable. The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be accepted for filing. NDAs or BLAs that are accepted for review will receive either standard or priority review. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment in which no adequate therapy exists. For biologics, priority review is further limited only for drugs intended to treat a serious or life-threatening disease relative to the currently approved products. The FDA has established performance goals for the review of NDAs and BLAs: six months for priority applications and ten months for regular applications, with two additional months added to each period for new molecular entities. However, the FDA is not legally required to complete its review within these periods and these performance goals may change over time. Moreover, the outcome of the review, even if generally favorable, typically is not an actual approval but a “complete response” letter that describes additional work that must be done before the application can be approved. The FDA’s review of an application may involve review and recommendations by an independent FDA advisory committee. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.

If the FDA approves a product, it will limit the approved therapeutic uses for the product as described in the product labeling, may require that contraindications or warning statements be included in the product labeling, may require that additional studies or clinical trials be conducted following approval as a condition of the approval, may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a risk evaluation and mitigation strategy, or REMS, or may otherwise limit the scope of any approval. Under REMS, the FDA may impose significant restrictions on distribution and use of a marketed product, may require the distribution of medication guides to patients and/or healthcare professionals or patient communication plans, and may impose a timetable for submission of assessments of the effectiveness of REMS. Once issued, the FDA may withdraw a product approval if compliance with regulatory standards is not maintained, including failure to conduct and submit post-marketing studies, or if problems are identified following initial marketing. The FDA may also impose REMS after product approval, or require labeling changes. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the agency has the power to prevent or limit further marketing of a product based on the results of the post-marketing programs.

The process of obtaining regulatory approvals and subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.  Satisfaction of the above FDA requirements or similar requirements of state, local, and foreign regulatory agencies typically takes several years or more and the actual time required may vary substantially, based on the type, complexity and novelty of the product candidate. Government regulation may delay or prevent marketing of potential products for a considerable period of time or permanently and impose costly procedures upon a company’s activities. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific indications. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, labeling changes or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain and maintain, regulatory approvals would harm our business.

Marketing our product candidates abroad will require similar regulatory approvals and is subject to similar risks. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

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Abbreviated New Drug Applications and Section 505(b)(2) New Drug Applications

Once an NDA is approved, the product covered thereby becomes a listed drug.  The NDA, in turn, can be relied upon by potential competitors in support of approval of an abbreviated new drug application, or ANDA, or 505(b)(2) NDA. The FDA may approve an ANDA if the product is the same in important respects as the listed drug or if the FDA has declared it suitable for an ANDA submission. In these situations, applicants must submit studies showing that the product is bioequivalent to the listed drug, meaning that the rate and extent of absorption of the drug does not show a significant difference from the rate and extent of absorption of the listed drug. ANDA applicants are not required to conduct or submit results of preclinical or clinical tests to prove the safety or effectiveness of their drug product, other that the requirement for bioequivalence testing. Conducting bioequivalence testing is generally less time-consuming and costly than conducting preclinical and clinical trials necessary to support an NDA. Drugs approved via ANDAs on the basis that they are the “same” as a listed drug are commonly referred to as “generic equivalents” to the listed drug, and can often be and are substituted by pharmacists under prescriptions written for the original listed drug.

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims that cover the applicant’s product or method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. An ANDA applicant relying on a listed drug is required to certify to the FDA concerning any patents for the listed drug product in the FDA’s Orange Book. Specifically, the applicant must certify with respect to each patent that: (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid, unenforceable, or will not be infringed by the new product.

A certification that the proposed generic product will not infringe the already approved product’s listed patents, or that such patents are invalid or unenforceable, is called a Paragraph IV certification. If the ANDA applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.

The ANDA also will not be approved until any applicable non-patent exclusivity period, such as exclusivity for obtaining approval of a new chemical entity, for the referenced product has expired, unless the exclusivity period protects an indication or other aspect of labeling that can be “carved out” of the labeling for the proposed generic product. Federal law provides a period of five years following approval of a drug containing no previously approved active moiety during which ANDAs for generic versions of those drugs cannot be submitted unless the submission contains a Paragraph IV challenge to a listed patent, in which case the submission may be made four years following the original product approval. U.S. federal law provides for a period of three years of exclusivity during which the FDA cannot grant effective approval of an ANDA if a listed drug contains a previously approved active moiety but FDA requires as a condition of approval new clinical trials conducted by or for the sponsor. This three-year exclusivity period often protects changes to a previously approved product, such as a new dosage form, route of administration, combination, or indication.

Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDA’s previous approval of a similar product, or published literature, in support of its application. Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication(s) sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would be required to do so. As a result, approval of a Section 505(b)(2) NDA can be prevented until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

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Biologics Price Competition and Innovation Act

Under the Biologics Price Competition and Innovation Act, or BPCIA, enacted in the United States in 2010, the FDA has the authority to approve biosimilar and interchangeable versions of previously-approved biological products through an abbreviated pathway following periods of data and marketing exclusivity. Biosimilarity sufficient to reference a prior FDA-approved product requires that there be no differences in condition of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency. In order to meet the standards of interchangeability, a sponsor must demonstrate that the biosimilar product can be expected to produce the same clinical results as the reference product, and for a product that is administered more than once, that the risk of switching between the reference product and the biosimilar product is not greater than the risk of maintaining the patient on the reference product. Such biosimilars would reference biological products approved in the United States. The law establishes a period of 12 years of data exclusivity for referenced products, which protects the data in the original BLA by prohibiting sponsors of biosimilars from gaining FDA approval based in part on reference to data in the original BLA. Should we obtain product approvals under BLAs, those products could be reference products for such abbreviated BLAs.

Post-Approval Requirements

After a drug or biologic has been approved by the FDA for marketing, the FDA may require that certain post-approval requirements be satisfied, including the conduct of additional clinical studies or post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product and requires routine pharmacovigilance (post-marketing adverse event monitoring). We and Astellas are required to conduct an open-label safety study of XTANDI in patients with known risk factor(s) for seizure and to report the results of that study to the FDA in 2019.  In addition, holders of an approved NDA or BLA are required to (i) report certain adverse reactions to the FDA and maintain pharmacovigilance programs to proactively look for these adverse events; (ii) comply with certain requirements concerning advertising and promotional labeling for their products; and (iii) continue to have quality control and manufacturing procedures conform to cGMPs after approval. If post-approval conditions are not satisfied, the FDA may withdraw its approval of the drug or biologic.

The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities, including assessment of ongoing compliance with cGMPs. Accordingly, manufacturers must continue to expend considerable time, money and effort in the areas of production and quality control to maintain compliance with cGMP. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered. In addition, prescription drug manufacturers in the United States must comply with applicable provisions of the Drug Supply Chain Security Act and provide and receive product tracing information, maintain appropriate licenses, ensure they only work with properly licensed entities, and have procedures in place to identify and properly handle suspect and illegitimate products.

In the event of certain changes to an approved product, such as adding new indications, making certain manufacturing changes, or making certain additional labeling claims, such changes are subject to further FDA review and approval. Approval for additional indications typically requires additional clinical studies to be conducted and submitted through either a new or supplemental NDA.

Expedited Review and Approval

The FDA has various programs, including Fast Track, Breakthrough Therapy Designation, priority review, and accelerated approval, which are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions for qualification or that the time period for FDA review or approval will not be shortened. Generally, drugs that may be eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development, and expedite the review, of drugs to treat serious diseases and fill an unmet medical need. The request may be made at the time of IND submission and generally no later than the pre-BLA or pre-NDA meeting. The FDA will respond within 60 calendar days of receipt of the request. Breakthrough Therapy Designation is available for drugs that are intended to treat a serious condition where preliminary clinical evidence indicates that the drug may demonstrate substantial improvement on a clinically significant endpoint(s) over available therapies.  The request may be made at the time of IND submission and generally no later than end-of-phase 2 meeting.  The FDA will respond within 60 calendar days of receipt of the request. Breakthrough Therapy Designation conveys all of the Fast Track program features along with more intensive FDA guidance and interaction and eligibility for rolling review and priority review.  Priority review, which is requested at the time of BLA or NDA submission, is designed to give drugs that offer major advances in treatment or provide a treatment where no adequate therapy exists an initial review within six months as compared to a standard review time of ten months. Although Fast Track, Breakthrough Therapy Designation and priority review do not affect the standards for approval, the FDA will attempt to expedite review of the application. Accelerated approval provides an earlier approval of drugs to treat serious diseases, and that fill an unmet medical need based on a surrogate endpoint, which is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome.

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Discussions with the FDA about the feasibility of an accelerated approval typically begin early in the development of the drug in order to identify, among other things, an appropriate endpoint. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials to confirm the appropriateness of the surrogate marker trial.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be disclosed publicly by the FDA; the posting will also indicate whether a drug is no longer designated as an orphan drug. More than one product candidate may receive an orphan drug designation for the same indication. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to seven years of orphan product exclusivity. During the seven-year exclusivity period, the FDA may not approve any other applications to market a drug or biological product containing the same active moiety for the same disease, except in very limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. A product is clinically superior if it is safer, more effective or makes a major contribution to patient care. Thus, orphan drug exclusivity could block the approval of one of our products for seven years if a competitor obtains approval of the same drug as defined by the FDA and we are not able to show the clinical superiority of our drug or if our product candidate’s indication is determined to be contained within the competitor’s product orphan indication. In addition, the FDA will not recognize orphan drug exclusivity if a sponsor fails to demonstrate upon approval that the drug is clinically superior to a previously approved drug containing the same active moiety for the same orphan condition, regardless of whether or not the approved drug was designated an orphan drug or had orphan drug exclusivity.

Data Privacy and Security Regulations

We are also subject to laws and regulations regarding the privacy and security of health-related and other personal information. The Health Insurance Portability and Accountability Act, or HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, imposes certain federal requirements relating to the privacy, security and transmission of individually identifiable health information.  We are also subject to other state and federal privacy and security laws that are not specific to the healthcare industry, such as the Federal Trade Commission’s enforcement of Section 5 of the Federal Trade Commission Act and state security breach notification laws.  The EU Data Protection Directive, as implemented into national laws by the EU member states, imposes strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. Failing to comply with these laws could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.

Advertising and Promotion

Any products distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including advertising and promotion restrictions. The FDA’s rules for advertising and promotion require, among other things, that we do not promote our products for unapproved uses and that our promotion be fairly balanced and adequately substantiated by clinical studies. The FDA closely regulates the post-approval marketing and promotion of drugs, including but not limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. The FDA also enforces the requirements of the Prescription Drug Marketing Act, or PDMA, which, among other things, imposes various requirements in connection with the distribution of product samples to physicians.

Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new or supplemental NDA or BLA before the change can be implemented. An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing supplements as it does in reviewing NDAs and BLAs.

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Anti-Kickback Statutes, Sunshine Act, and Federal False Claims Act

Our business activities, including, but not limited to, research, sales, marketing, promotion, distribution, medical education and other activities are subject to regulation by numerous regulatory and enforcement authorities in the United States and abroad. Government officials have focused their enforcement efforts on marketing of health care services and products, among other activities, and recently have brought cases against companies, and certain sales, marketing, and executive personnel, for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.

The Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal health care program such as Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value, including for example gifts, certain discounts, the furnishing of free supplies, equipment or services, credit arrangements, payment of cash and waivers of payment. Liability under the Anti-Kickback Statute may be established without a person or entity having actual knowledge of the statute or specific intent to violate it. Penalties include criminal penalties and civil sanctions such fines, imprisonment, and possible exclusion from Medicare, Medicaid and other federal health care programs.

Many states also have statutes or regulations similar to the Anti-Kickback Statute. Some of these state provisions apply to referral of patients for health care items or services reimbursed by any source, not only the Medicare and Medicaid programs.

Another development affecting the health care industry is the increased use of the Federal False Claims Act, or FFCA, and, in particular, action brought pursuant to the FFCA’s “whistleblower” or “qui tam” provisions. The FFCA imposes liability on any person or entity who, among other things, knowingly presents or causes to be presented a false or fraudulent claim for payment by the federal government, including a federal health care program, such as Medicare and Medicaid. The qui tam provisions of the FFCA allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share a proportion of any monetary recovery. In recent years, the number of suits brought against health care providers and entities by private individuals has increased dramatically. In addition, various states now have enacted false claims laws analogous to the FFCA, although many of these state laws apply where a claim is submitted to any third-party payor, including private insurance companies, and not merely a federal health care program.

When a person or entity is determined to have violated the FFCA, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties. Liability arises primarily when an entity knowingly submits or causes another to submit a false claim for reimbursement to the federal government. The federal government has used the FFCA to assert liability on, among other things, the basis of inadequate care, kickbacks, and other improper referrals, and the improper use of Medicare numbers when detailing the provider of services, in addition to the more predictable allegations as to misrepresentations with respect to the services rendered. In addition, the federal government has prosecuted companies under the FFCA in connection with off-label promotion of products. We are unable to predict whether we will be subject to actions under the FFCA or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly impact our financial performance.

Additionally, the civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

HIPAA created new federal criminal statutes that prohibit, among other actions, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, liability may be established without a person or entity having actual knowledge of the statute or specific intent to violate it.

We and our business activities are also subject to the federal Physician Payments Sunshine Act which requires certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information related to certain payments or other transfers of value provided to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. The reported information is made publicly available by the Centers for Medicare and Medicaid Services on a searchable website. We are current on all required submissions of information related to the federal Physician Payments Sunshine Act.

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If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, including state laws that are similar to the aforementioned federal laws, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the imposition of a Corporate Integrity Agreement or similar government oversight program or curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act of 1977, as amended, or FCPA,  prohibits U.S. companies and their representatives from offering, processing, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. In many countries, the health care professionals we regularly interact with may meet the definition of a foreign government official for the purposes of the FCPA. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls. Our international activities create the risk of unauthorized payments or offers of payments by our employees, consultants and agents, even though they may not always be subject to our control. We discourage these practices by our employees, consultants, and agents. However, our existing safeguards may prove to be less than effective, and our employees, consultants and agents may engage in conduct for which we might be held responsible.

Pharmaceutical Coverage, Pricing and Reimbursement

Sales of XTANDI and any future products of ours are dependent in significant part on the availability of coverage and adequate reimbursement from third-party payors, including federal and state programs such as Medicare and Medicaid, and private organizations such as commercial health insurance and managed care companies. Astellas is responsible for negotiating favorable coverage determinations and adequate reimbursement rates with third-party payors for XTANDI.

Although there are currently no direct government price controls over private sector purchases in the United States, federal legislation requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to enable them to be eligible for reimbursement under certain public healthcare programs such as Medicaid. Various states have adopted further mechanisms under Medicaid and other programs that seek to control drug prices, including by disfavoring certain higher priced drugs and by seeking supplemental rebates from manufacturers. Managed care has also increased downward pressure on the prices of pharmaceutical products.

Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. Third-party payors may provide coverage but place stringent limitations on such coverage, such as requiring alternative treatments to be tried first. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substituting generic equivalents for branded prescription drugs. Adoption of such controls and measures and tightening of existing policies could limit payments for our products and could adversely affect our business.

Different pricing and reimbursement schemes exist in other countries. For example, in the European Union, some governments influence the price of pharmaceutical products through reference pricing approaches to pharmaceutical reimbursement for national healthcare systems that fund a large part of the cost of such products to consumers. The approach taken varies from member state to member state. Some jurisdictions operate positive and/or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits and may limit or restrict reimbursement. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products, as exemplified by the National Institute for Health and Care Excellence, or NICE, in the United Kingdom which evaluates the data supporting new medicines and passes reimbursement recommendations to the government. In addition, in some countries cross-border imports from low-priced markets (parallel imports) exert commercial pressure on pricing within a country.

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Foreign Regulations

In addition to regulation in the United States, we are subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of products. Whether or not we obtain FDA approval for a drug candidate, we must obtain approval by the comparable regulatory authorities of foreign countries and economic areas, such as the European Union, before we can commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Other Applicable Laws

We are also subject to various other federal, state and local laws, including laws regarding working conditions and the storage, transportation, or discharge of items that may be considered hazardous substances, hazardous waste, or environmental contaminants. We monitor our compliance with laws on an ongoing basis.

As a publicly-traded company, we are also subject to significant regulations and laws, including the Sarbanes-Oxley Act of 2002. Since its enactment, we have developed and instituted a corporate compliance program based on what we believe are current best practices and we continue to update the program in response to newly implemented or changing regulatory requirements.

MANUFACTURING

Pursuant to the Astellas Collaboration Agreement, Astellas has global manufacturing responsibility for XTANDI as currently formulated. Astellas intends to fulfill clinical and commercial requirements of XTANDI largely through third-party contract manufacturers.

We are a party to agreements with contract manufacturers for clinical supply of drug substances and drug products for our MDV3800 and MDV9300 programs. These agreements are managed by professionals within our organization who have expertise in pharmaceutical and biologic manufacturing, product development, regulatory compliance, quality assurance, and supply chain management. We may further expand our capabilities.

We currently do not have specific plans to imminently develop our own manufacturing operations.

OUR FINANCIAL HISTORY

We had net income of $244.7 million for the year ended December 31, 2015. Our 2015 results benefited from $245.0 million of milestones earned from Astellas as a result of the achievement of defined sales milestone events. As of December 31, 2015, we have earned all development and sales milestone payments under the Astellas Collaboration Agreement.  In 2014, we earned sales and development milestones in excess of $300.0 million under the agreement. We have a history of net losses since our inception through 2013, and we have only now achieved two sequential years of profitability.

A significant portion of our operating expense is related to research and development, and we intend to maintain our strong commitment to research and development. Our research and development activities currently include activities related to enzalutamide, MDV3800, MDV9300 and early stage programs. For the years ended December 31, 2015, 2014, and 2013, we recorded $232.1 million, $189.6 million, and $119.0 million, respectively, of research and development expenses representing 44%, 44%, and 40% of total operating expenses for the years ended December 31, 2015, 2014, and 2013, respectively.

We anticipate that we will incur higher operating costs in the foreseeable future in order to continue to commercialize XTANDI in the U.S. market, to conduct clinical and preclinical studies of enzalutamide, MDV3800, MDV9300 and early-stage programs, to carry out potential business development activities, and to provide expanded facilities to support our growth. We have funded our operations in prior years primarily through public offerings of our common stock, the issuance of 2.625% convertible senior notes due April 1, 2017, or the Convertible Notes (which we redeemed in July 2015 and are no longer outstanding). More recently, we funded our cash requirements from collaboration revenue associated with the global growth of XTANDI and, to a lesser extent, from short-term borrowings under our Revolving Credit Facility. The portion of collaboration revenue derived from sales and development milestones earned from Astellas exceeded $550.0 million in the two calendar years just completed.  

EMPLOYEES

At December 31, 2015, we had 628 full-time employees, none of whom are represented by labor unions or covered by collective bargaining agreements. We consider our relationships with our employees to be good.

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ABOUT MEDIVATION, INC.

We are a corporation formed in Delaware in October 1995, under our former name, Orion Acquisition Corp. II. We, together with our subsidiaries, operate in one business segment. All of our revenue is currently derived from our collaboration agreement with Astellas. Our long-lived assets are primarily located in the United States, except for certain de minimus laboratory equipment. Information regarding our collaboration agreement revenue, profit or loss, and total assets is included in our audited consolidated financial statements in Part II, Item 8 of this Annual Report.

AVAILABLE INFORMATION

We file or furnish electronically with the Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. You may also read and copy any of our materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

We make available on or through our website at www.medivation.com, free of charge, copies of these reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information found on, or that can be accessed through, our website is not incorporated by reference into this Annual Report.

 

 

Item 1A.

Risk Factors.

Our business faces significant risks, some of which are set forth below to enable readers to assess, and be appropriately apprised of, many of the risks and uncertainties applicable to the forward-looking statements made in this Annual Report. You should carefully consider these risk factors as each of these risks could adversely affect our business, operating results, cash flows and financial condition. If any of the events or circumstances described in the following risk factors actually occurs, our business may suffer, the trading price of our common stock could decline and our financial condition or results of operations could be harmed. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. These risks should be read in conjunction with the other information set forth in this Annual Report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us, or that we currently believe to be immaterial, may also adversely affect our business.

Risks Related to XTANDI® (enzalutamide) capsules

We and Astellas may not be able to further commercialize XTANDI in the United States, and may fail to continue to generate significant revenue from the sale of XTANDI in the United States. XTANDI may fail to obtain regulatory approval and reimbursement, to be successfully commercialized and to generate significant revenue outside the United States.

We only have one commercial product, XTANDI® (enzalutamide) capsules, or XTANDI, which is approved in the United States to treat men with metastatic castration-resistant prostate cancer, or mCRPC. However, the further commercialization of XTANDI in the United States for the treatment of mCRPC and any other patient populations for which XTANDI is being developed and may subsequently be approved, may not be successful for a number of reasons, including:

 

we and our collaboration partner, Astellas Pharma, Inc., or Astellas, may not be able to establish or demonstrate in the medical community the safety and efficacy of XTANDI and its potential advantages over, and side effects compared to, competing therapeutics and products currently in clinical development for each applicable patient population;

 

our limited experience in marketing XTANDI to urologists;

 

reimbursement and coverage policies of government and private payors such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators;

 

the price of XTANDI as compared to alternative treatment options;

 

changes or increases in regulatory restrictions;

 

changes to the label for XTANDI that further restrict how we and Astellas market XTANDI, including as a result of routine pharmacovigilance activities and/or data collected from the safety study in patients with known risk factor(s) for seizure that the FDA required us to undertake as a post-marketing requirement or from any other ongoing or future studies;

 

we and Astellas may not have adequate financial or other resources to successfully commercialize XTANDI; and

 

we and Astellas may not be able to obtain adequate commercial supplies of XTANDI to meet demand or at an acceptable cost.

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If the further commercialization of XTANDI in the United States is unsuccessful, our ability to generate revenue from product sales and maintain profitability would be adversely affected and our business could be severely negatively impacted.

XTANDI has received marketing approval in the European Union (or Europe, or EU) for the treatment of patients with mCRPC and in Japan for the treatment of patients with castration-resistant prostate cancer, and numerous other countries worldwide for the treatment of patients with mCRPC. Additional marketing applications for the mCRPC indication are under review in numerous other countries. Unless we and Astellas can obtain additional regulatory approval and reimbursement of XTANDI outside the United States, Japan and the EU, Astellas’ ability to successfully commercialize XTANDI further and our ability to generate additional revenue from XTANDI worldwide, could be significantly limited.

XTANDI may fail to effectively compete commercially with other approved products and other products in development.

There are a number of currently marketed therapies for advanced prostate cancer that compete directly with XTANDI. In addition, several companies are currently developing products or are expected to be marketing products in the near future that compete or may compete directly with XTANDI in its currently approved indication for mCRPC and any other indication for which enzalutamide may be subsequently approved. Our current and future competitors are generally large pharmaceutical companies with considerably greater financial, human, and development and commercialization resources and experiences than ours, including Johnson & Johnson, Sanofi, and Bayer Pharma AG. Some competitive drugs already have acquired substantial shares in these markets or are generic which may make it more difficult for us to compete successfully in these markets notwithstanding any positive results that we may generate from our current or potential future clinical trials for enzalutamide. Also, intense competition from products and compounds in development could impact our ability to successfully conduct upstream clinical trials, as trials may become more difficult to enroll, or complete successfully, as patients may have more treatment options with demonstrated efficacy and safety. Factors upon which XTANDI would have to compete successfully include efficacy, safety, price and cost effectiveness. We cannot guarantee that we and Astellas will be able to compete successfully in the context of any of these factors.

Pricing pressure from third parties and price competition could substantially impact Astellas’ or our ability to generate revenue from XTANDI and, therefore, negatively impact our business.

The realized price of XTANDI could be subject to pricing pressure from aggressive competitive pricing activity and managed care organizations and institutional purchasers, who use cost considerations to restrict the sale of preferred drugs that their physicians may prescribe. To the extent that payors believe similar lower-priced, branded or generic competitor products may be suitable alternatives for patients, we and our partner Astellas may consider reducing the price of XTANDI or be subject to formulary restrictions, which could result in a loss of sales revenue and/or market share. Additionally, XTANDI currently competes against products and could compete in the future with products marketed by some of the world’s largest and most experienced pharmaceutical companies, such as Johnson & Johnson, who have more resources and greater flexibility to engage in aggressive price competition in order to gain revenues and market share. It is uncertain whether we and Astellas could successfully compete with such competition and our failure to compete or a decision to reduce the price of XTANDI in order to compete could severely impact our business.

Moreover, non-profit groups have recently petitioned the U.S. federal government to exercise their “march-in” rights under the Bayh-Dole Act due to the difference in price of XTANDI in the U.S. versus abroad since certain patents which cover XTANDI were allegedly developed with federal funding.  While the government has yet to exercise its march-in rights in response to pricing pressures or shortage problems, it may do so in the future which would significantly negatively impact our ability to generate revenue from XTANDI.  

Competition from other approved products, including those that mechanistically operate similarly to XTANDI, could negatively impact the expected use or duration of therapy of XTANDI, and impact our ability to generate revenue.

We are competing and will continue to compete against drugs that operate similarly to XTANDI. If XTANDI is unable to successfully compete for a position in the prostate cancer treatment paradigm ahead of drugs like Zytiga and/or potentially apalutamide (formerly JNJ-56021927, or JNJ-927, and ARN-509), which are now being investigated in Phase 3 clinical studies in earlier stage prostate cancer, sales of XTANDI may be negatively impacted. In addition, the availability of multiple other approved agents to treat the same patients being treated with XTANDI could cause treating physicians to switch patients off of XTANDI and onto competing therapies more quickly than would otherwise be the case, which could also negatively impact XTANDI net sales.

Competition from generic products could potentially harm our business and result in a decrease in our revenue.

Like other branded pharmaceutical companies, we face competition from generic products that could potentially harm our business and result in a decrease in our revenue. Such competition may arise from the loss or expiration of intellectual property rights on enzalutamide or a competitor product, or the approval by the FDA of a generic of our product or a competitor product, such as Zytiga, any of which could adversely affect our business by putting downward pressure on the price and market share of XTANDI. Generic products for the treatment of prostate cancer that have already been approved by the FDA, e.g., Casodex, are generally sold at a lower price than branded drugs. Furthermore, Abbreviated New Drug Applications (ANDAs) requesting approval

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for generic versions of Zytiga were submitted to the FDA on April 28, 2015. See the risk factor below entitled, “Risks Related to the Pharmaceutical Industry, Including the Activities of Medivation, Inc.— If the FDA or other applicable regulatory authorities approve generic products that compete with any of our products or product candidates, the sales of our products or product candidates may be adversely affected,” for additional information regarding general risks related to generic and biosimilar competition in our industry.

We have recently increased our promotional efforts and focus in the United States to include urologists as well as oncologists. If we are not successful in marketing XTANDI to these physician audiences, the commercial potential of XTANDI may not be realized.

We have recently increased promotional efforts in the United States to include urologists as well as oncologists as a result of the expanded label of XTANDI in the United States to treat mCRPC patients who have not yet received chemotherapy (September 2014). Our efforts include expanding and dividing our sales force into urology- and oncology-focused teams. Failure to successfully commercialize XTANDI to urologists and oncologists would have a negative impact on our business and future prospects.

We are dependent upon our collaborative relationship with Astellas to further develop, fund, manufacture and commercialize XTANDI, and if such relationship is unsuccessful, or if Astellas terminates our collaboration agreement with them, it could negatively impact our ability to conduct our business and generate revenue from XTANDI.

Under our collaboration agreement with Astellas, Astellas is responsible for developing, seeking regulatory approval for, and commercializing XTANDI outside the United States and is responsible globally for all manufacture of product for both clinical and commercial purposes. We and Astellas are jointly responsible for commercializing XTANDI in the United States. We and Astellas share equally the costs (subject to certain exceptions), profits and losses arising from development and commercialization of XTANDI in the United States. For clinical trials useful both in the United States and in Europe or Japan, we are responsible for one-third of the total costs and Astellas is responsible for the remaining two-thirds. We are subject to a number of risks associated with our dependence on our collaborative relationship with Astellas, including:

 

Astellas’ right to terminate the collaboration agreement with us on limited notice for convenience (subject to certain limitations), or for other reasons specified in the collaboration agreement;

 

the need for us to identify and secure on commercially reasonable terms the services of third parties to perform key activities currently performed by Astellas in the event that Astellas were to terminate its collaboration with us, including development and commercialization activities outside of the United States and manufacturing activities globally;

 

adverse decisions by Astellas regarding the amount and timing of resource expenditures for the commercialization of XTANDI;

 

adverse decisions by Astellas regarding whether or not to initiate claims or litigation against third parties for infringement of proprietary rights protecting XTANDI or to determine the scope and validity of proprietary rights covering XTANDI or proprietary rights held by competitors;

 

failure by Astellas to negotiate favorable coverage determinations and adequate reimbursement rates with third-party payors;

 

decisions by Astellas to prioritize other of its present or future products more highly than XTANDI for either development and/or commercial purposes;

 

possible disagreements with Astellas as to the timing, nature and extent of our development plans, including clinical trials or regulatory approval strategy, which if we disagree could significantly delay or halt development of XTANDI; and

 

the financial returns to us, if any, under our collaboration agreement with Astellas, depend in large part on the generation of product sales, and if Astellas fails to perform or satisfy its obligations to us, the development or commercialization of XTANDI would be delayed or may not occur and our business and prospects could be materially and adversely affected.

Due to these factors and other possible disagreements with Astellas, we may be delayed or prevented from further developing, manufacturing or commercializing XTANDI or we may become involved in litigation or arbitration, which would be time consuming and expensive. For example, we understand that Astellas has not made a final decision on the phase 3 clinical trial evaluating enzalutamide in triple negative breast cancer.

If Astellas were to terminate our collaborative relationship unilaterally, we would need to undertake development and commercialization activities for XTANDI solely at our own expense and/or seek one or more other partners for some or all of these activities, worldwide. If we pursued these activities on our own, it would significantly increase our capital and infrastructure requirements, might limit the indications we are able to pursue for XTANDI, and could prevent us from effectively commercializing XTANDI. If we sought to find one or more other pharmaceutical company partners for some or all of these activities, we may not be successful in such efforts, or they may result in collaborations that have us expending greater funds and efforts than our current relationship with Astellas.

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We are dependent on third-party manufacturers for commercial supply of XTANDI and for clinical trial materials and if we fail to receive such adequate supplies, global sales of XTANDI could be limited and clinical trials could be delayed.

We require adequate supplies of enzalutamide for commercial supply of XTANDI, and for use in clinical trials. Under our collaboration agreement, Astellas has the responsibility to manufacture commercial supplies of XTANDI for all markets and provide material for clinical studies. Astellas fulfills its manufacturing and supply obligations largely through third-party contract manufacturers. Consequently, we are, and expect to remain, dependent on Astellas and its contract manufacturers for commercial and clinical trial materials. If Astellas cannot provide the materials on a timely basis due to, for example, raw materials availability, quality issues or failure of the contracting facilities to perform, it could result in decreased sales or put at risk ongoing clinical studies. If Astellas or its contract manufacturers do not perform, we may be forced to incur additional expenses, delays, or both, to arrange or take responsibility for contract manufacturers to manufacture or package XTANDI or enzalutamide on our behalf, as we do not have any internal manufacturing or packaging capabilities.

We also rely on our own third-party vendors for clinical supplies. If clinical supplies cannot be provided on a timely basis it could put at risk our sponsored clinical studies with XTANDI or enzalutamide.

In some instances, we and Astellas are dependent on third-party suppliers of raw materials, intermediates or finished goods of commercial supplies of XTANDI and clinical trial materials. If any of these suppliers or subcontractors fails to meet our or Astellas’ needs, we may not have readily available alternatives. If we or Astellas experience a material supplier or subcontractor inability to supply, our ability to satisfactorily and timely complete our clinical trial or delivery obligations could be negatively impacted which could result in reduced sales, termination of contracts and damages to our relationships with clinical trial sites and the medical community. We could also incur additional costs to address and resolve such an issue. Any of these events could have a negative impact on our results of operations and financial condition.

We are dependent on Astellas to distribute and sell XTANDI, and if Astellas fails to adequately perform these activities, our business would be negatively impacted.

Under our collaboration agreement with Astellas, we and Astellas have the right to jointly promote XTANDI to customers in the United States. However, Astellas has the sole right to distribute and sell XTANDI to customers in the United States and the sole right to promote, distribute and sell XTANDI to customers outside the United States. We are thus partially dependent on Astellas to successfully promote XTANDI in the United States, and solely dependent on Astellas to successfully distribute and sell XTANDI in the United States and to promote, distribute and sell XTANDI outside of the United States. In the United States, we depend on customer support from specialty pharmaceutical distributors and wholesalers in Astellas’ network. Astellas has contracted with a limited number of specialty pharmaceutical distributors and wholesalers to deliver XTANDI to end users. The use of specialty pharmacies and wholesalers requires significant coordination with Astellas’ sales and marketing, medical affairs, regulatory affairs, legal and finance organizations and involves risks, including but not limited to risks that these specialty pharmacies and wholesalers will:

 

not provide Astellas accurate or timely information regarding their inventories, patient- or account-level data or safety complaints regarding XTANDI;

 

not effectively sell or support XTANDI;

 

not devote the resources necessary to sell XTANDI in the volumes and within the timeframes that we expect; or

 

cease operations.

We generally do not have control over the resource or degree of effort that any of the specialty pharmacies and distributors may devote to XTANDI, and if their performance is substandard, this will adversely affect sales of XTANDI. If Astellas’ network of specialty pharmacies and distributors fails to adequately perform, it could negatively impact sales of XTANDI, which would negatively impact our business, results of our operations, cash flows and liquidity.

XTANDI may not be commercially successful if not widely covered and appropriately reimbursed by third-party payors, and we are dependent upon Astellas for the execution of third-party payor access and reimbursement strategies for XTANDI.

Our ability to successfully commercialize XTANDI for its approved indications depends, in part, on the extent to which coverage and adequate reimbursement for XTANDI is available from government and health administration authorities, private health insurers, managed care programs and other third-party payors, both in the United States and globally.

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In addition, even if third-party payors ultimately elect to cover and reimburse XTANDI, most payors will not reimburse 100% of the cost, but rather require patients to pay a portion of the cost through a co-payment. Thus, even if reimbursement is available, the percentage of drug cost required to be borne by patients may make use of XTANDI financially difficult or impossible for certain patients, which would have a negative impact on sales of XTANDI. For example, in the United States there exists a coverage gap, or “donut hole”, in the Medicare Part D coverage for prescription medications for participants, which renews annually each January 1st. While in the donut hole, Medicare Part D participants, including many patients in XTANDI’s approved indication, may have to pay out-of-pocket a substantial portion of their prescription drug costs, which may discourage physicians from prescribing or patients from accessing XTANDI. It is increasingly difficult to obtain coverage and adequate reimbursement levels from third-party payors, and we may be unable to achieve these objectives. Moreover, our commercial prospects would be further weakened if payors approve coverage for XTANDI only as second- or later-line treatments, or if they place XTANDI in tiers requiring unacceptably high patient co-payments. Since launch, several third-party payors have included in their coverage criteria use of XTANDI after patient treatment on Zytiga plus prednisone or if there is a contra-indication to prednisone or Zytiga. These coverage situations may persist even with expanded indications for XTANDI. Because XTANDI works via a similar molecular signaling pathway as Zytiga does, patients who have already failed treatment with Zytiga may not have as strong a response on XTANDI as would patients who are Zytiga-naïve. Failure to overturn coverage decisions or stop additional coverage decisions could materially harm our (or our partner’s) ability to successfully market XTANDI in the United States. Achieving coverage and acceptable reimbursement levels typically involves negotiating with individual payors and is a time-consuming and costly process. Therefore, obtaining acceptable coverage and reimbursement from one payor does not guarantee similar acceptable coverage or reimbursement from another payor. Additionally, even if favorable coverage and adequate reimbursement levels are achieved, the payor may change its decision in the future. We are dependent upon Astellas globally for the achievement of such coverage and acceptable reimbursement, and for negotiation with individual payors.

We and Astellas are required to undertake certain studies to comply with post-marketing requirements or commitments in the EU and the United States, which could result in adverse modifications to XTANDI’s existing labeling, and risk XTANDI’s ability to obtain additional regulatory approvals for additional patient populations.

In the EU, we and Astellas are required to collect efficacy data on mCRPC patients previously treated with Zytiga to determine XTANDI’s efficacy response in such patients, which we do not expect to be as good as in patients naïve to Zytiga, and anticipate that these results may be available as early as 2016. In the United States, we and Astellas are required to conduct an open-label safety study of XTANDI in patients with known risk factor(s) for seizure and to report the results of that study to the FDA in 2019. If the results of this study reveal unacceptable safety risks, this could result in decreased commercial utilization of XTANDI for mCRPC patients in the United States and in the EU, failure to obtain approval in other indications, and modifications to the existing label for XTANDI, including potentially a boxed warning, or additional clinical testing. Any one or more of these outcomes would seriously harm our business. Additionally, we could receive additional post-marketing requirements as we seek approval of XTANDI in additional patient populations. Failure to conduct the post-marketing requirements or commitments in a timely manner may result in withdrawal of approval for XTANDI and substantial civil and/or criminal penalties.

If significant patient safety issues were to arise for XTANDI or our other product candidates, our future sales may be reduced, adversely affecting our results of operations.

The data supporting the marketing approvals for our products and forming the basis for the safety warnings in our product labels were obtained in controlled clinical trials of limited duration and, in some cases, from post-approval use. As our products are used over longer periods of time by many patients with underlying health problems, taking numerous other medicines, we expect to continue to find new issues such as safety, resistance or drug interactions of XTANDI or in other products, which may require us to provide additional warnings or contraindications on our labels or narrow our approved indications, each of which could reduce the market acceptance of these products. For example, in 2015, based upon routine pharmacovigilance review and signal detection, we and Astellas submitted a label change to the FDA after identifying two post-marketing reports of posterior reversible encephalopathy syndrome, or PRES, in patients receiving XTANDI. PRES is a neurological disorder which can present with rapidly evolving symptoms including seizure, headache, lethargy, confusion, blindness, and other visual and neurological disturbances, with or without associated hypertension. A diagnosis of PRES requires confirmation by brain imaging, preferably magnetic resonance imaging, or MRI. Because PRES was reported voluntarily from a post-marketing population of uncertain size, it is not possible to reliably estimate the frequency or establish a causal relationship to XTANDI. Discontinue XTANDI in patients who develop PRES.

Regulatory authorities have been moving towards more active and transparent pharmacovigilance and are making greater amounts of stand-alone safety information directly available to the public through websites and other means, e.g., periodic safety update report summaries, risk management plan summaries and various adverse event data. Safety information, without the appropriate context and expertise, may be misinterpreted and lead to misperception or legal action which may potentially cause our product sales or stock price to decline.

Further, if serious safety, resistance or drug interaction issues arise with XTANDI, product sales could be limited or halted by us or by regulatory authorities and our results of operations would be adversely affected.

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XTANDI and any other product candidates that may receive regulatory approval in the future will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense as well as significant penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products and product candidates.

We are required to monitor the safety and efficacy of XTANDI and any other products candidates that are approved by the FDA. In addition, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for any approved products, such as XTANDI, will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration and listing, as well as continued compliance with current good clinical practices, or cGCP, for any clinical trials that we conduct post-approval. We and our contract manufacturers will be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with current good manufacturing practices, or cGMP. We must also comply with requirements concerning advertising and promotion for XTANDI and any other product candidates for which we obtain marketing approval in the future. Promotional communications with respect to prescription drugs, including biologics, are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we will not be able to promote XTANDI or any other products candidates for which we might obtain approval in the future for indications or uses for which they are not approved. Later discovery of previously unknown problems with XTANDI or any other product candidate for which we might obtain approval in the future, 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:

 

restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;

 

restrictions on such products’ manufacturing processes;

 

restrictions on the marketing of a product;

 

restrictions on product distribution;

 

requirements to conduct post-marketing clinical trials;

 

untitled or warning letters;

 

withdrawal of the products from the market;

 

refusal to approve pending applications or supplements to approved applications that we submit;

 

recall of products;

 

fines, restitution or disgorgement of profits or revenue;

 

suspension or withdrawal of regulatory approvals;

 

refusal to permit the import or export of our products;

 

product seizure;

 

injunctions;

 

imposition of civil penalties; or

 

criminal prosecution.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could affect the marketing of XTANDI or prevent, limit or delay regulatory approval of our other product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. 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 sustain profitability.

If we are unable to successfully develop enzalutamide for breast cancer with a suitable diagnostic, we may not be able to obtain regulatory approval for enzalutamide for breast cancer or realize the full potential for enzalutamide.

We may initiate a Phase 3 clinical trial evaluating enzalutamide in triple negative breast cancer, or TNBC. A key element of our strategy to develop enzalutamide in TNBC is the use of a companion diagnostic to identify patients with TNBC appropriate for treatment with enzalutamide. Patients whose tumors test positive for a gene expression profile may be more likely to respond to treatment with enzalutamide; patients whose tumors test negative may not be responsive to treatment with enzalutamide. Both regulatory approval and, if approval is obtained, successful commercialization of enzalutamide in TNBC will, therefore, likely depend on our successful development of such a companion diagnostic.

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We and Astellas have entered into a collaboration with NanoString Technologies, Inc. to translate our gene expression signature algorithm into a companion diagnostic assay using NanoString’s nCounter Dx Analysis System.  However, we may encounter difficulties in developing enzalutamide for TNBC and/or developing the companion diagnostic for clinical, regulatory and/or commercial reasons including issues related to analytical validation, reproducibility or clinical validation.

Companion diagnostics are subject to regulation by the FDA as a medical device and require separate regulatory clearance prior to commercialization. Companion diagnostics are also subject to regulation by foreign regulatory authorities and such regulations may change or new regulations may be enacted during our development of the companion diagnostic. We may be unable to alter our development program in time to comply with the revised or new regulations, or we may only be able to do so by expending greater funds and efforts, and any delay or failure to obtain regulatory approval could delay or prevent the approval of enzalutamide for TNBC.

Risks Related to our License and Manufacturing and Supply Agreement with CureTech, Ltd.

The clinical molecule MDV9300 we licensed from CureTech is a biologic molecule, and we do not have long-standing experience or expertise in the development, manufacture, or commercialization of biologic molecules.

Under the license agreement, we are responsible for all development, manufacturing, and commercialization activities for MDV9300 for all indications, including in oncology. We have limited history, experience, or expertise in the development, manufacturing and commercialization, including regulatory interactions, commercial manufacturing, and distribution of biologic molecules, like MDV9300.

The successful development, testing, manufacturing and commercialization of biologics involves a long, expensive, and uncertain process. There are unique risks and uncertainties with biologics, including:

 

The development, manufacturing and marketing of biologics are subject to regulation by the FDA, the European Medicines Agency or EMA, and other regulatory bodies. These regulations are often more complex and extensive than the regulations applicable to other pharmaceutical products;

 

Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies to handle living cells. Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, we may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes. For MDV9300, we plan to implement changes in manufacturing site and to improve the manufacturing process to provide for larger manufacturing lot sizes, as well as the critical analytical assays. Comparability data will be required to support these changes; and

 

The use of biologically derived ingredients can lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination. Any of these events could result in substantial costs.

We are currently dependent on CureTech to produce clinical supply of MDV9300 that meets global regulatory standards and CureTech is dependent on its suppliers for sufficient quantities of raw materials, starting materials, and supplies. If CureTech fails to manufacture clinical supply of MDV9300 in sufficient quantities or fails to source raw or starting materials or supplies in sufficient quantities, our ability to conduct clinical trials could be further delayed or otherwise negatively impacted.

Our failure to successfully develop, manufacture, or commercialize MDV9300 could significantly impact our ability to generate value from the License Agreement with CureTech.

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The IND for MDV9300 was recently placed on partial clinical hold by the FDA, and we now intend to modify the production process for MDV9300, resulting in a delay of our Phase 2 clinical trial of MDV9300 in DLBCL as well as potential subsequent trials.

In early January 2016, we advised the FDA of our conclusion that MDV9300 does not bind PD-1, and the agency placed the IND on partial clinical hold and requested that we revise our characterization of MDV9300 in the related investigator brochure, protocols and informed consent documents. While we submitted the revised documents in early February 2016, and the FDA has 30 days thereafter to notify us if the partial clinical hold is lifted, the FDA may request additional information in response to our submission or may determine that our response did not satisfactorily address their request.  In addition, we intend to submit an amendment to our IND for MDV9300 to modify the production process to better support our planned clinical activities. We plan to submit the IND amendment in the first half of 2016 and intend that patients in our Phase 2 DLBCL trial will be treated with MDV9300 manufactured in accordance with the amended IND. Since we cannot enroll patients in the Phase 2 DLBCL trial until the partial clinical hold is lifted and do not intend to proceed with the trial until MDV9300 manufactured in accordance with the amended IND is available, there will be a delay in the resumption of our planned clinical trial of MDV9300 for DLBCL. These circumstances could result in increased cost and could delay, prevent or limit our ability to generate value from and realize the commercial potential of MDV9300.

If we are unable to determine the binding target for MDV9300, we may fail to successfully develop MDV9300 for DLBCL, multiple myeloma or any other indication, and we may not be able to obtain regulatory approval or realize the full potential for MDV9300.

Although the molecule was originally understood to work primarily via PD-1 (Programmed Death-1) binding, our work as well as that of others has shown other potential activity as well.  In the year since we acquired rights to the molecule, we conducted testing and characterization work to better identify the binding target and, in late December 2015, we concluded that MDV9300 does not bind PD-1. While we intend to continue work to identify the binding target and thereafter develop a target-specific release assay, these activities are time consuming, expensive and there is no assurance that we will be successful since the binding mechanism is currently unknown. Furthermore, there can be no assurance that we will not experience additional development issues in the future which may cause further delays or unanticipated costs, or that we will be able to solve such development issues. Our failure to identify the binding target for MDV9300 or to develop a target-specific release assay would significantly impact our ability to obtain regulatory approval and could materially harm our business.

The development and commercialization of MDV9300 may face strong competition from other immuno-oncology agents that have already received marketing approval and are being developed for additional indications by larger companies with substantial resources and relatively more experience developing, manufacturing, and commercializing biologic molecules.

The immuno-oncology field is competitively crowded with more than 100 immuno-oncology agents, including biologic molecules, vaccines, modified T-cells, and adjuvants, currently approved and on the market or in development for various tumor types and patient populations by larger more experienced companies than ours, such as Bristol Myers Squibb, Roche, AstraZeneca, Pfizer and Merck. This competitive environment could compromise our ability to develop MDV9300 by limiting the availability of clinical trial investigators, sites, and/or appropriate clinical patients, which could slow, delay or limit the progress of MDV9300’s development. Even if we are able to successfully develop MDV9300 and obtain regulatory approval for it in an oncology indication, the competition from already approved immuno-oncology molecules and other agents in the same or similar oncology indications could significantly limit our ability to generate revenue from MDV9300. While we have some experience developing and in certain aspects of the commercialization of small molecule products, we may be required to hire additional qualified employees with experience developing, manufacturing, and commercializing, including regulatory interactions, commercial manufacturing, and distributing biological molecules, like MDV9300. Many of our competitors are large, multinational pharmaceutical and biotechnology companies with considerably more resources and experience with biological molecules than us.

Risks Related to Our Future Product Development Candidates

Our business strategy depends on our ability to identify and acquire additional product candidates.  We may never acquire or identify such product candidates for reasons that may not be in our control, or are otherwise unforeseen or unforeseeable to us.

A key component of our business strategy is to diversify our product development risk by identifying and acquiring new product opportunities for development. However, we may not be able to identify promising new technologies. In addition, the competition to acquire promising biomedical technologies is fierce, and many of our competitors are large, multinational pharmaceutical, biotechnology and medical device companies with considerably more financial, development and commercialization resources and experience than we have. Thus, even if we succeed in identifying promising technologies, we may not be able to compete against our larger competitors with considerably more financial resources or we may not be able to acquire rights to them on acceptable terms or at all. If we are unable to identify and acquire new technologies, we will be unable to diversify our product risk. We believe that any such failure would have a significant negative impact on our prospects.

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Pharmaceutical and biological product candidates require extensive, time-consuming and expensive preclinical and clinical testing to establish safety and efficacy, and to obtain regulatory approval. If we are unable to successfully develop and test our product candidates, we will not be successful.

The research and development of pharmaceuticals and biological products is an extremely risky industry. Only a small percentage of product candidates that enter the development process ever receive regulatory approval. The process of conducting the preclinical and clinical testing required to establish safety and efficacy and obtain regulatory approval is expensive and uncertain and takes many years. If we are unable to complete preclinical or clinical trials of current or future product candidates, due to safety concerns with a product candidate, or if the results of these trials are not satisfactory to convince regulatory authorities of their safety or efficacy, we will not be able to obtain regulatory approval for commercialization. We cannot be certain if any of our product candidates will be approved by regulatory authorities. Furthermore, even if we are able to obtain regulatory approvals for any of our product candidates, those approvals may be for indications that are not as broad as desired or may contain other limitations that would adversely affect our ability to generate revenue from sales of those products. If this occurs, our business would be materially harmed and our ability to generate revenue would be severely impaired.

Enrollment and retention of patients in clinical trials of enzalutamide and other product candidates are expensive and time-consuming processes, could be made more difficult or rendered impossible by competing treatments or clinical trials of competing drugs in the same or other indications, and could result in significant delays, cost overruns, or both, in our product development activities, or in the failure of such activities.

We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical sites and the eligibility criteria for the study. Furthermore, any negative results we may report in clinical trials of enzalutamide or any potential future product candidates may make it difficult or impossible to recruit and retain patients in other clinical studies of that same product candidate. Delays or failures in planned patient enrollment and/or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop enzalutamide or any product candidates, or could render further development impossible.

Our reliance on third parties for the operation of our business may result in material delays, cost overruns and/or quality deficiencies in our development programs.

We currently rely on third parties to perform key product development tasks, such as laboratories to conduct preclinical testing, clinical research organizations to help us manage our clinical studies, investigators and investigative sites who conduct the clinical trials, and contract manufacturing organizations to manufacture our product candidates at appropriate scale for preclinical and clinical trials. In addition, we currently rely on Astellas and its third party vendors to supply commercial quantities of XTANDI. To manage our business successfully, we will need to identify, engage and properly manage qualified third parties that will perform these development and manufacturing activities. For example, we need to monitor the activities of our vendors closely to ensure that they are performing their tasks correctly, on time, on budget and in compliance with strictly enforced regulatory standards. We need to monitor investigators who participate in our clinical trials to ensure that they are conducting the trial in compliance with the protocol, good clinical practices and all applicable laws.  Our ability to identify and retain key vendors, investigators and investigative sites with the requisite knowledge is critical to our business and the failure to do so could negatively impact our business. Because all of our key vendors perform services for other clients in addition to us, we also need to ensure that they are appropriately prioritizing our projects. If we fail to manage our key vendors well, we could incur material delays, cost overruns or quality deficiencies in our development and commercialization programs, as well as other material disruptions to our business.

Patient safety issues may arise from investigator-sponsored research with our product candidates, which may adversely affect our development program for such product candidates.

We are committed to improving patient care through research that advances the medical and scientific knowledge of XTANDI and our product candidates.  In support of this commitment, we, in collaboration with our partner Astellas, have established an investigator-sponsored research program as a mechanism for independent researchers to seek support for preclinical and clinical research studies with enzalutamide.  We also provide support for investigator-sponsored research with MDV3800 and MDV9300.  However, because we are not the sponsor of investigator-sponsored research studies, we cannot control how such studies are conducted.  If new patient safety issues arise from use of our product candidates in these investigator-sponsored research studies, our development programs may be adversely affected which could impact our business and the results of our operations.

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Risks Related to the Operation of our Business

We may incur substantial costs in the foreseeable future as we continue our development and commercialization activities and may not maintain or increase profitability on a quarterly or annual basis.

We have incurred significant costs principally from funding our research and development activities, from general and administrative expenses and from our XTANDI commercialization activities. We may incur substantial costs in the foreseeable future as we continue to finance the commercialization of XTANDI in the U.S. market, preclinical and clinical studies of enzalutamide, MDV3800, MDV9300 and early stage programs, potential business development activities, and our corporate overhead costs, which could impact our ability to maintain or increase profitability on a quarterly or annual basis. Our ability to generate revenue sufficient to offset these costs in order to maintain or increase profitability on a quarterly or annual basis is dependent on our ability, alone or with collaboration partners, to successfully commercialize products for which we receive marketing approval.

Our operating results are unpredictable and may fluctuate. If our operating results are below the expectations of securities analysts or investors, the market value of our common stock could decline.

Our operating results are difficult to predict and will likely fluctuate from quarter to quarter and year to year. Due to the competitive market for mCRPC therapies, XTANDI net sales will be difficult to predict from period to period. As a result, you should not rely on XTANDI net sales results in any period as being indicative of future performance and sales of XTANDI may be below the expectation of securities analysts or investors in the future. Additionally, you should not place undue reliance on the forward-looking statements about expectations for future XTANDI net sales from our partner Astellas, as we may not agree with such statements, or from us, as XTANDI net sales results are difficult to predict. We believe that our quarterly and annual results of operations may be affected by a variety of factors, including:

 

the price and level of demand for XTANDI;

 

the extent to which coverage and reimbursement for XTANDI is available from government and health administration authorities, private health insurers, managed care programs and other third-party payors;

 

the timing, cost and level of investment in our and Astellas’ sales and marketing efforts to support XTANDI sales;

 

the timing, cost and level of investment in our research and development activities involving XTANDI and our product candidates;

 

the cost of manufacturing XTANDI, and the amount of legally mandated discounts to government entities, other discounts and rebates, product returns and other gross-to-net deductions;

 

the risk/benefit profile, cost and reimbursement of existing and potential future branded and generic drugs which compete with XTANDI;

 

the timeliness and accuracy of financial information we receive from Astellas regarding XTANDI net sales globally, and shared U.S. development and commercialization costs for XTANDI incurred by Astellas, including the accuracy of the estimates Astellas uses in calculating any such financial information including for gross-to-net revenue adjustments;

 

inventory levels at pharmaceutical wholesalers and distributors;

 

expenditures that we will or may incur to acquire or develop additional technologies, product candidates and products; and

 

the impact of fluctuations in foreign currency exchange rates.

In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as a non-cash operating expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility, the magnitude of the non-cash expense that we must recognize may vary significantly.

We are required to evaluate the fair value of intangible assets, including in-process research and development, or IPR&D, for impairment at least annually or more frequently if impairment indicators exist. These assets are initially measured at fair value and therefore any change to our assumptions used in the valuations could potentially lead to impairment. Some of the more common potential risks leading to impairment include competition, earlier than expected loss of exclusivity, pricing pressures, adverse regulatory changes or clinical trial results, delay or failure to obtain regulatory approval and additional development costs, inability to achieve expected synergies, higher operating costs, changes in tax laws and other macro-economic changes. If any of these or similar issues arise during development, we may need to re-evaluate our IPR&D and incur a non-cash impairment charge, adversely affecting our consolidated results of operations.

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Additionally, each reporting period, we revalue contingent consideration obligations associated with business acquisitions to their fair value and record increases in fair value as non-cash contingent consideration expense and decreases in fair value as non-cash contingent consideration income. Changes in contingent consideration result from changes in assumptions regarding the probability of successful achievement of related milestones, the estimated timing in which the milestones may be achieved and the discount rates used to estimate the fair value of the liability. Contingent consideration may change significantly as our development programs progress, revenue estimates evolve and additional data is obtained, impacting our estimates.

For these and other reasons, it is difficult for us to accurately forecast future profits or losses. As a result, it is possible that in some quarters our operating results could be below the expectations of securities analysts or investors.

Sales fluctuations of XTANDI as a result of inventory levels at Astellas’ customers (such as pharmaceutical wholesalers and distributors) may cause our revenue to fluctuate, which could adversely affect our financial results and the market value of our common stock.

The pharmaceutical wholesalers and distributors with whom Astellas has entered into inventory management agreements make estimates to determine end user demand and may not always be effective in matching their inventory levels to actual end user demand. As a result, changes in inventory levels held by those wholesalers and distributors can cause our operating results to fluctuate unexpectedly if sales of XTANDI to these wholesalers do not match end user demand. Adverse changes in economic conditions or other factors may cause wholesalers and distributors to reduce their inventories of XTANDI. As inventory of XTANDI in the distribution channel fluctuates from quarter to quarter, we may see corresponding fluctuations in reported collaboration revenue from XTANDI net sales.

A significant and growing amount of the collaboration revenue we generate is in currency other than U.S. dollars, primarily the Euro and the Japanese yen, thereby exposing us to foreign currency exchange rate risk.

A significant and growing amount of our collaboration revenue is generated from royalties on ex-U.S. net sales of XTANDI. The royalties we receive from Astellas on net sales of XTANDI outside of the United States are calculated by converting the respective countries’ XTANDI net sales in local currency to U.S. dollars for payment to us on a quarterly basis. A strengthening of the U.S. dollar relative to current currency exchange rates would result in lower collaboration revenue related to ex-U.S. XTANDI net sales than otherwise would have been reported by us and paid to us.

In 2016, we intend to hedge a portion of our exposure to fluctuating currency rates for the Euro and the Japanese yen in order to mitigate unexpected short-term volatility of such rates. Depending on the size of the exposures and the relative movements of exchange rates, if we fail to effectively hedge our exposures, we could experience adverse effects on our reported financial results.

If we fail to attract and keep senior management personnel, we may be unable to successfully develop our product candidates, identify and acquire promising new technologies, conduct our clinical trials, and commercialize our products, and our business could be harmed.

Our future success depends upon the continued services of our executive officers and our ability to attract, retain, and motivate highly qualified management to oversee our business. None of our executive officers is bound by an employment agreement for any specific term, and they may terminate their employment at any time. We are particularly dependent on the continued services of David Hung, M.D., our president and chief executive officer and a member of our board of directors. Dr. Hung identified enzalutamide for acquisition and has primary responsibility for identifying and evaluating other potential product candidates. We believe that Dr. Hung’s services in this capacity would be difficult to replace.

Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceutical fields is intense, especially in the San Francisco Bay Area. The loss of any of our executive officers or a significant turnover in our senior management could impair the successful commercialization of XTANDI, delay or prevent continued development activities for enzalutamide, MDV3800, MDV9300 and other product candidates, delay or prevent the transfer and integration of MDV3800 into our business and adversely affect or preclude the identification and acquisition of new product candidates, any of which events could harm our business.

In addition, we will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain qualified personnel on acceptable terms.

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We may encounter difficulty managing our growth and expanding our operations successfully.

Our business has experienced significant growth, which we expect will continue as we expand our commercialization efforts for XTANDI, seek to advance our product candidates through clinical trials, and integrate the acquisition of MDV3800 and other potential business development activities. We expect that we will need to expand our development, regulatory, manufacturing, and commercial capabilities in concert with contracting with third parties to provide certain of these activities for us. To that end, we must be able to hire, train and integrate additional personnel effectively in order to manage our commercialization and development activities.

We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities.  If we are not able to effectively manage the expansion of our operations, it may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.  In addition, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy.  Thus, our future financial performance and our ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively.

We will need to expand our organization to successfully commercialize our un-partnered product candidates outside of the United States in some degree, and we may experience difficulties, which could disrupt our operations and harm our business.

We have no experience marketing or selling outside of the United States. To successfully commercialize MDV3800, MDV9300, or any other products that emerge from our development programs, we will need to build or otherwise secure these capabilities from third parties.   Developing a commercial infrastructure outside the United States is a significant undertaking that requires substantial financial and managerial resources.  We may need to establish internal marketing and sales capabilities for several major ex-U.S. geographies to reach the commercial potential of MDV3800, MDV9300, or any other products that result from our development programs.  Such expansion would require attracting, retaining and motivating the necessary skilled personnel and, in addition, it may require significant capital and operating expenditures.  As a result, such activity may divert human and financial resources from other projects, such as the development or acquisition of additional product candidates. If we encounter unexpected or unforeseen delays in establishing a commercial infrastructure outside the United States, for example, it may negatively impact our ability to launch a commercial product or it may increase the cost and number of resources required for successful commercialization.  In addition, it may negatively impact the future financial performance of our business and our ability to generate sufficient revenue to sustain our business.  In the future, as a result of these financial and execution risks of expanding geographically ourselves, we may choose to partner with others who have existing capability to commercialize these products.

Our significant level of debt and lease obligations could adversely affect our financial condition. In addition, we may not have sufficient funds to service our debt and lease obligations when payments are due.

At December 31, 2015, we had $75.0 million outstanding under our Revolving Credit Facility and approximately $54.9 million of minimum lease commitments. We may incur additional indebtedness to meet future financing needs, including for example in connection with business development activities and for other general corporate purposes. Substantial indebtedness could have significant effects on our business, results of operations and financial condition. For example, it could:

 

make it more difficult for us to satisfy our financial obligations, including with respect to our debt and lease obligations;

 

increase our vulnerability to general adverse economic, industry and competitive conditions;

 

reduce the availability of our cash resources to fund our operations because we will be required to dedicate a substantial portion of our cash resources to the payment of principal and interest on our indebtedness and lease payments;

 

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

place us at a competitive disadvantage compared to our competitors that are less highly leveraged and that, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploring; and

 

limit our ability to obtain financing.

Each of these factors may have a material and adverse effect on our financial condition and viability.

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With the acquisition of new product candidates in recent periods, we may need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, scale back or eliminate some or all of our currently-planned development programs and other operations, to restructure or refinance our indebtedness, or to determine to do any combination of the foregoing. Raising additional capital may subject us to unfavorable terms or conditions, may cause dilution to our existing stockholders, or may restrict our operations or require us to relinquish rights to our product candidates and technologies.

We require significant capital to fund our operations. We have historically funded our operations primarily through public offerings of our common stock, the issuance of the Convertible Notes (which we redeemed in July 2015 and are no longer outstanding), and from the upfront, milestone, and cost-sharing payments under agreements with our current and former collaboration partners, from collaboration revenue related to XTANDI net sales and, more recently and to a lesser extent, from short-term borrowings under a Revolving Credit Facility. At December 31, 2015, we had cash and cash equivalents totaling $225.9 million available to fund our operations. We expect to devote substantial financial resources to our future operations. Based on our current expectations, we believe our current capital resources, amounts available to us under our Revolving Credit Facility, and projected operating and other cash flows will be sufficient to fund our currently planned operations for at least the next twelve months.  This estimate is based on a number of assumptions that may prove to be wrong, including assumptions regarding the amount and timing of net sales of XTANDI, potential XTANDI approvals in new markets and for other indications, and potential receipt of profit sharing and royalty payments under our Astellas Collaboration Agreement, causing us to exhaust our available cash, cash equivalents, and short-term investments sooner than anticipated. For example, we may be required or choose to seek additional funds for the commercialization of XTANDI in the United States, to expand our preclinical and clinical development activities for enzalutamide, MDV3800, MDV9300 and other existing or potential future product candidates, to fund business acquisitions, investments or to in-license technologies, particularly if we face challenges or delays in connection with our clinical trials, and to maintain minimum cash balances that we deem reasonable and prudent. Our ability to raise additional funds on acceptable terms will be dependent on the climate of worldwide capital markets, which could be challenging for companies such as ours.

We may be constrained by our obligations under the Revolving Credit Facility to operate our business to its full potential.

The terms of our Revolving Credit Facility contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. Furthermore, under the terms of the Revolving Credit Facility, we are required to comply with a maximum senior secured net leverage ratio and minimum interest coverage ratio covenants. These terms may restrict our ability to operate our business in the manner we deem most effective or desirable, and may restrict our ability to fund our operations through new public offerings of our common stock or strengthen our candidate development pipeline through acquisitions or in-licenses which cause us to exceed our maximum senior secured net leverage ratio.

Failure to comply with the representations and warranties or affirmative and negative covenants could constitute an event of default which, if continued beyond the cure period, would allow the Administrative Agent (as defined in the Revolving Credit Facility), at the request of or with the consent of the Lenders holding a majority of the loans and commitments under the facility, to terminate the commitments of the Lenders to make further loans and declare all the obligations of the Loan Parties under the Revolving Credit Facility to be immediately due and payable, either of which would harm our business.

We may have additional tax liabilities.

We are subject to income taxes in various jurisdictions. Significant judgment is required in determining our provision for income taxes and other tax liabilities. Our effective income tax rate in the future is subject to volatility and could be adversely affected by a number of factors, including interpretations of existing tax laws, changes in tax laws and rates, future levels of research and development expenditures, changes in the mix of earnings in countries with differing statutory tax rates in which we may conduct business, changes in the valuation of deferred tax assets and liabilities, state income taxes, the tax impact of stock-based compensation, changes in estimates of prior years’ items, tax costs for acquisition-related items, changes in accounting standards, non-deductible officers’ compensation, limitations on the utilization of net operating losses and tax credits due to changes in ownership, and overall levels of income before taxes. The impact of our income tax provision resulting from these items may be significant and could have a negative impact on our net income.

We are also subject to non-income based taxes, such as payroll, sales, use, net worth, property, and goods and services taxes in the United States. We may have additional exposure to non-income based tax liabilities.

We are regularly subject to audits by tax authorities in the jurisdictions in which we conduct business. Although we believe our tax positions are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our historical income tax provisions and accruals, and we could be subject to assessments of additional taxes and/or substantial fines or penalties. The resolution of any audits or litigation could have an adverse effect on our financial position and results of operations.

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We and our subsidiaries are engaged in a number of intercompany transactions. Although we believe that these transactions reflect arm’s length terms and that proper transfer pricing documentation is in place, which should be respected for tax purposes, the transfer prices and terms and conditions of such transactions may be scrutinized by tax authorities, which could result in additional tax and/or penalties becoming due.

Intellectual property protection for our product candidates is crucial to our business, and is subject to a significant degree of legal risk, particularly in the life sciences industry.

The success of our business will depend in part on our ability to obtain and maintain intellectual property protection, primarily patent protection for the XTANDI product and any potential future product candidates, as well as successfully asserting and defending these patents against third-party challenges. We and/or our collaborators will only be able to protect the XTANDI product and our potential future product candidates from unauthorized commercialization by third parties to the extent that valid and enforceable patents or trade secrets cover them. Furthermore, future protection of our proprietary rights is uncertain because legal means may afford only limited protection and may not adequately protect our rights or permit us or our potential future collaborators to gain or keep our competitive advantage.

The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Further, changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property rights. Accordingly, we cannot predict the breadth of claims that may be granted or enforced for our patents or for third-party patents that we have licensed. For example:

 

we or our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

 

we or our licensors might not have been the first to file patent applications for these inventions;

 

others may independently develop similar or alternative technologies or duplicate any of our technologies;

 

it is possible that none of our pending patent applications or the pending patent applications of our licensors will result in issued patents;

 

our issued patents and future issued patents, or those of our licensors, may not provide a basis for protecting commercially viable products, may not provide us with any competitive advantages, or may be challenged by third parties and invalidated or rendered unenforceable; and

 

we may not develop additional proprietary technologies or product candidates that are patentable.

Further, even if we can obtain protection for and defend the intellectual property position of the XTANDI product or any potential future product candidates, we or any of our potential future collaborators still may not be able to exclude competitors from developing or marketing competing drugs. Should this occur, we and our potential future collaborators may not generate any revenues or profits from the XTANDI product or any potential future product candidates or our revenue or profits would be significantly decreased.

We could become subject to litigation or other challenges regarding intellectual property rights, which could divert management attention, cause us to incur significant costs, prevent us from selling or using the challenged technology and/or subject us to competition by lower priced generic products.

During the course of obtaining patent protection, we may receive rejections from national patent offices or be subject to pre-grant opposition proceedings instituted by third parties.  Even after a patent is granted and issued by the national patent office, many countries allow post-grant opposition proceedings.   In the U.S., these post-grant opposition proceedings include inter partes review whereby a third party can seek to challenge and invalidate an issued patent in an administrative proceeding before the U.S. Patent and Trademark Office, rather than through litigation in court, which is often lengthier and costlier.  Our patents and patent applications, or those of our licensors, could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings, derivation proceedings and pre-grant submissions. Any such challenge, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to the challenge. Any such challenges, regardless of their success, would likely be time-consuming and expensive to defend and resolve and would divert our management’s time and attention.

Generic and other pharmaceutical manufacturers are and have been very aggressive in challenging the validity of patents held by proprietary pharmaceutical companies, especially if these patents are commercially significant. Pursuant to the provisions of the Hatch-Waxman Act, the XTANDI patents listed in the FDA “Orange Book” could be challenged by generic manufacturers as early as four years from the initial approval of the XTANDI product in the United States, which occurred on August 31, 2012. Companies seeking approval to market a generic version of a reference drug may also seek to challenge the validity of patents listed in the Orange Book or other patents covering such reference drug by filing petitions for inter partes review with the U.S. Patent and Trademark Office.   If a generic pharmaceutical company or other third party were able to successfully invalidate any of our present or future

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patents, the XTANDI product and any potential future product candidates that may ultimately receive marketing approval could face additional competition from lower-priced generic products that would result in significant price and revenue erosion and have a significantly negative impact on the commercial viability of the affected product candidate(s).

In addition, we may be a party to litigation to protect our intellectual property or to defend our activities in response to alleged infringement of a third party’s intellectual property. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation, or a narrowing of the scope, of our proprietary rights. These lawsuits, regardless of their success, would likely be time-consuming and expensive to litigate and resolve and would divert management time and attention. Any potential intellectual property litigation also could force us or our potential licensees to do one or more of the following:

 

discontinue our products that use or are covered by the challenged intellectual property; or

 

obtain from the owner of the allegedly infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all.

If we or our potential licensees are forced to take any of these actions, our business may be seriously harmed. Although we carry general liability insurance, our insurance does not cover potential claims of this type.

We may in the future initiate claims or litigation against third parties for infringement to protect our proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors. These claims could result in costly litigation and the diversion of our technical and management personnel and we may not prevail in making these claims.  

We rely on license agreements for certain aspects of our product candidates and our technology, and failure to meet our obligations under those agreements could severely negatively impact our business, and ability to generate revenue.

We have entered into agreements with third-party commercial and academic institutions to license intellectual property rights and technology. For example, we have a license agreement with UCLA pursuant to which we were granted exclusive worldwide rights to certain UCLA patents related to XTANDI and a family of related compounds. Some of these license agreements, including our license agreement with UCLA, contain diligence and milestone-based termination provisions, in which case our failure to meet any agreed upon diligence requirements or milestones may allow the licensor to terminate the agreement. If our licensors terminate our license agreements or if we are unable to maintain the exclusivity of our exclusive license agreements, we may be unable to continue to develop and commercialize XTANDI or any potential future product candidates based on licensed intellectual property rights and technology.

In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

From time to time we may be required to license technology from additional third parties to further develop XTANDI and any future product candidates. Should we be required to obtain licenses to any third-party technology, including any such patents based on biological activities or required to manufacture our product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop any of our product candidates could cause us to abandon any related development efforts, which could seriously harm our business and operations.

We may become involved in disputes with Astellas, NanoString or any potential future collaborators over intellectual property ownership, and publications by our research collaborators and scientific advisors could impair our ability to obtain patent protection or protect our proprietary information, which, in either case, could have a significant impact on our business.

Inventions discovered under research, material transfer or other such collaboration agreements, including the Astellas Collaboration Agreement or NanoString collaboration agreement, may become jointly owned by us and the other party(ies) to such agreements in some cases and the exclusive property of one of the parties in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business if we were not able to protect or license rights to these inventions. In addition, our research collaborators and scientific advisors generally have contractual rights to publish our data and other proprietary information, subject to our prior review. Publications by our research collaborators and scientific advisors containing such information, either with our permission or in contravention of the terms of their agreements with us, may impair our ability to obtain patent protection or protect our proprietary information, which could significantly harm our business.

Trade secrets may not provide adequate protection for our business and technology.

We also rely on trade secrets to protect our technology, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our trade secrets, our or any

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potential collaborators’ employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our information to competitors. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, our enforcement efforts would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, if our competitors independently develop equivalent knowledge, methods or know-how, it will be more difficult or impossible for us to enforce our rights and our business could be harmed.

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

Our business is increasingly dependent on critical, complex and interdependent information technology systems to record and maintain financial, clinical trial, safety, laboratory and other corporate records. The size and complexity of our computerized information systems make them vulnerable to breakdown, malicious intrusion, catastrophic events, computer viruses, and human error. We have experienced at least one successful intrusion into our computer systems, and although it did not have a material adverse effect on our operations, there can be no assurance of a similar result in the future as cyberattacks are increasing in their frequency, sophistication and intensity.

We have developed systems and processes that are designed to protect our information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach; however, such measures cannot provide absolute security, and we have taken and are continually taking additional security measures to protect against any future intrusion, including employee training. Moreover, the prevalent use of mobile devices that access our systems and confidential information and our relationships with third party vendors, who may or could have access to our confidential information, increases the risk of data security breaches.

A data or security breach of our systems, or that of our third party vendors, such as third party clinical research organizations, third party clinical manufacturing organization, clinical trial sites, and administrators of our corporate employee benefit plans or of our current and potential future collaboration partners, could lead to public exposure of personal information of our employees, clinical trial patients, customers and other business partners, modification of or prevent us from accessing our clinical trial databases, or the loss of trade secrets or other intellectual property.

If we or our third party vendors or business partners experience significant data security breaches, we could suffer harm to our reputation, be compelled to comply with federal and/or state breach notification laws and foreign law equivalents, be subjected to liability under laws and regulations that protect personal data, be subjected to mandatory corrective action or government enforcement action, need to verify the correctness of clinical trial database contents, or be exposed to litigation claims.  In addition, because these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.  Prolonged disruption would divert management’s attention and could result in a delay to the development of our product candidate.

While we do carry some insurance for these types of claims, our insurance may not be sufficient in type or amount.

Risks generally associated with our company-wide implementation of an enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.

We commenced implementation of a company-wide ERP system to upgrade certain existing business, operational, and financial processes. ERP implementations are typically complex and time-consuming projects that may require substantial time and resources to complete. Our results of operations could be adversely affected if we experience delays or cost overruns during the ERP implementation process, or if the ERP system or associated process changes do not give rise to the benefits that we expect.

Risks Related to the Pharmaceutical Industry, Including the Activities of Medivation, Inc.

Our industry is highly regulated by the FDA and comparable foreign regulatory agencies. We must comply with extensive, strictly enforced regulatory requirements to develop, obtain, and maintain marketing approval for any of our product candidates.

Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information for each therapeutic indication to establish the product candidate’s safety and efficacy for its intended use. It takes years to complete the testing of a new drug, biologic or medical device and development delays and/or failure can occur at any stage of testing. Any of our present and future clinical trials may be delayed, halted or approval of any of our products may be delayed or may not be obtained due to any of the following:

 

any preclinical test or clinical trial may fail to produce safety and efficacy results satisfactory to the FDA or foreign regulatory authorities;

 

preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval;

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negative or inconclusive results from a preclinical test or clinical trial or adverse medical events during a clinical trial could cause a preclinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are ongoing or have been completed and were successful;

 

the FDA or foreign regulatory authorities can place a clinical hold on a trial if, among other reasons, it finds that patients enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury;

 

the facilities that we utilize, or the processes or facilities of third party vendors, including without limitation the contract manufacturers who will be manufacturing drug substance and drug product for us or any potential collaborators, may not complete successful inspections by the FDA or foreign regulatory authorities; and

 

we may encounter delays or rejections based on changes in FDA policies or the policies of foreign regulatory authorities during the period in which we develop a product candidate or the period required for review of any final regulatory approval before we are able to market any product candidate.

In addition, information generated during the clinical trial process is susceptible to varying interpretations that could delay, limit, or prevent regulatory approval at any stage of the approval process. Moreover, early positive preclinical or clinical trial results may not be replicated in later clinical trials. Failure to demonstrate adequately the quality, safety and efficacy of any of our product candidates would delay or prevent regulatory approval of the applicable product candidate. There can be no assurance that if clinical trials are completed, either we or our collaborative partners will submit applications for required authorizations to manufacture or market potential products or that any such application will be reviewed and approved by appropriate regulatory authorities in a timely manner, if at all.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse and false claims laws and regulations. Prosecutions under such laws have increased in recent years and we may become subject to such litigation. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Commercialization of drugs and biologics that receive FDA approval are subject, directly or indirectly, to various state and federal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and federal False Claims Act and the state law equivalents of such laws. These laws may impact, among other things, our sales, marketing, and education programs.

The federal Anti-Kickback Statute prohibits persons and entities from knowingly and willingly soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. The Anti-Kickback Statute is broad, and despite a series of narrow regulatory safe harbors and statutory exceptions, prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Penalties for violations of the federal Anti-Kickback Statute include, among other things, criminal and administrative penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, including private insurance programs.

 The federal False Claims Act prohibits persons and entities from knowingly filing, or causing to be filed, a false claim, or the knowing use of false statements, to obtain payment from the federal government. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government, and such individuals, commonly known as “whistleblowers,” may share in a proportion of any amounts paid by the entity to the government in fines or settlement. The frequency of filing qui tam actions has increased significantly in recent years, causing greater numbers of biotechnology and pharmaceutical companies to have to defend False Claims Act actions. When it is determined that an entity has violated the False Claims Act, the entity may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Various states have also enacted laws modeled after the federal False Claims Act. Although we have developed, implemented, and continue to improve a program for compliance with all federal and state laws, we cannot guarantee that our compliance program will be sufficient or effective, that our employees will comply with our policies and that our employees will notify us of any violation of our policies, that we will have the ability to take appropriate and timely corrective action in response to any such violation, or that we will make decisions and take actions that will necessarily limit or avoid liability for whistleblower claims that individuals, such as employees or former employees, may bring against us or that governmental authorities may prosecute against us based on information provided by individuals. If one or more individuals bring a whistleblower claim against us or if a governmental authority prosecutes a claim against us on the basis of information provided by one or more individuals, and if we are found liable and a fine and/or an injunction and/or a Corporate Integrity Agreement or similar government oversight program is imposed on us or we agree to pay a fine and/or accept an injunction and/or a Corporate Integrity Agreement or similar government oversight program in settlement of the claim, they could have a material adverse effect on our financial condition and impair or prevent us from conducting our business. In addition, the costs and fees associated with defending a whistleblower claim would be significant.

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We may also be subject to federal criminal healthcare fraud statutes that were created by the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH. The HIPAA health care fraud statute prohibits, among other things, knowingly and willfully executing, or attempting to execute a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment, and/or exclusion from government sponsored programs. The HIPAA false statements statute prohibits, among other things, knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines and/or imprisonment.

We, and our business activities, are also subject to the federal Physician Payments Sunshine Act, which is within the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act, (collectively, “PPACA”). The federal Physician Payments Sunshine Act, and its implementing regulations, require certain manufacturers of drugs, devices, biological, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report annually information related to certain payments or other transfers of value provided to physicians and teaching hospitals and other healthcare providers. In addition, there has been a recent trend of increased federal and state regulation on payments made to physicians. Certain states mandate implementation of commercial compliance programs, impose restrictions on drug manufacturer marketing practices, and/or the tracking and reporting of gifts, compensation and remuneration to physicians.

We are unable to predict whether we could be subject to actions under any of these or other fraud and abuse laws, or the impact of such actions. If we are found to be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from government healthcare reimbursement programs and the curtailment or restructuring of our operations, any of which could have a material adverse effect on our business and results of operations.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and other worldwide anti-bribery laws.

We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits companies and their intermediaries from making payments to non-U.S. government officials for purpose of obtaining or retaining business or securing any other improper advantage. We are also subject to similar anti-bribery laws in the jurisdictions in which we operate. Failure to comply with the FCPA or related laws governing the conduct of business with foreign government entities could disrupt our business and lead to severe criminal and civil penalties, including criminal and civil fines, denial of government reimbursement for our products and exclusion from participation in government healthcare programs. Other remedial measures could include further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, any of which could have a material adverse impact on our business, financial condition, results of operations and liquidity. We could also be affected by any allegation that we, or any third party vendors that we rely on to perform key product development tasks, violated such laws.

If the FDA or other applicable regulatory authorities approve generic products that compete with any of our products or product candidates, the sales of our products or product candidates may be adversely affected.

Once an NDA is approved, the product covered thereby becomes a “listed drug” which, in turn can be relied upon by potential competitors in support of an approval of an ANDA or 505(b)(2) application. U.S. laws and other applicable policies provide incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for a generic substitute. These manufacturers might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or labeling, as our product or product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent as our product or product candidate. These generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly less costly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, a significant percentage of sales of any branded product is typically lost to the generic product. Accordingly, competition from generic equivalents to our products or product candidates would materially adversely impact our revenues, profitability and cash flows and substantially limit our ability to obtain a return on the investments that we have made in our product candidates.

To the extent that we receive regulatory approval to market biological products in the future, we will face competition from biosimilar products. A growing number of companies have announced their intention to develop biosimilar products, some of which could potentially compete with our product candidates. Because of the abbreviated pathway for approval of biosimilars in the United State and abroad, we may in the future face greater competition from biosimilar products. This additional competition could have a material adverse effect on our business and results of operations.

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Healthcare reform initiatives and other third party cost-containment pressures could cause us to sell our products at lower prices, resulting in decreased revenues.

The United States and some foreign jurisdictions have enacted or are considering enacting a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to profitably sell XTANDI and other product candidates should they receive marketing approval. Among policy makers and payors in the United States and elsewhere, 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 PPACA became law in the United States. PPACA substantially changed and will continue to change the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. The provisions of PPACA most relevant to the pharmaceutical industry include:

 

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain governmental health care programs, not including orphan drug sales;

 

an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;

 

Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D;

 

extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing manufacturers’ Medicaid rebate liability;

 

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

a new requirement to report certain financial arrangements with physicians and teaching hospitals, as defined in PPACA and its implementing regulations, including reporting any payment or “transfers of value” made or distributed to physicians and teaching hospitals, and reporting any ownership and investment interests held by physicians and their immediate family members and applicable group purchasing organizations;

 

expansion of health care fraud and abuse laws, including the federal False Claims Act and Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

 

a licensure framework for follow-on biologic products; and

 

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria or maximum monthly out-of-pocket costs for patients, either of which could put additional downward pressure on the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. If we fail to successfully secure and maintain adequate coverage and reimbursement of our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and expected revenue and profitability which would have a material adverse effect on our business, results of operations and financial condition. In addition, we will face competition from other approved drugs against which we compete, and the marketers of such other drugs are likely to be significantly larger than us and therefore enjoy significantly more negotiating leverage with respect to the individual payors than we may have.

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We could experience adverse outcomes under existing litigation or become subject to product liability or other litigation, which could harm our ability to efficiently and effectively conduct our business, and, if successful, could materially and adversely harm our business and financial condition as a result of the costs of liabilities that may be imposed thereby.

Our business exposes us to the risk of product liability claims that is inherent in the development, manufacturing, distribution and sale of pharmaceutical products. If XTANDI, MDV3800, MDV9300 or any other potential future product candidate harms people, or is alleged to be harmful, we may be subject to costly and damaging product liability claims brought against us by clinical trial participants, consumers, health care providers, corporate partners or others. We have product liability insurance covering commercial sales of XTANDI and our ongoing clinical trials. However, the amount of insurance we maintain may not be adequate to cover all liabilities that we may incur. If we are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we may be exposed to significant litigation costs and liabilities, which may materially and adversely affect our business and financial position. If we are sued for injuries allegedly caused by XTANDI, MDV3800, MDV9300 or any other of our current or future product candidates, our litigation costs and liability could exceed our total assets and our ability to pay. Regardless of merit or eventual outcome, liability claims may result in:

 

decreased demand for XTANDI and any potential future product candidate that we may develop;

 

injury to our reputation;

 

withdrawal of clinical trial participants;

 

significant costs to defend the related litigation;

 

substantial monetary awards to trial participants or patients;

 

loss of revenue; and

 

the inability to commercialize any other products that we may develop.

In addition, we may from time to time become involved in various lawsuits and legal proceedings which arise in the ordinary course of our business, such as our litigation with the Regents of the University of California, or Regents. See Part II, Item 1, “Legal Proceedings” for additional information on this litigation. Any litigation to which we are subject could require significant involvement of our senior management and may divert management’s attention from our business and operations. Litigation costs or an adverse result in any existing litigation, including our litigation with the Regents for which a decision by the appellate court on the appeal is due within 90 days of the oral argument which occurred on February 23, 2016, or any new litigation that may arise from time to time may adversely impact our operating results or financial condition.

Risks Related to Business Acquisitions, Licenses, Investments and Strategic Alliances

We may not be able to successfully integrate MDV3800, MDV9300 or any other potential future product candidates we may acquire or we may otherwise fail to realize their full potential.

A key component of our business strategy is to diversify our product development risk by identifying and acquiring new product opportunities for development such as our recent acquisition of MDV3800 from BioMarin and our earlier license of MDV9300 from CureTech. However, we cannot ensure that we will be able to manage the risks associated with the transfer of development, regulatory and manufacturing activities for the ongoing clinical trials of MDV3800 from BioMarin to us or manage the risks associated with integrating MDV3800 and MDV9300 into our existing business and infrastructure. We may encounter unexpected difficulties during the transfer, integration or further development of MDV3800 or MDV9300, any of which may cause us to expend greater funds and efforts or may slow, delay or limit the progress of MDV3800’s or MDV9300’s development. Unexpected difficulties may further be disruptive to our ongoing development efforts, put a strain on our existing personnel, infrastructure and business and divert management’s time and attention.

Other companies, such as AstraZeneca, Clovis Oncology, AbbVie, and Tesaro are developing PARP inhibitors for various oncology indications, some of which have already been approved and on the market and others which are further along in development than MDV3800, both of which could limit our development opportunities for MDV3800. The competitive environment could further compromise our ability to successfully enroll the ongoing clinical trial by limiting the availability of clinical trial investigators, sites and/or patients which could slow, delay or limit the progress of MDV3800’s development.

As a result of these or other problems and risks, we may never receive regulatory approval for MDV3800 or MDV9300, we may not realize the full potential or we may never generate significant value or revenues from these assets.

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Business acquisitions, licenses, investments and strategic alliances could disrupt our operations and may expose us to increased costs and unexpected liabilities.

We may acquire or make investments in other companies, enter into other strategic relationships, or in-license technologies, such as our acquisition of MDV3800 and license of MDV9300. To do so, we may use cash, issue equity that could dilute our current stockholders, or incur debt or assume indebtedness. These transactions involve numerous risks, including but not limited to:

 

difficulty integrating acquired technologies, products, operations, and personnel with our existing business;

 

diversion of management’s attention in connection with both negotiating the acquisition or license and integrating the business;

 

strain on managerial and operational resources;

 

difficulty implementing and maintaining effective internal control over financial reporting at businesses that we acquire, particularly if they are not located near our existing operations;

 

exposure to unforeseen liabilities of acquired companies or companies in which we invest;

 

potential costly and time-consuming litigation, including stockholder lawsuits;  

 

potential issuance of securities to equity holders of the company being acquired which may have a dilutive effect on our stockholders;

 

the need to incur additional debt or use our existing cash balances; and

 

the requirement to record potentially significant additional future non-cash operating costs for the amortization of intangible assets and potential future impairment or write-down of intangible assets and/or goodwill as well as potentially significant non-cash adjustments to contingent consideration liabilities which would be recorded within operating expenses.

As a result of these or other problems and risks, businesses we acquire or invest in may not produce the revenues, earnings or business synergies that we anticipated, acquired or licensed technologies may not result in regulatory approvals, and acquired or licensed commercial products may not perform as expected. As a result, we may incur higher costs and realize lower revenues than we had anticipated. We cannot assure you that any acquisitions or investments we have made or may make in the future will be successfully identified and completed or that, if completed, the acquired business, licenses, investments, products, or technologies will generate sufficient revenue to offset the negative costs or other negative effects on our business. Failure to manage effectively our growth through acquisition or in-licensing transactions could adversely affect our growth prospects, business, results of operations, financial condition, and cash flow.

Funding may not be available for us to make acquisitions, investments, strategic alliances or in-license technologies in order to grow our business.

We have made and anticipate that we may continue to engage in strategic transactions to grow our business through acquisitions, investments, strategic alliances or in-licensing of technologies. In particular, we may choose to partner in certain geographies to commercialize our successful product candidates.  Our growth plans rely, in part, on the successful identification and completion of these various strategic transactions. At any particular time, we may need to raise substantial additional cash or issue additional equity to finance such transactions, in addition to any amounts available from operations or under our Revolving Credit Facility. There is no assurance that we will be able to secure additional funding on acceptable terms, or at all, or obtain stockholder approvals necessary to issue additional equity to finance such transactions. If we are unsuccessful in obtaining financing, our business would be adversely affected.

Our consolidated financial statements may be impacted in future periods based on the accuracy of our valuations of our acquired businesses and other agreements.

Certain of our asset acquisition or license agreements may be accounted for as a business combination.  Accounting for business combinations may involve complex and subjective valuations of the assets and liabilities recorded, and in some instances contingent consideration, which is recorded in our consolidated financial statements pursuant to the standards applicable for business combinations in accordance with accounting principles generally accepted in the United States. Differences between the inputs and assumptions used in the valuations and actual results experienced at a later date could have a material effect on our consolidated financial statements in future periods.

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We have substantial intangible assets and goodwill as a result of the acquisition of MDV3800 from BioMarin and the license of MDV9300 from CureTech. A significant impairment or write-down of intangible assets and/or goodwill would have a material adverse effect on our consolidated financial statements.

We are required to perform an annual, or in certain situations a more frequent, assessment of intangible assets and goodwill for possible impairment for accounting purposes. We recorded significant intangible assets and goodwill as a result of the CureTech and BioMarin transactions during the years ended December 31, 2014 and 2015, respectively. At December 31, 2015, we had intangible assets and goodwill of approximately $662.9 million, or approximately 46% of our total assets. During the fourth quarter of 2015, we recorded a $30.0 million impairment charge related to our IPR&D asset for MDV9300.  If our development activities with respect to IPR&D for acquired product candidates are not successful in future periods, we may be required to incur further non-cash impairment charges that could materially adversely affect our consolidated results of operations or our recorded assets and liabilities.

Risks Related to Ownership of Our Common Stock

Our stock price has been and may continue to be volatile and our stockholders’ investment in our common stock could decline in value.

The market prices for our securities and those of other life sciences companies have been highly volatile and often unrelated or disproportionate to the operating performance of those companies, and may continue to be highly volatile in the future. There has been particular volatility in the market prices of securities of life sciences companies because of problems or successes in a given market segment or because investor interest has shifted to other segments. These broad market and industry factors may cause the market price of our common stock to decline, regardless of our operating performance. We have no control over this volatility and can only focus our efforts on our own operations, and even these may be affected due to the state of the capital markets.

The following factors, in addition to other risk factors described herein, may have a significant impact on the market price of our common stock:

 

comments made by securities analysts, including changes in their recommendations;

 

selling by existing stockholders and short-sellers;

 

sales of our common stock by our directors, officers or significant stockholders, including sales effected pursuant to predetermined trading plans adopted under the safe-harbor afforded by Rule 10b5-1;

 

negative opinions that are misleading and/or inaccurate regarding our business, management or future prospects published by certain market participants intent on putting downward pressure on the price of our common stock;

 

lack of volume of stock trading leading to low liquidity;

 

announcements by us of financing transactions and/or future sales of equity or debt securities;

 

the recruitment or departure of key management personnel;

 

our ability to meet the expectations of investors and securities analysts related to collaboration revenue generated from net sales of XTANDI, including the timing and amount thereof, and other financial metrics;  

 

changes in our financial guidance or financial estimates by any securities analysts who might cover our company, or our failure to meet our financial guidance or estimates made by securities analysts;

 

variations in our quarterly financial results or those of companies that are perceived to be similar to us;

 

new products, product candidates or uses for existing products or technologies introduced or announced by our competitors and the timing of these introductions and announcements;

 

the progress and results of preclinical studies and clinical trials of our product candidates conducted by us, Astellas or any future collaborative partners or licensees, if any, and any delays in enrolling a sufficient number of patients to complete clinical trials of our product candidates;

 

developments concerning our collaboration with Astellas or any future collaborations;

 

our dependence on third parties, including Astellas, clinical manufacturing organizations and clinical research organizations, clinical trial sponsors and clinical investigators;

 

legislation or regulatory developments in the United States or other countries affecting XTANDI or product candidates, including those of our competitors, including the passage of laws, rules or regulations relating to healthcare and reimbursement or the public announcement of inquiries relating to these subjects;

 

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

the receipt or failure to receive funding necessary to conduct our business;

 

changes in the market valuations of other companies in our industry;

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litigation; and

 

general economic, industry and market conditions and other factors that may be unrelated to our operating performance, including market conditions in the pharmaceutical and biotechnology sectors.

These factors and fluctuations, as well as political and other market conditions, may adversely affect the market price of our common stock. Securities-related class action litigation is often brought against a company following periods of volatility in the market price of its securities. Securities-related litigation, whether with or without merit, could result in substantial costs and divert management’s attention and financial resources, which could harm our business and financial condition, as well as the market price of our common stock. Additionally, volatility or lack of positive performance in our stock price may adversely affect our ability to retain or recruit key employees, all of whom have been or will be granted equity awards as a part of their compensation.

If our operating results are below the expectations of securities analysts, the market price of our common stock could decline.

Various securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results, our projected development expenses, as well as the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. We expect our projected development expenses to increase as we advance our product pipeline and grow our infrastructure.  While management believes these expenses are an investment in the Company’s long-term prospects, such expenses could substantially reduce our near-term earnings below the expectations of security analysts.  If our operating results are below their expectations, the market value of our common stock could decline, perhaps substantially.

We do not intend to pay cash dividends on our common stock for the foreseeable future.

We do not expect for the foreseeable future to pay cash dividends on our common stock. Any future determination to pay cash dividends on or repurchase shares of our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our success in completing sales or partnerships of our programs, our results of operations, financial condition, capital requirements, contractual restrictions (such as our Revolving Credit Facility) and applicable law.

Provisions of our corporate charter documents, our stockholder rights plan and Delaware law could make it more difficult for a third party to acquire us, even if the offer may be considered beneficial by our stockholders.

Provisions of the Delaware General Corporation Law could discourage potential acquisition proposals and could delay, deter or prevent a change in control. The anti-takeover provisions of the Delaware General Corporation Law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Specifically, Section 203 of the Delaware General Corporation Law, unless its application has been waived, provides certain default anti-takeover protections in connection with transactions between us and an “interested stockholder.” Generally, Section 203 prohibits stockholders who, alone or together with their affiliates and associates, own more than 15% of the subject company from engaging in certain business combinations for a period of three years following the date that the stockholder became an interested stockholder of such subject company without approval of the board or the vote of two-thirds of the shares held by the independent stockholders. Our board of directors has also adopted a stockholder rights plan, or “poison pill,” which would significantly dilute the ownership of a hostile acquirer. Additionally, provisions of our amended and restated certificate of incorporation and bylaws could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders, including without limitation, the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine.

We may issue additional shares of our common stock or instruments convertible into shares of our common stock, which could cause our stock price to fall and cause dilution to existing stockholders. In addition, a sale of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to decline significantly.

We may from time to time issue additional shares of common stock or other instruments convertible into, or exchangeable or exercisable for, shares of our common stock, including in connection with potential in-licensing and acquisition transactions. The issuance of additional shares of our common stock would dilute the ownership interests of existing holders of our common stock.

The issuance of a substantial number of shares of our common stock, the sale of a substantial number of shares of our common stock that were previously restricted from sale in the public market, or the perception that these issuances or sales might occur, could depress the market price of our common stock. As a result, investors may not be able to sell their shares of our securities at a price equal to or above the price they paid to acquire them.

Furthermore, the issuance of additional shares of our common stock, or the perception that such issuances might occur, could impair our ability to raise capital through the sale of additional equity securities.

43


We rely on Astellas to timely deliver important financial information relating to net sales of XTANDI. In the event that this information is inaccurate, incomplete, or not timely, we may not be able to timely or fully meet our financial reporting obligations as required by the SEC.

Under the Astellas Collaboration Agreement, Astellas has exclusive control over the flow of information relating to net sales of XTANDI that we are dependent upon to meet our SEC reporting obligations. Astellas is required under the Astellas Collaboration Agreement to provide us with timely and accurate financial data related to net sales of XTANDI so that we may meet our reporting obligations under federal securities laws. In the event that Astellas fails to provide us with timely and accurate information, we may incur significant liability with respect to federal securities laws, our internal controls and procedures under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, may be inadequate, and we could be required to record adjustments in future periods, any of which could adversely affect the market price of our common stock and subject us to securities litigation.

To the extent that we create any joint ventures or have any variable interest entities for which we are required to consolidate, we would need to rely on those entities to timely deliver important financial information to us. In the event that the financial information is inaccurate, incomplete, or not timely, we would not be able to meet our financial reporting obligations as required by the SEC.

While we currently do not have any joint ventures or variable interest entities that we are required to consolidate, to the extent we create such joint ventures or variable interest entities for which we would be required to consolidate and the financial statements of such entities are not prepared by us, we will not have direct control over their financial statement preparation. As a result, we will, for our financial reporting, depend on what these entities report to us, which could result in us adding monitoring and audit processes, which could increase the difficulty of implementing and maintaining adequate controls over our financial processes and reporting in the future. This may be particularly true when such entities do not have sophisticated financial accounting processes in place, or where we are entering into new relationships at a rapid pace, straining our integration capacity. Additionally, if we do not receive the information from the joint venture or variable interest entity on a timely basis, this could cause delays in our external reporting obligations as required by the SEC.

Changes in, or interpretations of, accounting principles could have a significant impact on our financial position and results of operations.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. These principles are subject to interpretation by the SEC and various other bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions.

For example, the Financial Accounting Standards Board, or FASB, is currently working together with the International Accounting Standards Board, or IASB, on several projects to further align accounting principles and facilitate more comparable financial reporting between companies who are required to follow U.S. GAAP under SEC regulations and those who are required to follow International Financial Reporting Standards outside of the United States. These efforts by the FASB and the IASB may result in different accounting principles under U.S. GAAP that may result in materially different financial results for us in areas including, but not limited to, principles for recognizing revenue and lease accounting.

Failure to maintain effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act could have a material adverse effect on our stock price.

Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC require an annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to the effectiveness of our internal control over financial reporting at the end of the fiscal year. If we fail to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective control over financial reporting in accordance with the Sarbanes-Oxley Act and the related rules and regulations of the SEC. If we cannot in the future favorably assess, or our independent registered public accounting firm is unable to provide an unqualified attestation report on, the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

 

 

Item 1B.

Unresolved Staff Comments.

None.

 

 

44


Item 2.

Properties.

We currently do not own any properties. Our leased properties are as follows:

 

Approximate Square Feet

 

Location

 

Purpose

 

Term

 

 

 

 

 

 

 

143,000

 

San Francisco, California

 

Corporate headquarters

 

Expiration June 2019
with an option to
extend the lease for an
additional five years

 

 

 

 

 

 

 

44,000

 

San Francisco, California

 

Office and
laboratory facility

 

Expiration August 2024
with an option to
extend the lease for up
to an additional five
years

 

 

 

 

 

 

 

15,000

 

Oakbrook Terrace, Illinois

 

Former commercial
headquarters (subleased to
a third party)

 

Expiration December
2019

 

We believe our properties are adequately maintained and suitable for their intended use. As we continue to expand our operations, we may need to lease additional or alternate facilities.

 

 

Item 3.

Legal Proceedings.

We are involved in legal proceedings, investigations, and claims in the ordinary course of our business, including the matters described below.  

In May 2011, we filed a lawsuit in San Francisco Superior Court against the Regents of the University of California, and one of its professors, alleging breach of contract and fraud claims, among others. Our allegations in this lawsuit include that we have exclusive commercial rights to apalutamide, an investigational drug originally known as ARN-509 (previously also referred to as JNJ-56021927, or JNJ-927), which is currently being developed by Aragon Pharmaceuticals, or Aragon. In August 2013, Johnson & Johnson and Aragon completed a transaction in which Johnson & Johnson acquired all apalutamide assets owned by Aragon. We sought remedies including a declaration that we are the proper licensee of apalutamide, contractual remedies conferring to us exclusive patent license rights regarding apalutamide, and other equitable and monetary relief. On August 7, 2012, the Regents filed a cross-complaint against us seeking declaratory relief that the Regents are entitled to ten percent of any sales milestone payments under the Astellas Collaboration Agreement.

On December 20, 2012, and January 25, 2013, the Court granted summary judgment motions filed by defendants Regents and Aragon, resulting in dismissal of all claims against Regents and Aragon, but denied such motions filed by the remaining Regents professor. On April 15, 2013, we filed a Notice of Appeal seeking appeal of the judgment in favor of Aragon, which is now wholly-owned by Johnson & Johnson. The bench trial of the Regent’s cross-complaint against us was conducted in July 2013, and on January 15, 2014, the Court entered a judgment in the cross-complaint in favor of Regents. We appealed this judgment on February 13, 2014 along with the December 2012 summary judgment order in favor of Regents. The jury trial of our breach of contract and fraud claims against the remaining Regents professor was conducted in October and November 2013. On November 15, 2013, the jury rendered a verdict in the case, finding in our favor on one of the breach of contract claims, and in favor of the Regents professor on the fraud claims.  The Company appealed the resulting judgment on the fraud claims.  All appeals from this matter were consolidated, and oral arguments were heard on February 23, 2016. A decision of the appellate court is required to be rendered within 90 days of the oral argument.

On April 11, 2014, the Regents filed a complaint against us in which UCLA alleges that the “Operating Profits” we have received (and will continue to receive) from Astellas, as a result of the Astellas Collaboration Agreement, constitute Sublicensing Income under the license agreement between us and the Regents and that we and our subsidiary, Medivation Prostate Therapeutics, Inc., have failed to pay the Regents ten percent of such Operating Profits. We deny the Regents’ allegations and are vigorously defending the litigation. We are currently awaiting a trial date to be set by the Courts.

While we believe we have meritorious positions with respect to the claims above and intend to advance our positions in these lawsuits vigorously, including on appeal, the process of resolving matters through litigation or other means is inherently uncertain, and it is not possible to predict the ultimate resolution of any such proceeding. The actual costs of defending our position may be significant, and we may not prevail.

 

 

Item 4.

Mine Safety Disclosures.

None.

 

 

45


PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock, par value $0.01, is listed on the NASDAQ Global Select Market under the symbol “MDVN.” The following table sets forth on a per share basis the high and low intraday sales prices of our common stock as reported by the NASDAQ Global Select Market:

 

 

 

High (1)

 

 

Low (1)

 

2015:

 

 

 

 

 

 

 

 

Quarter ended March 31, 2015

 

$

70.79

 

 

$

48.80

 

Quarter ended June 30, 2015

 

$

67.67

 

 

$

54.93

 

Quarter ended September 30, 2015

 

$

58.08

 

 

$

38.08

 

Quarter ended December 31, 2015

 

$

48.77

 

 

$

37.63

 

2014:

 

 

 

 

 

 

 

 

Quarter ended March 31, 2014

 

$

44.10

 

 

$

30.31

 

Quarter ended June 30, 2014

 

$

39.18

 

 

$

27.19

 

Quarter ended September 30, 2014

 

$

51.94

 

 

$

34.56

 

Quarter ended December 31, 2014

 

$

58.62

 

 

$

43.24

 

 

(1)

All sales prices have been retroactively adjusted to reflect our September 15, 2015, two-for-one forward stock split effected through a stock dividend.

Stockholders

As of the close of business on February 16, 2016, there were 18 stockholders of record of our common stock. The number of stockholders of record is based upon the actual number of stockholders registered at such date and does not include holders of shares in “street names” or persons, partnerships, associates, or corporations, or other entities identified in security listings maintained by depositories.

Dividends

We have never paid our stockholders cash dividends and we do not anticipate paying any cash dividends in the foreseeable future as we intend to retain all of our cash for use in our business. Any future determination to pay dividends will be at the discretion of our Board of Directors, and will depend on a number of factors, including but not limited to any contractual restrictions on paying dividends, outstanding indebtedness, earnings, capital requirements, financial condition and future prospects, and applicable Delaware law. Our Revolving Credit Facility imposes contractual restrictions on us with respect to paying cash dividends. 

46


Performance Graph

We have presented below the cumulative total return to our stockholders during the period from December 31, 2010 through December 31, 2015, in comparison to the cumulative total returns of the NASDAQ Composite Index and the NASDAQ Biotechnology Index. All values assume a $100 initial investment and the reinvestment of the full amount of all dividends and are calculated as of the last stock trading day of each year. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.

 

 

 

 

2010

 

 

2011

 

 

2012

 

 

2013

 

 

2014

 

 

2015

 

Medivation, Inc.

 

$

100.00

 

 

$

304.22

 

 

$

674.93

 

 

$

841.95

 

 

$

1,314.25

 

 

$

1,275.46

 

NASDAQ Composite Index

 

$

100.00

 

 

$

99.17

 

 

$

116.48

 

 

$

163.21

 

 

$

187.27

 

 

$

200.31

 

NASDAQ Biotechnology Index

 

$

100.00

 

 

$

112.07

 

 

$

148.26

 

 

$

246.14

 

 

$

330.83

 

 

$

369.75

 

 

The information under “Performance Graph” is not deemed to be “soliciting material” or “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference in any filing of Medivation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in those filings.

Recent Sales of Unregistered Securities

None.

Repurchases of Equity Securities

None.

 

 

47


Item 6.

Selected Financial Data.

The following is a summary of our historical consolidated financial data for the years ended and on the dates indicated below. The historical consolidated financial data for the years ended December 31, 2015, 2014 and 2013 and as of December 31, 2015 and 2014 have been derived from our audited consolidated financial statements included in this Annual Report on Form 10-K, or Annual Report. The historical financial data for the years ended December 31, 2012 and 2011 and as of December 31, 2013, 2012 and 2011 have been derived from our audited consolidated financial statements not included in this Annual Report. The information below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes thereto included in this Annual Report to fully understand factors that may affect the comparability of the information presented below.

 

 

 

Years Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

 

(in thousands, except per share data)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

943,258

 

 

$

710,487

 

 

$

272,942

 

 

$

181,696

 

 

$

60,389

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

232,100

 

 

 

189,570

 

 

 

118,952

 

 

 

95,628

 

 

 

73,432

 

Selling, general and administrative expenses

 

 

296,545

 

 

 

239,071

 

 

 

176,231

 

 

 

112,282

 

 

 

29,887

 

Total operating expenses

 

 

528,645

 

 

 

428,641

 

 

 

295,183

 

 

 

207,910

 

 

 

103,319

 

Income (loss) from operations

 

 

414,613

 

 

 

281,846

 

 

 

(22,241

)

 

 

(26,214

)

 

 

(42,930

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of convertible debt

 

 

(21,087

)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(12,483

)

 

 

(21,690

)

 

 

(20,249

)

 

 

(14,985

)

 

 

 

Other, net

 

 

275

 

 

 

38

 

 

 

(8

)

 

 

(51

)

 

 

(242

)

Total other income (expense), net

 

 

(33,295

)

 

 

(21,652

)

 

 

(20,257

)

 

 

(15,036

)

 

 

(242

)

Income (loss) before income tax benefit (expense)

 

 

381,318

 

 

 

260,194

 

 

 

(42,498

)

 

 

(41,250

)

 

 

(43,172

)

Income tax benefit (expense)

 

 

(136,593

)

 

 

16,258

 

 

 

(115

)

 

 

(7

)

 

 

4,331

 

Net income (loss)

 

$

244,725

 

 

$

276,452

 

 

$

(42,613

)

 

$

(41,257

)

 

$

(38,841

)

Basic net income (loss) per common share(1)

 

$

1.53

 

 

$

1.80

 

 

$

(0.28

)

 

$

(0.28

)

 

$

(0.28

)

Diluted net income (loss) per common share(1)

 

$

1.47

 

 

$

1.71

 

 

$

(0.28

)

 

$

(0.28

)

 

$

(0.28

)

Weighted-average common shares used in the calculation

   of basic net income (loss) per common share(1)

 

 

160,345

 

 

 

153,859

 

 

 

150,331

 

 

 

146,949

 

 

 

139,842

 

Weighted-average common shares used in the calculation

   of diluted net income (loss) per common share(1)

 

 

169,324

 

 

 

170,001

 

 

 

150,331

 

 

 

146,949

 

 

 

139,842

 

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

 

(in thousands)

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and short-term investments

 

$

225,853

 

 

$

502,677

 

 

$

228,788

 

 

$

296,240

 

 

$

145,132

 

Working capital

 

$

368,115

 

 

$

602,216

 

 

$

258,290

 

 

$

259,330

 

 

$

78,555

 

Total assets

 

$

1,431,591

 

 

$

911,619

 

 

$

392,650

 

 

$

371,866

 

 

$

175,117

 

Convertible Notes, net of unamortized discount

 

 

 

 

$

222,140

 

 

$

208,414

 

 

$

196,007

 

 

 

 

Retained earnings (accumulated deficit)

 

$

186,199

 

 

$

(57,709

)

 

$

(334,161

)

 

$

(291,548

)

 

$

(250,291

)

Total stockholders’ equity

 

$

872,679

 

 

$

449,299

 

 

$

76,947

 

 

$

73,645

 

 

$

1,321

 

 

(1)

All share and per share amounts have been retroactively adjusted to reflect our September 15, 2015, two-for-one forward stock split effected through a stock dividend, which resulted in the issuance of approximately 81.7 million shares of our common stock, and our September 21, 2012, two-for-one forward stock split, which resulted in the increase of approximately 37.0 million shares of our outstanding common stock.

 

 

48


Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2015, included elsewhere in this Annual Report on Form 10-K, or Annual Report. The following discussion and analysis contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend that these forward-looking statements be subject to the safe harbors created by those provisions. Please see the section entitled “Forward-Looking Statements” at the beginning of this Annual Report for important information you should know regarding these forward-looking statements and how to identify them, including cautionary language regarding undue reliance on these forward-looking statements. We disclaim any intention or obligation to update, supplement or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

We are a biopharmaceutical company focused on the development and commercialization of medically innovative therapies to treat serious diseases for which there are limited treatment options. We have one commercial product, XTANDI® (enzalutamide) capsules, or XTANDI, through our collaboration with Astellas Pharma, Inc., or Astellas. XTANDI has received marketing approval in the United States, Europe and numerous other countries worldwide for the treatment of patients with metastatic castration-resistant prostate cancer, or mCRPC, and in Japan for the treatment of patients with castration-resistant prostate cancer, or CRPC. We and Astellas are also conducting investigational studies of enzalutamide in prostate cancer, advanced breast cancer, and hepatocellular carcinoma. Under our collaboration agreement with Astellas, we share equally with Astellas all profits (losses) related to U.S. net sales of XTANDI. We also receive royalties ranging from the low teens to the low twenties as a percentage of ex-U.S. XTANDI net sales.  The collaboration also involved certain milestone payments from Astellas to us upon the achievement of defined development, regulatory and sales events, all of which have been achieved as of December 31, 2015.

We seek to become a more fully-integrated biopharmaceutical company through the continued commercialization of XTANDI, the acquisition or in-license and development and commercialization of other product opportunities, and through the advancement of our own proprietary research and development programs. We expect that our future growth may come from both internal research efforts and third-party business development activities. In the fourth quarter of 2015, we acquired all worldwide rights to talazoparib (which we refer to as MDV3800), an orally available poly-ADP ribose polymerase, or PARP, inhibitor, from BioMarin Pharmaceutical Inc., or BioMarin. MDV3800 is currently in a Phase 3 clinical trial for the treatment of patients with germline BRCA, or gBRCA, mutated advanced breast cancer (i.e., advanced breast cancer in patients whose BRCA genes contain germline mutations). We are targeting a number of other indications in which to investigate MDV3800, including breast cancer (beyond gBRCA mutations), prostate cancer, small cell lung cancer, and ovarian cancer. In the fourth quarter of 2014, we licensed exclusive worldwide rights to pidilizumab (which we refer to as MDV9300), an antibody with immune-mediated anti-tumor effects for all potential indications from CureTech, Ltd., or CureTech. Under the license agreement, we are responsible for all development, regulatory, manufacturing, and commercialization activities for MDV9300. We initiated a Phase 2 clinical trial evaluating MDV9300 in patients with relapsed or refractory diffuse large B-cell lymphoma in the fourth quarter of 2015, which is on partial clinical hold pending our revision of certain investigator brochure, protocols and informed consent documents. We submitted the revised documents to the FDA in early February 2016 and the FDA has 30 days thereafter to notify us if the partial hold is lifted. We also plan to develop MDV9300 in other hematologic malignancies such as multiple myeloma.

In addition to the above activities, we have various internal research and discovery efforts focused in oncology, neurology and other areas. Additional information regarding our business is included in Part I, Item 1, “Business,” included elsewhere in this Annual Report. Business and financial highlights for the year ended December 31, 2015 are included below in the sections entitled, “2015 Clinical and Business Highlights” and “2015 Financial Highlights,” respectively.

OUTLOOK 2016

In 2016, our key objectives are to increase the commercial potential of XTANDI and advance our pipeline. 

The largest opportunity for XTANDI lies in earlier stage prostate cancer, which is primarily treated by urologists.  In late 2015, we expanded our sales force and created separate urology- and oncology-focused teams.  This, along with the potential inclusion of data from STRIVE and TERRAIN into the relevant clinical trials section of our XTANDI label within the current mCRPC indication, which may occur as early as the second half of 2016, may help us capture the next wave of growth for XTANDI.  We are sensitive, however, to conditions that may affect XTANDI’s growth, such as pricing pressure from third party payors and advocacy groups to reduce healthcare costs in the U.S. and abroad. 

49


From a research and development perspective, we plan to continue to invest in our ongoing clinical studies to cover the continuum of prostate cancer care, advance our development of enzalutamide for the treatment of advanced breast cancer, fully enroll our gBRCA mutated advanced breast cancer clinical trial for MDV3800, advance MDV9300 in DLBCL and prepare for other hematologic indications such as multiple myeloma, and further the development and growth of our internal pipeline.  Furthermore, we also plan to initiate start-up activities for a number of phase 2 and potentially pivotal clinical trials to develop MDV3800 beyond gBRCA mutations.  As a result, we expect that our research and development and selling, general and administrative expenses will notably increase above the levels recorded in 2015.

2015 CLINICAL AND BUSINESS HIGHLIGHTS

The following summarizes our recent clinical and business highlights:

 

In December 2015, we expanded our XTANDI U.S. sales force and created separate urology- and oncology-focused teams. We believe this structure will afford us greater ability to reach and detail the respective physician audiences more effectively.  

 

During 2015, we presented updated data from our Phase 2 study evaluating the investigational use of enzalutamide as a single agent for the treatment of advanced androgen receptor, or AR, positive, triple-negative breast cancer, or TNBC. An exploratory analysis of overall survival data collected as of September 15, 2015 demonstrated that patients treated with enzalutamide whose tumors tested positive according to a novel diagnostic assay experienced a 13.8-month longer median overall survival duration compared to those patients whose tumor tested negative for the novel gene expression profile. Median overall survival in the diagnostic positive group treated with enzalutamide was 21.3 months (95% CI: 12.9, 21.3) compared with 7.5 (95% CI: 4.8, 11.2) months for the diagnostic negative group treated with enzalutamide. Multicovariate analyses demonstrated that only diagnostic status (positive) and number of prior lines of therapy (0-1) were statistically significantly and independently associated with both improved PFS and overall survival outcomes.  Additional variables included in the multi-covariate analyses were age (≥65 vs. < 65 years), disease free interval between primary and metastatic disease (≥12 months vs. <12 months), AR immunohistochemistry (≥10% vs. <10%). The most common (reported in ³10% of patients) adverse events reported as related to enzalutamide treatment were fatigue (34%), nausea (25%), decreased appetite (13%), diarrhea (10%), and hot flush (10%).

Additionally, we entered into a collaboration agreement with NanoString Technologies, Inc. and our partner Astellas, in January 2016, to translate our gene expression profile into a companion diagnostic assay using NanoString’s nCounter® Dx Analysis System for potential use as a companion diagnostic test for enzalutamide for TNBC.

 

In October 2015, we completed an acquisition of all rights to MDV3800 from BioMarin pursuant to an asset purchase agreement. The acquired MDV3800 assets include all patents, data, know-how, third-party agreements, regulatory materials and pre-commercial inventories. We also assumed certain costs for ongoing clinical trials of MDV3800, and commitments under certain agreements previously entered into or assumed by BioMarin and assigned to us. In connection with the transaction, we paid BioMarin an upfront cash payment of $410.0 million in the fourth quarter of 2015. BioMarin is eligible to receive up to an additional $160.0 million upon the achievement of defined regulatory and sales-based milestones and mid-single digit royalties on net sales of products that contain MDV3800 during the royalty term specified in the agreement. The parties entered into a transition services agreement at the closing of the transaction to facilitate the transition of the research and development activities relating to MDV3800 from BioMarin to us, including responsibility for the ongoing clinical studies.

 

In September 2015, we entered into a Credit Agreement, or the Original Credit Agreement, with JPMorgan Chase Bank, N.A., which provided for (i) a one-year $75.0 million revolving loan facility and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions. We executed a borrowing of $75.0 million under this facility in September 2015. In October 2015, we entered into an amendment and restatement of the Original Credit Agreement, or the Credit Agreement, which provides for (i) a five-year $300.0 million revolving loan facility, or the Revolving Credit Facility, and (ii) an uncommitted accordion facility subject to the satisfaction of certain conditions. In October 2015, we borrowed $75.0 million under the Revolving Credit Facility, which was used to repay the $75.0 million outstanding at September 30, 2015 under the Original Credit Agreement. In January 2016, we repaid the $75.0 million outstanding under the Revolving Credit Facility. Additional information is included in Note 10, “Debt,” to our consolidated financial statements included elsewhere in this Annual Report.

 

In July 2015, the U.S. Food and Drug Administration, or FDA, approved a label update for XTANDI based on an updated overall survival analysis of the Phase 3 PREVAIL trial. This analysis was conducted when 784 deaths were observed and found an overall survival benefit with a 23% reduction in risk of death (Hazard ratio = 0.77; 95% CI: 0.67, 0.88) and a 4-month improvement in median survival with enzalutamide (35.3 months [95% CI: 32.2, not yet reached]) over placebo (31.3 months [95% CI: 28.8, 34.2]).

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In April 2015, we and Astellas reported top-line results from the Phase 2 STRIVE trial. The trial achieved its primary endpoint demonstrating a statistically significant increase in PFS, defined as time from randomization to radiographic (bone or soft tissue) progression, prostate-specific antigen (PSA) progression (defined by Prostate Cancer Working Group 2 criteria), or death due to any cause, whichever occurs first, for patients with CRPC for enzalutamide compared with bicalutamide (Hazard Ratio = 0.24; 95% CI: 0.18, 0.32; p < 0.0001). Median PFS was 19.4 months in the enzalutamide group compared with 5.7 months in the bicalutamide group. The median time on treatment in the STRIVE trial was 14.7 months in the enzalutamide group versus 8.4 months in the bicalutamide group. Serious adverse events were reported in 29.4% of enzalutamide-treated patients and 28.3% of bicalutamide-treated patients. Grade 3 or higher cardiac adverse events were reported in 5.1% of enzalutamide-treated patients versus 4.0% of bicalutamide-treated patients. One seizure was reported in the trial in the enzalutamide-treated group and none in the bicalutamide-treated group.

 

In January 2015, we and Astellas reported top-line results from the Phase 2 TERRAIN trial. The trial achieved its primary endpoint demonstrating a statistically significant increase in PFS, defined as time from randomization to centrally determined radiographic progression, skeletal-related event, initiation of new anti-neoplastic therapy or death, whichever occurred first, for patients with metastatic CRPC for enzalutamide compared to bicalutamide (Hazard Ratio = 0.44; 95% CI: 0.34, 0.57; p < 0.0001). Median PFS was 15.7 months in the enzalutamide group compared to 5.8 months in the bicalutamide group. The median time on treatment in the TERRAIN trial was 11.7 months in the enzalutamide group versus 5.8 months in the bicalutamide group. Serious adverse events were reported in 31.1% of enzalutamide-treated patients and 23.3% of bicalutamide-treated patients. Grade 3 or higher cardiac adverse events were reported in 5.5% of enzalutamide-treated patients versus 2.1% of bicalutamide-treated patients. Two seizures were reported in the enzalutamide group and one in the bicalutamide group.

2015 FINANCIAL HIGHLIGHTS

 

Net sales of XTANDI as reported by Astellas and collaboration revenue related to net sales of XTANDI are summarized in the table below (dollars in millions):

 

 

 

Years Ended

December 31,

 

 

 

2015

 

 

2014

 

Worldwide net sales of XTANDI (as reported by Astellas)

 

$

1,908

 

 

$

1,061

 

Increase year-over-year

 

$

847

 

 

 

 

 

Percentage change

 

 

80

%

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. XTANDI net sales (as reported by Astellas)

 

$

1,151

 

 

$

680

 

Increase year-over-year

 

$

471

 

 

 

 

 

Percentage change

 

 

69

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Ex-U.S. XTANDI net sales (as reported by Astellas)

 

$

757

 

 

$

381

 

Increase year-over-year

 

$

376

 

 

 

 

 

Percentage change

 

 

99

%