10-Q
Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 31, 2018

OR

 

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

For the transition period from                  to                 

Commission file number: 001-36167

 

 

Karyopharm Therapeutics Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   26-3931704

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

85 Wells Avenue, 2nd Floor

Newton, MA

  02459
(Address of principal executive offices)   (Zip Code)

(617) 658-0600

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically 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 (§232.405 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 ☒    No ☐

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

  ☐ (Do not check if a smaller reporting company)   

Smaller reporting company

 

    

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No ☒

As of May 4, 2018, there were 49,849,972 shares of Common Stock, $0.0001 par value per share, outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

   PART I—FINANCIAL INFORMATION   

Item 1.

  

Condensed Consolidated Financial Statements (Unaudited)

     3  
  

Condensed Consolidated Balance Sheets

     3  
  

Condensed Consolidated Statements of Operations

     4  
  

Condensed Consolidated Statements of Comprehensive Loss

     5  
  

Condensed Consolidated Statements of Cash Flows

     6  
  

Notes to Condensed Consolidated Financial Statements

     7  

Item 2.

  

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

     20  

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     25  

Item 4.

   Controls and Procedures      26  
   PART II—OTHER INFORMATION   
     

Item 1A.

  

Risk Factors

     27  
Item 6.   

Exhibits

     61  
  

Signatures

     62  

 

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PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Karyopharm Therapeutics Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share amounts)

 

     March 31,
2018
    December 31,
2017
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 37,499     $ 68,997  

Short-term investments

     93,418       77,472  

Prepaid expenses and other current assets

     2,396       1,754  

Restricted cash

     —         200  
  

 

 

   

 

 

 

Total current assets

     133,313       148,423  

Property and equipment, net

     2,454       2,185  

Long-term investments

     10,314       29,396  

Restricted cash

     292       290  
  

 

 

   

 

 

 

Total assets

   $ 146,373     $ 180,294  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 4,949     $ 5,665  

Accrued expenses

     21,545       21,445  

Deferred revenue

     19,729       21,921  

Deferred rent

     178       303  

Other current liabilities

     333       133  
  

 

 

   

 

 

 

Total current liabilities

     46,734       49,467  

Deferred revenue, net of current portion

     2,192       —    

Deferred rent, net of current portion

     1,918       1,363  
  

 

 

   

 

 

 

Total liabilities

     50,844       50,830  

Stockholders’ equity:

    

Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding

     —         —    

Common stock, $0.0001 par value; 100,000,000 shares authorized; 49,670,328 and 49,533,150 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively

     5       5  

Additional paid-in capital

     629,610       625,017  

Accumulated other comprehensive loss

     (286     (217

Accumulated deficit

     (533,800     (495,341
  

 

 

   

 

 

 

Total stockholders’ equity

     95,529       129,464  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 146,373     $ 180,294  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Karyopharm Therapeutics Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

 

     Three Months Ended,
March 31,
 
     2018     2017  

License and other revenue

   $ 10,000     $ 68  

Operating expenses:

    

Research and development

     41,321       24,083  

General and administrative

     7,621       6,264  
  

 

 

   

 

 

 

Total operating expenses

     48,942       30,347  
  

 

 

   

 

 

 

Loss from operations

     (38,942     (30,279

Other income (expense):

    

Interest income

     509       400  

Other expense

     (14     (15
  

 

 

   

 

 

 

Total other income, net

     495       385  
  

 

 

   

 

 

 

Loss before income taxes

     (38,447     (29,894

Provision for income taxes

     (12     (23
  

 

 

   

 

 

 

Net loss

   $ (38,459   $ (29,917
  

 

 

   

 

 

 

Net loss per share—basic and diluted

   $ (0.78   $ (0.71
  

 

 

   

 

 

 

Weighted-average number of common shares outstanding used in net loss per share—basic and diluted

     49,602,809       41,894,796  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Karyopharm Therapeutics Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in thousands)

 

     Three Months Ended
March 31,
 
     2018     2017  

Net loss

   $ (38,459   $ (29,917
  

 

 

   

 

 

 

Comprehensive income (loss)

    

Unrealized gain (loss) on investments

     (108     59  

Foreign currency translation adjustments

     39       11  
  

 

 

   

 

 

 

Comprehensive loss

   $ (38,528   $ (29,847
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Karyopharm Therapeutics Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

     Three Months Ended
March 31,
 
     2018     2017  

Operating activities

    

Net loss

   $ (38,459   $ (29,917

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     169       183  

Net amortization of premiums and discounts on investments

     160       267  

Stock-based compensation expense

     4,164       5,909  

Changes in operating assets and liabilities:

    

Prepaid expenses and other current assets

     (638     (61

Accounts payable

     (773     (522

Accrued expenses and other liabilities

     295       (498

Deferred rent

     430       (69
  

 

 

   

 

 

 

Net cash used in operating activities

     (34,652     (24,708

Investing activities

    

Purchases of property and equipment

     (382     —    

Proceeds from maturities of investments

     27,602       25,624  

Purchases of investments

     (24,736     (25,075
  

 

 

   

 

 

 

Net cash provided by investing activities

     2,484       549  

Financing activities

    

Proceeds from the exercise of stock options

     429       57  
  

 

 

   

 

 

 

Net cash provided by financing activities

     429       57  

Effect of exchange rate on cash

     43       16  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (31,696     (24,086

Cash, cash equivalents and restricted cash at beginning of period

     69,487       50,142  
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $ 37,791     $ 26,056  
  

 

 

   

 

 

 

Supplemental disclosure of non-cash activities

    

Purchases of property and equipment included in accounts payable

   $ 56     $ —    
  

 

 

   

 

 

 

Deferred financing costs included in accounts payable

   $ —       $ 15  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Karyopharm Therapeutics Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands except share and per share data)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Karyopharm Therapeutics Inc., a Delaware corporation (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2018. For further information, refer to the financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission (“SEC”) on March 15, 2018.

Basis of Consolidation

The condensed consolidated financial statements at March 31, 2018 include the accounts of (i) the Company, (ii) Karyopharm Securities Corp. (a wholly-owned Massachusetts corporation of the Company incorporated in December 2013), (iii) Karyopharm Europe GmbH (a wholly-owned German Limited Liability Company formed in August 2014) and (iv) Karyopharm Therapeutics (Bermuda) Ltd. (a wholly-owned Bermuda subsidiary of the Company formed in March 2015). All intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606), as well as subsequent amendments, which were codified in ASC 606, on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for the quarter ended March 31, 2018 reflect the application of ASC 606 while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605), which is also referred to herein as “legacy GAAP” or the “previous guidance”. The adoption of ASC 606 did not have a material impact on the Company’s consolidated financial position, results of operations, stockholder’s equity or cash flows as of the adoption date, as no transition adjustment for any of the Company’s contracts with customers was required.

ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company generates revenue from license or similar agreements with pharmaceutical companies for the development and commercialization of certain of its product candidates. Such agreements may include the transfer of intellectual property rights in the form of licenses, transfer of technological know-how, delivery of drug substances, research and development services, and participation on certain committees with the counterparty. Payments made by the customers may include non-refundable upfront fees, payments upon the excercise of customer options, payments based upon the achievement of defined milestones, and royalties on sales of product candidates if they are successfully approved and commercialized.

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes the transaction price allocated to the license as revenue upon transfer of control of the license. The Company evaluates all other promised goods or services in the agreement to determine if they are distinct. If they are not distinct, they are combined with other promised goods or services to create a bundle of promised goods or services that is

 

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distinct. Optional future services where any additional consideration paid to the Company reflects their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations. If optional future services are priced in a manner which provides the customer with a significant or incremental discount, they are material rights, and are accounted for as performance obligations.

The Company utilizes judgment to determine the transaction price. In connection therewith, the Company evaluates contingent milestones at contract inception to estimate the amount which is not probable of a material reversal to include in the transaction price using the most likely amount method. Milestone payments that are not within the control of the Company, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore the variable consideration is constrained. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each reporting period, the Company re-evaluates the probability of achieving development milestone payments which may not be subject to a material reversal and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license and other revenue, as well as earnings, in the period of adjustment.

The Company then determines whether the performance obligations or combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress, as applicable, each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded within deferred revenue. Contract liabilities within deferred revenue are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.

For arrangements that include sales-based royalties, including sales-based milestone payments, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of when the related sales occur or when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

2. Recent Accounting Pronouncements

Recently Adopted Accounting Standards

As detailed above, the Company adopted ASC 606 on January 1, 2018. Under the modified retrospective transition method, the Company applied ASC 606 to all contracts within scope as of January 1, 2018. Under the practical expedient concerning contract modifications contained in the transitional provisions of ASC 606, the Company has not retrospectively restated its contracts for modifications prior to the earliest period presented, and instead has reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price. Qualitatively, the effect of applying this practical expedient is not material to the periods presented in the consolidated financial statements. As more fully discussed in Note 3, Asset Purchase and License Agreements, only the Company’s arrangement with Ono Pharmaceutical Co., Ltd. was determined to have unsatisfied performance obligations as of the adoption date. However, the pattern of revenue recognition was not affected and, therefore, no transition adjustment was recorded to the opening balance of accumulated deficit on January 1, 2018. All other agreements subject to transition, which only included the Company’s arrangement with Anivive Lifesciences Inc., were unaffected by the adoption of ASC 606 in all periods presented in the consolidated financial statements through application of the modified retrospective transition method.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15. This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Company adopted ASU 2016-05 effective January 1, 2018 and the adoption did not have a material impact on the Company’s statements of cash flows.

In October 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory (Topic 740). Topic 740 eliminates the ability to defer the tax expense related to intra-entity asset transfers other than inventory. Under the new standard, entities should recognize the income tax consequences on an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted Topic 740 effective January 1, 2018 and the adoption did not have a material impact on the Company’s financial position or results of operations.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-

 

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period total amounts shown on the statement of cash flows. The Company adopted this standard effective January 1, 2018 and reclassified restricted cash in the statements of cash flows to be included in the cash and cash equivalents balance. The standard resulted in the reclassification of $292 and $479 into the balance of cash, cash equivalents and restricted cash on the statement of cash flows for the periods ended March 31, 2018 and 2017, respectively.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) (“ASU 2017-09”) Scope of Modification Accounting. ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company adopted this standard effective January 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is in process of evaluating this guidance and determining the potential impact on its consolidated financial statements; however, it anticipates that the new standard will result in the Company recording additional right of use assets and corresponding liabilities on its consolidated balance sheet.

3. Asset Purchase and License Agreements

Biogen Asset Purchase Agreement

On January 24, 2018, the Company entered into an Asset Purchase Agreement (the “APA”) and Letter Agreement with Biogen MA Inc., a Massachusetts corporation and subsidiary of Biogen, Inc. (“Biogen”).

Under the terms of the APA and Letter Agreement, the Company sold Biogen exclusive worldwide rights to develop and commercialize the Company’s oral Selective Inhibitor of Nuclear Export (SINE) compound KPT-350 and certain related assets with an initial focus in amyotrophic lateral sclerosis (ALS) (the “Transfer of IP”), and also granted Biogen: (i) an exclusive worldwide license under certain of the Company’s intellectual property to manufacture or have manufactured KPT-350 (the “Manufacturing License”), (ii) a technology transfer package, consisting of information and the Company’s know-how regarding the manufacture of KPT-350 (the “Manufacturing Technology Transfer”), (iii) a right, at Biogen’s request, to have the Company provide transition assistance regarding manufacturing and other matters (the “Transition Assistance”), (iv) existing inventory of KPT-350 (the “Inventory”), (v) an initial supply of KPT-350 (the “Initial Supply”), and (vi) a right, at Biogen’s request, to have the Company manufacture and supply the active pharmaceutical ingredient for an additional supply of KPT-350 (the “Additional Supply”). In consideration for these rights, the Company received an upfront payment of $10,000, and is eligible to receive additional payments of up to $142,000 based on the achievement by Biogen of future specified development milestones, and up to $65,000 based on the achievement by Biogen of future specified commercial milestones. The Company will also be eligible to receive tiered royalty payments that reach low double-digits based on future net sales until the later of the tenth anniversary of the first commercial sale of the applicable product and the expiration of specified patent protection for the applicable product, determined on a country-by-country basis.

The Company and Biogen have made customary representations and warranties and agreed to customary covenants in the APA, including covenants requiring Biogen to use commercially reasonable efforts to develop KPT-350 in specified neurological indications, including ALS, in any of the United States, United Kingdom, France, Spain, Germany or Italy. The APA will continue in effect until the expiration of all royalty obligations, provided that the APA may be terminated earlier by Biogen, subject to the requirements that Biogen (i) negotiate in good faith with the Company regarding an assignment or license back to the Company of the purchased assets and (ii) not transfer or license the purchased assets to a third party unless such third party assumes Biogen’s obligations to the Company under the APA.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Biogen, is a customer. The Company identified the following material promises in the arrangement: the Transfer of IP and the Manufacturing License. The Company also identified other immaterial promises under the contract that were not deemed performance obligations. The Company further determined other promises for Additional Supply and Transition Assistance represented customer options, which would create an obligation for the Company if exercised by Biogen. Since either no additional or immaterial consideration is owed to the Company by Biogen upon exercise of the customer options for Additional Supply and Transition Assistance, the Company determined both are offered at significant and incremental discounts. Accordingly, they were assessed as material rights and, therefore, separate performance obligations in the arrangement.    

 

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The Company then determined the Transfer of IP and the Manufacturing License were not distinct from one another and must be combined as a performance obligation (the “Combined Performance Obligation”). This is because Biogen requires the Manufacturing License to derive benefit from the Transfer of IP. Based on these determinations, as well as the considerations noted above with respect to the material rights for Additional Supply and Transition Assistance, the Company identified three distinct performance obligations at the inception of the contract: (i) the Combined Performance Obligation, (ii) the material right for Additional Supply, and (iii) the material right for Transition Assistance.

The Company further determined that the up-front payment of $10,000 constituted the entirety of the consideration to be included in the transaction price at contract inception, which was allocated to the performance obligations based on their relative stand-alone selling prices. In connection therewith, the Company estimated the stand-alone selling price of the (i) Combined Performance Obligation, (ii) material right for Additional Supply, and (iii) material right for Transition Assistance, and determined the stand-alone selling price of the material rights for Additional Supply and Transition Assistance were insignificant based on various quantitative and qualitative considerations. Accordingly, the Company further determined the allocation of the transaction price to the material rights for Additional Supply and Transition Assistance was insignificant. Based on the estimates of the stand-alone selling prices for each of the performance obligations, the Company determined that substantially all the $10,000 transaction price should be allocated to the Combined Performance Obligation. The Company believes that a change in the assumptions used to determine its best estimate of the stand-alone selling prices for the identified performance obligations would not have a significant effect on the allocation of the underlying transaction price to the performance obligations.

Upon execution of the Biogen Agreement, the transaction price included only the $10,000 up-front payment owed to the Company. The Company may receive further payments upon the achievement of certain regulatory and sales milestones, as detailed above, as well as tiered royalty payments that reach low double-digits based on future net sales. The future regulatory milestones, which represent variable consideration, were evaluated under the most likely amount method, and were not included in the transaction price, because the amounts are fully constrained as of March 31, 2018. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of such milestones is outside the control of the Company. Separately, any consideration related to sales-based milestones, as well as royalties on net sales upon commercialization by Biogen, will be recognized when the related sales occur, as they were determined to relate predominantly to the intellectual property and, therefore, have also been excluded from the transaction price in accordance with the sales-based royalty exception, as well as the Company’s accounting policy. The Company will re-evaluate the transaction price in each reporting period, as uncertain events are resolved, or as other changes in circumstances occur.

During the quarter ended March 31, 2018, the Company recognized $10,000 of revenue, as it had satisfied its promises under the Combined Performance Obligation by transferring the underlying promised goods at a point in time during the quarter ended March 31, 2018.

Ono License Agreement

Effective October 11, 2017 (the “Effective Date”), the Company entered into a license agreement (the “License Agreement”) with Ono Pharmaceutical Co., Ltd., a corporation organized and existing under the laws of Japan (“Ono”), pursuant to which the Company granted Ono exclusive rights to develop and commercialize, at its own cost, selinexor (KPT-330), the Company’s lead, novel, oral SINE compound, as well as eltanexor (KPT-8602), the Company’s second-generation oral SINE compound, for the diagnosis, treatment and/or prevention of all human oncology indications (the “Field”) in Japan, Republic of Korea, Republic of China (Taiwan) and Hong Kong, as well as in the ten Southeast Asian countries currently comprising the Association of Southeast Asian Nations (the “Ono Territory”) (the “Exclusive License”). Pursuant to the terms of the License Agreement, the Company received an upfront payment of ¥2.5 billion (US$21,916 on the date received), and could receive up to ¥10.15 billion (approximately US$90,500 at the exchange rate as of the Effective Date) in milestone payments if certain development goals are achieved and up to ¥9.0 billion (approximately US$80,200 at the exchange rate as of the Effective Date) in milestone payments if certain sales milestones are achieved, as well as a low double-digit royalty based on future net sales of selinexor and eltanexor in the Ono Territory. In addition, upon Ono’s election and the parties’ full execution of a manufacturing technology transfer plan and satisfaction of other specified conditions (the “Manufacturing Election”), the Company will grant to Ono non-exclusive rights to manufacture selinexor, eltanexor and products containing such compounds in or outside of the Ono Territory solely for development and commercialization in the Field in the Ono Territory.

As part of the License Agreement, Ono will also have the right to participate in global clinical studies of selinexor and eltanexor, and will bear the cost and expense for patients enrolled in clinical studies in the Ono Territory. Ono is responsible for seeking regulatory and marketing approvals for selinexor and eltanexor in the Ono Territory, as well as any development of the products specifically necessary to obtain such approvals. Ono is also responsible for the commercialization of products containing selinexor or eltanexor in the Field in the Ono Territory at its own cost and expense.

 

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Subject to Ono’s Manufacturing Election, the Company will furnish clinical supplies of drug substance to Ono for use in Ono’s development efforts pursuant to a clinical supply agreement to be entered into by the Company and Ono, and Ono may elect to have the Company provide commercial supplies of drug product to Ono pursuant to a commercial supply agreement to be entered into by the Company and Ono, in each case the costs of which will be borne by Ono.

The License Agreement will continue in effect on a product-by-product, country-by-country basis until the later of the tenth anniversary of the first commercial sale of the applicable product in such country or the expiration of specified patent protection and regulatory exclusivity periods for the applicable product in such country. However, the License Agreement may be terminated earlier by (i) either party for breach of the License Agreement by the other party or in the event of the insolvency or bankruptcy of the other party, (ii) Ono on a product-by-product basis for certain safety reasons or on a product-by-product, country-by-country basis for any reason with 180 days’ prior notice or (iii) the Company in the event Ono challenges or assists with a challenge to certain of the Company’s patent rights.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Ono, is a customer. The Company identified the following material promises under the contract: (i) Exclusive Licenses for selinexor and eltanexor, (ii) Initial Data Transfer for selinexor and eltanexor, which consisted of regulatory data compiled by the Company for the licensed compounds and products as of the Effective Date, (iii) Initial Clinical Supply for selinexor, which consisted of units of clinical supply for Ono to conduct its Phase I Trial, and (iv) an obligation to stand-ready to provide Initial Clinical Supply for eltanexor. The Company also identified several immaterial promises under the contract relating to information exchanges, and participation on operating committees and other working groups. Separately, the Company also identified certain customer options that would create an obligation for the Company if exercised by Ono, including the (i) Additional Data Transfer for selinexor and eltanexor, which would consist of the transfer of additional regulatory data compiled by the Company for the licensed compounds and products after the Effective Date, (ii) Additional Clinical Supply and Related Substance Supply for selinexor and eltanexor, which would consist of supplying Ono with units and substance of selinexor and eltanexor incremental to the Initial Clinical Supply for selinexor and the obligation to stand-ready to provide Initial Clinical Supply for eltanexor, as noted above, (iii) Manufacturing Technology Transfer and License for selinexor and eltanexor under Ono’s Manufacturing Election, as detailed above, and (iv) Option for Backup Compound, which represents Ono’s option to select a replacement compound in the event it elects to discontinue to development of either of the licensed compounds. Collectively, these options are referred to herein as the “Transfer Option.” The Transfer Options individually represent material rights, as they were offered at a significant and incremental discount. Therefore, they were further assessed as performance obligations under the License Agreement. The Company also identified certain other customer options that would create a manufacturing obligation for the Company if exercised by Ono, including commercial supply. This option is referred to herein as the “Manufacturing Option.” The Manufacturing Option does not represent a material right, as it is not offered at a significant and incremental discount.

In further evaluating the promises detailed above, the Company determined that the (i) Exclusive License, Initial Data Transfer, and Initial Clinical Supply for selinexor and (ii) Exclusive License, Initial Data Transfer, and obligation to stand-ready to provide Initial Clinical Supply of eltanexor were not distinct from one another, and must be combined as two separate performance obligations (the “Combined License Obligation for selinexor” and “Combined License Obligation for eltanexor”). This is because, for both selinexor and eltanexor, Ono requires the Initial Data Transfer and clinical supply to derive benefit from the Exclusive Licenses since the Company did not grant manufacting licenses for selinexor and eltanexor at contract inception. The Company also determined that each of the Transfer Options represents a distinct performance obligation. Based on these determinations, the Company identified six distinct performance obligations at the inception of the License Agreement, including (i) the Combined License Obligation for selinexor, (ii) the Combined License Obligation for eltanexor, and the four components of the Transfer Options, including (iii) the material right for Additional Data Transfer, (iv) the material right for Additional Clinical Supply and Related Substance Supply, (iv) the material right for Manufacturing Technology Transfer and License, and (vi) the material right for the Option for a Backup Compound.

The Company further determined the up-front payment of ¥2.5 billion (US$21,916 on the date received) constituted the entirety of the consideration to be included in the transaction price at contract inception, which was allocated to the performance obligations based on the Company’s best estimate of their relative stand-alone selling prices. The Company determined that substantially all of the value in the arrangement is through the Combined License Obligation for selinexor and Combined License Obligation for eltanexor. In connection therewith, the Company estimated the standalone selling price for each of the material rights within the Transfer Options, and determined such amounts were insignificant, and, therefore, immaterial for purposes of allocation. Accordingly, the Company allocated the ¥2.5 billion (US$21,916 on the date received) upfront transaction price amongst the Combined License Obligations as follows: $19,724 for selinexor and $2,192 for eltanexor. The Company believes that a change in the assumptions used to determine its best estimate of the stand-alone selling prices for any of the identified performance obligations would not have a significant effect on the allocation of the underlying transaction price to the performance obligations.

 

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Upon execution of the Ono Agreement, the transaction price included only the ¥2.5 billion (US$21,916 on the date received) up-front payment owed to the Company. As referenced above, the Company is eligible to receive additional payments of up to ¥10.15 billion based on the achievement by Ono of future specified development milestones and up to ¥9.0 billion based on the achievement by Ono of future specified commercial milestones, as well as a low double-digit royalty based on future net sales of selinexor and eltanexor in the Ono Territory. In addition, the Company could receive cost reimbursement in connection with its promise to stand-ready to provide Initial Clinical Supply for eltanexor in the future. The future regulatory milestones and cost reimbursement for providing Initial Clinical Supply of eltanexor, both of which represent variable consideration, were evaluated under the most likely amount method, and were not included in the transaction price, because the amounts were fully constrained as of March 31, 2018. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of such amounts is outside the control of the Company. Separately, any consideration related to sales-based milestones, as well as royalties on net sales upon commercialization by Ono, will be recognized when the related sales occur, as they were determined to relate predominantly to the intellectual property granted to Ono and, therefore, have also been excluded from the transaction price in accordance with the sales-based royalty exception, as well as the Company’s accounting policy. The Company will re-evaluate the transaction price in each reporting period, as uncertain events are resolved, or as other changes in circumstances occur.

To date, the Company recognized no revenue associated with this agreement. Revenue will be recognized for (i) the Combined License Obligation for selinexor once the Initial Clinical Supply is delivered, and (ii) the Combined License Obligation for eltanexor once the Company’s promise to stand-ready to provide Initial Clinical Supply of eltanexor in the future is fulfilled, which are the only undelivered items in the Combined License Obligation for selinexor and Combined License Obligation for eltanexor, respectively. As of March 31, 2018, the ¥2.5 billion (US$21,916 on the date received) upfront payment represents a contract liability, (i) US$19,724 of which was included in deferred revenue and is classified as a current liability in the condensed consolidated balance sheet and (ii) $2,192 of which was included in deferred revenue and is classified as a non-current liability in the condensed consolidated balance sheet. The Initial Clinical Supply of selinexor was fully delivered during the quarter ending June 30, 2018, and the transaction price allocated to the Combined License Obligation for selinexor, or US$19,724, will be recognized in that period.

Given the determination that the license rights conveyed to Ono lacked standalone value from the initial clinical supply of product required for Ono to obtain benefit from the rights granted and the fact that no initial clinical supply had been provided to Ono as of December 31, 2017, the Company concluded that no revenue should be recognized under ASC 605. Arrangement consideration at the inception of the arrangement included the ¥2.5 billion (US$21,916 on the date received) upfront payment. All other forms of consideration such as milestones and royalties, were considered contingent consideration, with no amount allocable to deliverables at the inception of the arrangement. The Company concluded the contingent consideration would be recognized when the underlying contingencies have been resolved, assuming all other revenue recognition criteria are met. As the accounting treatment for this agreement did not materially differ under ASC 605 and ASC 606, and no revenue was recognized under the Company’s previous accounting policy through December 31, 2017, no transition adjustment was recorded to the opening balance of accumulated deficit as of January 1, 2018. Accordingly, the upfront payment of¥2.5 billion (US$21,916 on the date received), which again represents a contract liability, was also included in deferred revenue as of December 31, 2017.

MMRF Research Agreement     

The Company is a party to a research agreement with the Multiple Myeloma Research Foundation (“MMRF”). Under this research agreement, the Company is obligated to make certain payments to MMRF, including if the Company out-licenses selinexor. The terms of this research agreement do not apply to eltanexor. In connection with the transactions contemplated under the Agreement, the Company paid to MMRF approximately ¥225 million (US$1,972) of the upfront cash payment from Ono in the year ended December 31, 2017, and it will be obligated to pay a percentage of any milestone payments from Ono and a mid-single-digit percentage of any royalty payments from Ono. Such payments are recorded within research and development expense in the Company’s condensed consolidated statement of operations. The maximum aggregate amount the Company may be obligated to pay to MMRF under the research agreement is $6,000.

Anivive License Agreement

On April 28, 2017, the Company entered into a license agreement with Anivive Lifesciences, Inc. (“Anivive”), a biopharmaceutical company engaged in the research, development and commercialization of animal health medicines, pursuant to which the Company has granted Anivive an exclusive, worldwide license to develop and commercialize verdinexor (KPT-335) for the treatment of cancer in companion animals (the “Anivive Agreement”) (the “Exclusive License”). Pursuant to the terms of the Anivive Agreement, the Company received an upfront payment of $1,000 and a payment of $250 upon the completion of the technology transfer, which occurred during the year ended December 31, 2017. In addition, the Company is eligible to receive potential clinical, regulatory and commercial development milestone payments totaling up to $43,250, as well as a low double-digit royalty based on Anivive’s future net sales of verdinexor following commercialization. The potential future milestone payments are composed of $5,750 based on achievement of clinical and regulatory milestone events and $37,500 based on achievement of sales milestone events.

 

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The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Anivive, is a customer. The Company identified the following material promises under the contract, the Exclusive License and the Technology Transfer, which consisted of regulatory data compiled by the Company for the licensed compound and product as of the Effective Date. The Company also identified the following immaterial promises under the contract that were not deemed performance obligations, including participating on a product advisory committee and sharing regulatory matter information. The Company further determined other promises for (i) transfer of additional technology in the future, if developed by the Company, and (ii) facilitating manufacturing and supply relationships with the Company’s third-party contract manufacturers represented customer options, which would create an obligation for the Company if exercised by Anivive. Since either no additional or immaterial consideration is owed to the Company by Anivive upon exercise of the customer options noted, the Company determined both are offered at significant and incremental discounts. Accordingly, they were assessed as material rights and, therefore, separate performance obligations in the arrangement.

In further evaluating the promises detailed above, the Company determined that the Exclusive License and Technology Transfer were not distinct from one another and must be combined as a performance obligation (the “Combined License Obligation”). This is because Anivive requires the Technology Transfer to derive benefit from the Exclusive License. Based on these determinations, the Company identified three distinct performance obligations at the inception of the contract: (i) the Combined License Obligation, (ii) the material right for transfer of additional technology in the future, if developed by the Company, and (iii) the material right for facilitating manufacturing and supply relationships with the Company’s third-party contract manufacturers.

The Company further determined that the up-front payment of $1,000 upon contract execution, as well as the $250 upon completion of the Technology Transfer, constituted the entirety of the consideration to be included in the transaction price as of the transition date, January 1, 2018, which was allocated to the performance obligations based on their relative stand-alone selling prices. In connection therewith, the Company estimated the stand-alone selling price of the (i) Combined License Obligation, (ii) material right for transfer of additional technology in the future, if developed by the Company, and (iii) the material right for facilitating manufacturing and supply relationships with the Company’s third-party contract manufacturers, and determined the stand-alone selling price of the material rights noted were insignificant based on various qualitative considerations. Accordingly, the Company further determined the allocation of the upfront payment to the material rights noted was insignificant. Based on the estimates of the stand-alone selling prices for each of the performance obligations, the Company determined substantially all the $1,250 transaction price should be allocated to the Combined License Obligation. The Company believes that a change in the assumptions used to determine its best estimate of the stand-alone selling prices for the identified performance obligations would not have a significant effect on the allocation of the underlying transaction price to the performance obligations.    

As referenced above, the up-front payment of $1,000 upon contract execution, as well as the $250 upon completion of the Technology Transfer, constituted the entirety of the consideration to be included in the transaction price as of the transition date, January 1, 2018. The Company is also eligible to receive additional payments up to $5,750 based on achievement of clinical and regulatory milestone events and up to $37,500 based on achievement of sales milestone events, as well as a low double-digit royalty based on Anivive’s future net sales of verdinexor following commercialization. The future regulatory milestones, which represent variable consideration, were evaluated under the most likely amount method, and were not included in the transaction price, because the amounts are fully constrained as of March 31, 2018. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of such milestones is outside the control of the Company. Separately, any consideration related to sales-based milestones, as well as royalties on net sales upon commercialization by Anivive, will be recognized when the related sales occur, as they were determined to relate predominantly to the intellectual property granted to Anivive and, therefore, have also been excluded from the transaction price in accordance with the sales-based royalty exception, as well as the Company’s policy. The Company will re-evaluate the transaction price in each reporting period, as uncertain events are resolved, or as other changes in circumstances occur.

To date, the Company recognized $1,250 of revenue associated with the Anivive Agreement. Revenue for the upfront payment and technology transfer milestone was recognized upon completion of the Technology Transfer in October 2017, as all promises under the Combined License Obligation had been fulfilled.

The Company reached similar conclusions when evaluating this agreement under its previous accounting policy, which was based on legacy guidance within ASC 605. When evaluating this agreement under ASC 605, the Company concluded that the licenses to verdinexor and technology transfer concerning the licensed product are essential to Anivive’s intended use of the license to develop and commercialize the Licensed Compounds and represented a single unit of accounting. Other potential contractual obligations were evaluated and determined not to be deliverables at inception of the arrangement or were evaluated and determined to be immaterial to the arrangement and, therefore, not evaluated further in the Company’s analysis. Arrangement consideration at the inception of the arrangement included the $1,250 in upfront payments, which includes the milestone fee upon completion of the Technology Transfer. All other forms of consideration, such as milestones and royalties, were considered contingent consideration, with no amount allocable

 

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to deliverables at the inception of the arrangement. The Company concluded the contingent consideration would be recognized when the underlying contingencies have been resolved, assuming all other revenue recognition criteria are met. Given the single unit of accounting and that the Technology Transfer would be the last item to be delivered within the unit of accounting, the Company concluded that revenue would be recognized upon the completion of delivery of the technology transfer assuming all other general revenue recognition criteria would be met as of that date. As the accounting treatment for this agreement did not materially differ under ASC 605 and ASC 606, and the upfront payment and technology transfer fee, totaling $1,250, was recognized as revenue during the year ended December 31, 2017 in accordance with the Company’s previous accounting policy, and would have also been recognized during the year ended December 31, 2017 in accordance with the Company’s accounting policy under ASC 606, no transition adjustment was recorded to the opening balance of accumulated deficit as of January 1, 2018.

4. Fair Value of Financial Instruments

Financial instruments, including cash, restricted cash, prepaid expenses and other current assets, accounts payable and accrued expenses are presented in the condensed consolidated financial statements at amounts that approximate fair value at March 31, 2018 and December 31, 2017.

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

 

Level 1 inputs    Quoted prices in active markets for identical assets or liabilities
Level 2 inputs    Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3 inputs    Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability

Items classified as Level 2 within the valuation hierarchy consist of commercial paper, corporate debt securities, U.S. government agency securities and certificates of deposit. The Company estimates the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. The Company validates the prices provided by its third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.

The following table presents information about the Company’s financial assets that have been measured at fair value at March 31, 2018 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

 

Description

   Total      Quoted Prices
in Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Financial assets

           

Cash equivalents:

           

Money market funds

   $ 15,551      $ 15,551      $ —        $ —    

Investments:

           

Current:

           

Corporate debt securities

     79,857        —          79,857        —    

Commercial paper

     6,074        —          6,074        —    

U.S. government and agency securities

     4,987        —          4,987        —    

Certificates of deposit

     2,500        —          2,500        —    

Non-current:

           

Corporate debt securities (one to two year maturity)

     7,836        —          7,836        —    

U.S. government and agency securities

     2,478        —          2,478        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 119,283      $ 15,551      $ 103,732      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table presents information about the Company’s financial assets that have been measured at fair value at December 31, 2017 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

 

Description

   Total      Quoted Prices
in Active
Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Financial assets

           

Cash equivalents:

           

Money market funds

   $ 41,805      $ 41,805      $ —        $ —    

Investments:

           

Current:

           

Corporate debt securities

     66,253        —          66,253        —    

Commercial paper

     6,720        —          6,720        —    

Certificates of deposit

     2,500        —          2,500        —    

U.S. government and agency securities

     1,999        —          1,999        —    

Non-current:

           

Corporate debt securities (one to two year maturity)

     26,916        —          26,916        —    

U.S. government securities and agency securities

     2,480        —          2,480        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 148,673      $ 41,805      $ 106,868      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

5. Investments

The following table summarizes the Company’s investments as of March 31, 2018 (in thousands):

 

     Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Loss
    Fair Value  

Current:

          

Corporate debt securities

   $ 80,124      $ 2      $ (269   $ 79,857  

Commercial paper

     6,074        —          —         6,074  

U.S. government and agency securities

     4,989        —          (2     4,987  

Certificates of deposit

     2,500        —          —         2,500  

Non-current:

          

Corporate debt securities (one to two year maturity)

     7,907        —          (71     7,836  

U.S. government and agency securities

     2,500        —          (22     2,478  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 104,094      $ 2      $ (364   $ 103,732  
  

 

 

    

 

 

    

 

 

   

 

 

 

The following table summarizes the Company’s investments as of December 31, 2017 (in thousands):

 

     Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Loss
    Fair Value  

Current:

          

Corporate debt securities

   $ 66,384      $ —        $ (131   $ 66,253  

Commercial paper

     6,719        1        —         6,720  

Certificates of deposit

     2,500        —          —         2,500  

U.S. government and agency securities

     2,000        —          (1     1,999  

Non-current:

          

Corporate debt securities (one to two year maturity)

     27,018        2        (104     26,916  

U.S. government and agency securities

     2,500        —          (20     2,480  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 107,121      $ 3      $ (256   $ 106,868  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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At March 31, 2018 and December 31, 2017, the Company held 49 and 54 debt securities, respectively, that were in an unrealized loss position for less than one year. The aggregate fair value of debt securities in an unrealized loss position at March 31, 2018 and December 31, 2017 was $91,549 and $96,623, respectively. There were no individual securities that were in a significant unrealized loss position or that had been in an unrealized loss position for greater than one year as of March 31, 2018 or December 31, 2017.

The Company reviews investments for other-than-temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the condensed consolidated statements of operations if the Company has experienced a credit loss and has the intent to sell the investment or if it is more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.

6. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

 

     Estimated Useful
Life Years
     March 31,
2018
     December 31,
2017
 

Laboratory equipment

     4      $ 593      $ 593  

Furniture and fixtures

     5        381        381  

Office and computer equipment

     3        378        378  

Construction in process

     N/A        438        —    

Leasehold improvements

    

Lesser of useful life

or lease term

 

 

     3,391        3,391  
     

 

 

    

 

 

 
        5,181        4,743  

Less accumulated depreciation and amortization

        (2,727      (2,558
     

 

 

    

 

 

 
      $ 2,454      $ 2,185  
     

 

 

    

 

 

 

7. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

     March 31,
2018
     December 31,
2017
 

Research and development costs

   $ 16,978      $ 16,198  

Payroll and employee-related costs

     2,518        3,982  

Professional fees

     1,764        972  

Other

     285        293  
  

 

 

    

 

 

 
   $ 21,545      $ 21,445  
  

 

 

    

 

 

 

8. Net Loss Per Share

Basic and diluted net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include outstanding stock options and unvested restricted stock and restricted stock units, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

The following potentially dilutive securities were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

 

     Three Months Ended
March 31,
 
     2018      2017  

Outstanding stock options

     8,702,552        6,867,142  

Unvested restricted stock units

     228,100        462,250  

 

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9. Stock-based Compensation

Stock Options

A summary of the Company’s stock option activity and related information follows:

 

     Shares      Weighted-
Average
Exercise
Price
Per Share
     Weighted-
Average
Remaining
Contractual
Term (years)
     Aggregate
Intrinsic
Value
(in thousands)
 

Outstanding at December 31, 2017

     7,019,083      $ 13.77        7.4      $ 11,897  

Granted

     2,184,200        11.04        

Exercised

     (132,178      3.26        

Canceled

     (368,553      14.65        
  

 

 

    

 

 

       

Outstanding at March 31, 2018

     8,702,552      $ 13.21        7.8      $ 31,741  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at March 31, 2018

     4,038,071      $ 15.51        6.1      $ 17,903  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense related to stock options for the three months ended March 31, 2018 and 2017 was $3,918 and $4,939, respectively.

As of March 31, 2018, there was $33,656 of total unrecognized stock-based compensation expense related to stock options. The expense is expected to be recognized over a weighted-average period of 3.06 years.

Restricted Stock Units

A restricted stock unit (“RSU”) represents the right to receive one share of the Company’s common stock upon vesting of the RSU. The fair value of each RSU is based on the closing price of the Company’s common stock on the date of grant.

During the year ended December 31, 2017, the Company granted RSUs with service conditions that vest provided that the employee remains employed with the Company (“Time-Based RSUs”). The following is a summary of Time-Based RSU activity under the 2013 Stock Incentive Plan for the three months ended March 31, 2018:

 

     Number of
Shares
Underlying RSUs
     Weighted-Average
Grant Date
Fair Value
 

Unvested at December 31, 2017

     30,000      $ 10.52  

Granted

     —          —    

Forfeited

     —          —    

Vested

     (5,000      10.27  
  

 

 

    

 

 

 

Unvested at March 31, 2018

     25,000      $ 10.57  
  

 

 

    

 

 

 

The total stock-based compensation expense related to Time-Based RSUs for the three months ended March 31, 2018 and 2017 was $39 and $917, respectively. As of March 31, 2018, there was $213 of unrecognized compensation costs related to unvested Time-Based RSUs, which are expected to be recognized over a weighted-average period of 1.4 years.

Separately, and during the year ended December 31, 2017, the Company granted performance-based RSUs, which vest upon the achievement of certain performance goals subject to the employee’s continued employment (“Performance-Based RSUs”). The grant date fair value of the outstanding Performance-Based RSUs is $2,400 as of March 31, 2018, and will be recognized on an accelerated attribution basis when the Performance-Based RSUs are deemed probable of achievement to the date the awards vest. During the three months ended March 31, 2018, the Company recognized $137 of stock-based compensation expense related to the Performance-Based RSUs, as the performance goal related to certain Performance-Based RSUs was deemed probable of achievement as of March 31, 2018 and was achieved on April 28, 2018. However, as of March 31, 2018, the 203,100 outstanding awards were still unvested.

 

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Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“ESPP”) that permits eligible employees to enroll in six-month offering periods. Participants may purchase shares of the Company’s common stock, through payroll deductions, at a price equal to 85% of the fair market value of the common stock on the first or last day of the applicable six-month offering period, whichever is lower. Purchase dates under the ESPP occur on or about May 1 and November 1 of each year. In 2013, the Company’s stockholders approved the reservation of 242,424 shares of the Company’s common stock for issuance under the ESPP, plus an annual increase to be added on the first day of each fiscal year, commencing on January 1, 2015 and ending on December 31, 2023, equal to the lesser of 484,848 shares of the Company’s common stock, 1% of the number of outstanding shares on such date, or an amount determined by the board of directors.

For the three months ended March 31, 2018 and 2017, the Company recorded stock-based compensation expense related to the ESPP of $70 and $53, respectively. As of March 31, 2018, 433,511 shares of the Company’s common stock remained available for issuance under the ESPP. As of March 31, 2018, there was $23 of total unrecognized stock-based compensation expense related to the ESPP. The expense is expected to be recognized over a period of one month.

10. Commitments and Contingencies

In March 2014, the Company entered into an operating lease for approximately 29,933 square feet of office and research space in Newton, Massachusetts. The Company uses the leased premises as its corporate headquarters and for research and development purposes, as well as its commercial and administrative requirements. The lease was amended on December 31, 2014 by extending the term of the lease from November 30, 2021 to September 30, 2022. This amendment also provided for the expansion of the premises leased by the Company by approximately 16,234 square feet. The lease was amended again on February 28, 2018 by extending the term of the lease from September 30, 2022 to September 30, 2025. The amendment also provided for the expansion of the premises leased by the Company by approximately 15,976 square feet. The amendment from February 2018 also provided the Company with the right of first offer to lease between 20,000 and approximately 36,000 square feet of additional space.

The Company evaluated the lease amendments and determined that the classification as an operating lease had not changed, and that the amendments did not constitute a new lease. As such, the unamortized balances of the existing deferred rent and tenant improvement allowances, along with the additions to deferred rent and tenant improvement allowances associated with the February 28, 2018 amendment, will be amortized over the term of that lease amendment. The Company is recording rent expense on a straight-line basis through the end of the lease term, inclusive of the period in which there are no scheduled rent payments. The Company has recorded deferred rent on the condensed consolidated balance sheets at March 31, 2018 and December 31, 2017, accordingly. The lease provided the Company with an allowance for improvements of $1,616 which was incurred in the first quarter of 2015. The amended lease provided the Company with an allowance for improvements of up to $731, of which $438 was incurred in the first quarter of 2018. All improvements were deemed normal tenant improvements, were recorded as leasehold improvements and deferred rent and will be recorded as a reduction to rent expense ratably over the lease term. The Company evaluated the lease amendments and determined they did not constitute a new lease and the accounting treatment noted was appropriate. The Company has provided a security deposit in the form of a cash-collateralized letter of credit in the amount of $400, which amount was reduced to $200 in January 2018. The amount is classified as non-current restricted cash on the condensed consolidated balance sheet.

In November 2014, the Company signed a five-year operating lease agreement in Munich, Germany for approximately 3,681 square feet of office space. The lease is for the period February 2015 through January 2020. Pursuant to the lease agreement, the Company was obligated to make aggregate rent payments of €374 (approximately US$461) through January 31, 2020. The Company is recording rent expense on a straight-line basis through the end of the lease term, inclusive of the period in which there are no scheduled rent payments.

The Company recorded rent expense totaling $373 and $301 for the three months ended March 31, 2018 and 2017, respectively.

11. Equity

Controlled Equity Offering Sales Agreement

On December 7, 2015, the Company entered into a Controlled Equity Offering Sales Agreement (as amended from time to time, the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which the Company issued and sold through Cantor, shares of the Company’s common stock (the “Shares”) with an aggregate offering price of $50,000. On November 7, 2016, the Company entered into an amendment to the Sales Agreement pursuant to which the Company issued and sold Shares with

 

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an additional aggregate offering price of $50,000. On December 1, 2017, the Company entered into a second amendment to the Sales Agreement that provides that it may issue and sell Shares having an additional aggregate offering price of up to $75,000.

Under the Sales Agreement, Cantor may sell the Shares by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on The Nasdaq Global Select Market, on any other existing trading market for the Shares or to or through a market maker. In addition, under the Sales Agreement, Cantor may sell the Shares by any other method permitted by law.

The Company is not obligated to make any sales of the Shares under the Sales Agreement. The Company or Cantor may suspend or terminate the offering of Shares upon notice to the other party and subject to other conditions. The Company will pay Cantor a commission of up to 3.0% of the gross proceeds from the sale of the Shares pursuant to the Sales Agreement and has agreed to provide Cantor with customary indemnification and contribution rights.

As of May 1, 2018, the Company had sold an aggregate of 9,172,159 Shares under the Sales Agreement, for net proceeds of approximately $89,053. The Company sold no Shares under the Sales Agreement during the three months ended March 31, 2018.

12. Subsequent Event

On May 7, 2018, the Company completed a follow-on offering under its shelf registration statement on Form S-3 (File No. 333-222726) pursuant to which the Company issued an aggregate of 10,525,424 shares of common stock, which included the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $14.75 per share. The Company received aggregate net proceeds of approximately $145,635 from the offering after deducting the underwriting discounts and commissions and other estimated offering expenses.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this quarterly report.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the following discussion, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding possible achievement of discovery and development milestones, our future discovery and development efforts, our collaborations and partnering agreements with third parties, our strategy, our future operations, financial position and revenues, projected costs, prospects, plans and objectives of management, are forward looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the plans, intentions, expectations or results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, adverse results in our drug discovery and clinical development activities, decisions made by the U.S. Food and Drug Administration (FDA) and other regulatory authorities with respect to the development and commercialization of our drug candidates, our ability to raise additional capital to support our clinical development program and other operations, our ability to develop products of commercial value and to identify, discover and obtain rights to additional potential product candidates, our ability to obtain, maintain and enforce our intellectual property, the outcome of research and development activities and the fact that the preclinical and clinical testing of our compounds may not be predictive of the success of later clinical trials, our reliance on third-parties, competitive developments, the effect of current and future legislation and regulation and regulatory actions, as well as other risks described in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Form 10-K), as filed with the Securities and Exchange Commission (SEC), on March 15, 2018, and other filings with the SEC.

As a result of these and other factors, we may not actually achieve the plans, intentions, expectations or results disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

OVERVIEW

We are a clinical-stage pharmaceutical company focused on the discovery, development and subsequent commercialization of novel, first-in-class drugs directed against nuclear transport and related targets for the treatment of cancer and other major diseases. Our scientific expertise is focused on understanding the regulation of intracellular communication between the nucleus and the cytoplasm. We have discovered and are developing wholly-owned, novel, small molecule Selective Inhibitor of Nuclear Export (SINE) compounds that inhibit the nuclear export protein exportin 1 (XPO1). These SINE compounds represent a new class of drug candidates with a novel mechanism of action that have the potential to treat a variety of diseases in areas of unmet medical need. Our SINE compounds were the first oral XPO1 inhibitors in clinical development.

Our focus is on seeking the regulatory approval and commercialization of our lead drug candidate, selinexor (KPT-330), as an oral agent in cancer indications with significant unmet clinical need, initially for hematologic malignancies. We then plan to seek additional approvals for the use of selinexor in combination therapies to expand the patient populations that are eligible for selinexor, as well as to move selinexor towards front-line cancer therapy. We are also advancing the clinical development of selinexor in multiple solid tumor indications. To date, over 2,400 patients have been treated with oral selinexor in company- and investigator-sponsored clinical trials in advanced hematologic malignancies and solid tumors. Clinical trials evaluating selinexor include the Phase 2b STORM (Selinexor Treatment of Refractory Myeloma) study in multiple myeloma, the Phase 1b/2 STOMP (Selinexor and Backbone Treatments of Multiple Myeloma Patients) study in combination with standard therapies in multiple myeloma, the Phase 2b SADAL (Selinexor Against Diffuse Aggressive Lymphoma) study in diffuse large B-cell lymphoma (DLBCL), the pivotal, randomized Phase 3 BOSTON (Bortezomib, Selinexor and Dexamethasone) study in multiple myeloma, and the Phase 2/3 SEAL (Selinexor in Advanced Liposarcoma) study in liposarcoma.

We recently reported top-line data from the expanded cohort for the STORM study on April 30, 2018 and expect to provide top-line data from the SADAL study by the end of 2018, top-line data from the BOSTON study in 2019 and top-line data from the Phase 3

 

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portion of the SEAL study by the end of 2019. We are also establishing the commercial infrastructure to support a potential launch of selinexor in the United States and we intend to work with existing and potential partners to establish such commercial infrastructure outside the United States. To date, we have financed our operations principally through private placements of our preferred stock, proceeds from our initial public offering and follow-on offerings of common stock and cash generated from our business development activities.

As of March 31, 2018, we had an accumulated deficit of $533.8 million. We had net losses of $38.5 million and $29.9 million for the three months ended March 31, 2018 and 2017, respectively. We have not generated any revenue to date from the sales of any drugs.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:

 

    continue our research and preclinical and clinical development of our drug candidates;

 

    initiate additional clinical trials for our drug candidates;

 

    seek marketing approvals for any of our drug candidates that successfully complete clinical trials;

 

    establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;

 

    maintain, expand and protect our intellectual property portfolio;

 

    manufacture our drug candidates;

 

    hire additional clinical, quality control and scientific personnel;

 

    identify additional drug candidates;

 

    acquire or in-license other drugs and technologies; and

 

    add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our other operations as a public company.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results.

There were no changes to the critical accounting policies we identified in the 2017 Form 10-K, other than the adoption of ASU No. 2014-09, as described further in Note 1 to the Condensed Consolidated Financial Statements. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in the 2017 Form 10-K.

 

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2018 and March 31, 2017

 

     Three Months Ended March 31,                
     2018      2017      $ Change      % Change  
     (in thousands)                

License and other revenue

   $ 10,000      $ 68      $ 9,932        14,605.9

Operating expenses:

           

Research and development

     41,321        24,083        17,238        71.6

General and administrative

     7,621        6,264        1,357        21.7
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

     (38,942      (30,279      (8,663      28.6

Other income, net

     495        385        110        28.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (38,447      (29,894      (8,553      28.6

Provision for income taxes

     (12      (23      11        (47.8 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ (38,459    $ (29,917    $ (8,542      28.6
  

 

 

    

 

 

    

 

 

    

 

 

 

License and Other Revenue. We recognized revenue pursuant to an Asset Purchase Agreement, or APA, with Biogen MA Inc., or Biogen, in 2018 and pursuant to a government grant in 2017. Revenue for the three months ended March 31, 2018 was $10.0 million compared to $0.1 million for the three months ended March 31, 2017. The increase in revenue during the three months ended March 31, 2018 was primarily the result of entering into the APA with Biogen in January 2018 and the satisfaction of the related revenue recognition criterion, which resulted in revenue of $10.0 million.

Research and Development Expense. Research and development expense increased approximately $17.2 million to $41.3 million for the three months ended March 31, 2018 from approximately $24.1 million for the three months ended March 31, 2017. The increase is primarily related to:

 

    an increase of $10.3 million in clinical trial costs, primarily related to the selinexor program;

 

    an increase of $2.2 million in consulting and professional expense;

 

    an increase of $1.8 million in personnel costs, primarily due to increased headcount and related onboarding costs;

 

    an increase of $1.6 million related to our obligation to pay a portion of upfront fees received from the APA with Biogen to a third party;

 

    an increase of $0.9 million in costs related to our focus on a New Drug Application (NDA), and discovery and travel costs; and

 

    an increase of $0.4 million in other costs.

We expect our research and development expenses to continue to increase for the full year 2018 compared with the prior year as we continue spending on our development programs and clinical trials, including the continued clinical development of selinexor in our lead indications with a focus on regulatory submissions for selinexor. We plan to submit a New Drug Application , or NDA, to the Food and Drug Administration, or FDA, during the second half of 2018, with a request for accelerated approval for selinexor as a new treatment for patients with penta-refractory multiple myeloma as a result of our positive outcome from the expanded cohort of the STORM study. We also plan to submit a Marketing Authorization Application to the European Medicines Agency in early 2019 with a request for conditional approval.

General and Administrative Expense. General and administrative expense increased approximately $1.4 million to $7.6 million for the three months ended March 31, 2018 from approximately $6.3 million for the three months ended March 31, 2017. The increase is primarily related to:

 

    an increase in consulting and professional costs of $0.9 million;

 

    an increase of $0.2 million in occupancy costs; and

 

    an increase of $0.3 million in other costs.

We expect general and administrative expenses to increase in the future in support of our expanding operating and commercial activities.

 

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Other Income, net. Other income, net, increased approximately $0.1 million to $0.5 million for the three months ended March 31, 2018 from approximately $0.4 million for the three months ended March 31, 2017. The increase is primarily due to increased investment returns resulting from a general increase in interest rates.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

To date, we have not generated any material revenues. We have financed our operations to date principally through private placements of our preferred stock, proceeds from public offerings of our common stock and cash generated from our business development activities.

As of March 31, 2018, we had $141.2 million in cash, cash equivalents and short- and long-term investments compared to $175.9 million in cash, cash equivalents and short- and long-term investments as of December 31, 2017.

In December 2015, we entered into a sales agreement (as amended from time to time, the Sales Agreement), relating to an “at-the-market” offering, pursuant to which we issued and sold shares of our common stock with an aggregate offering price of $50.0 million. On November 7, 2016, we entered into an amendment to the Sales Agreement pursuant to which we issued and sold shares of our common stock with an additional aggregate offering price of $50.0 million. On December 1, 2017, we entered into a second amendment to the Sales Agreement pursuant to which we may issue and sell shares of our common stock having an additional aggregate offering price of up to $75.0 million on or after December 1, 2017. As of March 31, 2018, we had sold an aggregate of 9,172,159 shares pursuant to this “at-the-market” offering, for net proceeds of approximately $89.1 million. There have been no sales pursuant to this “at-the-market” offering during 2018.

On May 7, 2018, we completed a follow-on offering under our shelf registration statement on Form S-3 (File No. 333-222726) pursuant to which we issued an aggregate of 10,525,424 shares of common stock, which included the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $14.75 per share. We received aggregate net proceeds of approximately $145.6 million from the offering after deducting the underwriting discounts and commissions and other estimated offering expenses.

On October 11, 2017 (Effective Date), we entered into a license agreement (License Agreement), with Ono Pharmaceutical Co., Ltd., a corporation organized and existing under the laws of Japan (Ono), pursuant to which we granted Ono exclusive rights to develop and commercialize, at its own cost, selinexor and eltanexor for the diagnosis, treatment and/or prevention of all human oncology indications, or Field, in Japan, Republic of Korea, Republic of China (Taiwan) and Hong Kong as well as in the ten Southeast Asian countries currently comprising the Association of Southeast Asian Nations (Ono Territory). Pursuant to the terms of the License Agreement, we received an upfront payment of ¥2.5 billion (US$21.9 million on the date received), and could receive up to ¥10.15 billion (US$90.5 million at the exchange rate as of the Effective Date) in milestone payments if certain development goals are achieved and up to ¥9.0 billion (US$80.2 million at the exchange rate as of the Effective Date) in milestone payments if certain sales milestones are achieved, as well as a low double-digit royalty based on future net sales of selinexor and eltanexor in the Ono Territory.

We are a party to a research agreement with the Multiple Myeloma Research Foundation (MMRF). Under this research agreement, we are obligated to make certain payments to MMRF, including payments in the event we out-license selinexor. The terms of this research agreement do not apply to eltanexor. In connection with the transactions contemplated under the License Agreement, we paid to MMRF approximately ¥225 million (approximately US$2.0 million) of the upfront cash payment from Ono, and we are obligated to pay a percentage of any milestone payments from Ono and a mid-single-digit percentage of any royalty payments from Ono. The maximum aggregate amount we may be obligated to pay to MMRF under the research agreement is $6.0 million.

On January 24, 2018, we entered into an Asset Purchase Agreement (APA), with Biogen MA Inc., a Massachusetts corporation and subsidiary of Biogen, Inc. (Biogen), pursuant to which Biogen acquired exclusive worldwide rights to develop and commercialize our oral SINE compound KPT-350 and certain related assets with an initial focus in amyotrophic lateral sclerosis (ALS).

Under the terms of the APA, Biogen purchased KPT-350 and certain related assets and assumed certain related liabilities. We received a one-time upfront payment of $10.0 million from Biogen and are eligible to receive additional payments of up to $207.0 million based on the achievement by Biogen of future specified development and commercial milestones. We are also eligible to receive tiered royalty payments that reach low double digits based on future net sales until the later of the tenth anniversary of the first commercial sale of the applicable product and the expiration of specified patent protection for the applicable product, determined on a country-by-country basis.

 

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We expect that our cash, cash equivalents and short- and long-term investments as of March 31, 2018, totaling $141.2 million, in addition to the $145.6 million of net proceeds we raised in the public common stock offering in May 2018, will be sufficient to fund our current operating plans and capital expenditure requirements into the third quarter of 2019 while we are establishing the commercial infrastructure for a potential launch of selinexor in the United States. Our need for additional funds thereafter may be partially offset by: (i) cash generated from sales of drugs if selinexor receives accelerated approval and we successfully commercialize selinexor in the United States and (ii) from potential future payments related to collaboration or license arrangements we may seek to enter into as part of our strategy to commercialize selinexor outside the United States.

Cash Flows

The following table provides information regarding our cash flows:

 

     Three Months Ended March 31,  
     2018      2017  
     (in thousands)  

Net cash used in operating activities

   $ (34,652    $ (24,708

Net cash provided by investing activities

     2,484        549  

Net cash provided by financing activities

     429        57  

Effect of exchange rate changes

     43        16  
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (31,696    $ (24,086
  

 

 

    

 

 

 

Operating activities. The net cash used in operating activities in both periods resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital. The increase in cash used in operating activities during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was driven primarily by an increase in our net loss due to an increase in our operating expenses, as adjusted for stock-based compensation and offset by an increase of approximately $9.9 million in revenue, which was primarily attributable to the upfront payment of $10.0 million received from the Biogen.

Investing activities. The net cash provided by investing activities during the three months ended March 31, 2018 reflects an increase of $2.0 million primarily related to the increase in proceeds from maturities of investments and a decrease of $0.3 million in purchases of investments offset by an increase of $0.4 million in purchases of property and equipment compared to the three months ended March 31, 2017.

Financing activities. The net cash provided by financing activities for the three months ended March 31, 2018 reflects an increase of $0.4 million related to an increase in proceeds from the exercise of stock options compared to the three months ended March 31, 2017.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical trials of, and assuming positive results of our clinical trials and based on regulatory feedback, if and when we seek marketing approval for, selinexor and our other drug candidates. In addition, if we obtain marketing approval for any of our drug candidates, we expect to incur significant commercialization expenses related to drug sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time for any such drug. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We expect that our cash, cash equivalents and short- and long-term investments as of March 31, 2018, totaling $141.2 million, in addition to the $145.6 million of net proceeds we raised in the public common stock offering in May 2018, will be sufficient to fund our current operating and capital expenditure plans into the third quarter of 2019 while we are establishing the commercial infrastructure for a potential launch of selinexor in the United States. Our need for additional funds thereafter may be partially offset by: (i) cash generated from sales of drugs if selinexor receives accelerated approval and we successfully commercialize selinexor in the United States and (ii) from potential future payments related to collaboration or license arrangements we may seek to enter into as part of our strategy to commercialize selinexor outside the United States. However, our future capital requirements will depend on many factors, including:

 

    the progress and results of our current and planned clinical trials of selinexor;

 

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    the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our other drug candidates;

 

    the costs, timing and outcome of regulatory review of our drug candidates;

 

    our ability to establish and maintain collaborations on favorable terms, if at all;

 

    the success of any collaborations that we may enter into with third parties;

 

    the extent to which we acquire or in-license other drugs and technologies;

 

    the costs of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our drug candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time;

 

    the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval; and

 

    the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.

Identifying potential drug candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve drug sales. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that may not be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

Contractual Obligations

There have been no material changes to our contractual obligations described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2017 Form 10-K.

OFF-BALANCE SHEET ARRANGEMENTS

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents, restricted cash and investments of $141.5 million as of March 31, 2018. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because all of our investments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio.

We do not believe our cash, cash equivalents, restricted cash and investments have significant risk of default or illiquidity. While we believe our cash, cash equivalents and investments do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in securities at one or more financial institutions that are in excess of federally insured limits. Give the potential instability of financial institutions, we cannot provide assurance that we will not experience losses on these deposits.

 

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We are also exposed to market risk related to change in foreign currency exchange rates. We contract with contract research organizations and contract manufacturing organizations that are located in Canada and Europe, which are denominated in foreign currencies. We also contract with a number of clinical trial sites outside the United States, and our budgets for those studies are frequently denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these agreements. We do not currently hedge our foreign currency exchange rate risk.

 

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer) and Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2018, our Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the fiscal quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

Item 1A. Risk Factors.

Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report on Form 10-Q and in other documents that we file with the SEC, in evaluating the Company and our business. Investing in our common stock involves a high degree of risk. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not intended to be exhaustive and are not the only risks facing the Company. New risk factors can emerge from time to time, and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition and results of operations.

Risks Related to the Discovery, Development and Commercialization of Our Drug Candidates

We depend heavily on the success of our lead drug candidate selinexor (KPT-330), which is currently in clinical trials. Our clinical trials of selinexor may not be successful. If we are unable to commercialize selinexor or experience significant delays in doing so, our business will be materially harmed.

We have invested a significant portion of our efforts and financial resources in the research and development of our lead drug candidate, selinexor. Our ability to generate revenues from the sale of drugs that treat cancer and other diseases in humans, which may not occur for several years, if ever, will depend heavily on the successful development, regulatory approval and eventual commercialization of selinexor.

We cannot commercialize drug candidates in the United States without first obtaining regulatory approval for the drug from the U.S. Food and Drug Administration, or FDA; similarly, we cannot commercialize drug candidates outside of the United States without obtaining regulatory approval from similar regulatory authorities outside of the United States. Even if selinexor or another drug candidate were to successfully obtain approval from the FDA and non-U.S. regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for selinexor in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development, marketing and/or commercialization of selinexor or any other drug candidate that we may discover, in-license, develop or acquire in the future. Furthermore, even if we obtain regulatory approval for selinexor, we will still need to develop a commercial organization, or collaborate with third parties, for the commercialization of selinexor, establish commercially viable pricing and obtain approval for adequate reimbursement from third-party and government payors. If we or our commercialization collaborators are unable to successfully commercialize selinexor, we may not be able to generate sufficient revenues to continue our business.

The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.

We currently have no drugs approved for sale and we cannot guarantee that we will ever have marketable drugs. Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our drug candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Success in early-stage clinical trials does not mean that future larger registration clinical trials will be successful because drug candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through early-stage clinical trials. Drug candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent registration clinical trials. Additionally, the outcome of preclinical studies and early-stage clinical trials may not be predictive of the success of later-stage clinical trials, and interim results of a clinical trial are not necessarily indicative of final results. For example, we recently released top-line results from the expansion of our Selinexor Treatment of Refractory Myeloma (STORM) study. While we believe the results we have observed to date are positive, there can be no assurance that results that we believe to be positive will be viewed similarly by regulatory authorities or as sufficient to support a request for registration.

In addition, the design of a clinical trial can determine whether its results will support approval of a drug, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and conduct a clinical trial to support regulatory approval. Further, if our drug candidates are found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for them and our business would be harmed. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.

 

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In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same drug candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our drug candidates.

Further, our drug candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or other registration trials. The FDA or non-U.S. regulatory authorities may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a drug candidate even after providing a positive opinion on, or otherwise reviewing and providing comments or advice on, a protocol for a clinical trial that has the potential to result in approval by the FDA or another regulatory authority. In addition, any of these regulatory authorities may also approve a drug candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. Furthermore, the FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our drug candidates.

To date, we have had several discussions with the FDA and non-U.S. regulatory authorities regarding the design of our later phase clinical trials for selinexor, including the BOSTON, STORM, SADAL and SEAL studies currently underway. We plan to seek regulatory approvals of selinexor in North America and Europe in each indication with respect to which such later phase clinical trial is being conducted and with respect to which we receive positive results that may support full or accelerated approval, as the case may be. We or our current or future partners may also seek such approvals in other geographies. We cannot be certain that we will commence additional later phase trials or complete ongoing later phase trials as anticipated. Before obtaining regulatory approvals for the commercial sale of any drug candidate for a target indication, we must demonstrate with substantial evidence gathered in preclinical studies and well-controlled clinical studies, and, with respect to approval in the United States, to the satisfaction of the FDA, that the drug candidate is safe and effective for use for that target indication. There is no assurance that the FDA or non-U.S. regulatory authorities would consider our current and planned later phase clinical trials to be sufficient to serve as the basis for filing for approval or to gain approval of selinexor for any indication. The FDA and non-U.S. regulatory authorities retain broad discretion in evaluating the results of our clinical trials and in determining whether the results demonstrate that selinexor is safe and effective. If we are required to conduct additional clinical trials of selinexor prior to approval, including additional earlier phase clinical trials that may be required prior to commencing any later phase clinical trials, or additional clinical trials following completion of our current and planned later phase clinical trials, we will need substantial additional funds, and there is no assurance that the results of any such additional clinical trials will be sufficient for approval.

The results to date in preclinical and early clinical studies conducted by us or our academic collaborators and in Phase 1 and Phase 2 clinical trials that we are currently conducting include the response of tumors to selinexor. We expect that in any later phase clinical trial where patients are randomized to receive either selinexor on the one hand, or standard of care, supportive care or placebo on the other hand, the primary endpoint will be either progression free survival, meaning the length of time on treatment until objective tumor progression, or overall survival, while the primary endpoint in any later phase clinical trial that is not similarly randomized may be different. For example, the primary endpoint of our Phase 2/3 SEAL study, the clinical trial of selinexor in patients with dedifferentiated liposarcoma, and a primary endpoint of our Phase 3 BOSTON study, the clinical trial of selinexor in combination with Velcade (bortezomib) and dexamethasone in patients with multiple myeloma, is progression free survival. We are in the early stages of collecting clinical data in humans relating to the impact of selinexor on overall survival and comparative clinical data between selinexor and supportive care. If selinexor does not demonstrate an overall survival benefit, it will likely not be approved. In some instances, the FDA and other regulatory bodies have accepted overall response rate as a surrogate for a clinical benefit, and have granted regulatory approvals based on this or other surrogate endpoints. Overall response rate is defined as the portion of patients with tumor size reduction of a predefined amount for a minimum time period. For some types of cancer, we may use overall response rate as a primary endpoint, as we are doing in our SADAL study and our STORM study. These clinical trials will not be randomized against control arms and the primary endpoints of these trials are overall response rate. If selinexor does not demonstrate sufficient overall response rates in these indications, or any other indication for which a clinical trial has overall response rate as a primary endpoint, or if the FDA or non-U.S. regulatory authorities do not deem overall response rate a sufficient endpoint, or deem a positive overall response rate to be insufficient, it will likely not be approved for that indication based on the applicable study.

 

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We are early in our development efforts with a limited number of drug candidates in human clinical development. If we are unable to successfully develop and commercialize our drug candidates or experience significant delays in doing so, our business will be materially harmed.

We are early in our development efforts and have four drug candidates, selinexor, verdinexor, eltanexor and KPT-9274, in clinical development for treatment of human diseases. The success of these and any of our other drug candidates will depend on several factors, including the following:

 

    successful completion of preclinical studies;

 

    acceptance by the FDA of investigational new drug applications, or INDs, for our drug candidates prior to commencing clinical studies;

 

    successful enrollment in, and completion of, clinical trials, including demonstration of a favorable risk-benefit ratio;

 

    receipt of marketing approvals from applicable regulatory authorities;

 

    establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

    obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our drug candidates;

 

    establishing sales, marketing, manufacturing and distribution capabilities to commercialize any drugs for which we may obtain marketing approval;

 

    launching commercial sales of the drugs, if and when approved, whether alone or in collaboration with others;

 

    acceptance of the drugs, if and when approved, by patients, the medical community and third-party payors;

 

    effectively competing with other therapies;

 

    obtaining and maintaining coverage and adequate reimbursement by third-party payors, including government payors, for any approved drugs;

 

    maintaining an acceptable safety profile of the drugs following approval;

 

    enforcing and defending intellectual property rights and claims; and

 

    maintaining and growing an organization of scientists and business people, including collaborators, who can develop and commercialize our drug candidates.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our drug candidates, which would materially harm our business.

Our approach to the discovery and development of drug candidates that target Exportin 1, or XPO1, is unproven, and we do not know whether we will be able to develop any drugs of commercial value. If selinexor is unsuccessful in proving that drug candidates targeting XPO1 have commercial value or experiences significant delays in doing so, our business may be materially harmed.

Our SINE compounds inhibit the nuclear export protein XPO1. We believe that no currently approved cancer treatments are selectively targeting the restoration and increase in the levels of multiple tumor suppressor proteins in the nucleus. Despite promising results to date in preclinical studies of selinexor that we have conducted and in Phase 1 and Phase 2 clinical trials of selinexor conducted by us or our academic collaborators, we may not succeed in demonstrating safety and efficacy of SINE compounds in our current and future human clinical trials. Any drug candidates that we develop may not effectively prevent the exportation of tumor suppressor and/or growth regulatory proteins from the nucleus in humans with a particular form of cancer. If selinexor is unsuccessful in supporting the hypothesis that drug candidates targeting the regulation of intracellular transport of XPO1 have commercial value or experiences significant delays in doing so, our business may be materially harmed and we may not be able to generate sufficient revenues to continue our business.

We may not be successful in our efforts to identify or discover additional potential drug candidates.

Part of our strategy involves identifying and developing drug candidates to build a pipeline of novel drug candidates. Our drug discovery efforts may not be successful in identifying compounds that are useful in treating cancer or other diseases. Our research programs may initially show promise in identifying potential drug candidates, yet fail to yield drug candidates for clinical development for a number of reasons, including:

 

    the research methodology used may not be successful in identifying potential drug candidates;

 

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    potential drug candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval and/or achieve market acceptance; or

 

    potential drug candidates may not be effective in treating their targeted diseases.

Research programs to identify new drug candidates require substantial technical, financial and human resources. We may choose to focus our efforts and resources on a potential drug candidate that ultimately proves to be unsuccessful.

If we are unable to identify suitable compounds for preclinical and clinical development, we will not be able to obtain revenues from sale of drugs in future periods, which likely would result in significant harm to our financial position and adversely impact our stock price.

Clinical drug development is a lengthy and expensive process, with an uncertain outcome. If clinical trials of our drug candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates.

Before obtaining marketing approval from regulatory authorities for the sale of our drug candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical studies and early-stage clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. For example, certain data from our Phase 1 and Phase 2 clinical trials of selinexor to date are based on unaudited data provided by our clinical trial investigators. An audit of this data may change the conclusions drawn from this unaudited data provided by our clinical trial investigators indicating less promising results than we currently anticipate. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their drug candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their drugs.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our drug candidates, including:

 

    regulatory authorities or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

    feedback from regulatory authorities that requires us to modify the design of our clinical trials;

 

    we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites or contract research organizations;

 

    clinical trials of our drug candidates may produce negative or inconclusive results, and we may decide, or regulatory authorities may require us, to conduct additional clinical trials, suspend ongoing clinical trials or abandon drug development programs;

 

    the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

 

    our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

    we or our investigators might have to suspend or terminate clinical trials of our drug candidates for various reasons, including non-compliance with regulatory requirements, a finding that our drug candidates have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;

 

    the cost of clinical trials of our drug candidates may be greater than we anticipate;

 

    the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate;

 

    regulators may revise the requirements for approving our drug candidates, or such requirements may not be as we anticipate; and

 

    any partners and collaborators that help conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.

 

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If we are required to conduct additional clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

    be delayed in obtaining marketing approval for our drug candidates;

 

    not obtain marketing approval at all;

 

    obtain marketing approval in some countries and not in others;

 

    obtain approval for indications or patient populations that are not as broad as intended or desired;

 

    obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

    be subject to additional post-marketing testing requirements; or

 

    have the drug removed from the market after obtaining marketing approval.

Our drug development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug candidates, allow our competitors to bring drugs to market before we do or impair our ability to successfully commercialize our drug candidates, which would harm our business and results of operations.

If we experience delays or difficulties in the enrollment of patients in clinical trials, or we are otherwise delayed in our ability to conduct clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside of the United States. In addition, some of our competitors may have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates.

Patient enrollment is affected by other factors, including:

 

    severity of the disease under investigation;

 

    availability and efficacy of approved drugs for the disease under investigation;

 

    patient eligibility criteria for the study in question;

 

    competing drugs in clinical development;

 

    perceived risks and benefits of the drug candidate under study;

 

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

 

    efforts to facilitate timely enrollment in clinical trials;

 

    patient referral practices of physicians;

 

    the ability to monitor patients adequately during and after treatment; and

 

    proximity and availability of clinical trial sites for prospective patients.

In addition, patient enrollment may be affected by future regulatory actions, such as Form 483 observations or the partial clinical hold we were subject to previously. In February 2017, following the conclusion of a joint inspection conducted by the FDA and Danish Medicines Agency at our corporate headquarters, the FDA issued a Form 483 noting certain deficiencies in procedures and documentation that were identified in our selinexor development program. We implemented corrective actions, preventative actions and other initiatives directed at resolving the deficiencies identified in the Form 483 observations and provided the FDA with our responses to the Form 483 observations in February 2017.

In addition, in March 2017, the FDA notified us that it had placed the clinical trials under our IND for selinexor on partial clinical hold, which is an order by the FDA to delay or suspend part of a sponsor’s clinical work requested under its IND as well as investigator-sponsored trials. The partial clinical hold was due to incomplete information in the existing version of the investigator’s brochure, including an incomplete list of serious adverse events associated with selinexor, and not as a result of any new information

 

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regarding the safety profile of selinexor. The partial clinical holds on the clinical trials of selinexor were lifted by the FDA Division of Hematology Products (effective March 30, 2017), Division of Oncology Products 1 (effective April 5, 2017) and Division of Oncology Products 2 (effective March 31, 2017). However, if in the future we are delayed in addressing, or unable to address, any concerns of the FDA or other regulators, we could be delayed or prevented from enrolling patients in our clinical trials.

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If serious adverse or unacceptable side effects are identified during the development of our drug candidates or we observe limited efficacy of our drug candidates, we may need to abandon or limit the development of one or more of our drug candidates.

Four of our drug candidates are in clinical development for treatment of human diseases. Their risk of failure is high. It is impossible to predict when or if any of our drug candidates will prove effective or safe in humans or will receive marketing approval. If our drug candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. For example, we have modified our informed consent form and advised patients already enrolled in our clinical trials of the potential for worsening of pre-existing cataracts as a result of treatment with selinexor. Also, even though selinexor has generally been well-tolerated by patients in our clinical trials to date, in some cases there were adverse events, some of which were serious. The most common drug-related adverse events, or AEs, were gastrointestinal, such as nausea, anorexia, diarrhea and vomiting, and fatigue. These side effects were generally mild or moderate in severity. The most common AEs that were Grade 3 or Grade 4, meaning they were more than mild or moderate in severity, were thrombocytopenia, or low count of platelets in the blood, and neutropenia, or low neutrophil counts. A small percentage of patients have withdrawn from our clinical trials as a result of AEs. A small percentage of patients across our clinical trials have experienced serious adverse events, or SAEs, deemed by us and the clinical investigator to be related to selinexor. SAEs generally refer to AEs that result in death, are life threatening, require hospitalization or prolonging of hospitalization, or cause a significant and permanent disruption of normal life functions, congenital anomalies or birth defects, or require intervention to prevent such an outcome.

As a result of these AEs or further safety or toxicity issues that we may experience in our clinical trials in the future, we may not receive approval to market any drug candidates, which could prevent us from ever generating revenue from the sale of drugs or achieving profitability. Results of our trials could reveal an unacceptably high severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our drug candidates for any or all targeted indications. Many compounds that initially showed promise in early-stage trials for treating cancer or other diseases have later been found to cause side effects that prevented further development of the compound.

The FDA or non-U.S. regulatory authorities may disagree with our and/or our clinical trial investigators’ interpretation of data from clinical trials in determining if serious adverse or unacceptable side effects are drug-related.

We, and our clinical trial investigators, currently determine if serious adverse or unacceptable side effects are drug-related. The FDA or non-U.S. regulatory authorities may disagree with our or our clinical trial investigators’ interpretation of data from clinical trials and the conclusion by us or our clinical trial investigators that a serious adverse effect or unacceptable side effect was not drug-related. The FDA or non-U.S. regulatory authorities may require more information, including additional preclinical or clinical data to support approval, which may cause us to incur additional expenses, delay or prevent the approval of one of our drug candidates, and/or delay or cause us to change our commercialization plans, or we may decide to abandon the development or commercialization of the drug candidate altogether.

We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we focus on research programs and drug candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and drug candidates for specific indications may not yield any commercially-viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate.

 

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Even if any of our drug candidates receives marketing approval, such drug may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

If any of our drug candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current cancer treatments like chemotherapy and radiation therapy are well-established in the medical community, and doctors may continue to rely on these treatments. If our drug candidates do not achieve an adequate level of acceptance, we may not generate significant revenues from sales of drugs and we may not become profitable. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:

 

    efficacy and potential advantages compared to alternative treatments;

 

    the ability to offer our drugs for sale at competitive prices;

 

    convenience and ease of administration compared to alternative treatments;

 

    the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

    the strength of marketing and distribution support;

 

    sufficient third-party coverage or reimbursement;

 

    the prevalence and severity of any side effects;

 

    any restrictions on the use of our drugs together with other medications; and

 

    inability of certain types of patients to take our drugs.

If, in the future, we are unable to establish sales and marketing capabilities or maintain current agreements or enter into additional agreements with third parties to sell and market our drug candidates, we may not be successful in commercializing our drug candidates if and when they are approved.

We are in the early stages of establishing a sales and marketing infrastructure and our company has not previously sold or marketed pharmaceutical drugs. To achieve commercial success for any approved drug for which sales and marketing is not the responsibility of any strategic collaborator that we have or may have in the future, we must either develop a sales and marketing organization or outsource these functions to other third parties. In the future, we may choose to build a sales and marketing infrastructure to market or co-promote one or more of our drug candidates, if and when they are approved, or enter into additional collaborations with respect to the sale and marketing of our drug candidates. We are currently establishing the commercial infrastructure to support a potential launch of selinexor in the United States, and we intend to work with existing and potential partners to establish such commercial infrastructure outside the United States.

There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any commercial launch of a drug candidate. If the commercial launch of a drug candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our drugs on our own include:

 

    our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

    the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future drugs;

 

    the lack of complementary drugs to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive drug lines;

 

    unforeseen costs and expenses associated with creating an independent sales and marketing organization; and

 

    inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies.

Entering into arrangements with third parties to perform sales and marketing services may result in lower revenues from the sale of drug or the profitability of these revenues to us than if we were to market and sell any drugs that we develop ourselves. In addition, we may not be successful in maintaining current arrangements or entering into additional arrangements with third parties to sell and market our drug candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our drugs effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our drug candidates.

 

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We may not receive royalty or milestone revenue under our license agreements for several years, or at all.

Our license agreements provide for payments on achievement of development and/or commercialization milestones and for royalties on product sales. However, because none of our drug candidates have been approved for commercial sale, our drug candidates are at early stages of development and drug development entails a high risk of failure, we may never realize any material portion of the milestone revenue provided in our license agreements and we do not expect to receive any royalty revenue for several years, if at all.

We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more successfully than we do.

The discovery, development and commercialization of new drugs is highly competitive. We face competition with respect to our current drug candidates, and will face competition with respect to any drug candidates that we may seek to discover and develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of major pharmaceutical, specialty pharmaceutical and biotechnology companies that currently market and sell drugs or are pursuing the development of drugs for the treatment of cancer and the other disease indications for which we are developing our drug candidates, although we believe that to date, none of these competitive drugs and therapies currently in development are based on scientific approaches that are the same as our approach. Potential competitors also include academic institutions and governmental agencies and public and private research institutions.

We are initially focused on developing our current drug candidates for the treatment of cancer. There are a variety of available therapies marketed for cancer. In many cases, cancer drugs are administered in combination to enhance efficacy. Some of these drugs are branded and subject to patent protection, and others are available on a generic basis. Many of these approved drugs are well-established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic drugs. We expect that if our drug candidates are approved, they will be priced at a significant premium over competitive generic drugs. This may make it difficult for us to achieve our business strategy of using our drug candidates in combination with existing therapies or replacing existing therapies with our drug candidates.

Our competitors may develop drugs that are more effective, safer, more convenient or less costly than any that we are developing or that would render our drug candidates obsolete or non-competitive. Our competitors may also obtain marketing approval from the FDA or other regulatory authorities for their drugs more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market or preventing us from entering into a particular indication at all.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or that may be necessary for, our programs.

Even if we are able to commercialize any drug candidates, the drugs may not receive coverage or may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, all of which would harm our business.

The legislation and regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or drug licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. In the United States, approval and reimbursement decisions are not linked directly, but there is increasing scrutiny from the Congress and regulatory authorities of the pricing of pharmaceutical products. As a result, we might obtain marketing approval for a drug in a particular country, but then be subject to price regulations that delay our commercial launch of the drug, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the drug in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more drug candidates, even if our drug candidates obtain marketing approval.

 

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Significant uncertainty exists as to the coverage and reimbursement status of our product candidates for which we seek regulatory approval. Our ability to commercialize any drugs successfully will depend, in part, on the extent to which reimbursement for these drugs and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. Obtaining and maintaining adequate reimbursement for our product candidates, if approved, may be difficult. Moreover, the process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that such a payor will pay for the product. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for our products, if they are approved, by third-party payors.

A primary trend in the healthcare industry in the United States and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Third-party payors may also seek, with respect to an approved product, additional clinical evidence that goes beyond the data required to obtain marketing approval. They may require such evidence to demonstrate clinical benefits and value in specific patient populations or they may call for costly pharmaceutical studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies before covering our products. Accordingly, we cannot be sure that reimbursement will be available for any drug that we commercialize and, if reimbursement is available, we cannot be sure as to the level of reimbursement and whether it will be adequate. Coverage and reimbursement may impact the demand for, or the price of, any drug candidate for which we obtain marketing approval. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any drug candidate for which we obtain marketing approval.

There may be significant delays in obtaining reimbursement for newly-approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable regulatory authorities outside of the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any drugs that we may develop.

We face an inherent risk of product liability exposure related to the testing of our drug candidates in human clinical trials and will face an even greater risk if we commercially sell any drugs that we may develop. If we cannot successfully defend ourselves against claims that our drug candidates or drugs caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

    decreased demand for any drug candidates or drugs that we may develop;

 

    injury to our reputation and significant negative media attention;

 

    withdrawal of clinical trial participants;

 

    significant costs to defend the related litigation;

 

    substantial monetary awards to trial participants or patients;

 

    loss of revenue;

 

    reduced resources of our management to pursue our business strategy; and

 

    the inability to commercialize any drugs that we may develop.

 

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We currently hold clinical trial liability insurance coverage, but that coverage may not be adequate to cover any and all liabilities that we may incur. We would need to increase our insurance coverage when we begin the commercialization of our drug candidates, if ever. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

The business that we conduct outside the United States may be adversely affected by international risk and uncertainties.

Although our operations are based in the United States, we conduct business outside the United States and expect to continue to do so in the future. For instance, many of the sites at which our clinical trials are being conducted are located outside the United States. In addition, we plan to seek approvals to sell our products in foreign countries. Any business that we conduct outside the United States will be subject to additional risks that may materially adversely affect our ability to conduct business in international markets, including:

 

    potentially reduced protection for intellectual property rights;

 

    the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

 

    unexpected changes in tariffs, trade barriers and regulatory requirements;

 

    economic weakness, including inflation, volatility in currency exchange rates or political instability in particular foreign economies and markets;

 

    workforce uncertainty in countries where labor unrest is more common than in the United States;

 

    production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing capabilities abroad;

 

    business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and

 

    failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act, or FCPA.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

Since inception, we have incurred significant operating losses. Our net loss was $38.5 million for the three months ended March 31, 2018. As of March 31, 2018, we had an accumulated deficit of $533.8 million. We have not generated any revenue to date from sales of any drugs and have financed our operations to date principally through private placements of our preferred stock, proceeds from our initial public offering and follow-on offerings of common stock and cash generated from our business development activities. We have devoted substantially all of our efforts to research and development. Our lead drug candidate, oral selinexor, as well as verdinexor, eltanexor and KPT-9274, are in clinical development. As a result, we expect that it will be several years, if ever, before we have a drug candidate ready for commercialization for the treatment of human disease. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:

 

    continue our research and preclinical and clinical development of our drug candidates;

 

    initiate additional clinical trials for our drug candidates;

 

    seek marketing approvals for any of our drug candidates that successfully complete clinical trials;

 

    establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;

 

    maintain, expand and protect our intellectual property portfolio;

 

    manufacture our drug candidates;

 

    hire additional clinical, quality control and scientific personnel;

 

    identify additional drug candidates;

 

    acquire or in-license other drugs and technologies; and

 

    add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our other operations as a public company.

 

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To become and remain profitable, we must develop and eventually commercialize a drug or drugs with significant market potential, either on our own or with a collaborator. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our drug candidates, obtaining marketing approval for these drug candidates, manufacturing, marketing and selling those drugs for which we may obtain marketing approval and establishing and managing any collaborations for the development, marketing and/or commercialization of our drug candidates. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business and/or continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.

The nature and length of our operating history may make it difficult for stockholders to evaluate the success of our business to date and to assess our future viability.

We were incorporated in 2008 and commenced operations in 2009. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our platform, identifying potential drug candidates and conducting preclinical studies and early-phase and later-phase clinical trials of our drug candidates. Our lead drug candidate is currently in multiple Phase 2 and Phase 3 clinical trials and all of our other drug candidates for the treatment of human disease are in early clinical development. We have not yet demonstrated our ability to successfully complete any late-phase clinical trials in humans, including large-scale clinical trials, obtain marketing approvals, manufacture a commercial scale drug, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful drug commercialization. Typically, it takes about six to ten years to develop one new drug from the time it is in Phase 1 clinical trials to when it is commercially available for treating patients. Consequently, any predictions stockholders make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a business with a short operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

As we continue to build our business, we expect our financial condition and operating results may fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, stockholders should not rely upon the results of any particular quarterly or annual periods as indications of future operating performance.

We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our research and drug development programs or commercialization efforts.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical trials of, and seek marketing approval for, selinexor and our other drug candidates. In addition, if we obtain marketing approval for any of our drug candidates, we expect to incur significant commercialization expenses related to drug sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time for any such drug. Furthermore, we will continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and drug development programs or commercialization efforts.

We expect that our existing cash, cash equivalents and investments will enable us to fund our current operating and capital expenditure plans into the third quarter of 2019 while we are establishing the commercial infrastructure for a potential launch of selinexor in the United States. Our future capital requirements will depend on many factors, including:

 

    the progress and results of our current and planned clinical trials of selinexor;

 

    the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our other drug candidates;

 

    the costs, timing and outcome of regulatory review of our drug candidates;

 

    our ability to establish and maintain collaborations on favorable terms, if at all;

 

    the success of any collaborations that we may enter into with third parties;

 

    the extent to which we acquire or in-license other drugs and technologies;

 

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    the costs of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our drug candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time;

 

    the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval; and

 

    the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.

Identifying potential drug candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve drug sales. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for at least one, or possibly many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our drug candidates.

Until such time, if ever, as we can generate substantial revenues from the sale of drugs, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through further collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our research and drug development or commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

Global credit and financial markets have experienced extreme disruptions over some of the past several years. Such disruptions have resulted, and could in the future result, in diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that any deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be compromised by economic downturns, a volatile business environment and unpredictable and unstable market conditions. If the equity and credit markets deteriorate, it may make any necessary equity or debt financing more difficult to secure, more costly or more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could harm our growth strategy, financial performance and stock price and could require us to delay or abandon plans with respect to our business, including clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers or other third parties with which we conduct business may not survive difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

Risks Related to Our Dependence on Third Parties

We depend on third parties for certain aspects of the development, marketing and/or commercialization of our drug candidates and plan to enter into additional collaborations. If those collaborations are not successful, we may not be able to capitalize on the market potential of these drug candidates.

We intend to maintain our existing collaborations and will continue to seek additional third-party collaborators for certain aspects of the development, marketing and/or commercialization of our drug candidates. For example, we have entered into a collaboration with Ono Pharmaceutical Co., Ltd., and plan to continue to seek

 

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to enter into additional collaborations, for marketing and commercialization of selinexor for other geographies outside the United States. In addition, we intend to seek one or more collaborators to aid in the further development, marketing and/or commercialization of our other SINE compounds for indications outside of oncology. Our likely collaborators for any collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. In connection with any such arrangements with third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development, marketing and/or commercialization of our drug candidates. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

Collaborations involving our drug candidates pose the following risks to us:

 

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

 

    collaborators may not pursue development, marketing and/or commercialization of our drug candidates or may elect not to continue or renew development, marketing or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

 

    collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or require a new formulation of a drug candidate for clinical testing;

 

    collaborators could independently develop, or develop with third parties, drugs that compete directly or indirectly with our drugs or drug candidates if the collaborators believe that competitive drugs are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

    a collaborator with marketing and distribution rights to one or more drugs may not commit sufficient resources to the marketing and distribution of such drug or drugs;

 

    collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

 

    collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

 

    disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our drugs or drug candidates or that result in costly litigation or arbitration that diverts management’s attention and resources of the company;

 

    we may lose certain valuable rights under circumstances identified in any collaboration arrangement that we enter into, such as if we undergo a change of control;

 

    collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development, marketing and/or commercialization of the applicable drug candidates;

 

    collaborators may learn about our discoveries and use this knowledge to compete with us in the future; and

 

    the number and type of our collaborations could adversely affect our attractiveness to collaborators or acquirers.

Collaboration agreements may not lead to development or commercialization of drug candidates in the most efficient manner, or at all. If our collaborations do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed and we may need additional resources to develop product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this Quarterly Report on Form 10-Q also apply to the activities of our collaborators.

If we are not able to maintain our existing collaborations or establish additional collaborations as we currently plan, we may have to alter our development and commercialization plans.

Our drug development programs and the potential commercialization of our drug candidates will require substantial additional cash to fund expenses. As noted above, we expect to maintain our existing collaborations and collaborate with additional pharmaceutical and biotechnology companies for the development and/or commercialization of our drug candidates.

 

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We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside of the United States, the potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of intellectual property, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative drug candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our drug candidate.

We may also be restricted under then-existing collaboration agreements from entering into future agreements on certain terms with potential collaborators.

Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such drug candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop our drug candidates or bring them to market and generate revenue from sales of drugs.

We rely on some third parties as we conduct our clinical trials and some aspects of our research and preclinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.

We rely on some third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, as we conduct our clinical trials. We currently rely and expect to continue to rely on third parties to conduct some aspects of our research and preclinical studies. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our drug development activities.

Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The European Medicines Agency, or EMA, also requires us to comply with comparable standards. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our drug candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our drug candidates.

We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of such third parties could delay clinical development or marketing approval of our drug candidates or commercialization of our drugs, producing additional losses and depriving us of potential revenue from sales of drugs.

We rely on third parties to conduct investigator-sponsored clinical trials of selinexor and our other drug candidates. Any failure by a third party to meet its obligations with respect to the clinical development of our drug candidates may delay or impair our ability to obtain regulatory approval for selinexor and our other drug candidates.

We rely on academic and private non-academic institutions to conduct and sponsor clinical trials relating to selinexor and our other drug candidates. We do not control the design or conduct of the investigator-sponsored trials, and it is possible that the FDA or

 

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non-U.S. regulatory authorities will not view these investigator-sponsored trials as providing adequate support for future clinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.

Such arrangements will provide us certain information rights with respect to the investigator-sponsored trials, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from the investigator-sponsored trials. However, we do not have control over the timing and reporting of the data from investigator-sponsored trials, nor do we own the data from the investigator-sponsored trials. If we are unable to confirm or replicate the results from the investigator-sponsored trials or if negative results are obtained, we would likely be further delayed or prevented from advancing further clinical development of our drug candidates. Further, if investigators or institutions breach their obligations with respect to the clinical development of our drug candidates, or if the data proves to be inadequate compared to the first-hand knowledge we might have gained had the investigator-sponsored trials been sponsored and conducted by us, then our ability to design and conduct any future clinical trials ourselves may be adversely affected.

Additionally, the FDA or non-U.S. regulatory authorities may disagree with the sufficiency of our right of reference to the preclinical, manufacturing or clinical data generated by these investigator-sponsored trials, or our interpretation of preclinical, manufacturing or clinical data from these investigator-sponsored trials. If so, the FDA or other non-U.S. regulatory authorities may require us to obtain and submit additional preclinical, manufacturing, or clinical data before we may initiate our planned trials and/or may not accept such additional data as adequate to initiate our planned trials.

We contract with third parties for the manufacture of our drug candidates for preclinical studies and clinical trials and expect to continue to do so for clinical trials and ultimately for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our drug candidates or drugs or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not have any manufacturing facilities or personnel. We currently rely, and expect to continue to rely, on third-party manufacturers for the manufacture of our drug candidates for preclinical studies and clinical trials under the guidance of members of our organization. We have engaged third-party manufacturers for drug substance and drug product services. We do not have a long term supply agreement with any of these third-party manufacturers, and we purchase our required drug supplies on a purchase order basis.

We expect to rely on third-party manufacturers or third-party collaborators for the manufacture of our drug candidates for clinical trials and ultimately for commercial supply of any of these drug candidates for which we or any of our collaborators obtain marketing approval. We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

    reliance on the third party for regulatory compliance and quality assurance;

 

    the possible breach of the manufacturing agreement by the third party;

 

    the possible failure of the third party to manufacture our drug candidate according to our schedule, or at all, including if the third-party manufacturer gives greater priority to the supply of other drugs over our drug candidates, or otherwise does not satisfactorily perform according to the terms of the manufacturing agreement;

 

    the possible misappropriation or disclosure by the third party or others of our proprietary information, including our trade secrets and know-how; and

 

    the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

Third-party manufacturers may not be able to comply with current Good Manufacturing Practices, or cGMP, regulations or similar regulatory requirements outside of the United States. As with all drug manufacturing, our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of drug candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our drugs and harm our business and results of operations.

Any drugs that we may develop may compete with other drug candidates and drugs for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

 

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Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. If our current contract manufacturers cannot perform as agreed, we may be required to replace those manufacturers. Although we believe that there are several potential alternative manufacturers who could manufacture our drug candidates, we may incur added costs and delays in identifying and qualifying any such replacement.

Our current and anticipated future dependence upon others for the manufacture of our drug candidates or drugs may adversely affect our future profit margins and our ability to commercialize any drugs that receive marketing approval on a timely and competitive basis.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent protection for our drug candidates and other discoveries, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize drugs and other discoveries similar or identical to ours, and our ability to successfully commercialize our drug candidates and other discoveries may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary drug candidates and other discoveries. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel drug candidates and other discoveries that are important to our business. To date, 44 patents have issued that relate to XPO1 inhibitors, including composition of matter patents for selinexor, verdinexor and eltanexor in the United States, and their use in targeted therapeutics. In addition, two patents have issued that relate to our PAK4/NAMPT inhibitor, KPT-9274, including a composition of matter patent in the United States and its use in targeted therapeutics. We cannot be certain that any other patents will issue with claims that cover any of our key drug candidates or other discoveries or drug candidates.

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our drug candidates or other discoveries, or which effectively prevent others from commercializing competitive drugs and discoveries. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, in some foreign jurisdictions, our ability to secure patents based on our filings in the United States may depend, in part, on our ability to timely obtain assignment of rights to the invention from the employees and consultants who invented the technology. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

Assuming the other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside of the United States, the first to file a patent application is entitled to the patent. In March 2013, the United States transitioned to a first-inventor-to-file system in which, assuming the other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, revocation, reexamination, or post-grant or inter partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our discoveries or drugs and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative discoveries or drugs in a non-infringing manner.

 

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The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical discoveries and drugs, or limit the duration of the patent protection of our discoveries and drug candidates. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours.

We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time-consuming and unsuccessful.

Competitors or commercial supply companies or others may infringe our patents and other intellectual property rights. For example, we are aware of a third party selling a version of our lead product candidate for research purposes, which may infringe our intellectual property rights. To counter such infringement, we may advise such companies of our intellectual property rights, including, in some cases, intellectual property rights that provide protection for our lead product candidates, and demand that they stop infringing those rights. Such demand may provide such companies the opportunity to challenge the validity of certain of our intellectual property rights, or the opportunity to seek a finding that their activities do not infringe our intellectual property rights. We may also be required to file infringement actions, which can be expensive and time-consuming. In an infringement proceeding, a defendant may assert and a court may agree with a defendant that a patent of ours is invalid or unenforceable, or may refuse to stop the other party from using the intellectual property at issue. An adverse result in any litigation could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability and the ability of any current and future collaborators to develop, manufacture, market and sell our drug candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our drug candidates and technology, including interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. No litigation asserting such infringement claims is currently pending against us, and we have not been found by a court of competent jurisdiction to have infringed a third party’s intellectual property rights. If we are found to infringe, or think there is a risk we may be found to infringe, a third party’s intellectual property rights, we could be required or choose to obtain a license from such third party to continue developing and marketing our drug candidates and using our technology. However, we may not be able to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same intellectual property licensed to us. We could be forced, including by court order, to cease commercializing the infringing intellectual property or drug or to cease using the infringing technology. In addition, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our drug candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

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Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the United States Patent and Trademark Office, or USPTO, and various foreign patent offices at various points over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply with such provisions, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.

If we do not successfully extend the term of patents covering our drug candidates under the Hatch-Waxman Amendments and similar foreign legislation, our business may be materially harmed.

Depending upon the timing, duration and conditions of FDA marketing approval, if any, of our drug candidates, one or more of our U.S. patents may be eligible for patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for one patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. The total patent term, including the extension period, may not exceed 14 years following FDA approval. Accordingly, the length of the extension, or the ability to even obtain an extension, depends on many factors.

In the United States, only a single patent can be extended for each qualifying FDA approval, and any patent can be extended only once and only for a single product. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Because both selinexor and verdinexor are protected by a single family of patents and applications, we may not be able to secure patent term extensions for both of these drug candidates in all jurisdictions where these drug candidates are approved, if ever.

If we are unable to obtain a patent term extension for a drug candidate or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that drug candidate, if any, in that jurisdiction will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue could be materially reduced.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for our drug candidates and other discoveries, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. To the extent that we are unable to timely enter into confidentiality and invention or patent assignment agreements with our employees and consultants, our ability to protect our business through trade

 

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secrets and patents may be harmed. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside of the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. To the extent inventions are made by a third party under an agreement that does not grant us an assignment of their rights in inventions, we may choose or be required to obtain a license.

Not all of our trademarks are registered. Failure to secure those registrations could adversely affect our business.

As of May 1, 2018, four of our trademarks are registered in the United States. We also have eleven pending intent-to-use applications in the United States, some of which have been allowed, meaning that we can perfect our registrations when we have commenced use in commerce. Outside the United States, we have registrations in the European Union for five trademarks (potential drug names for selinexor), pending applications for those same five marks and a pending application for a sixth. Applications for the same six trademarks were filed in 15 other jurisdictions, some of which have also proceeded to registration. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would, which could adversely affect our business. During trademark registration proceedings in the United States and foreign jurisdictions, we may receive rejections. We are given an opportunity to respond to those rejections, but we may not be able to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.

In addition, any proprietary name we propose to use with our key drug candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed drug names, including an evaluation of potential for confusion with other drug names. If the FDA objects to any of our proposed proprietary drug names for any of our drug candidates, if approved, we may be required to expend significant additional resources in an effort to identify a suitable proprietary drug name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance Matters

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our drug candidates. As a result, we cannot predict when or if we or any of our collaborators will obtain marketing approval to commercialize a drug candidate.

The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of drugs are subject to extensive regulation by the FDA and comparable foreign regulatory authorities, whose laws and regulations may differ from country to country. We are not permitted to market our drug candidates in the United States or in other countries until we or any of our collaborators receive approval of a New Drug Application, or NDA, from the FDA or marketing approval from applicable regulatory authorities outside of the United States. Our drug candidates are in early stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our drug candidates in the United States or in any other jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtain marketing approvals, including FDA approval of an NDA.

The process of obtaining marketing approvals, both in the United States and abroad, is a lengthy, expensive and uncertain process. It may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the drug candidates involved.

In addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted drug application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical studies, clinical trials or other studies and testing. In addition, varying interpretations of the data obtained from preclinical studies and clinical trials could delay, limit or prevent marketing approval of a drug candidate. Any marketing approval we or any of our collaborators ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved drug not commercially viable.

 

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Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any of our collaborators to generate revenue from the particular drug candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.

Our failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad, and any approval we are granted for our product candidates in the United States would not assure approval of product candidates in foreign jurisdictions.

In order to market and sell our drugs in the European Union and many other jurisdictions, we and our current or future collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside of the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside of the United States, it is required that the drug be approved for reimbursement before the drug can be approved for sale in that country. We and our collaborators may not obtain approvals from regulatory authorities outside of the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside of the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA.

Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. On March 29, 2017, the country formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, the referendum could materially impact the regulatory regime with respect to the approval of our product candidates in the United Kingdom or the European Union. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business.

We may seek approval from the FDA or comparable non-U.S. regulatory authorities to use accelerated development pathways for our product candidates, including for selinexor in multiple myeloma and diffuse large B-cell lymphoma. If we are not able to use such pathways, we may be required to conduct additional clinical trials beyond those that we contemplate and that would increase the expense of obtaining, and delay the receipt of, necessary marketing approvals, if we receive them at all. In addition, even if we are able to use an accelerated approval pathway, it may not lead to expedited approval of our product candidates, or approval at all.

Under the Federal Food, Drug and Cosmetic Act, or FDCA, and implementing regulations, the FDA may grant accelerated approval to a product candidate to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies, upon a determination that the product has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective.

Prior to seeking such accelerated approval, we will continue to seek feedback from the FDA and otherwise evaluate our ability to seek and receive such accelerated approval. We intend to use the data from our expanded STORM study to support a request that the FDA consider granting accelerated approval for selinexor in penta-refractory multiple myeloma. The FDA has reiterated to us in its feedback that accelerated approval is available only for drugs that provide a meaningful therapeutic benefit over existing treatments at the time of consideration of the application for accelerated approval. Any experimental or approved therapies showing activity in patients with penta-refractory multiple myeloma that may exist at the time the FDA acts on any request we may make for accelerated approval could cause the FDA to deny our request. In addition, the FDA has indicated that additional therapies may receive full approval in multiple myeloma prior to the submission of an NDA by us, which could mean that, at the time the FDA takes action on our accelerated approval submission, treatment of

 

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the penta-refractory group is no longer considered an unmet medical need or a patient population that has exhausted available therapies. The FDA has recommended that we plan for regular approval based on a randomized trial for the evaluation of safety and efficacy of selinexor for the treatment of multiple myeloma, and has previously indicated to us its preference for studies that isolate the effects of individual drugs. Although we believe that the STORM study design and the expansion in the penta-refractory patient group present an opportunity for us to request that the FDA grant accelerated approval, there can be no assurance that the FDA will grant such approval, whether on an accelerated basis, or at all.

Similarly, assuming positive results from our SADAL study and remaining unmet medical need, we intend to use the data from the study to support a request that the FDA consider granting accelerated approval for selinexor in relapsed and/or refractory diffuse large B-cell lymphoma, or DLBCL. While the FDA agreed that the current trial design and indication appear appropriate for accelerated approval, they reiterated to us in their feedback that the availability of accelerated approval will depend on the trial results and available therapies at the time of regulatory action. Although we believe that our SADAL study presents an opportunity for us to request that the FDA grant accelerated approval for selinexor in relapsed and/or refractory DLBCL if data from our SADAL study support such an application, there can be no assurance that the FDA will grant such approval, whether on an accelerated basis, or at all.

There can also be no assurance that the FDA will agree with our surrogate endpoints or intermediate clinical endpoints, or that we will decide to pursue or submit an NDA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that, after feedback from FDA, we will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval or under another expedited regulatory designation, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all.

Moreover, for drugs granted accelerated approval, the FDA typically requires post-marketing confirmatory trials to evaluate the anticipated effect on irreversible morbidity or mortality or other clinical benefit. These confirmatory trials must be completed with due diligence. The FDA may withdraw approval of a product candidate approved under the accelerated approval pathway if, for example, the trial required to verify the predicted clinical benefit of our product candidate fails to verify such benefit or does not demonstrate sufficient clinical benefit to justify the risks associated with the drug. The FDA may also withdraw approval if other evidence demonstrates that our product candidate is not shown to be safe or effective under the conditions of use, we fail to conduct any required post approval trial of our product candidate with due diligence or we disseminate false or misleading promotional materials relating to our product candidate. Similar risks to those described above are also applicable to any application that we may submit to the EMA to support conditional approval of selinexor to treat penta-refractory multiple myeloma, relapsed/refractory diffuse large B-cell lymphoma, or any other cancer indication. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidates, or withdrawal of a product candidate, would result in a longer time period for commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.

A fast track designation, grant of priority review status or breakthrough therapy status by the FDA is not assured and, in any event, may not actually lead to a faster development or regulatory review or approval process and, moreover, would not assure FDA approval of our product candidates.

We may be eligible for fast track designation, priority review or breakthrough therapy status for product candidates that we develop. If a product is intended for the treatment of a serious or life-threatening disease or condition and the product demonstrates the potential to address unmet medical needs for this disease or condition, the product sponsor may apply for FDA fast track designation. If a product offers major advances in treatment, the product sponsor may apply for FDA priority review status. Additionally, a product candidate may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. The FDA has broad discretion whether or not to grant these designations, so even if we believe a particular product candidate is eligible for such designation or status, the FDA could decide not to grant it. Moreover, even if we do receive such a designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures and there is no assurance that our product candidate will be approved by the FDA.

In April 2018, the FDA granted fast track designation to selinexor for the treatment of patients with multiple myeloma who have received at least three prior lines of therapy that include regimens comprised of an alkylating agent, a glucocorticoid, Velcade® (bortezomib), Kyprolis® (carfilzomib), Revlimid® (lenalidomide), Pomalyst® (pomalidomide) and Darzalex® (daratumumab). In addition, a patient’s disease must be refractory to at least one proteasome inhibitor (Velcade or Kyprolis), one immunomodulatory agent (Revlimid or Pomalyst), glucocorticoids and to Darzalex, as well as to the most recent therapy. However, even with this fast

 

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track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures and there is no assurance that selinexor will be approved by the FDA. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

We may not be able to obtain orphan drug exclusivity for our product candidates.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs and biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States.

Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same product for that time period. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Even if we obtain orphan drug exclusivity from the FDA for a product, as we have for selinexor in acute myeloid leukemia, DLBCL and multiple myeloma, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve a different product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or FDARA. FDARA, among other things, codified the FDA’s pre-existing regulatory interpretation, to require that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise the same as a previously approved drug for the same rare disease in order to receive orphan drug exclusivity. The new legislation reverses prior precedent holding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a showing of clinical superiority. The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.

Even if we or any of our collaborators obtain marketing approvals for our drug candidates, the terms of approvals and ongoing regulation of our drugs may limit how we, or they, manufacture and market our drugs, which could materially impair our ability to generate revenue.

Once marketing approval has been granted, an approved drug and its manufacturer and marketer are subject to ongoing review and extensive regulation. We and our collaborators must therefore comply with requirements concerning advertising and promotion for any of our drug candidates for which we or they obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the drug’s approved labeling. Thus, we and our collaborators may not be able to promote any drugs we develop for indications or uses for which they are not approved.

In addition, manufacturers of approved drugs and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, our collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs.

Accordingly, assuming we or our current or future collaborators receive marketing approval for one or more of our drug candidates, we, and our collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.

If we and our collaborators are not able to comply with post-approval regulatory requirements, we and our collaborators could have the marketing approvals for our drugs withdrawn by regulatory authorities, and our or our collaborators’ ability to market any future drugs could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

 

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Any of our drug candidates for which we or our collaborators obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal from the market, and we and our collaborators may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our drugs following approval.

Any of our drug candidates for which we or our collaborators obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such drug, among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a drug candidate is granted, the approval may be subject to limitations on the indicated uses for which the drug may be marketed or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation Strategy, which could include requirements for a restricted distribution system.

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a drug. The FDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the post-approval marketing and promotion of drugs to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use, and if we or our collaborators do not market any of our drug candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.

In addition, later discovery of previously unknown AEs or other problems with our drugs or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

 

    litigation involving patients taking our drug;

 

    restrictions on such drugs, manufacturers or manufacturing processes;

 

    restrictions on the labeling or marketing of a drug;

 

    restrictions on drug distribution or use;

 

    requirements to conduct post-marketing studies or clinical trials;

 

    warning letters or untitled letters;

 

    withdrawal of the drugs from the market;

 

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

 

    recall of drugs;

 

    fines, restitution or disgorgement of profits or revenues;

 

    suspension or withdrawal of marketing approvals;

 

    damage to relationships with any potential collaborators;

 

    unfavorable press coverage and damage to our reputation;

 

    refusal to permit the import or export of drugs;

 

    drug seizure; or

 

    injunctions or the imposition of civil or criminal penalties.

 

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Under the Cures Act and the Trump Administration’s regulatory reform initiatives, the FDA’s policies, regulations and guidance may be revised or revoked and that could prevent, limit or delay regulatory approval of our product candidates, which would impact our ability to generate revenue.

In December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and spur innovation, but its ultimate implementation is unclear. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump Administration may impact our business and industry. Namely, the Trump Administration has taken several executive actions, including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. An under-resourced FDA could result in delays in the FDA’s responsiveness or in its ability to review submissions or applications, issue regulations or guidance, or implement or enforce regulatory requirements in a timely fashion or at all. In January 2017, President Trump issued an executive order, applicable to all executive agencies including the FDA, which requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This executive order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the executive order requires agencies to identify regulations to offset any incremental cost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within OMB in February 2017, the administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. In addition, on February 24, 2017, President Trump issued an executive order directing each affected agency to designate an agency official as a “Regulatory Reform Officer” and establish a “Regulatory Reform Task Force” to implement the two-for-one provisions and other previously issued executive orders relating to the review of federal regulations. It is difficult to predict how these various requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

Current and future legislation may increase the difficulty and cost for us and any collaborators to obtain marketing approval and commercialize our drug candidates and affect the prices we, or they, may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our drug candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any collaborators, to profitably sell any drugs for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any collaborators, may receive for any approved drugs.

Among the provisions of the Patient Protection and Affordable Care Act, or ACA, of potential importance to our business and our drug candidates are the following:

 

    an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents;

 

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

 

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

 

    a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (and 70% starting January 1, 2019) point-of-sale discounts off negotiated prices to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

    extension of manufacturers’ Medicaid rebate liability;

 

    expansion of eligibility criteria for Medicaid programs;

 

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

 

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    new requirements to report certain financial arrangements with physicians and teaching hospitals;

 

    a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; 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.

Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in April 2013 and, due to subsequent legislative amendments, will stay in effect through 2027 unless additional Congressional action is taken, and the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.

We expect that these healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

Since enactment of the ACA, there have been numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with the December 2017 enactment of the Tax Cuts and Jobs Act of 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, will become effective in 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Further, each chamber of the Congress has put forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the ACA. The Congress will likely consider other legislation to replace elements of the ACA during the next Congressional session.

The Trump Administration has also taken executive actions to undermine or delay implementation of the ACA. In January 2017, President Trump signed an executive order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, the President signed a second executive order allowing for the use of association health plans and short-term health insurance, which may provide fewer health benefits than the plans sold through the ACA exchanges. At the same time, the Trump Administration announced that it will discontinue the payment of cost-sharing reduction, or CSR, payments to insurance companies until Congress approves the appropriation of funds for such CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan bill to appropriate funds for CSR payments was introduced in the Senate, but the future of that bill is uncertain.

We will continue to evaluate the effect that the ACA and its possible repeal and replacement could have on our business. It is possible that repeal and replacement initiatives, if enacted into law, could ultimately result in fewer individuals having health insurance coverage or in individuals having insurance coverage with less generous benefits. While the timing and scope of any potential future legislation to repeal and replace ACA provisions is uncertain in many respects, it is also possible that some of the ACA provisions that generally are not favorable for the research-based pharmaceutical industry could also be repealed along with ACA coverage expansion provisions. Accordingly, such reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial condition and ability to develop commercialize product candidates.

 

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Further, there have been several recent U.S. congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

Moreover, legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical drugs. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug candidates, if any, may be. In addition, increased scrutiny by the Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us and any collaborators to more stringent drug labeling and post-marketing testing and other requirements.

Our relationships with healthcare providers and physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third party payors will play a primary role in the recommendation and prescription of any drugs for which we obtain marketing approval. Our future arrangements with third party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any drugs for which we obtain marketing approval. These include the following:

 

    Anti-Kickback Statute—the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

 

    False Claims Act—the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties, currently set at $5,500 to $11,000 per false claim;

 

    HIPAA—the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters, and, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information;

 

    Transparency Requirements—federal laws require applicable manufacturers of covered drugs to report payments and other transfers of value to physicians and teaching hospitals; and

 

    Analogous State and Foreign Laws—analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to sales or marketing arrangements and claims involving healthcare items or services and are generally broad and are enforced by many different federal and state agencies as well as through private actions.

 

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Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of European Union Member States, such as the UK Bribery Act 2010. Infringement of these laws could result in substantial fines and imprisonment.

Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

The collection and use of personal health data of individuals in the European Union is governed by strict data protection laws. The Data Protection Directive imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The Data Protection Directive also imposes strict rules on the transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the Data Protection Directive and the related national data protection laws of the European Union Member States may result in fines and other administrative penalties. In addition to existing laws, from May 25, 2018, the stricter General Data Protection Regulation will replace the current Data Protection Directive. The regulation introduces new obligations with respect to European Union data and substantial fines for breaches of the data protection rules. It will increase our responsibility and potential liability in relation to personal data that we process and we will be required to put in place additional mechanisms ensuring compliance with the new European Union data protection rules. This may be onerous and adversely affect our business, financial condition, results of operations and prospects.

Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.

We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

 

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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or commercialization efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain drug candidates outside of the United States and require us to develop and implement costly compliance programs.

We are subject to numerous laws and regulations in each jurisdiction outside the United States in which we operate. The creation, implementation and maintenance of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the DOJ. The Securities and Exchange Commission, or SEC, is involved with enforcement of the books and records provisions of the FCPA.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expansion outside of the United States, has required, and will continue to require, us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain drugs and drug candidates outside of the United States, which could limit our growth potential and increase our development costs. The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

 

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Governments outside of the United States tend to impose strict price controls, which may adversely affect our revenues from the sales of drugs, if any.

In some countries, including the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. To obtain reimbursement or pricing approval in some countries, we or our existing and future collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our drug to other available therapies. If reimbursement of our drugs is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our Chief Executive Officer, our President and Chief Scientific Officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on Michael Kauffman, M.D., Ph.D., our Chief Executive Officer, and Sharon Shacham, Ph.D., M.B.A., our President and Chief Scientific Officer, as well as the other principal members of our management and scientific teams. Although we have entered into formal employment agreements with Drs. Kauffman and Shacham, these agreements do not prevent them from terminating their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of our key employees could impede the achievement of our research, development, commercialization and other business objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

Drs. Kauffman and Shacham are married to each other. The separation or divorce of the couple in the future could adversely affect our business.

Dr. Kauffman, our Chief Executive Officer and member of our board of directors, and Dr. Shacham, our President and Chief Scientific Officer, are married to each other. They are two of our executive officers and are a vital part of our operations. If they were to become separated or divorced or could otherwise not amicably work with each other, one or both of them may decide to cease his or her employment with us or it could negatively impact our working environment. Alternatively, their work performance may not be satisfactory if they become preoccupied with issues relating to their personal situation. In these cases, our business could be materially harmed.

We expect to expand our development, regulatory and future sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Our business and operations may be materially adversely affected in the event of computer system failures or security breaches, and the costs and consequences of implementing data protection measures could be significant.

Despite the implementation of security measures, our internal computer systems, and those of our contract research organizations and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber attacks, natural disasters, fire, terrorism, war and telecommunication and electrical

 

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failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our reputation could be damaged, and the further development of our drug candidates could be delayed. We may also be vulnerable to cyber attacks by hackers, or other malfeasance. This type of breach of our cybersecurity may compromise our confidential information and/or our financial information and adversely affect our business or result in legal proceedings. In addition, the cost and operational consequences of implementing further data protection measures could be significant. Moreover, because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate security measures.

Risks Related to Our Common Stock

Our executive officers, directors and principal stockholders maintain the ability to control all matters submitted to stockholders for approval.

As of March 31, 2018, our executive officers, directors and a small number of stockholders own more than a majority of our outstanding common stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

 

    establish a classified board of directors such that not all members of the board are elected at one time;

 

    allow the authorized number of our directors to be changed only by resolution of our board of directors;

 

    limit the manner in which stockholders can remove directors from the board;

 

    establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

 

    require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

 

    limit who may call stockholder meetings;

 

    authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

 

    require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.

 

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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

An active trading market for our common stock may not be sustained.

Although our common stock is listed on The Nasdaq Global Select Market, an active trading market for our shares may not be sustained. If an active market for our common stock does not continue, it may be difficult for you to sell shares of our common stock without depressing the market price for the shares, or at all. An inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

If securities analysts do not continue to publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.

The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. There can be no assurance that analysts will provide favorable coverage or continue to cover us. If one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

The price of our common stock has been and may be volatile in the future and fluctuate substantially.

Our stock price has been and is likely to be volatile and may fluctuate substantially. For example, since January 1, 2015, our common stock has traded at prices per share as high as $38.47 and as low as $4.83. On May 4, 2018, the closing sale price of our common stock on The Nasdaq Global Select Market was $16.48 per share. The stock market in general and the market for pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:

 

    the success of competitive drugs or technologies;

 

    results of clinical trials of our drug candidates or those of our competitors;

 

    regulatory or legal developments in the United States and other countries;

 

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

 

    the recruitment or departure of key personnel;

 

    the level of expenses related to any of our drug candidates or clinical development programs;

 

    the results of our efforts to discover, develop, acquire or in-license additional drug candidates or drugs;

 

    actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

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

 

    changes in the structure of healthcare payment systems;

 

    market conditions in the pharmaceutical and biotechnology sectors;

 

    general economic, industry and market conditions; and

 

    the other factors described in this “Risk Factors” section.

 

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We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and our resources, which could harm our business.

We have broad discretion in the use of our cash and cash equivalents and may not use them effectively.

Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our drug candidates. Pending their use to fund our operations, we may invest our cash and cash equivalents in a manner that does not produce income or that loses value.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company through 2018. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We will continue to incur increased costs as a result of operating as a public company, and our management will need to continue to devote substantial time to compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

We cannot predict with certainty the amount of additional costs we may incur to continue to operate as a public company, nor can we predict the timing of such costs. In addition, the rules and regulations applicable to public companies are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we are not required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a

 

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continuous reporting and improvement process for internal control over financial reporting. There is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, if we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. We had 49,670,328 shares outstanding as of March 31, 2018. Of such shares, at least 10.3 million shares are eligible for sale in the public market under Rule 144 of the Securities Act of 1933, as amended, or the Securities Act, subject to the volume limitations and other conditions of Rule 144. The holders of these shares may at any time decide to sell their shares in the public market.

Moreover, holders of an aggregate of at least 10.5 million shares of our common stock as of March 31, 2018 have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered all shares of common stock that we may issue under our equity compensation plans. As a result, these shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates, to the extent applicable.

Our ability to use our net operating loss carryforwards and tax credit carryforwards to offset future taxable income may be subject to certain limitations.

Under the provisions of the Internal Revenue Code of 1986, as amended, or the Code, our net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (and state tax authorities under relevant state tax rules). In addition, as a result of the Tax Cuts and Jobs Act of 2017, for U.S. federal income tax purposes, the use of net operating loss carryforwards arising in taxable years beginning after December 31, 2017 is limited to 80% of our taxable income in any future taxable year, although such losses may be carried forward indefinitely. It is uncertain how various states will respond to the newly enacted federal tax law. Furthermore, the use of net operating loss and tax credit carryforwards may become subject to an annual limitation under Sections 382 and 383 of the Code, respectively, and similar state provisions in the event of certain cumulative changes in the ownership interest of significant shareholders in excess of 50 percent over a three-year period. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of a company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Our company has completed several financings since its inception which resulted in an ownership change under Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, some of which are outside of our control, could result in ownership changes in the future. For these reasons, we may not be able to use some or all of our net operating loss and tax credit carryforwards, even if we attain profitability.

The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.

The Tax Cuts and Jobs Act of 2017 enacted in December 2017, or the Tax Act, significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 34% to a flat rate of 21%, limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely), one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions

 

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for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain how various states will respond to the newly enacted federal tax law.

 

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Item 6. Exhibits.

 

Exhibit            

Form

    

Incorporated by Reference

     Provided

Number

    

Description of Exhibit

         

File Number

    

Date of Filing

    

Exhibit Number

    

Herewith

  10.1†

     Asset Purchase Agreement, dated January 24, 2018, by and between Biogen MA Inc. and the Registrant.                          X

  10.2

     Third Amendment to Lease, dated February 28, 2018, by and between the Registrant and AG-JCM Wells Avenue Property Owner, LLC.                          X

  10.3††

     Form of Nonstatutory Stock Option Agreement for Inducement Grants.                          X

  31.1

     Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a)  of the Securities Exchange Act of 1934, as amended.                          X

  31.2

     Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a)  of the Securities Exchange Act of 1934, as amended.                          X

  32.1

     Certification of principal executive officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                          X

  32.2

     Certification of principal financial officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                          X

101.INS

     Instance Document                          X

101.SCH

     Scheme Document                          X

101.CAL

     Calculation Linkbase Document                          X

101.DEF

     Definition Linkbase Document                          X

101.LAB

     Labels Linkbase Document                          X

101.PRE

     Presentation Linkbase Document                          X

 

Confidential treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the Commission. The omitted information has been filed separately with the Commission pursuant to the Company’s application for confidential treatment.
†† Indicates a compensatory arrangement.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    KARYOPHARM THERAPEUTICS INC.
Date: May 10, 2018     By:  

/s/ MICHAEL KAUFFMAN

      Michael Kauffman, M.D., Ph.D.
      Chief Executive Officer
      (Principal executive officer)
Date: May 10, 2018     By:  

/s/ MICHAEL F. FALVEY

      Michael F. Falvey
      Executive Vice President,
Chief Financial Officer and Treasurer
      (Principal financial and accounting officer)

 

62

EX-10.1

Exhibit 10.1

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Double asterisks denote omissions.

ASSET PURCHASE AGREEMENT

by and between

BIOGEN MA INC.

and

KARYOPHARM THERAPEUTICS INC.

DATED AS OF JANUARY 24, 2018

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I DEFINITIONS AND TERMS

     1  

Section 1.1.

 

Definitions

     1  

Section 1.2.

 

Other Definitional Provisions

     16  

ARTICLE II PURCHASE AND SALE OF ASSETS

     17  

Section 2.1.

 

Purchase and Sale of Assets

     17  

Section 2.2.

 

Excluded Assets

     18  

Section 2.3.

 

Assumed Liabilities

     18  

Section 2.4.

 

Excluded Liabilities

     18  

Section 2.5.

 

Licenses and Sub-Licenses

     18  

Section 2.6.

 

Purchase Price

     19  

Section 2.7.

 

Closing

     19  

Section 2.8.

 

Purchased Assets Not Transferred at Closing

     19  

Section 2.9.

 

Taxes

     20  

Section 2.10.

 

Transition Plan

     21  

Section 2.11.

 

Wrong Pockets

     21  

ARTICLE III MILESTONES, NET SALES PAYMENTS AND OTHER FINANCIAL OBLIGATIONS

     21  

Section 3.1.

 

Development Milestone Payments

     21  

Section 3.2.

 

Commercial Milestone Payments

     23  

Section 3.3.

 

Net Sales Payments

     25  

Section 3.4.

 

Milestones and Net Sales Payment Adjustments

     26  

Section 3.5.

 

Net Sales Audit Rights

     27  

Section 3.6.

 

Currency Exchange

     28  

Section 3.7.

 

Taxes

     28  

Section 3.8.

 

Diligence

     28  

Section 3.9.

 

Termination for Convenience

     29  

Section 3.10.

 

Non-Competition.

     30  

Section 3.11.

 

Term

     32  

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER

     32  

Section 4.1.

 

Organization and Good Standing

     32  

Section 4.2.

 

Authority

     32  

 

i


Section 4.3.

 

No Conflict

     33  

Section 4.4.

 

Required Filings and Consents

     33  

Section 4.5.

 

Purchased Assets

     33  

Section 4.6.

 

Contracts

     33  

Section 4.7.

 

Intellectual Property

     34  

Section 4.8.

 

Inventory

     36  

Section 4.9.

 

Compliance with Laws; Regulatory Compliance

     37  

Section 4.10.

 

Brokers

     38  

Section 4.11.

 

Non-Reliance by Seller

     38  

ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER

     38  

Section 5.1.

 

Organization and Good Standing

     38  

Section 5.2.

 

Authority

     38  

Section 5.3.

 

No Conflict

     39  

Section 5.4.

 

Required Filings and Consents

     39  

Section 5.5.

 

Litigation

     39  

Section 5.6.

 

Sufficient Funds

     39  

Section 5.7.

 

Brokers

     39  

Section 5.8.

 

Non-Reliance by Purchaser

     40  

ARTICLE VI INTELLECTUAL PROPERTY; KNOW-HOW TRANSFER

     40  

Section 6.1.

 

Prosecution and Maintenance

     40  

Section 6.2.

 

Cooperation

     41  

Section 6.3.

 

Defense of Claims Brought by Third Parties

     41  

Section 6.4.

 

Notice of Infringement and Paragraph IV type Notices

     42  

Section 6.5.

 

Enforcement of IP

     42  

Section 6.6.

 

Settlement

     44  

Section 6.7.

 

Costs and Recoveries

     44  

Section 6.8.

 

Other Actions by Third Parties

     45  

Section 6.9.

 

References to Seller IP

     45  

Section 6.10.

 

Patent Challenges by Seller of the Transferred IP

     46  

Section 6.11.

 

Unblocking License

     46  

Section 6.12.

 

Know-How Transfer

     46  

ARTICLE VII INDEMNIFICATION

     47  

Section 7.1.

 

Indemnification by Seller

     47  

Section 7.2.

 

Indemnification by Purchaser

     47  

 

ii


Section 7.3.

 

Notice of Claims

     47  

Section 7.4.

 

Indemnification Procedures

     48  

Section 7.5.

 

Survival of Representations and Warranties

     48  

Section 7.6.

 

Limitations

     49  

Section 7.7.

 

Exclusive Remedy

     49  

ARTICLE VIII MISCELLANEOUS

     50  

Section 8.1.

 

Further Assurances and Post-Closing Covenants

     50  

Section 8.2.

 

Notices

     50  

Section 8.3.

 

Amendment; Waiver

     51  

Section 8.4.

 

Assignment

     51  

Section 8.5.

 

Entire Agreement

     52  

Section 8.6.

 

No Third-Party Beneficiaries

     52  

Section 8.7.

 

Public Disclosure

     53  

Section 8.8.

 

Publishing and Use of Trademarks

     53  

Section 8.9.

 

Confidentiality; Return of Information

     54  

Section 8.10.

 

Equitable Relief

     54  

Section 8.11.

 

Expenses

     54  

Section 8.12.

 

Governing Law; Jurisdiction; Venue and Service

     54  

Section 8.13.

 

Counterparts

     55  

Section 8.14.

 

Headings

     55  

Section 8.15.

 

Severability

     55  

Section 8.16.

 

Force Majeure

     56  

EXHIBITS

 

A

   Form of Instrument of Assignment and Assumption

B

   Form of Patent Assignment

C

   Form of Tax Certificate

 

iii


ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement, dated as of January 24, 2018, is made by and between Karyopharm Therapeutics Inc., a Delaware corporation (with its principal corporate offices at 85 Wells Avenue, Newton, MA 02459) (“Seller”) and Biogen MA Inc., a Massachusetts corporation (with its principal corporate offices at 225 Binney Street, Cambridge, MA 02142) (“Purchaser”). Seller and Purchaser are collectively referred to herein as the “Parties” and individually as a “Party.”

W I T N E S S E T H:

WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, the Purchased Assets (as defined below) on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND TERMS

Section 1.1.    Definitions. As used in this Agreement, the following terms shall have the meanings set forth or as referenced below:

Affiliate” shall mean, with respect to any Person, any other Person which controls, is controlled by or is under common control with such Person, for as long as such control exists. For purposes of this definition, “control” shall mean the direct or indirect ownership of more than fifty percent (50%) of the voting or economic interest of a Person, or the power, whether pursuant to contract, ownership of securities or otherwise, to direct the management and policies of a Person. For clarity, once a Person ceases to be an Affiliate of a Party, then, without any further action, such Person shall cease to have any rights or obligations under this Agreement by reason of being an Affiliate of such Party.

Agreement” shall mean this Asset Purchase Agreement, including all Schedules and Exhibits attached hereto, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof.

Allocation” shall have the meaning set forth in Section 2.9(b).

Ancillary Agreements” shall mean the Instrument of Assignment and Assumption and the Patent Assignments.

Assumed Contracts” shall have the meaning set forth in Section 2.1(a)(i).

 

1


Assumed Liabilities” shall have the meaning set forth in Section 2.3.

Background IP” shall mean the Background Know-How and Background Patents.

Background Know-How” shall mean all Know-How owned or Controlled by Seller or an Affiliate, other than the Transferred IP, that is necessary or useful for the purpose of enabling Purchaser to Exploit the Transferred IP.

Background Patents” shall mean all Patents owned or Controlled by Seller or an Affiliate as of the Closing Date, other than the Transferred IP, that Cover Background Know-How.

Business Day” shall mean any day other than a Saturday, a Sunday or a United States Federal Holiday.

Cap” shall have the meaning set forth in Section 7.6(c).

CDER” shall mean the Center for Drug Evaluation and Research of the United States Food and Drug Administration.

Challenge” shall mean, with respect to any IP Rights under the Seller IP, to contest the validity or enforceability of any such IP Rights, in whole or in part, in any court, arbitration proceeding or other tribunal, including the United States Patent and Trademark Office, the European Patent Office, and the United States International Trade Commission. As used in this term “Challenge”, the term “contest” includes (a) filing an action under 28 U.S.C. §§ 2201-2202 seeking a declaration of invalidity or unenforceability of any such IP Rights; (b) filing, or joining in, a petition under 35 U.S.C. § 311 to institute inter partes review of any such IP Rights, or any portion thereof; (c) filing, or joining in, a petition under 35 U.S.C. § 321 to institute post-grant review of any such IP Rights, or any portion thereof; (d) any foreign equivalent of clauses (a), (b) or (c) in any country outside of the United States; or (e) filing or commencing any opposition, nullity or similar proceedings challenging the validity of any such IP Rights in any country outside the United States; but excludes (i) filing a request under 35 U.S.C. § 302 for re-examination of any such IP Rights, (ii) filing a request under 35 U.S.C. § 251 for a reissue of any such IP Rights, or (iii) any foreign equivalents of clause (i) or (ii) applicable in a country outside of the United States.

Challenged IP Right” shall have the meaning set forth in Section 6.10.

Closing” shall mean the consummation of the transactions contemplated by this Agreement pursuant to the terms of this Agreement.

Closing Date” shall mean the date hereof.

Code” shall mean the United States Internal Revenue Code of 1986, as amended.

 

2


Combination Product” shall mean (a) any single product in finished form containing as active ingredients both a Royalty Product and one or more other pharmaceutically active compounds or substances, whether co-formulated or co-packaged (i.e., within a single box or sales unit); or (b) any Royalty Product sold in combination with one or more other products (such as devices) or services for a single invoice price; or (c) any Royalty Product sold where the sale of such Royalty Product is only available with the purchase of other products or services.

Commercial Milestone Event” shall have the meaning set forth in Section 3.2(a).

Commercial Milestone Payment” shall have the meaning set forth in Section 3.2(a).

Commercially Reasonable Efforts” shall mean, with respect to Purchaser’s obligations under this Agreement to Develop a Product, the level of efforts that are similar to the efforts normally deployed by Purchaser and its Affiliates to the development of a product of a similar market potential or profit potential or strategic importance and that is at a similar stage in development or product life as such Product, based on conditions then prevailing and taking into consideration all payments due under this Agreement and all other potentially relevant factors that may affect the deployment of efforts to Development, including actual and potential issues of safety and efficacy; stage of Development or product lifecycle status; the nature and extent of market exclusivity (including regulatory exclusivity and the patent and other proprietary position of such Product); Product profile; all costs, budgets and expenses associated with the Development of such Product (including both actual or projected costs) based on conditions then prevailing; any expected issues relating to the Manufacture of such Product; timing and likelihood of success of technology transfer, process development and Manufacturing validation and scale-up; the competitiveness of alternative products in the marketplace; the likely timing of such Product’s entry into the market; the likelihood and cost of obtaining Regulatory Approval and of the anticipated or actual approved labeling; the timing of such approvals; the regulatory environment and the current and projected regulatory status; legal considerations; the anticipated overall commercial success of such Product and other relevant scientific, technical and commercial factors. The level of effort with respect to Commercially Reasonable Efforts will be determined on a country-by-country basis and is expected to change over time, reflecting changes in the status of such Product and the markets or countries involved. Seller expressly understands and accepts that the use of Commercially Reasonable Efforts may result in ceasing Development of a Product (in whole or in part), and that once Development for a Product has ceased in compliance with this Agreement, Commercially Reasonable Efforts does not require the continued re-evaluation of whether Development must be re-initiated for such Product.

Competitive Infringement” shall have the meaning set forth in Section 6.4(a).

Confidentiality Agreement” shall mean that certain confidentiality agreement, dated May 1, 2013 between Seller and Purchaser, as amended by that certain Amendment No. 1, dated March 16, 2015 and as amended by that certain Amendment No. 2, dated April 15, 2016 and as may be further amended from time to time.

 

3


Confidential Information” shall mean (i) with respect to Purchaser, any and all proprietary or nonpublic information, including information that is written, electronic, oral or visual, that is directly or indirectly related to any of the Transferred Compounds, the Purchased Assets, the Assumed Liabilities, Licensed IP, Purchaser or any of its Affiliates’ present or future business, operations, services, products, research, inventions, discoveries, drawings, designs, plans, processes, models, technical information, facilities, methods, trade secrets, Copyrights, software, source code, systems, Patents, procedures, manuals, specifications, any other intellectual property, confidential reports, price lists, pricing formulas, customer lists, financial information (including the revenues, costs or profits associated with Purchaser or any its Affiliates’ products or services), business plans, lease structures, projections, prospects, opportunities or strategies, acquisitions or mergers, advertising or promotions, personnel matters, legal matters, or any other confidential and proprietary information and (ii) with respect to Seller, any and all proprietary and nonpublic information related to the Background IP, Manufacturing IP or Seller’s or its Affiliates’ present or future business, operations, services, products, research, inventions, discoveries, drawings, designs, plans, processes, models, technical information, facilities, methods, trade secrets, Copyrights, software, source code, systems, patents, procedures, manuals, specifications, any other intellectual property, confidential reports, financial information, business plans, projections, prospects, opportunities or strategies, acquisitions or mergers, personnel matters, legal matters, or any other confidential and proprietary information (but excluding information set forth in clause (i)). Confidential Information shall also include all notes, analyses, compilations, collections, forecasts or other documents or materials to the extent such documents or materials contain, reflect or are based on Confidential Information. The terms and conditions of this Agreement and the Parties’ discussions regarding this Agreement will constitute Confidential Information of each of Purchaser and Seller.

Contract” shall mean any agreement, contract, subcontract, settlement agreement, lease, sublease, legally binding understanding, note, option, bond, mortgage, indenture, trust document, loan or credit agreement, license, sublicense, insurance policy or legally binding commitment or undertaking of any nature, as in effect as of the date hereof or as may hereinafter be in effect.

Control” or “Controlled by” shall mean, with respect to any intellectual property right (including any Patent or Know-How), the possession of (whether by ownership or license, other than by a license granted pursuant to this Agreement) the ability of a Person or its Affiliates to assign, transfer, or grant access to, or to grant a license or sublicense of, such right as provided for herein without violating (a) the terms of any agreement or other arrangement with any Third Party existing as of the time a Person or its Affiliates would be required hereunder to grant such access, ownership, license or sublicense and (b) any applicable Law.

Copyrights” shall mean all copyrightable works and all copyrights and applications, including in and to works of authorship and all other rights corresponding thereto throughout the world, whether published or unpublished, including rights to prepare, reproduce, perform, display and distribute copyrighted works and copies, compilations and derivative works thereof (including all unregistered copyrights).

 

4


Cover” shall mean, with respect to a given compound, product, or material and a given Patent, that the Manufacture, use, sale, offer for sale, or importation of such compound, product, or material would infringe one or more claims of such Patent absent ownership of or a license under such Patent (or, in the case of a Patent application, would infringe one or more claims thereof if such claims were to issue).

Development” shall mean, together with all correlative meanings, pre-clinical and clinical drug development activities, conducted before or after obtaining Regulatory Approval, that are reasonably related to or leading to the development, preparation, and submission of data and information to a Regulatory Authority for the purpose of obtaining, supporting or expanding Regulatory Approval, including without limitation, all activities related to preclinical testing, assay development and validation, in vivo testing, biomarker development and validation, toxicology, pharmacokinetic profiling, design and conduct of clinical trials or studies, regulatory affairs, statistical analysis, report writing, and Regulatory Materials creation and submission (including the services of outside advisors and consultants in connection therewith). “Develop” has a correlative meaning.

Development Milestone Event” shall have the meaning set forth in Section 3.1.

Development Milestone Payment” shall have the meaning set forth in Section 3.1.

Encumbrance” shall mean, with respect to any Purchased Asset, any pledges, liens, licenses, charges, encumbrances and security interests of any kind or nature whatsoever.

Excluded Assets” shall have the meaning set forth in Section 2.2.

Excluded Liabilities” shall have the meaning set forth in Section 2.4.

Exhibits” shall have the meaning set forth in Section 1.2(g).

Exploit” shall mean, together with all correlative meanings, any or all of the following: research, Develop, commercialize, design, test, modify, Manufacture, have Manufactured, service, have serviced, make, have made, use, have used, sell, have sold, offer for sale, have offered for sale, import, have imported, export, have exported, reproduce, promote, market and distribute, including commercial activities conducted in preparation for a product launch, such product. “Exploitation” has a correlative meaning.

FDA” shall mean the United States Food and Drug Administration and any successor agency.

First Commercial Sale” means, on a Royalty Product-by-Royalty Product and country-by-country basis, the first sale of such Royalty Product for end use or consumption of such Royalty Product in such country following receipt of Regulatory Approval for such Royalty Product in such country. A First Commercial Sale excludes any sale or distribution for use in any clinical trial or other Development activity, promotional use (including samples) or for compassionate use or on a named patient basis.

 

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First Reimbursed Sale” means, on a Royalty Product-by-Royalty Product and country-by-country basis, the first sale of such Royalty Product for end use or consumption of such Royalty Product in such country following receipt of Pricing Approval for such Royalty Product in such country. First Reimbursed Sale excludes any sale or other distribution for use in any clinical trial or other Development activity, promotional use (including samples), or for compassionate use or on a named patient basis. If, with respect to a particular country or jurisdiction at any given time, the applicable governmental authority in such country or jurisdiction does not require reimbursement for pharmaceutical products to be marketed or sold, then the First Reimbursed Sale for a Royalty Product in such country or jurisdiction shall be deemed to have occurred upon the First Commercial Sale of such Royalty Product in such country or jurisdiction.

Fiscal Year” shall mean Purchaser’s fiscal year.

Force Majeure” shall mean any occurrence beyond the reasonable control of a Party that (a) prevents or substantially interferes with or delays the performance by such Party of any of its obligations hereunder and (b) occurs by reason of any act of God, flood, fire, explosion, earthquake, strike, lockout, labor dispute, casualty or accident, or war, revolution, civil commotion, act of terrorism, blockage or embargo, or enactment of any mandatory applicable Laws after the date of this Agreement prohibiting the nonperforming party from performing its obligations under this Agreement.

Fraud” shall mean actual and intentional common law fraud.

Fundamental Representations” shall have the meaning set forth in Section 7.5.

GAAP” shall mean accounting principles generally accepted in the United States, as in effect as of the date hereof.

Generic Product” shall have the meaning set forth in Section 3.4(c).

Governmental Entity” shall mean any United States federal, state or local or any foreign government or any court, administrative or other governmental or government-authorized authority or agency, domestic or foreign, including any Regulatory Authority.

IND” shall mean (i) an Investigational New Drug Application as defined in the United States Federal Food, Drug and Cosmetics Act, as amended, and all regulations promulgated thereunder, or (ii) an analogous application, filing or submission to the analogous Regulatory Authority in a regulatory jurisdiction outside the United States, the filing of which is necessary to initiate or conduct clinical testing of a pharmaceutical product in humans in such jurisdiction.

Indemnified Party” shall have the meaning set forth in Section 7.3.

 

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Indemnifying Party” shall have the meaning set forth in Section 7.3.

Independent Accounting Firm” shall mean an independent accounting firm mutually agreed to by Purchaser and Seller.

Indication” shall mean a separate and distinct disease or medical condition in humans that a Product is intended to treat, prevent, diagnose, monitor or ameliorate, as set forth in the IND or label for such Product, as applicable, as approved by the applicable Regulatory Authority. The Parties agree and acknowledge that (a) a disease or medical condition and all primary symptoms associated with the disease or medical condition shall be the same Indication, (b) the use of a Product to treat an expanded set of patients or a sub-population of patients for a disease or medical condition, when such Product has already received Regulatory Approval in a different patient population or sub-population of patients with respect to such disease or medical condition, shall not constitute a separate Indication with respect to such Product, and (c) to qualify as an Indication, Regulatory Approval of such Indication must require completion of a human clinical trial sufficient to obtain Regulatory Approval and may not be a mere extension of an existing labeled Indication.

Instrument of Assignment and Assumption” shall mean the instrument of assignment and assumption to be executed by the Parties on the Closing Date in the form attached hereto as Exhibit A.

IP Contracts” shall have the meaning set forth in Section 4.7(c).

IP Rights” shall mean all rights in and to intellectual property and intangible industrial property rights anywhere in the world, including, without limitation, (i) Patents, Know-How, Copyrights, Trademarks, software, and internet domain names, (ii) any rights similar, corresponding or equivalent to any of the foregoing, (iii) all other proprietary rights, and (iv) all copies and tangible embodiments of the foregoing, if applicable (in whatever form or medium).

Know-How” shall mean all trade secrets and other know-how and confidential or proprietary information, including new developments, inventions, processes, ideas or other proprietary information and documentation thereof (including related papers, invention disclosures, blueprints, drawings, research data and results, flowcharts, diagrams, chemical compositions, formulae, diaries, notebooks, specifications, designs, methods of Manufacture, methods of service, processing techniques, data processing techniques, compilations of information, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals) and all claims and rights related thereto.

KPT-350 Molecule” shall mean the molecule presently identified as KPT-350 and described with additional specificity on Schedule 1.1(b).

KPT-420 Molecule” shall mean the molecule presently identified as KPT-420 and described with additional specificity on Schedule 1.1(b).

 

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Knowledge of Seller” shall mean the actual knowledge of the individuals listed on Schedule 1.1(a), after reasonable inquiry of the Seller employees (or, solely in the case of Seller IP, outside legal counsel) with responsibility for the applicable subject matter.

Law” shall mean, as applicable, any United States federal, state or local or any foreign statute, law, rule, regulation, ordinance, code or any other requirement or rule of law including Regulatory Laws.

Liabilities” shall mean any and all debts, liabilities, costs, guarantees, commitments, assessments, expenses, claims, penalties, Losses, damages, deficiencies and obligations, whether accrued or fixed, known or unknown, liquidated or unliquidated, asserted or unasserted, absolute or contingent, matured or unmatured, determined or determinable, accrued or not accrued, due or to become due, direct or indirect, whenever or however arising (including whether arising out of any Contract, common law or tort based on negligence or strict liability) and whether or not the same would be required by GAAP to be reflected in financial statements or disclosed in the notes thereto.

Licensed IP” shall mean the IP Rights, whether filed or unfiled, registered or unregistered, licensed to Seller pursuant to the Assumed Contracts, including the Patents and registered Trademarks or registered Copyrights included in the Licensed IP set forth on Schedule 4.7(a)(ii).

Licensed or Manufacturing IP Action” shall have the meaning set forth in Section 6.8(a).

Litigation” shall have the meaning set forth in Section 4.9(b).

Losses” shall have the meaning set forth in Section 7.1.

Manufacture” shall mean to make, produce, manufacture, process, fill, finish, package, label, perform quality control and quality assurance testing, release, ship or store a compound or product or any component thereof.

Manufacturing Enforcement Proceeding” shall have the meaning set forth in Section 6.5(b)(ii).

Manufacturing IP” shall mean the Manufacturing Know-How and the Manufacturing Patents.

Manufacturing Intermediate” shall mean any molecule or compound that is included within the Manufacturing IP.

Manufacturing Know-How” shall mean any Know-How that is (a) owned or Controlled by Seller or any of its Affiliates as of the Closing Date or during the Term and (b) necessary or useful to Manufacture any of the Transferred Compounds (including any Royalty Product).

 

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Manufacturing Patents” shall mean any Patents that (a) are owned or Controlled by Seller or any of its Affiliates as of the Closing Date or during the Term and (b) Cover any Manufacturing Know-How.

NDA” means, with respect to a pharmaceutical product, a New Drug Application submitted to the FDA in accordance with the United States Federal Food, Drug and Cosmetic Act, as amended, and the rules and regulations promulgated thereunder, or any analogous application or submission to market a pharmaceutical product filed with any Regulatory Authority outside of the United States.

Net Sales” shall mean, with respect to a Royalty Product, the gross amount invoiced in a country by Purchaser, its Affiliates or licensees, other than any distributors, for the sale or other disposition of such Royalty Product in such country to Third Parties (including distributors, wholesalers and end-users), less the following deductions:

(a)    sales returns and allowances actually paid, granted or accrued on such Royalty Product, including trade, quantity, prompt pay and cash discounts and any other adjustments, including those granted on account of price adjustments or billing errors;

(b)    credits or allowances given or made for rejection, recall, return or wastage replacement of, and for uncollectible amounts on, such Royalty Product or for rebates or retroactive price reductions (including Medicare, Medicaid, copay assistance, managed care and similar types of rebates and chargebacks);

(c)    taxes, duties or other governmental charges levied on or measured by the billing amount for such Royalty Product, as adjusted for rebates and refunds, including without limitation pharmaceutical excise taxes (such as those imposed on a Royalty Product by the United States Patient Protection and Affordable Care Act of 2010 and other comparable laws), but which shall not include any tax, duty, or other charge imposed on or measured by net income (however denominated) or any franchise taxes, branch profits taxes, or similar tax;

(d)    charges for freight, customs and insurance directly related to the distribution of such Royalty Product and wholesaler and distributor administration fees; and

(e)    other future similar deductions, taken in the ordinary course of business or in accordance with GAAP and Purchaser’s standard practices;

in each case (clauses (a) through (e)) to the extent such deductions: (i) are reasonable and customary, (ii) are included in the gross invoiced sales price for such Royalty Product or otherwise directly paid, allowed, accrued, or incurred by Purchaser, its Affiliates or licensees with respect to the sale of such Royalty Product (iii) are applicable and in accordance with standard allocation procedures, (iv) have not already been deducted or excluded, (v) are incurred in the ordinary course of business in type and amount consistent with good industry practice, and (vi) except with respect to the uncollectible amounts and pharmaceutical excise taxes described in clauses (b) and (c) above, are determined in accordance with, and as recorded in revenues

 

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under, GAAP. Net Sales shall not be imputed to transfers of such Royalty Product without consideration or for nominal consideration for use in any clinical trial, or for any bona fide charitable, compassionate use or indigent patient program purpose where such Royalty Product is sold at or below cost of goods sold or as a sample. In the case of any transfer of any Royalty Product between or among Purchaser and its Affiliates or licensees for resale, Net Sales shall be determined based on the sales made by such Affiliate or licensee to a Third Party.

Notwithstanding the foregoing, in the event a Royalty Product is sold as a component of a Combination Product in any country in any Fiscal Year, Net Sales shall be calculated by multiplying the Net Sales of the Combination Product (calculated in the same manner as set forth above as if the Combination Product were a Royalty Product) in such country during such Fiscal Year by the fraction A/(A+B), where A is the average Net Sales of the Royalty Product when sold separately in such country during such Fiscal Year and B is the average Net Sales of the Other Components included in the Combination Product (calculated in the same manner as set forth above as if the Other Components were a Royalty Product) when sold separately in such country during such Fiscal Year. In the event that no separate sales of the Royalty Product or any Other Components included in a Combination Product are made by Purchaser, its Affiliates or licensees in a country during a Fiscal Year in which such Combination Product is sold in such country, the average Net Sales in the above described equation shall be replaced with reasonable good faith estimates of the fair market value, as mutually determined by the Parties, of the Royalty Product and each of the Other Components included in such Combination Product.

Net Sales Payment Rates” shall have the meaning set forth in Section 3.3(a).

Net Sales Payment Term” shall have the meaning set forth in Section 3.3(c).

Net Sales Payments” shall have the meaning set forth in Section 3.3(a).

Net Sales Statement” shall have the meaning set forth in Section 3.3(b).

Non-Assigned Assets” shall have the meaning set forth in Section 2.8(b).

Non-Prosecuting Party” shall have the meaning set forth in Section 6.2(b).

Non-Responsible Party” shall have the meaning set forth in Section 6.7(a).

OFAC” shall have the meaning set forth in Section 4.9(g).

Ono Agreement” shall have the meaning set forth in Section 3.10(a)(ii).

Order” shall mean any charge, temporary restraining order or other order, writ, injunction (whether preliminary, permanent or otherwise), judgment, doctrine, decree, ruling, determination, directive, corporate integrity agreement or similar agreement, award or settlement, in each case by any Governmental Entity, whether civil, criminal or administrative.

 

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Other Components” shall mean any other pharmaceutically active compounds or substances, or such other products or services referred to in clauses (a) through (c) of the definition of a Combination Product, other than a Royalty Product.

Party” shall have the meaning set forth in the preamble of this Agreement.

Patent Assignment” shall mean a Patent assignment, substantially in the form of Exhibit A attached hereto, for all of the Patents listed on Schedule 4.7(a)(i).

Patents” shall mean all United States and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, revisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or similar rights anywhere in the world in inventions and discoveries, including invention disclosures.

Permitted Encumbrance” shall mean any (i) landlord’s, mechanics’, carriers’, warehousemens’, workmens’ and other similar Encumbrance arising in the ordinary course of business and securing a Liability that is not yet overdue or that is overdue and is being contested in good faith by appropriate proceedings; (ii) Encumbrance for Taxes, assessment and other governmental charge securing a Liability that is not yet due and payable or that is due but not delinquent or that is being contested in good faith by appropriate proceedings; (iii) Encumbrance arising by operation of law on an insurance policy and proceeds thereof to secure premiums thereunder and that are not delinquent; (iv) Encumbrance arising under worker’s compensation, unemployment insurance, social security, retirement and similar legislation; (v) Encumbrance arising under applicable securities laws; and (vi) Encumbrance arising solely by action of Purchaser.

Permitted Third-Party Assignee” shall have the meaning set forth in Section 8.4(b).

Person” shall mean any individual, corporation, partnership (general or limited), limited liability company, limited liability partnership, trust, joint venture, joint-stock company, syndicate, association, entity, unincorporated organization or government or any political subdivision, agency or instrumentality thereof.

Phase I Clinical Trial” shall mean a clinical trial of a product that generally provides for the first introduction into humans of a pharmaceutical product with the primary purpose of determining safety, metabolism and pharmacokinetic properties and clinical pharmacology of such product, in a manner that is generally consistent with 21 CFR § 312.21(a), as amended (or its successor regulation) or a similar clinical study prescribed by a Regulatory Authority outside the United States; provided, however, a Phase I Clinical Trial does not include any clinical trial or study generally characterized by the FDA as an “exploratory IND study” as described in CDER’s Guidance for Industry, Investigators, and Reviewers: Exploratory IND Studies, dated as of January 2006, irrespective of whether or not such study is actually performed in the United States or under an IND .

 

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Phase I Multiple Ascending Dose Trial” shall mean a multiple ascending dose escalation study on human subjects conducted as part of a Phase I Clinical Trial.

Phase II Clinical Trial” shall mean a human clinical trial of a product, the principal purpose of which is to make a preliminary determination about such pharmaceutical product’s efficacy, conducted in a manner that is generally consistent with 21 CFR § 312.21(b), as amended (or its successor regulation), or a similar clinical study prescribed by a Regulatory Authority outside the United States, and that is intended to explore one or more doses, dose response and duration of effect in the target patient population, and to generate initial evidence of clinical activity and safety in such patient population; provided that the treatment of patients for compassionate use, including in an expanded access program, single patient program or named patient program shall not be included in determining whether or not a clinical trial is a Phase II Clinical Trial or whether a patient has been dosed thereunder.

Phase III Clinical Trial” shall mean a clinical trial in a human patient population that is sufficient to support Regulatory Approval in the proposed indication, as more fully defined in 21 C.F.R. §312.21(c), as amended (or its successor regulation) and that is designed to obtain data determining efficacy and safety of a pharmaceutical product to support such Regulatory Approval, or a similar clinical study prescribed by a Regulatory Authority outside the United States; provided, however, that the FDA permits the treatment of patients in the U.S. under an open IND in such clinical trial; and provided, further, that treatment of patients for compassionate use, including in an expanded access program, single patient program or named patient program shall not be included in determining whether or not a clinical trial is a Phase III Clinical Trial or whether a patient has been dosed thereunder.

Primary Indication” shall mean the treatment of amyotrophic lateral sclerosis or traumatic brain injury (however such treatment is denominated in a Regulatory Approval).

Pricing Approval” shall mean, with respect to a product, in any country or jurisdiction where the applicable governmental authority authorizes reimbursement for, or approves or determines pricing for, pharmaceutical products, receipt (or, if required to make such authorization, approval or determination effective, publication) of reimbursement authorization or pricing approval or determination (as the case may be) for such product in such country.

Product” shall mean a product containing the KPT-350 Molecule.

Product Registrations” shall mean all authorizations, approvals, registrations, clearances, consents, qualifications, certifications, licenses, permits and other rights from the FDA and other Regulatory Authorities that are necessary for the research, Development, clinical testing, commercialization, Manufacture, service, distribution, marketing, promotion, offer for sale, use, import, export and sale of a Royalty Product.

Prosecute and Maintain” shall have the meaning set forth in Section 6.1(a).

Prosecuting Party” shall have the meaning set forth in Section 6.2(b).

 

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Purchased Assets” shall have the meaning set forth in Section 2.1(a).

Purchased Inventory” shall mean the inventory owned by Seller or any of its Affiliates of works in progress, precursors, intermediates (including any Manufacturing Intermediate), active pharmaceutical ingredients and finished goods (including any packaging) of any of the Transferred Compounds (including any Product) and all rights to market and sell such inventory.

Purchaser” shall have the meaning set forth in the preamble of this Agreement.

Purchaser Indemnified Party” shall have the meaning set forth in Section 7.1.

Records” shall have the meaning set forth in Section 2.1(a)(v).

Reduced Payment Product” shall mean a product containing the KPT-420 Molecule (unless such product also contains a KPT-350 Molecule, in which case, it shall be a Product).

Reference Product” shall have the meaning set forth in Section 3.4(c).

Regulatory Approval” shall mean all approvals necessary for the Manufacture, marketing, importation and sale of a product for one or more indications in a country or regulatory jurisdiction, which may include satisfaction of all applicable regulatory and notification requirements, including any pricing and reimbursement approvals. Regulatory Approvals include approvals by Regulatory Authorities of INDs.

Regulatory Authority” shall mean the FDA, the Federal Trade Commission, the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services or any other federal, state, local or foreign Governmental Entity that is concerned with or regulates the Development, testing, packaging, labeling, storage, sale, quality, safety, efficacy, reliability or Manufacturing and servicing of medical devices, federal or state health care programs, or the provision of health care or similar services.

Regulatory Laws” shall mean the following Laws: (i) the federal Food, Drug, and Cosmetic Act, as amended, and all regulations promulgated thereunder, (ii) the federal False Claims Act (42 U.S.C. § 1320a-7b(a)), as amended, (iii) the Physician Payments Sunshine Act, (iv) the Patient Protection and Affordable Care Act, (v) the federal Medicare and Medicaid statutes, (vi) the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, (vii) the federal Physician Self-Referral (Stark) Law, 42 U.S.C. § 1395nn, (viii) the federal Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a, (ix) the Federal Trade Commission Act, (x) any other Laws governing research, Development, clinical testing, investigational use, marketing clearance, marketing approval, Manufacturing, servicing, packaging, labeling, promotion, sale, import or export of medical devices, and (xi) all Laws similar to the foregoing within any other federal, state, local or foreign jurisdiction.

Regulatory Materials” shall mean copies of the Product Registrations and any applications therefor, including currently pending, previously denied or previously withdrawn

 

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applications, together with copies of related correspondence between Seller and the applicable Regulatory Authority, and any other existing files and dossiers relating to the Product Registrations, and the underlying data or information used to support, maintain or obtain Product Registrations.

Repeated Clinical Trial” shall have the meaning set forth in Section 3.1(a).

Representatives” shall mean, with respect to a Party, such Party’s Affiliates and their respective members, principals, officers, directors, shareholders, trustees, employees, agents, consultants and advisors.

Responsible Party” shall have the meaning set forth in Section 6.7(a).

Rights Transfer Event” shall have the meaning set forth in Section 8.4(b).

ROFR” shall have the meaning set forth in Section 3.10(b)(i).

ROFR Window” shall have the meaning set forth in Section 3.10(b)(ii).

Royalty Product” means a Product and/or a Reduced Payment Product.

Schedules” shall have the meaning set forth in Section 1.2(g).

Seller” shall have the meaning set forth in the preamble of this Agreement.

Seller Disclosure Schedules” shall have the meaning set forth in Section 1.2(f).

Seller Indemnification Threshold” shall have the meaning set forth in Section 7.6(b).

Seller Indemnified Party” shall have the meaning set forth in Section 7.2.

Seller IP” shall mean all Patents and Know-How set forth on Schedule 4.7(a)(i) and any other IP Rights, whether filed or unfiled, registered or unregistered, which are both (a) owned by Seller or an Affiliate and (b) used exclusively or held exclusively for use by Seller or an Affiliate in connection with the Exploitation of any of the Transferred Compounds (including the KPT-350 Molecule and the KPT-420 Molecule), or included within the Product Registration and Regulatory Materials included within the Purchased Assets, together with all rights to sue or recover and retain damages, costs and attorneys’ fees for past, present and future infringement, misappropriation or other violation of any such IP Rights.

Seller IP Action” shall have the meaning set forth in Section 6.8(a).

Selling Affiliate” shall have the meaning set forth in Section 4.1.

Skipped Milestone” shall have the meaning set forth in Section 3.1(a).

 

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Specified Indication” shall mean any of the following Indications: any Primary Indication, Multiple Sclerosis, Huntington’s Disease, Epilepsy, Duchenne Muscular Dystrophy, Alzheimer’s Disease, Parkinson’s Disease and Stroke.

Step-In Proceeding” shall have the meaning set forth in Section 6.5(b)(iii).

Tax Return” shall mean any return, report, declaration, information return, statement or other document filed or required to be filed with any Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any Laws relating to any Tax, including any attachment or schedule thereto and including any amendments thereof.

Taxes” shall mean all taxes, charges, duties, fees, levies or other assessments, including income, excise, real property and personal property, sales or use, value added, profits, license, withholding (with respect to compensation or otherwise), payroll, employment, unemployment, disability, net worth, capital gains, transfer, documentary, stamp, social security, environmental, occupation, and franchise, gross receipts, premium, escheat or unclaimed property obligation, ad valorem, alternative or add-on minimum, custom duty, and estimated taxes, imposed by any Taxing Authority, and including any interest, penalties and additions attributable thereto, and all amounts payable pursuant to an agreement or arrangement with respect to taxes or payable with respect to taxes as successor or transferee.

Taxing Authority” shall mean any Governmental Entity exercising any authority to impose, regulate or administer the imposition of Taxes.

Term” shall have the meaning set forth in Section 3.11.

Third Party” shall mean any Person other than Purchaser or Seller or their respective Affiliates.

Third-Party Claim” shall have the meaning set forth in Section 7.3.

Third-Party Claim Notice” shall have the meaning set forth in Section 7.3.

Trademarks” shall mean any and all trademarks, service marks, trade dress, logos, slogans, trade names, all material unregistered trademarks, together with all adaptations, derivations and combinations thereof, and all goodwill associated with any of the foregoing throughout the world.

Transfer Taxes” shall mean any federal, state, county, local, foreign or other sales, use, transfer, value added, conveyance, documentary transfer, stamp duty, recording or other similar tax, fee or charge imposed in connection with the transactions contemplated by this Agreement, provided that Transfer Taxes shall not include any income taxes, withholding taxes or any taxes imposed in connection with the recording of any sale, transfer or assignment of any IP Rights (or any interest therein) effected pursuant to this Agreement.

 

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Transferred Compounds” shall mean all compounds disclosed in or claimed by any of the IP Rights contained in the Seller IP, including the KPT-350 molecule and the KPT-420 molecule.

Transferred IP” shall mean (i) all Seller IP (ii) all Licensed IP and (iii) all Manufacturing Know-How and Manufacturing Patents.

United States” or “U.S.” shall mean the United States of America and its territories, commonwealths and possessions.

Valid Claim” shall mean a claim of (a) an issued and unexpired patent, which claim has not been revoked or held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction which is not appealable or has not been appealed within the time allowed for appeal, and which has not been abandoned, disclaimed, denied or admitted to be invalid or unenforceable through reissue, re-examination, inter-partes review, post-grant review, disclaimer, opposition procedure, nullity suit, or otherwise, or (b) a patent application for a patent that has been pending less than six (6) years from the earliest date on which such patent application claims priority and which claim has not been cancelled, withdrawn, abandoned or finally rejected by an administrative agency action from which no appeal can be taken.

Section 1.2.    Other Definitional Provisions.

(a)    The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(b)    The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa.

(c)    The terms “United States Dollars,” “dollars” and “$” shall mean lawful currency of the United States.

(d)    The words “include,” “includes” and “including” and words of similar import will be by way of example rather than by limitation.

(e)    Time periods based on a number of days within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and, if applicable, by extending the period to the next Business Day following if the last day of the period is not a Business Day.

(f)    When a reference is made in this Agreement to an Article, a Section, an Exhibit or a Schedule, such reference shall be to an Article or a Section of, or an Exhibit or a Schedule to, this Agreement unless otherwise indicated. All references herein to a Schedule or Schedules, shall be to Seller’s disclosure schedules delivered by Seller contemporaneously with the execution and delivery of this Agreement (the “Seller Disclosure Schedules”).

 

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(g)    All schedules and exhibits (the “Schedules” and “Exhibits,” respectively) annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein and are an integral part of this Agreement.

ARTICLE II

PURCHASE AND SALE OF ASSETS

Section 2.1.    Purchase and Sale of Assets.

(a)    Upon the terms and subject to the conditions set forth herein, at the Closing, Seller shall, and shall cause any of its Affiliates who own or Control Purchased Assets to, sell, convey, assign and transfer to Purchaser, and Purchaser shall purchase, acquire and accept from Seller and its Affiliates, all of Seller and its Affiliates’ right, title and interest in, to and under the following (collectively, the “Purchased Assets”), in each case free and clear of all Encumbrances:

(i)    all Contracts set forth on Schedule 2.1(a)(i) or, whether or not set forth on Schedule 2.1(a)(i), any other Contracts to which Seller or any of its Affiliates is a party used exclusively or held exclusively for use by Seller or an Affiliate in connection with the Exploitation of any Royalty Product (collectively, the “Assumed Contracts”); provided that any lease of real property, any Contracts in the nature of employee benefit plans, any Contracts evidencing indebtedness and any Contracts for general administrative services and office supplies, in each case, that are not set forth in Schedule 2.1(a)(i), shall not be included in the Assumed Contracts;

(ii)    the Seller IP;

(iii)    the Purchased Inventory;

(iv)    the Product Registrations and Regulatory Materials set forth on Schedule 2.1(a)(iv) or, whether or not set forth on Schedule 2.1(a)(iv), all Product Registrations and Regulatory Materials used or held for use by Seller or an Affiliate exclusively in connection with the Exploitation of any Royalty Product; and

(v)    all books and records to the extent exclusively relating to the other Purchased Assets or any Royalty Product (the “Records”), including correspondence with the FDA or other Regulatory Authorities, product drawings, work instructions and bills of materials, customer lists and vendor lists; provided, that Seller shall be entitled to redact from such Records any information to the extent that it is not conveyed to Purchaser hereunder.

 

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Section 2.2.    Excluded Assets. Purchaser acknowledges and agrees that it is not acquiring any right, title or interest in, to or under any assets, property, rights and interests of Seller or any of its Affiliates other than the Purchased Assets (such assets collectively, the “Excluded Assets”).

Section 2.3.    Assumed Liabilities. Upon the terms and subject to the conditions set forth herein, Purchaser shall, effective at the Closing, assume, satisfy and thereafter discharge, all Liabilities of Seller and its Affiliates arising after the Closing under the Assumed Contracts, other than any Liability in respect of (a) any breach of an Assumed Contract prior to or at the Closing or (b) any indemnification obligation to the extent arising out of any act or omission by Seller or any Affiliate in connection with the ownership or Exploitation by Seller or an Affiliate of the Purchased Assets prior to or at the Closing (collectively, the “Assumed Liabilities”).

Section 2.4.    Excluded Liabilities. Seller acknowledges and agrees that Purchaser will not assume any Liability of Seller or any of its Affiliates other than the Assumed Liabilities (such Liabilities collectively, the “Excluded Liabilities”).

Section 2.5.    Licenses and Sub-Licenses.

(a)    Seller hereby grants to Purchaser a worldwide, exclusive, sublicensable (through multiple tiers, subject to Section 2.5(c)), transferrable (in whole or in part), right and license to use the Manufacturing IP to make, have made, use, sell, have sold, import or have imported any Transferred Compound (including any Royalty Product). Subject to Section 3.9, the foregoing license shall be irrevocable and perpetual.

(b)    To the extent any of the Manufacturing IP is Controlled by an Affiliate of Seller, then as of the Closing Date, Seller shall cause such Affiliate to take all necessary actions to give effect to the licenses granted under Section 2.5(a).

(c)    Purchaser may sublicense (in whole or in part) any of the Background IP and/or Manufacturing IP (i) to any of its Affiliates or (ii) to a Third Party that Purchaser has contracted with to support Purchaser’s Development and/or commercialization of any Royalty Product, the rights granted to it by Seller under this Section 2.5 without Seller’s approval, provided that in the case of Section 2.5(c)(ii), Purchaser may not sublicense any of the Background IP or Manufacturing IP to a Third Party where such sublicense is, in Purchaser’s good faith determination, for the purpose of Developing or commercializing a product that is directly competitive with Seller’s products. All sublicense agreements shall be subject to and consistent with the applicable terms and conditions of this Agreement and shall preclude the granting of further sublicenses in contravention with the terms and conditions of this Agreement. Subject to Section 8.4, a sublicense of the Background IP or Manufacturing IP will not otherwise relieve Purchaser of any of its obligations under this Agreement.

(d)     Purchaser hereby grants Seller a license to use Seller IP to support the ongoing research projects listed in Schedule 2.5(d)(i), provided that such license shall not entitle Seller or any of its Affiliates to Manufacture any Royalty Product. Within [**] days of the Closing Date,

 

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Purchaser and Seller shall each negotiate in good faith with the other to agree upon a supply agreement with the terms set forth in that certain letter agreement, dated the date hereof, between the Parties and other customary terms and conditions for supply agreements of this nature.

Section 2.6.    Purchase Price. As consideration for the conveyance of the Purchased Assets and subject to the terms and conditions set forth in this Agreement, Purchaser shall (i) within [**] Business Days following the Closing Date, deliver to Seller, in immediately available funds by wire transfer and in accordance with written instructions given by Seller to Purchaser reasonably in advance of the Closing, an amount equal to ten million dollars ($10,000,000) provided that Purchaser and Seller shall allocate [**] dollars ($[**]) of such amount as the sole amount to be paid in respect of the licenses granted hereunder, (ii) make the payments described in Article III, if, as and when due and payable thereunder, and (iii) assume the Assumed Liabilities.

Section 2.7.    Closing.

(a)    The Closing shall take place on the date hereof, simultaneously with the execution and delivery of this Agreement by the parties hereto, virtually through the exchange of signatures by email. All proceedings to take place at the Closing shall be deemed to take place simultaneously. Within [**] Business Days after the Closing Date, Seller shall deliver the Purchased Assets to Purchaser or otherwise put Purchaser in control of them.

(b)    At the Closing, each of Purchaser and Seller shall, as applicable, execute and deliver to each other the Ancillary Agreements, along with such other instruments, certificates, affidavits of title as Purchaser may reasonably request or as may be otherwise necessary to evidence the sale, assignment, transfer, conveyance and delivery of the Purchased Assets to Purchaser pursuant to this Agreement and the other transactions contemplated by this Agreement and the Ancillary Agreements and to carry out the obligations of the Parties hereunder and thereunder

(c)    Seller will deliver a certification, substantially in the form of Exhibit C attached hereto, conforming to the requirements of Treasury Regulations 1.1445-2(b)(2) and stating that Seller is not a “foreign person” for purposes of Section 1445 of the Code. If Seller fails to or is unable to deliver this certification on or before the Closing Date, Purchaser will be permitted to withhold or cause to be withheld from the payments to be made pursuant to this Agreement any required withholding tax under Section 1445 of the Code.

Section 2.8.    Purchased Assets Not Transferred at Closing.

(a)    Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign or transfer any Purchased Asset that is not assignable or transferable without the consent of any Person, other than Seller, Purchaser or any of their respective Affiliates, to the extent that such consent shall not have been given prior to the Closing. Seller shall, and shall cause its Affiliates to use their respective commercially reasonable efforts to obtain, and Purchaser shall cooperate with Seller in connection therewith,

 

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all necessary consents to the assignment and transfer thereof, provided, that neither Seller nor any of its Affiliates shall be required to pay any material amount of money to any Third Party, commence any Litigation or offer or grant any accommodation (financial or otherwise) to any Third Party in connection with such efforts.

(b)    With respect to any Purchased Asset that is not transferred, licensed or assigned to Purchaser at the Closing by reason of Section 2.8(a) (the “Non-Assigned Assets”), after the Closing and until any requisite consent is obtained and the foregoing is transferred and assigned to Purchaser, Seller shall, and shall cause its Affiliates to, to the extent practicable, use commercially reasonable efforts to provide to Purchaser the benefits thereof and shall assert, at the request of and for the account of Purchaser, any rights of Seller arising thereunder against any Person, including the right to elect to terminate in accordance with the terms thereof upon the request of Purchaser. To the extent that Purchaser is provided with benefits of any Non-Assigned Asset, Purchaser shall perform, at the direction of Seller, the obligations of Seller thereunder. Notwithstanding anything to the contrary set forth herein, to the extent that Seller fails to provide any benefits of any Non-Assigned Asset to Purchaser, any Assumed Liability arising from such Non-Assigned Asset shall be deemed to be an Excluded Liability until such Non-Assigned Asset is transferred and assigned to Purchaser or the benefits thereof are provided to Purchaser, at which point such Excluded Liability shall automatically become an Assumed Liability.

Section 2.9.    Taxes.

(a)    Any Transfer Taxes incurred in connection with this Agreement and the transactions contemplated hereby shall be [**]. Any fees or other costs imposed in connection with the recording of any sale, transfer or assignment of any IP Rights (or any interest therein) shall be [**]. Purchaser and Seller shall cooperate in timely filing all Tax Returns as may be required to comply with the provisions of such Transfer Tax laws. All property Taxes and assessments on the Purchased Assets for any taxable period commencing prior to the Closing Date and ending after the Closing Date shall be prorated on a per diem basis between Purchaser and Seller as of the Closing Date.

(b)    Within [**] days after the Closing Date, Purchaser shall prepare and deliver to Seller a statement allocating the purchase price and Assumed Liabilities in accordance with the principles of Section 1060 of the Code (as finally determined pursuant to this Section 2.9(b), the “Allocation”), provided that Purchaser and Seller shall allocate [**] dollars ($[**]) of such amount as the sole amount to be paid in respect of the licenses granted hereunder with such allocation being a portion of the payment of ten million dollars ($10,000,000) due to Seller on the Closing Date as described in Section 2.6, as paid in respect of the licenses granted hereunder. Seller shall have the right to review and comment on the allocation provided by Purchaser, and the Parties shall work together in good faith to agree upon the Allocation. If the Parties are unable to reach agreement regarding the Allocation, all unresolved items will be referred to the Independent Accounting Firm for resolution, the costs of which will be [**]. The Parties each agree to (i) be bound by the Allocation, (ii) act in accordance with the Allocation in the filing of

 

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all Tax Returns (including filing Form 8594 with its federal income Tax Return for the taxable year that includes the Closing Date) and (iii) take no position inconsistent with the Allocation for all Tax purposes, provided that this shall not limit a Party’s ability to settle audits or other proceedings. In the event that any Taxing Authority disputes the Allocation, Seller or Purchaser, as the case may be, shall promptly notify the other Party in writing of the nature of such dispute.

(c)    Each Party shall cooperate, to the extent reasonably requested by the other Party, in connection with any Tax matters relating to the Purchased Assets (including by the provision of reasonably relevant records or information). Notwithstanding the foregoing, no Party shall have an obligation to provide any copies of its consolidated, combined or unitary Tax Returns to the other Party.

(d)    Seller shall cause all Tax sharing or allocation agreements or arrangements and all powers of attorney with respect to the Purchased Assets to be terminated as of the Closing such that after the Closing Purchaser will not be bound thereby or have any liability thereunder.

Section 2.10.    Transition Plan. Seller and Purchaser shall reasonably cooperate with each other to transition to Purchaser or Purchaser’s designee any ongoing research, Development and Manufacturing activities, related to any Royalty Product, including taking the actions specified in the transition plan attached hereto as Schedule 2.10, as may be updated from time to time upon written agreement of the Parties. If there is an inconsistency between the transition plan and this Agreement, then the terms of this Agreement shall prevail.

Section 2.11.    Wrong Pockets.

(a)    If, after the Closing, Purchaser determines that it or any of its Affiliates possesses any Excluded Asset, Purchaser shall notify Seller and, at Seller’s request, shall, or shall cause its Affiliates to, use commercially reasonable efforts to transfer such asset, at no cost, to Seller.

(b)    If, after the Closing, Seller determines that it or any of its Affiliates possesses any Purchased Asset, Seller shall notify Purchaser and, at Purchaser’s request, shall, or shall cause its Affiliates to, use commercially reasonable efforts to transfer such asset, at no cost, to Purchaser.

ARTICLE III

MILESTONES, NET SALES PAYMENTS AND OTHER FINANCIAL

OBLIGATIONS

Section 3.1.    Development Milestone Payments. Purchaser shall make the payments described in Table 1 below (each, a “Development Milestone Payment”) with respect to the indicated Product following achievement of the corresponding event (each, a “Development Milestone Event”) described in the row to the left of such payment in Table 1, provided that such Product is Covered by a Valid Claim of an IP Right included within the Seller IP at the time of achievement of the indicated event.

 

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Table 1

No.

  

Development Milestone Event

   Development Milestone
Payment
1.    [**]    [**]
2.    [**]    [**]
3.    [**]    [**]
4.    [**]    [**]
5.    [**]    [**]
6.    [**]    [**]
7.    [**]    [**]
8.    [**]    [**]

(a)    Each Development Milestone Payment shall be payable only on the first Product that achieves the corresponding Development Milestone Event. In no event shall any of the Development Milestone Payments be paid more than once (regardless of the number of times a Product achieves each Development Milestone Event, the number of Indications for which any such Product is Developed or commercialized or the number of Products that achieve a Development Milestone Event). If Purchaser shall have conducted more than one [**] or [**] (a “Repeated Clinical Trial”) related to the achievement of Development Milestone Events [**], respectively, the Development Milestone Payment due for the achievement of the subsequent Development Milestone Event immediately following the Development Milestone Event related to such Repeated Clinical Trial shall be reduced by [**] percent ([**]%) of the Development Milestone Payment previously made for the Repeated Clinical Trial. For example, if Purchaser conducts more than one [**] and has paid the Development Milestone Payment set forth for Development Milestone Event [**], then the Development Milestone Payment for Development Milestone Event [**] shall be reduced by $[**]. Subject to any reduction in payment pursuant to Section 3.4, if Development Milestone Event 4 is achieved, and Development Milestone Events 1, 2 and/or 3 was not previously achieved (a “Skipped Milestone”), the Development Milestone Payment corresponding to such Skipped Milestone shall become due and payable at the time Development Milestone Event 4 becomes due and payable.

 

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(b)    Purchaser shall pay to Seller the applicable Development Milestone Payment within [**] days after achievement (or, in the event of a Rights Transfer Event pursuant to Section 8.4(b) following which Purchaser remains the relevant payment party, within [**] days after Purchaser’s receipt of payment from a Third Party). Each such payment will be made by wire transfer of immediately available funds into an account designated by Seller reasonably in advance of the due date of the payment.

(c)    In the event that the first [**] or [**] of a Product is conducted in a Specified Indication that is not a Primary Indication (e.g., Stroke), then [**] percent ([**]%) of the applicable Development Milestone Payment (Development Milestone Events [**]) shall be payable by Purchaser to Seller upon achievement of such Development Milestone Event, and the remaining [**] percent ([**]%) of the applicable Development Milestone Payment shall be payable at such time, if any, as the related Development Milestone Event is achieved in a Primary Indication.

Section 3.2.    Commercial Milestone Payments.

(a)    Purchaser shall make the payments described in Table 2 below (each, a “Commercial Milestone Payment”) with respect to a Product when worldwide Net Sales of such Product in a given Fiscal Year first exceed the indicated dollar value (each, a “Commercial Milestone Event”), provided that such Product is Covered by a Valid Claim of an IP Right included within the Seller IP at the time of achievement of the indicated event.

 

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Table 2

No.

  

Commercial Milestone Event

   Commercial Milestone
Payment
1.    First achievement of annual worldwide aggregate Net Sales of a Product exceeding $[**] in a Fiscal Year    [**]
2.    First achievement of annual worldwide aggregate Net Sales of a Product exceeding $[**] in a Fiscal Year    [**]

(b)    Each Commercial Milestone Payment is payable only once and only for the first Product that achieves the corresponding Commercial Milestone Event. In no event shall any of the Commercial Milestone Payments be paid more than once (regardless of the number of times a Product achieves the corresponding Commercial Milestone Event or the number of Products that achieve such Commercial Milestone Event). Each such Commercial Milestone Payment will be made by wire transfer of immediately available funds into an account designated by Seller reasonably in advance of the due date of the payment.

(c)    Each of the Commercial Milestone Payments, if earned, are non-refundable, shall be paid only once and shall be paid within [**] days after the close of the Fiscal Year in which the corresponding Commercial Milestone Event is achieved. Notwithstanding the foregoing, if either of the Commercial Milestone Events is achieved on or after [**], then the applicable Commercial Milestone Payment shall be paid in two (2) equal installments, the first installment of which shall be paid within [**] days after the close of the Fiscal Year in which the corresponding Commercial Milestone Event was achieved, and the second installment of which shall be paid within [**] days after the close of the subsequent Fiscal Year, provided that the payment of such second installment shall be subject to the following: (i) such second installment shall be paid in full if, in such subsequent Fiscal Year, the amount of annual worldwide aggregate Net Sales of a Product is equal to or exceeds the amount that would be required to achieve such Commercial Milestone Event; (ii) if, in such subsequent Fiscal Year, the amount of annual worldwide aggregate Net Sales of a Product is less than the amount that would be required to achieve such Commercial Milestone Event but is equal to or greater than [**] percent ([**]%) of such amount, then the amount of such second installment shall be equal to the initial amount of such second installment multiplied by a fraction, the numerator of which is equal to the actual annual worldwide aggregate Net Sales of a Product in such subsequent Fiscal Year and the denominator of which is equal to the amount that would be required to achieve the applicable Commercial Milestone Event; and (iii) if, in such subsequent Fiscal Year, the annual worldwide aggregate Net Sales of a Product is less than [**] percent ([**]%) of the amount that would be required to achieve the applicable Commercial Milestone Event, then such second installment shall not be payable. For example, if Commercial Milestone Event 1 is achieved on or after [**]

 

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and annual worldwide aggregate Net Sales of the applicable Product in the subsequent Fiscal Year equals $[**], the second installment of Commercial Milestone Payment 1 (which, without adjustment, would be $[**]) will be adjusted to $[**].

Section 3.3.    Net Sales Payments.

(a)    Net Sales Payments. Purchaser will pay to Seller net sales payments (the “Net Sales Payments”) on a Royalty Product-by-Royalty Product basis during the applicable Net Sales Payment Term at the rates (“Net Sales Payment Rates”) set forth in Table 3 below for Products and at [**]% of the Net Sales Payment Rates set forth in Table 3 below for Reduced Payment Products.

 

Table 3

No.

  

Annual Worldwide Net Sales of a Product

   Net Sales Payment Rate
for Products
1.    Portion of annual worldwide Net Sales of a Product up to and including US$[**] in a Fiscal Year    [**]%
2.    Portion of annual worldwide Net Sales of a Product exceeding $[**] up to and including $[**] in a Fiscal Year    [**]%
3.    Portion of annual worldwide Net Sales of a Product exceeding $[**] in a Fiscal Year    [**]%

(b)    Net Sales Statement. Commencing on the First Reimbursed Sale of a Royalty Product, Purchaser shall furnish to Seller a good faith estimate within [**] Business Days after the end of each calendar quarter of Net Sales of each Royalty Product in such calendar quarter and the amount of Net Sales Payment payable with respect to such Net Sales. On or prior to the [**] day following a calendar quarter, Purchaser shall deliver to Seller a written report (a “Net Sales Statement”) detailing the Net Sales Payments earned by Seller during the preceding calendar quarter. Such report will include the aggregate gross sales of each Royalty Product during such calendar quarter, the corresponding Net Sales, the Net Sales Payment Rates applied, and the amount of the Net Sales Payment payable with respect to such Net Sales. Each Net Sales Statement shall be accompanied by payment of the aggregate amount due to Seller pursuant to this Section 3.3(b) in United States Dollars by wire transfer to an account designated in writing by Seller to Purchaser reasonably in advance of the due date of the payment.

 

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(c)    Net Sales Payment Term. Net Sales Payments shall be payable on a country-by-country and Royalty Product-by-Royalty Product basis on Net Sales of Royalty Products from the date of the First Commercial Sale of a particular Royalty Product in an applicable country until the later of (A) the expiration of the last to expire Valid Claim of an IP Right in respect of such Royalty Product included within the Seller IP that Covers such Royalty Product in such country and (B) ten (10) years following the date of First Commercial Sale of such Royalty Product in such country (the “Net Sales Payment Term”). The Net Sales Payment Term with respect to each Royalty Product shall be determined individually with respect to such Royalty Product.

Section 3.4.    Milestones and Net Sales Payment Adjustments.

(a)    No Valid Claim. Subject to Section 3.4(d), on a country-by-country and Royalty Product-by-Royalty Product basis, if a Royalty Product is not Covered by a Valid Claim of an IP Right included within the Seller IP for the use or sale of such Royalty Product at any time during the Net Sales Payment Term, any Net Sales Payment otherwise payable to Seller under this Agreement from and after the date such Royalty Product ceases to be covered by such a Valid Claim shall be reduced by [**] percent ([**]%).

(b)    Anti-Stacking Adjustment. Subject to Section 3.4(d), Purchaser shall have the right to deduct from any Development Milestone Payment, Commercial Milestone Payment or Net Sales Payment owed to Seller with respect to a Royalty Product, [**] percent ([**]%) of any payments that Purchaser has become obligated to make to a Third Party in consideration (including as a result of settlement or dispute resolution) for any acquisition of rights (whether by purchase, license or otherwise), or other access to, intellectual property that Purchaser reasonably determines is necessary and/or useful to Exploit any Royalty Product and that has not previously been deducted pursuant to this Section 3.4(b).

(c)    Generic Competition Adjustment. Subject to Section 3.4(d), if (A) a Generic Product is introduced in a country and (B) in the then-current Fiscal Year or a later occurring Fiscal Year, revenue, sales unit volume, net selling price or market share of a Royalty Product in such country is at least [**] percent ([**]%) lower as compared to the same metric in the Fiscal Year immediately preceding the Fiscal Year in which such Generic Product was introduced, then commencing in such Fiscal Year and thereafter during the Net Sales Payment Term for the applicable Royalty Product in such country, each Development Milestone Payment, Commercial Milestone Payment or Net Sales Payment due and payable with respect to such Fiscal Year in such country with [**] percent ([**]%) lower sales shall be reduced by [**] percent ([**]%). The term “Generic Product” means, with respect to a Royalty Product (the “Reference Product”), any pharmaceutical product that (a) is sold by a Third Party that is not an Affiliate or licensee of Purchaser and (b) (i) contains the same active pharmaceutical ingredient as the Reference Product or (ii) is approved in reliance, in whole or in part, on a prior Regulatory Approval of the Reference Product.

(d)    Payment Floor. The payment reductions set forth in this Section 3.4 shall be applied on a cumulative basis in the order listed above, provided that the Net Sales Payment

 

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payable to Seller for any Royalty Product in a given Fiscal Year shall not be reduced by more than [**] percent ([**]%) of the amount otherwise payable to Seller as a result of the payment reductions set forth in this Section 3.4. Purchaser may carry unused adjustment credits forward to any future Development Milestone Payment, Commercial Milestone Payment or Net Sales Payment.

Section 3.5.    Net Sales Audit Rights.

(a)    Seller may engage, at its own cost and expense (except as otherwise provided below), subject to this Section 3.5, an Independent Accounting Firm to conduct an audit of Purchaser for the purposes of confirming Purchaser’s compliance with the Net Sales Payment provisions of this Agreement.

(b)    Not earlier than [**] days following Seller’s request of an audit pursuant to this Section 3.5, Purchaser shall afford the Independent Accounting Firm access to and an opportunity to examine such books and records of Purchaser as it reasonably requests, during regular business hours, in a manner designed to avoid disruption to Purchaser’s business and subject to execution and delivery to Purchaser of a reasonable confidentiality agreement for the sole purpose of determining compliance with the Net Sales Payment provisions of this Agreement.

(c)    Each of Seller and Purchaser will be entitled to receive (substantially simultaneously) a full written report of the Independent Accounting Firm with respect to its findings directly from the Independent Accounting Firm.

(d)    Within [**] days after completion of the Independent Accounting Firm’s audit, Purchaser will pay to Seller any deficiency in the Net Sales Payment amount determined by the Independent Accounting Firm. If the amount of the deficiency exceeds [**] percent ([**]%) of the total Net Sales Payment made for the audited period, then Purchaser shall also pay the fees and expenses of the Independent Accounting Firm incurred in such audit. If the report of the Independent Accounting Firm shows that Purchaser overpaid, then Purchaser will be entitled to off-set such overpayment against any Development Milestone Payments, Commercial Milestone Payments or Net Sales Payments then or thereafter owed to Seller. If no such amount is then owed to Seller, then Seller will remit such overpayment to Purchaser.

(e)    In the event of any dispute between Seller and Purchaser regarding the findings of an audit under this Section 3.5, the Parties will initially attempt in good faith to resolve the dispute amicably between themselves, and if the Parties are unable to resolve such dispute within [**] days after delivery to both Parties of the Independent Accounting Firm’s report, Purchaser will select, subject to Seller’s consent, such consent not to be unreasonably withheld or delayed, an internationally recognized independent certified public accounting firm (other than the Independent Accounting Firm), and such accounting firm’s determination will be binding on both Parties absent manifest error by such accounting firm.

 

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(f)    Seller’s exercise of its audit rights under this Section 3.5 may not (A) be conducted for any Fiscal Year more than [**] years after the end of such Fiscal Year to which such books and records pertain, (B) be conducted more than [**] period (unless a previous audit during such [**] period revealed a material underpayment with respect to such period), or (C) be repeated for any Fiscal Year.

Section 3.6.    Currency Exchange. Purchaser’s then current standard exchange rate methodology will be employed for the translation of foreign currency sales into United States Dollars, provided that such methodology is used by Purchaser in the translation of its foreign currency operating results, is consistent with GAAP, and is audited by Purchaser’s independent certified public accountants in connection with the audit of the consolidated financial statements of Purchaser, and is used for Purchaser’s external reporting of foreign currency operating results.

Section 3.7.    Taxes. Where required by applicable Law, Purchaser shall have the right to withhold applicable Taxes from any payments to be made by Purchaser to Seller pursuant to this Agreement; provided that, to the extent allowed by applicable Law, prior to such withholding, Purchaser shall give written notice of its intention to withhold and allow Seller sufficient time to furnish any documentation or forms to the applicable Governmental Entity to minimize or eliminate such withholding. Where applicable, Purchaser shall provide Seller with receipts from the appropriate taxing authority for all payments of Taxes withheld and paid by Purchaser to such authorities on behalf of Seller. To the extent that any such amounts are so deducted and withheld, such amounts shall be treated for all purposes of this Agreement as having been paid to Seller.

Section 3.8.    Diligence.

(a)    Purchaser shall itself, or through its Affiliates and licensees, use Commercially Reasonable Efforts to Develop a Product in a Primary Indication in any of the United States, United Kingdom, France, Spain, Germany or Italy.

(b)    The parties acknowledge that Seller has entered into this Agreement with the anticipation of receiving the payments potentially payable pursuant to Section 3.1, Section 3.2 and Section 3.3. Seller acknowledges and agrees, however, that (i) subject to Section 3.8(a) above, Purchaser has total and absolute discretion in the Exploitation of, and operation of its business and the Development of any Product, (ii) such potential payments are contingent upon satisfaction of events that may not occur and may therefore never be paid, (iii) Purchaser has made no representation or warranty to Seller that the conditions to any such payments will be satisfied, (iv) Seller has not relied on any such statement by Purchaser or any Third Party and (v) except as set forth in Section 3.8(a) above, Purchaser is under no obligation to use any other standard of diligence with respect to satisfying the conditions to any payment hereunder, and Seller hereby waives any such potential other standard of diligence.

(c)    Before signing this Agreement the Parties have had numerous conversations and have generated correspondence and other writings, in which the Parties discussed the transaction which is the subject of this Agreement and their aspirations for success. In such conversations

 

28


and writings, the Parties and individuals representing them may have expressed their judgments and beliefs concerning the intentions, capabilities, and practices of the Parties, and may have forecasted future events. The Parties recognize that such conversations and writings often involve an effort by both sides to be positive and optimistic about the prospects for the transaction. However, each Party acknowledges that all business transactions contain an element of risk, as do the transactions contemplated by this Agreement, and that it is normal business practice to limit the legal obligations of contracting parties to only those promises and representations which are essential to their transaction so as to provide certainty as to their respective future rights and remedies. Accordingly, other than the Confidentiality Agreement entered into between the Parties, this Agreement is intended to define the full extent of the legally enforceable undertakings of the Parties hereto, and no promise or representation, written or oral, which is not set forth explicitly in this Agreement or such letter agreement is intended by either Party to be legally binding. Each of the Parties acknowledge that in deciding to enter into this Agreement and to consummate the transaction contemplated hereby none of them has relied upon any statements or representations, written or oral, other than those explicitly set forth herein or therein.

(d)    From and after the Closing and until Purchaser has filed an NDA for a Product with the FDA, Purchaser shall provide Seller [**], within [**] days following [**], with a high-level progress report.

(e)    If Purchaser materially fails to comply with its obligations under Section 3.8(a), Seller shall provide written notice of the alleged material breach by the earlier of (i) [**] months of learning of such breach, or (ii) [**] months after the breach has occurred, such written notice including in reasonable detail (A) a description of the steps Purchaser took or omitted that committed a breach of its obligations under Section 3.8(a), (B) a description of the steps Seller alleges that Purchaser should have taken or omitted to take such that Purchaser would have complied, and (C) if curable, the actions Purchaser should take to cure the alleged material breach. Representatives of Seller and Purchaser with authority to resolve the dispute shall meet and discuss in good faith to resolve the dispute, and if the dispute remains unresolved after [**] days after the delivery of the written notice by Seller, Purchaser or Seller may seek a judicial determination of the question in accordance with this Agreement, provided that, notwithstanding anything to the contrary in this Agreement, Purchaser shall only be liable for a breach for which timely written notice under this Section 3.8(e) has been provided.

(f)    Purchaser shall have the sole right, such right to be exercised in its absolute discretion, to sponsor any IND for any Royalty Product.

Section 3.9.    Termination for Convenience.

Purchaser may, in its absolute discretion, terminate this Agreement on a Royalty Product-by-Royalty Product, country-by-country basis, at any time, for any reason or for no reason at all by delivery of written notice to Seller of its election to do so. Upon any termination with respect to any Royalty Product pursuant to this Section 3.9, at the option of the Seller, the Parties shall negotiate in good faith (i) an assignment by Purchaser to Seller of the Purchased Assets relating

 

29


to the Royalty Products for which Purchaser terminated this Agreement, and/or (ii) the grant by Purchaser to Seller of a license or sub-license to Exploit such Purchased Assets in the applicable country, under any IP Rights, Product Registrations and Regulatory Materials (exclusive to the extent within Purchaser’s Control to do so and non-exclusive otherwise) used or held for use by Purchaser or an Affiliate to Exploit the applicable Royalty Product in the applicable country and (iii) the financial terms relating to such assignment and license grant, provided that, if Purchaser enters into any agreement with a Third Party to transfer rights related to such terminated Royalty Product at or following such termination (and subject to compliance with the foregoing provisions of this Section 3.9) , whether by an assignment, sale, license, sublicense or otherwise, Purchaser’s obligations under this Agreement shall, with respect to such terminated Royalty Product, only terminate if assumed by such Third Party in a writing enforceable by Seller. Following a termination of this Agreement pursuant to this Section 3.9 with respect to all Products on a worldwide basis, Purchaser shall be relieved from all its obligations under Section 3.8 (subject to the preceding sentence, which shall survive any termination of this Agreement under this Section 3.9).

Section 3.10.    Non-Competition. Except in accordance with the terms and conditions of this Agreement and the Ancillary Agreements and subject to applicable Law,

(a)    On a Transferred Compound-by-Transferred Compound and country-by-country basis, Purchaser shall not, and Purchaser shall cause its Affiliates, licensees and assignees including any Permitted Third Party Assignees to not,

(i)    for so long as a Transferred Compound is Covered by a Valid Claim of an IP Right included within the Seller IP, sell, offer for sale, or commercialize such Transferred Compound for the prevention, diagnosis or treatment of cancer; and

(ii)    with respect to Japan, Republic of Korea, Republic of China (known as Taiwan), Hong Kong, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, develop, use, and/or commercialize any Transferred Compound for the prevention, diagnosis or treatment of cancer, provided that, with respect to any country covered by this Section 3.10(a)(ii), if Seller shall no longer be bound by the non-competition obligations in that certain license agreement (the “Ono Agreement”) by and between Seller and Ono Pharmaceutical Co., Ltd., dated October 11, 2017, for any reason, including, but not limited to, the termination of the Ono Agreement, waiver of the non-competition obligations in their entirety or in part by Ono Pharmaceutical Co. Ltd., a judgment by any court of competent jurisdiction, or otherwise, such country shall then become subject to Section 3.10(a)(i) only. In the event that Seller is no longer bound by the non-competition obligations in the Ono Agreement with respect to any such country, Seller shall notify Purchaser within [**] days.

(b)    Until the earlier of fifteen (15) years after the Closing Date or two (2) years following Regulatory Approval of a Product in any of the United States, France, Italy, Germany, Spain, the United Kingdom, or Japan, Seller shall not, and shall cause its Affiliates to not, Exploit any of their respective assets in humans or animals in connection with a Specified Indication; provided that, subject to Seller providing Purchaser with a high-level progress report within [**] days following [**], Seller and its Affiliates shall not be prohibited from Exploiting eltanexor (KPT-8602) in Duchenne Muscular Dystrophy.

 

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(i)     Before Seller may grant any license to any Third Party or otherwise transfer rights that permit any Third Party to Exploit eltanexor (KPT-8602) in Duchenne Muscular Dystrophy, Seller shall provide Purchaser with a right of first refusal (the “ROFR”) to obtain a license or transfer of such rights to Purchaser on the same terms proposed to such Third Party, provided that Purchaser shall be required to exercise its ROFR by providing written notice to Seller of its election to do so within [**] days of Purchaser’s receipt of the proposed economic terms between Seller and such Third Party, along with all due diligence materials made available to such Third Party. During such [**] day period pursuant to the ROFR, Seller shall provide to Purchaser such other due diligence materials as reasonably requested by Purchaser.

(ii)    If Purchaser does not exercise its ROFR, then for [**] days (the “ROFR Window”) after the earlier of (A) the date that Seller receives written notice of Purchaser’s election not to exercise its ROFR or (B) the expiry of the [**] day period provided under Section 3.10(b)(i), Seller shall be permitted to execute a license or other agreement for the transfer of such rights to a Third Party, provided that the terms of such agreement are not materially more favorable to the Third Party, taken as a whole, than the terms which Purchaser reviewed pursuant to its ROFR. Purchaser’s ROFR shall (A) renew after the expiry of the ROFR Window, provided that the ROFR Window may be extended by Purchaser in its absolute discretion, and (B) apply to all transactions where Seller intends to grant the rights of eltanexor (KPT-8602) in DMD to any Third Party, subject to Section 3.10(b)(iii).

(iii)     The provisions of Section 3.10(b) shall not apply to any transaction (or to the successor of Seller in such a transaction) involving a merger, sale of all or substantially all of Seller’s assets, sale of at least a majority of Seller’s stock with the intent to change ownership, or other transaction intended to be an acquisition of Seller.

(c)    Upon termination of this Agreement pursuant to Section 3.9 with respect to all Purchased Assets on a worldwide basis, the non-compete obligations under this Section 3.10 shall terminate.

(d)    Following the Closing Date and during the Term, unless Purchaser provides its prior written consent, Seller shall not, and shall cause its Affiliates and licensees not to, submit any Manufacturing Intermediate (including, but not limited to, the molecule presently identified as [**]) for Regulatory Approval in any Indication in any country, nor shall it market or sell any Manufacturing Intermediate for the treatment of any Indication or otherwise Exploit any Manufacturing Intermediate as a final therapeutic product for clinical use in humans in any country; provided, however, that this Section 3.10(d) shall not limit Seller’s use of any Manufacturing Intermediate to Manufacture a final therapeutic product for clinical use in humans where such final therapeutic product is Covered under the Background Patents. Seller shall not limit Purchaser’s use of any Manufacturing Intermediate to Manufacture any Royalty Product.

 

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Section 3.11.    Term. The term (“Term”) of this Agreement shall commence as of (and including) the Closing Date and shall ultimately expire with respect to all Royalty Products in all countries upon the date that all Net Sales Payment Terms with respect to all Royalty Products have expired. In the event of a material breach of Section 3.10 (Non-competition) or Section 6.10 (Patent Challenges by Seller of the Transferred IP) of this Agreement by Seller, the Purchaser, its Affiliates, or in the case of a Rights Transfer Event pursuant to Section 8.4(b), a Permitted Third-Party Transferee, shall have the right to (i) suspend the reporting obligations under Section 3.8(d) until such material breach is cured, if such breach is curable, and (ii) reduce any amounts due and payable to Seller, or that become due or payable, on or after the date of such material breach and the subsequent failure to cure, by [**] percent ([**]%). Any such reduction shall be in addition to any other reductions or adjustments set forth in this Agreement. Any reduction of payments under this Section 3.11 may only commence after Purchaser, its Affiliates or the respective Third Party, as the case may be, has provided written notice to Seller specifying the alleged material breach, and Seller shall have a reasonable time (of at least [**] days but not more than [**] days) to cure such breach, if such breach is curable; if such material breach is cured within such time period, no reduction in payments shall be made.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth on the Seller Disclosure Schedules (it being understood that an item included on a Schedule corresponding to any Section or subsection of this Article IV shall be deemed to relate to such Section or subsection and each other Section or subsection of this Article IV to the extent such relationship is reasonably apparent from a reading of the disclosure or the applicable representation), Seller hereby represents and warrants to Purchaser as follows:

Section 4.1.    Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Seller’s Affiliates who own Purchased Assets (each, a “Selling Affiliate”) are duly organized, validly existing and in good standing under the laws of their respective jurisdiction of organization. Seller and each Selling Affiliate is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature or conduct of its business or the ownership, leasing or operation of its properties or assets requires it to be so qualified, licensed or in good standing, except where the failure to be so qualified, licensed or in good standing would not have a material adverse effect on the consummation of the transactions contemplated by this Agreement.

Section 4.2.    Authority. Seller, and each Selling Affiliate, has all requisite corporate power and authority to own and operate their respective properties and assets, and to carry on its business as it is now being conducted. Seller, and each Selling Affiliate, has all requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform their respective obligations hereunder and thereunder. The execution and delivery by Seller and any Selling Affiliate of this Agreement and the Ancillary

 

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Agreements and the performance by Seller and each Selling Affiliate of their respective obligations hereunder and thereunder have been duly authorized by all requisite corporate action on the part of Seller and such Selling Affiliate. This Agreement and each Ancillary Agreement has been duly executed and delivered by Seller and, as applicable, each Selling Affiliate, and, assuming the valid execution and delivery by Purchaser, constitute a legal, valid and binding obligation of Seller and each Selling Affiliate, as applicable, enforceable against Seller and each Selling Affiliate, as applicable, in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar Laws affecting creditors’ rights generally or by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or law).

Section 4.3.    No Conflict. The execution, delivery and performance by Seller and each Selling Affiliate of this Agreement and each of the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby, do not and will not (a) violate any provision of the certificate of incorporation, the by-laws or limited liability company operating agreement, as applicable, of Seller or such Selling Affiliate; (b) require any material action by (including any material authorization, consent or approval) or in respect of (including notice to), any Person under any Assumed Contract; (c) violate or conflict with in any material respect, or result in a material breach of, constitute a material default under, or create material rights of acceleration, termination or cancellation under any Assumed Contract, or (d) result in the creation or imposition of a material Encumbrance upon, or the material forfeiture of, any Purchased Asset; or (e) violate, in any material respect, or result in a material breach of or constitute a material default under any Law or other restriction of any Governmental Entity to which Seller or any Selling Affiliate is subject.

Section 4.4.    Required Filings and Consents. The execution and delivery of this Agreement by Seller and each Selling Affiliate, if any and as applicable, and the consummation of the transactions contemplated hereby, do not require any material consents, approvals, notices or filings with any Governmental Entities.

Section 4.5.    Purchased Assets.

(a)    Seller has good, valid and marketable title to all the Purchased Assets free and clear of all Encumbrances other than Permitted Encumbrances.

(b)    The Purchased Assets, together with the licenses set forth in Section 2.5 and Section 6.11, comprise all material assets (other than human resources and administrative overhead) used by Seller and its Affiliates in the Exploitation of the Transferred Compounds.

Section 4.6.    Contracts.

(a)    Seller has delivered to Purchaser a true, correct and complete copy of each Assumed Contract, as amended. Each Assumed Contract is, in all material respects in full force and effect and is a legal, valid and binding agreement of Seller and, to the Knowledge of Seller, is a legal, valid and binding agreement of each other party thereto, enforceable against Seller and

 

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each other party thereto in accordance with its terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting the rights and remedies of creditors generally and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). Seller has performed or is performing in all material respects its obligations required to be performed by it under the Assumed Contracts and is not in material breach or default thereunder, and to the Knowledge of Seller, no other party to any of the Assumed Contracts is in material breach or default thereunder, and no event has occurred which, with or without notice, lapse of time, or both, would constitute a material default under the provisions of such Assumed Contract or would give to others any material right of termination, amendment or cancellation of any Assumed Contract.

(b)    Schedule 4.6(b) sets forth a list of each Assumed Contract that contains (i) a non-competition or exclusive dealing covenant, (ii) a license that would, immediately after the Closing, effect an out-license of any IP Right of Purchaser or (iii) a right of first refusal, preemptive right or other similar provision that would reasonably be expected to materially adversely affect the marketability of any Purchased Asset.

Section 4.7.    Intellectual Property.

(a)    Schedule 4.7(a)(i) sets forth an accurate, correct and complete list of all Seller IP. Seller owns the entire right, title and interest in, under and to the Seller IP, free and clear of any Encumbrances other than Permitted Encumbrances. Seller Controls all of the Licensed IP and either owns or Controls all of the Manufacturing IP. Schedule 4.7(a)(ii) sets forth an accurate, correct and complete list of all Patents and other registered IP included in Licensed IP. All registered Transferred IP is registered in the name of Seller and, with respect to the Licensed IP, Seller possesses the right to use the Licensed IP. On the Closing Date, Seller shall transfer to Purchaser all of its right, title, and interest in, under and to all Seller IP.

(b)    To the Knowledge of Seller, the Transferred IP is valid, enforceable, subsisting and in full force and effect. With respect to registered Transferred IP, Seller has not taken or failed to take any action the taking or failure to take of which reasonably would be expected to result in the abandonment, cancellation, forfeiture, relinquishment, invalidity or unenforceability of any of such Transferred IP. With respect to any of the Transferred IP that is owned by a Third Party, to the Knowledge of Seller, such owner has not taken or has failed to take, as the case may be, any of the actions in the preceding sentence.

(c)    Schedule 4.7(c) lists (i) all Assumed Contracts that restrict Seller’s use, transfer, delivery or licensing of any material Transferred IP, (ii) all Assumed Contracts involving the licensing of any material Transferred IP to or from a Third Party and (iii) all Assumed Contracts that provide any Third Party with any right, title or interest in any future IP Rights that Cover a Royalty Product (collectively, the “IP Contracts”). Except as set forth in Schedule 4.7(c), Seller has not entered into any Contract with respect to the Transferred IP requiring Seller to indemnify any Person against infringement, misappropriation or violation of any Third Party IP Rights. There are no outstanding or threatened disputes with respect to any IP Contract.

 

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(d)    To the Knowledge of Seller, there have been no violations of any confidentiality or assignment agreement relating to the Transferred IP or any unauthorized disclosure of any material trade secret that are included in the Transferred IP. Seller has taken commercially reasonable measures to protect and safeguard the proprietary nature of the Transferred IP and to maintain in confidence all material Confidential Information and material Know-How that are included in the Transferred IP. No material Confidential Information of Seller has been disclosed or authorized to be disclosed to any Third Party not subject to confidentiality obligations to Seller, and, to the Knowledge of Seller, no party to a nondisclosure agreement with Seller with respect to Transferred IP is in breach or default thereof.

(e)    To the Knowledge of Seller, the Exploitation by Seller and its Affiliates of the KPT-350 Molecule does not, and would not reasonably be expected, following commercialization to, misappropriate, infringe, dilute or otherwise violate any Person’s IP Rights. (i) To the Knowledge of Seller, no Person has misappropriated, infringed, diluted, or otherwise violated, either directly or indirectly, any material Transferred IP (ii) neither Seller nor any Affiliate has brought or threatened to bring any claim, suit or proceeding against any Person alleging any such misappropriation, infringement, dilution or violation, and (iii) to the Knowledge of Seller, neither of the foregoing clauses (i) or (ii) have been asserted in any cease and desist letter or other written notice, including in the nature of offering a license or covenant not to sue, in each case, relating to Transferred IP.

(f)    Neither Seller nor any Affiliate has been notified of any proceedings before the United States Patent and Trademark Office (USPTO) or the European Patent Office (EPO), and there are no proceedings pending before any other Governmental Entity anywhere in the world related to any of the Transferred IP. Seller is not undertaking any interference, reissue, reexamination, opposition, proceeding, or other post-grant proceeding with respect to IP Rights of any third Person that Cover any Royalty Product.

(g)    There has not been any claim, suit or proceeding asserted or threatened in writing, including in the form of an offer or invitation to obtain a license, against Seller or any Affiliate relating to the Transferred IP (i) alleging misappropriation, infringement, dilution or other violation of any Person’s IP Rights, (ii) challenging Seller’s or any Affiliate’s, as applicable, ownership of, right, title or interest in, under or to, use of, or the registrability or maintenance of, any Transferred IP, (iii) adversely affecting the ownership rights of Seller or any Affiliate in, under or to any Seller IP, (iv) challenging the scope, duration, validity or enforceability of any Transferred IP, and, to the Knowledge of Seller, there is no basis for any such claim, suit or proceeding, (v) alleging that Seller or any Affiliate is in breach of any applicable grant, license, agreement, instrument or other arrangement pursuant to which Seller or any Affiliate acquired the right to use such Transferred IP, or (vi) alleging misuse or antitrust violations arising from the use or other Exploitation by Seller or any Affiliate of any Transferred IP, in each case, that would result in material liability to Seller or any Affiliate. To the Knowledge of Seller, no material Transferred IP has been, or is being, used or enforced by Seller or any Affiliate in a manner that, individually or in the aggregate, is reasonably likely to result in the cancellation, invalidity or unenforceability of such material Transferred IP.

 

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(h)    Neither Seller nor any Affiliate has granted any Person, and except as expressly set forth in an Assumed Contract, any right to control the prosecution or registration of any Transferred IP or to bring, defend, or otherwise control any Litigation with respect to any Transferred IP. Neither Seller nor any Affiliate has entered into, or is subject to, any consents, indemnifications, forbearances to sue, licenses or other arrangements in connection with the resolution of any disputes or Litigation that (i) restrict Seller or an Affiliate with respect to the use, registration or maintenance of any Transferred IP or (ii) permit any Person to use any Transferred IP (other than the Manufacturing Know-How and Manufacturing Patents).

(i)    No funding, facilities or personnel of any Governmental Entity were used, directly or indirectly, to Develop or create, in whole or in part, any Transferred IP. No current or former partner, director, stockholder, officer, contractor or employee of Seller or of any Affiliate will, after giving effect to the transactions contemplated by this Agreement, own or retain any rights to use any of the Transferred IP, and no royalty or other payment is payable, or will become payable, to any such Person or to a Third Party for the use of any of the Transferred IP.

(j)    All Patents, Trademarks, trade names, service marks, trade dress and domain names contained in the Transferred IP, and all IP Rights to any inventions claimed or disclosed therein, have been properly assigned to Seller, and all such assignments have been properly recorded in the USPTO, the European Patent Office or any other patent or trademark office, to the extent such patent or trademark office requires or permits such recording.

(k)    All fees required to be paid by Seller in any jurisdiction in order to maintain the IP Rights included in the Transferred IP and, to the Knowledge of Seller, the Licensed IP, due and payable prior to the date hereof or within the [**] days following the date hereof have been timely paid.

(l)    Except as set forth on Schedule 4.7(l), the Transferred IP has not been created pursuant to, and is not subject to, any funding agreement with any government or government agency or any Third Party, and is not subject to the requirements of the Bayh-Dole Act or any similar provision of any applicable law. With respect to any IP Right set forth on Schedule 4.7(l) that is subject to the requirements of the Bayh-Dole Act or any similar provision of any applicable law, to the Knowledge of Seller, the prosecution and maintenance of such IP Right has been conducted in all respects in compliance with such requirements.

Section 4.8.    Inventory. All of the Purchased Inventory is set forth on Schedule 4.8 and (a) meets, and was Manufactured in accordance with its specifications and all applicable legal and regulatory requirements (including cGMP where applicable) in all material respects, (b) has a shelf life in accordance with the aging schedule set forth in Schedule 4.8, and (c) is free from contamination, dilutents and defects in materials and workmanship and (d) is not adulterated in any material respect within the meaning of the United States Federal Food, Drug and Cosmetics Act.

 

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Section 4.9.    Compliance with Laws; Regulatory Compliance.

(a)    The Exploitation by Seller and its Affiliates of any Royalty Product and the ownership by Seller and its Affiliates of the Purchased Assets have been, since January 1, 2015, in material compliance with all applicable Law, including Regulatory Laws. Neither Seller nor any Affiliate has received any written communication from a Governmental Entity that alleges that Seller or any Affiliate is not in compliance in any material respect with any Law or Order with respect to their respective Exploitation of any Royalty Product or ownership of the Purchased Assets. Seller and its Affiliates have and have had, since January 1, 2015, all material Product Registrations necessary for its lawful Exploitation of any Royalty Product, and each of such Product Registrations, if any, is valid and in full force and effect.

(b)    There has not been any material claim or investigation of which Seller or any Affiliate has received notice, suit, action, indictment, administrative proceeding, arbitration, alternative dispute resolution or other similar proceeding (“Litigation”) pending or, to the Knowledge of Seller, threatened against Seller or an Affiliate relating to any Royalty Product or the Purchased Assets. There is no Litigation pending by Seller or any Affiliate, or which Seller intends to initiate against any Third Party, in each case relating to any Royalty Product or the Purchased Assets.

(c)    Seller and its Affiliates have filed all material reports, statements, documents, registrations, filings, amendments, supplements and submissions required to be filed by it with respect to any Royalty Product and the Purchased Assets under applicable Regulatory Laws, and such filings have been timely in all material respects. Each such filing was, in all material respects, true, complete and correct as of the date of submission, and any material and legally necessary or required updates, changes, corrections, amendments, supplements or modifications to such filings have been submitted to the applicable Governmental Entity.

(d)    Neither Seller nor any Affiliate has, regarding or related to any Royalty Product or the Purchased Assets, (i) received notice of or, to the Knowledge of Seller, been subject to any action, notice, warning, administrative proceeding, review or investigation by a Regulatory Authority that alleges or asserts that Seller or any Affiliate has violated any applicable Regulatory Laws in any material respect or (ii) been subject to a corporate integrity agreement, deferred prosecution agreement, consent decree, monitoring agreement, settlement agreement or other similar agreement or Order mandating or prohibiting future or past activities.

(e)    The Manufacturing and servicing operations conducted by or on behalf of Seller and its Affiliates with respect to any Royalty Product are conducted in material compliance with applicable Regulatory Laws, including the provisions of the FDA’s current good manufacturing practice regulations at 21 C.F.R. Part 820 and similar federal, state, local or foreign requirements for the Manufacture of any Royalty Product.

(f)    Neither Seller, nor any Affiliate, nor any officer, employee or agent of Seller or of any Affiliate, in each case who has been materially involved in the Exploitation of any Royalty Product (i) has been convicted of any crime or engaged in any conduct in the operation of

 

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Seller’s business for which debarment is mandated or authorized by 21 U.S.C. § 335a or any similar applicable Law, nor has any such Person been so debarred; (ii) has been convicted of any crime or engaged in any conduct which would reasonably be expected to cause Seller to be excluded from participating in federal health care programs under Section 1128 of the Social Security Act of 1935, as amended, or any similar applicable Law or been so excluded; or (iii) is subject to an investigation or proceeding by any Regulatory Authority that could result in such a suspension, exclusion or debarment.

(g)    Neither Seller nor any Affiliate has, in connection with its Exploitation of a Royalty Product, conducted any material business or engaged in any material transaction with any Person with whom transactions were, at the time of such transaction, prohibited as to U.S. Persons by any applicable sanctions Laws administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), including persons appearing on the List of Specially Designated Nationals and Blocked Persons published by OFAC.

Section 4.10.    Brokers. No broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller.

Section 4.11.    Non-Reliance by Seller. Seller acknowledges, agrees, represents and warrants that none of Purchaser, its Affiliates, agents or Representatives or any other Person acting on behalf of or in concert with Purchaser, has made or provided any representations, warranties, facts or information of any kind or nature, express or implied, oral or written, relating to Purchaser or otherwise relating in any way to the subject matter of this Agreement, except as specifically set forth in Article V. Seller also acknowledges, agrees, represents and warrants that it is not relying, and has not relied, on any representations, warranties, facts or information whatsoever except as specifically set forth in Article V, in its decision to enter into this Agreement and to proceed with the transactions contemplated by this Agreement.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

Section 5.1.    Organization and Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the Commonwealth of Massachusetts. Purchaser is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature or conduct of its business or the ownership, leasing or operation of its properties and other assets requires it to be so qualified, licensed or in good standing.

Section 5.2.    Authority. Purchaser has all requisite corporate power and authority to own and operate its properties and assets, to carry on its business as it is now being conducted and to execute and deliver this Agreement and the Ancillary Agreements and to perform its

 

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obligations hereunder and thereunder. The execution and delivery by Purchaser of this Agreement and the Ancillary Agreements and the performance by Purchaser of its obligations hereunder and thereunder have been duly authorized by all requisite corporate action on the part of Purchaser and no additional authorization on the part of Purchaser is necessary in connection with the execution, delivery and performance of this Agreement or of the Ancillary Agreements. This Agreement and each Ancillary Agreement to be executed on the date hereof has been, and each other Ancillary Agreement to be executed on the Closing Date will be, duly executed and delivered by Purchaser and, assuming the valid execution and delivery by Seller, constitute a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar Laws affecting creditors’ rights generally or by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or law).

Section 5.3.    No Conflict. The execution, delivery and performance of this Agreement and each of the Ancillary Agreements by Purchaser and the consummation of the transactions contemplated hereby and thereby, do not and will not (a) violate any provision of the certificate of incorporation or bylaws of Purchaser, (b) violate or conflict with in any respect, or result in a breach of, constitute a default under, or create rights of acceleration, termination or cancellation under, or to a loss of any benefit to which Purchaser or any of its Affiliates is entitled under, any agreement, to which Purchaser or any of its Affiliates is a party or to which its properties or assets are subject where any of the listed items, individually or in the aggregate, would reasonably be expected to prevent or materially delay the consummation of the transactions contemplated by this Agreement or (c) violate, in any material respect, or result in a material breach of or constitute a material default under any Law or other restriction of any Governmental Entity to which Purchaser is subject.

Section 5.4.    Required Filings and Consents. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated hereby, do not require any consents, approvals, notices and filings.

Section 5.5.    Litigation. There is no Litigation pending or threatened against Purchaser which, individually or in the aggregate, would reasonably be expected to prevent or materially delay or interfere with the consummation of the transactions contemplated by this Agreement. There are no Orders of any Governmental Entity or arbitrator outstanding against or investigation by any Governmental Entity involving Purchaser or any of its assets which, individually or in the aggregate, would reasonably be expected to prevent or materially delay or interfere with the consummation of the transactions contemplated by this Agreement.

Section 5.6.    Sufficient Funds. Purchaser has, and, at Closing, will have, sufficient funds available as and when needed to consummate the transactions contemplated hereby and to perform its obligations hereunder.

Section 5.7.    Brokers. No broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser or any of its Affiliates.

 

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Section 5.8.    Non-Reliance by Purchaser. Purchaser acknowledges, agrees, represents and warrants that none of Seller, its Affiliates, agents or Representatives or any other Person acting on behalf of or in concert with Seller, has made or provided any representations, warranties, facts or information of any kind or nature, express or implied, oral or written, relating to Seller, any Royalty Product or the Purchased Assets, or otherwise relating in any way to the subject matter of this Agreement, except as specifically set forth in Article IV. Purchaser also acknowledges, agrees, represents and warrants that it is not relying, and has not relied, on any representations, warranties, facts or information whatsoever except as specifically set forth in Article IV, in its decision to enter into this Agreement and to proceed with the transactions contemplated by this Agreement.

ARTICLE VI

INTELLECTUAL PROPERTY; KNOW-HOW TRANSFER

Section 6.1.    Prosecution and Maintenance.

(a)    Seller IP. Purchaser shall have the sole right, responsibility and discretion to file, prosecute (including the defense of any oppositions, interferences, reissue proceedings, re-examinations and other post-grant proceedings originating in a patent office, including the filing of any patent term extensions) and maintain Patents included in the Seller IP at its sole cost and expense (“Prosecute and Maintain”), provided, however, that for any Royalty Product that Purchaser commercializes, Purchaser shall use commercially reasonable efforts to Prosecute and Maintain IP Rights Covering such Royalty Product.

(b)    Manufacturing Patents. Seller shall have the first right, responsibility and discretion to Prosecute and Maintain the Manufacturing Patents at its sole cost and expense. If Seller determines to abandon or not to Prosecute and Maintain any Manufacturing Patent in any country or jurisdiction, then Seller will provide Purchaser with written notice promptly after any such determination to allow Purchaser a reasonable period of time to determine, on a country-by-country basis in its sole discretion, its interest in Prosecuting and Maintaining such Manufacturing Patent (which notice by Seller will be given at least [**] days prior to the abandonment of Seller’s Prosecution and Maintenance of such Manufacturing Patent by Seller). If Purchaser provides written notice to Seller expressing its interest in maintaining such Manufacturing Patent then, with respect to such Manufacturing Patent in such country, (i) Purchaser may, in its sole discretion and at Purchaser’s cost and expense, Prosecute and Maintain or abandon such Manufacturing Patent; (ii) Seller will promptly provide to Purchaser or counsel designated by Purchaser all files related to Prosecuting and Maintaining such Manufacturing Patent; and (iii) Seller will provide to Purchaser a report detailing the status of all Manufacturing Patents that Seller is Prosecuting and Maintaining as of the applicable date of such notice by Seller.

 

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Section 6.2.    Cooperation.

(a)    Seller IP. Seller agrees to cooperate with Purchaser with respect to Purchaser’s efforts to Prosecute and Maintain, and enforce the Seller IP, and to execute any documents necessary or desirable in connection with the Prosecution and Maintenance, and enforcement of the Seller IP or to secure and perfect any of Purchaser’s rights in the Seller IP.

(b)    Manufacturing Patents. The Party that is not responsible for the Prosecution and Maintenance of the Manufacturing Patents (the “Non-Prosecuting Party”) agrees to cooperate with the Party that is responsible for the Prosecution and Maintenance of the Manufacturing Patents (the “Prosecuting Party”) with respect to the Prosecuting Party’s efforts to Prosecute and Maintain, and enforce, the Manufacturing Patents, and provide additional information and execute any documents necessary or desirable in connection with the Prosecution and Maintenance, and enforcement, of the Manufacturing Patents. Without limiting the generality of the foregoing, with respect to the Manufacturing Patents, the Prosecuting Party shall (i) provide to the Non-Prosecuting Party copies of all correspondence with patent authorities in a jurisdiction; (ii) provide to the Non-Prosecuting Party copies of all material correspondence with patent counsel for such jurisdiction; (iii) provide to the Non-Prosecuting Party copies of, and reasonable time (but in no event less than [**] days, except where such document or submission to such patent authority must be provided in fewer than [**] days under requirements of such patent authority, in which case no less than [**] days) to review and comment upon any documents intended for submission to any patent authority in a jurisdiction, including any patent applications, prior to submission; (iv) furnish to the Non-Prosecuting Party copies of documents related to any filing, prosecution, and maintenance of such Manufacturing Patents; (v) provide the Non-Prosecuting Party copies of each patent application as filed, together with notice of its filing date and serial number; (vi) incorporate in good faith all comments and requests of the Non-Prosecuting Party on documents to be filed with any patent authority in a jurisdiction that would affect such Non-Prosecuting Party’s rights in such Manufacturing Patent hereunder unless the Prosecuting Party reasonably determines in good faith that such comments or requests would adversely affect such Prosecuting Party’s rights hereunder; and (vii) keep the other Party reasonably informed in writing of progress regarding such Manufacturing Patents.

Section 6.3.    Defense of Claims Brought by Third Parties.

(a)    If Seller becomes aware of any actual or potential claim that the Exploitation of any Royalty Product infringes the intellectual property rights of any Third Party, then Seller shall promptly notify Purchaser and shall share with Purchaser all information available to it with respect to such alleged infringement. If Purchaser becomes aware of any actual or potential claim that the Manufacture of any Royalty Product infringes the intellectual property rights of any Third Party, then Purchaser shall promptly notify Seller and shall share with Seller all information available to it with respect to such alleged infringement. Purchaser shall have the sole right, but not the obligation, to defend and dispose (including through settlement or license) such claim.

 

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(b)    The costs and expenses incurred in connection with defense of any claim described in Section 6.3(a) shall be borne by Purchaser, provided that Purchaser shall not be responsible for any costs incurred by Seller, including any internal costs or attorneys’ fees, unless agreed to in writing by Purchaser in advance of the incurrence of any such costs.

(c)    Subject to the terms and conditions of this Agreement, in connection with any of the rights or obligations under Section 6.1 to Section 6.8, neither Purchaser, nor any of its Affiliates, employees, agents or Representatives, will be liable to Seller in respect of any act, omission, default or neglect on the part of itself or any such Affiliate, employee, agent or representative in connection with activities undertaken in good faith.

Section 6.4.    Notice of Infringement and Paragraph IV type Notices.

(a)    If Seller learns of an infringement or threatened infringement by a Third Party (i) of any Patents included in the Seller IP or (ii) of any Manufacturing Patents or Licensed IP involving the Exploitation of compounds or products that are substantially the same as or otherwise competitive with any Royalty Product, in each case ((i) or (ii)) including actual or alleged infringement under 35 USC § 271(e)(1) (each, a “Competitive Infringement”), then Seller shall promptly notify Purchaser and shall provide Purchaser with available evidence of such Competitive Infringement. For any Competitive Infringement, Seller shall share with Purchaser all information available to it regarding such alleged infringement.

(b)    Notwithstanding any provision of this Agreement to the contrary, Seller shall immediately (but in no event later than [**] following receipt or discovery, whichever occurs first) give written notice to Purchaser of any certification of which it becomes aware filed pursuant to any statutory or regulatory requirement in any country similar to 21 U.S.C. § 355(b)(2)(A)(iv) or § 355(j)(2)(A)(vii)(IV) (or any amendment or successor statute thereto) claiming that the Transferred IP claiming or Covering any Royalty Product is invalid or that infringement will not arise from the Exploitation of such Royalty Product by a Third Party. Upon the giving or receipt of such notice, Purchaser will have the sole right, but not the obligation, to bring an infringement action against such Third Party. Seller shall, upon Purchaser’s request, cooperate with Purchaser in any such action and shall, upon Purchaser’s request, timely commence or join in any such action, including but not limited to, to establish standing in connection with any action brought by Purchaser under this Section 6.4(b)

Section 6.5.    Enforcement of IP.

(a)    Seller IP. Purchaser shall have the exclusive right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to any Competitive Infringement of any Royalty Product by counsel of its own choice, in Purchaser’s own name and under Purchaser’s direction and control. The foregoing right of Purchaser shall include the right to perform all actions of a Reference Product sponsor set forth in the U.S. Hatch-Waxman Act or Public Health Service Act, and any equivalent of such laws in a foreign jurisdiction.

 

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(b)    Manufacturing IP.

(i)    Seller shall have the first right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to any Competitive Infringement of any Royalty Product with respect to any Manufacturing Patent using counsel of its own choice, in Seller’s own name and under Seller’s direction and control; provided that the foregoing right of Seller shall not include the right to perform any actions of a Reference Product sponsor set forth in the U.S. Hatch-Waxman Act or Public Health Service Act, or any equivalent of such laws in a foreign jurisdiction.

(ii)    Seller will have a period of [**] days after its receipt of notice and evidence or receipt of written notice from Purchaser with respect to any Competitive Infringement with respect to any Manufacturing Patent (a “Manufacturing Enforcement Proceeding”), to elect to so enforce such Manufacturing Patents in the applicable jurisdiction (or to settle or otherwise secure the abatement of such Competitive Infringement), provided, however, that such period will be:

(A)    More than [**] days to the extent applicable law prevents earlier enforcement of such Manufacturing Patents.

(B)    Less than [**] days to the extent that a delay in bringing such Manufacturing Enforcement Proceeding against such alleged Third Party infringer would limit or compromise the remedies (including monetary relief, and stay of Regulatory Approval) available against such alleged Third Party infringer.

(iii)    If Seller does not so elect (or settle or otherwise secure the abatement of such Competitive Infringement) before the first to occur of (A) the expiration of the applicable period of time set forth above in Section 6.5(b)(ii)(A) or Section 6.5(b)(ii)(B), as applicable, or (B) [**] days before the expiration of any time period under applicable law, that would, if a Manufacturing Enforcement Proceeding was not filed within such time period, limit or compromise the remedies available from such Manufacturing Enforcement Proceeding, it shall so notify Purchaser in writing. In such event, if Purchaser desires to commence a suit or take action to enforce the applicable Manufacturing Patents with respect to such Competitive Infringement in the applicable jurisdiction, Purchaser will thereafter have the right to commence such a suit or take such action to enforce the applicable Manufacturing Patents (such action, a “Step-In Proceeding”), at Purchaser’s cost and expense, provided, however, that Purchaser agrees to work with Seller to minimize the risk to claims which cover subject matter which is relevant outside of the Royalty Products.

(iv)    If Seller elects to institute, prosecute or control any action or proceeding under this Section 6.5(b), Seller shall provide Purchaser with a reasonable opportunity to review and comment on any documents, including any legal briefs or motions, that will be filed with or provided to any court, arbitrator, Governmental Entity or other tribunal, including the United States Patent and Trademark Office, the European Patent Office and the United States International Trade Commission, prior to the filing with or provision of such document to the applicable tribunal.

 

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Section 6.6.    Settlement.

(a)    Purchaser may, in its absolute discretion, enter into any settlement, consent judgment or other voluntary final disposition of a suit with respect to the Seller IP provided, however, that any such settlement, consent judgment or other disposition of any action or proceeding by a Purchaser, shall not on its terms, directly impose any liability or obligation on Seller without Seller’s prior written consent.

(b)    With respect to the Licensed IP and Manufacturing IP, any settlement, consent judgment or other voluntary final disposition of a suit under this ARTICLE VI, may be entered into without the consent of the Party not bringing suit; provided, however, that any such settlement, consent judgment or other disposition of any action or proceeding by a Party, shall not, without the consent of the Party not bringing suit, (a) impose any liability or obligation on the Party not bringing suit, (b) include the grant of any license, covenant or other rights to any Third Party that would conflict with or reduce the scope of the subject matter included under this Agreement, (c) conflict with or reduce the scope of the subject matter claimed in any Transferred IP, or (d) adversely affect the interest of the Party not bringing suit in any material respect or impair its rights under this Agreement, provided that such consent shall not be unreasonably withheld or delayed.

Section 6.7.    Costs and Recoveries. Each Party shall bear all of its own internal costs incurred in connection with its activities under Section 6.1 to Section 6.8. If a Party commences a Manufacturing Enforcement Proceeding or a Step-In Proceeding, then it shall bear all external costs and expenses for such action. Any damages or other monetary awards recovered in any action, suit or proceeding under Section 6.1 to Section 6.8 shall be shared as follows:

(a)    Such damages or other sums recovered shall be applied to all out-of-pocket costs and expenses incurred by the Party responsible for any activities under Section 6.1 to Section 6.8 (the “Responsible Party” and the other Party, the “Non-Responsible Party”) directly in connection with such action (including expenses of outside counsel), and if agreed to in writing by the Responsible Party, to the reasonable actual and documented out-of-pocket costs and expenses incurred by the Non-Responsible Party. If such recovery is insufficient to Cover all such costs and expenses incurred by the Responsible Party and the agreed-upon costs and expenses incurred by the Non-Responsible Party, then the recovery shall be shared in proportion to the total of such costs and expenses incurred or agreed-upon, as the case may be.

(b)    Any remaining proceeds shall be allocated such that Seller shall receive an amount calculated by applying the applicable Net Sales Payment Rates to such proceeds as of the Fiscal Year that the Responsible Party received the proceeds, provided that such proceeds allocated to Seller shall not be included toward the calculation of the achievement of any Commercial Milestone Event.

 

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Section 6.8.    Other Actions by Third Parties.

(a)    Notice. Seller shall promptly notify Purchaser in the event of any legal or administrative action by any Third Party involving any Seller IP of which it becomes aware, including any nullity, revocation, interference, reexamination or compulsory license proceeding (“Seller IP Action”). Each Party shall promptly notify the other Party in the event of any legal or administrative action by any Third Party involving any Licensed IP or Manufacturing IP of which it becomes aware, including any nullity, revocation, interference, reexamination or compulsory license proceeding (“Licensed or Manufacturing IP Action”).

(b)    Seller IP. Purchaser shall have the sole right, but not the obligation, to defend against any Seller IP Action involving any Royalty Product, in its own name (to the extent permitted by applicable law), and any such defense will be at Purchaser’s expense. Seller, upon Purchaser’s request, agrees to join in any such Seller IP Action at Purchaser’s expense and in any event to cooperate with Purchaser at Purchaser’s expense.

(c)    Licensed IP and Manufacturing IP.

(i)    Seller shall have the first right, but not the obligation, to defend against any Licensed or Manufacturing IP Action involving any Royalty Product, in its own name (to the extent permitted by applicable law), and any such defense will be at Seller’s expense. Purchaser, upon Seller’s request, agrees to cooperate with Seller at Seller’s expense. If Seller fails to defend against any Licensed or Manufacturing IP Action involving a Royalty Product, then Purchaser will have the right to defend such action, in its own name, and any such defense shall be at Purchaser’s expense. In such event, Seller, upon Purchaser’s request, agrees to join in any such Licensed or Manufacturing IP Action at Purchaser’s expense and in any event to cooperate with Purchaser at Purchaser’s expense.

(ii)    If Seller defends any Licensed or Manufacturing IP Action under this Section 6.8(c), Seller shall provide Purchaser with a reasonable opportunity to review and comment on any documents, including any legal briefs or motions, that will be filed with or provided to any court, arbitrator, Governmental Entity or other tribunal, including the United States Patent and Trademark Office, the European Patent Office and the United States International Trade Commission, prior to the filing with or provision of such document to the applicable tribunal.

Section 6.9.    References to Seller IP. In connection with any activities by Seller, any of its Affiliates or licensees to Prosecute and Maintain, enforce or defend any IP Rights (including, but not limited to, any IP Rights that disclose or claim KPT-330 and KPT-335) Covered under the Background IP, including by instituting, prosecuting, controlling, or defending any action or proceeding in any country, Seller shall (i) promptly notify Purchaser in writing prior to including any language that refers to, relates to, makes an argument based on, describes, discloses, cites to or otherwise mentions any of the Transferred IP, (ii) provide Purchaser with a reasonable opportunity to comment on any such language relating to the Transferred IP and (iii) in the case of language relating to the Seller IP, obtain Purchaser’s prior written approval regarding the language relating to the Seller IP, such approval not to be unreasonably withheld or delayed.

 

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Section 6.10.    Patent Challenges by Seller of the Transferred IP. If Seller or any of its Affiliates Challenges (or assists or enables any Third Party in Challenging) an IP Right under the Seller IP in any country (such IP Right, a “Challenged IP Right”), then Purchaser may, in its sole discretion, take any or all of the following actions: (a) assign or license such Challenged IP Right to Seller, (b) withhold all payment obligations under this Agreement that become due after the date that Seller or Affiliate Challenges the Challenged IP Right until the validity or enforceability of such Challenged IP Right has been finally judicially determined, and (c) reduce each of the Development Milestone Payments, Commercial Milestone Payments and Net Sales Payment Rates payable under this Agreement by [**] percent ([**]%), in each case (a) to (c), by providing written notice to Seller, and, if Purchaser so chooses, suing Seller for infringement in any forum of competent jurisdiction of Purchaser’s choosing, provided further that Purchaser may reduce its payments to Seller in accordance with Section 3.11.

Section 6.11.    Unblocking License. Seller, on behalf of itself and its Affiliates, hereby grants to Purchaser and its Affiliates a perpetual, non-exclusive, royalty-free, fully paid-up, worldwide license (with the right to grant sublicenses through multiple tiers) under the Background IP that is necessary or useful to Exploit all Royalty Products and the Purchased Assets. Subject to Section 2.5(c), this license is assignable or sub-licensable through multiple tiers, in whole or in part, to any Third Party in a Rights Transfer Event pursuant to Section 8.4(b).

Section 6.12.    Know-How Transfer. To enable Purchaser to Exploit Royalty Products, Seller shall, as promptly as reasonably practicable, enable Purchaser, and/or, at Purchaser’s election, contract manufacturers or other service providers to Purchaser, with respect to the Transferred IP. Without limiting the generality of the foregoing, as described with additional specificity on Schedule 6.12, Seller will deliver to or as directed by Purchaser all books and records included in the Purchased Assets and all copies of Regulatory Materials, documents, files, diagrams, specifications, designs, schematics, reports, records, laboratory notebooks, data, materials, prototypes, test devices, models and simulations, or other written, graphic, biologic, or other tangible material in the possession or under the control of Seller or any Affiliate in any media, to the extent it discloses or embodies Transferred IP or Manufacturing IP. After the Closing Date, as requested by Purchaser from time to time, qualified personnel from Seller or its Affiliates familiar with the books and records included within the Purchased Assets, the Transferred IP and/or the Manufacturing IP will meet or participate in telephone conference calls with personnel from Purchaser or Purchaser’s designee at such times, and in the case of in-person meetings, at such venues, to be agreed upon by the Parties as reasonably necessary to exchange knowledge necessary to fully transfer all of the Purchased Assets, Licensed IP and Manufacturing IP and to enable Purchaser or its designee to Manufacture all Transferred Compounds. Seller shall designate a transition manager to act as the primary contact person with respect to all chemistry, Manufacturing and control (CMC) and Manufacturing-related matters and a transition manager to act as the primary contact person with respect to all other matters

 

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relating to this Section 6.12. Purchaser shall designate one transition manager to act as the primary contact person with respect to all matters relating to this Section 6.12. The names and contact information of each Party’s initial transition managers are set forth in Schedule 6.12. Each Party may replace its transition manager at any time upon written notice to the other Party.

ARTICLE VII

INDEMNIFICATION

Section 7.1.    Indemnification by Seller. Seller shall defend, indemnify and hold harmless Purchaser and its Affiliates and, if applicable, their respective directors and officers, successors and permitted assigns (a “Purchaser Indemnified Party”), from and against any and all damages, losses, Liabilities or other amounts payable to a Third Party claimant, as well as any reasonable attorneys’ fees and costs of Litigation (collectively, the “Losses”) incurred by such Purchaser Indemnified Party to the extent arising from:

(a)    any breach of or inaccuracy in any representation or warranty of Seller set forth in this Agreement (ignoring for this purpose any materiality qualifiers set forth in such representation or warranty);

(b)    any nonfulfillment or breach of any covenant or agreement on the part of Seller set forth in this Agreement; and

(c)    any Excluded Liability.

Section 7.2.    Indemnification by Purchaser. Purchaser agrees to defend, indemnify and hold harmless Seller and its Affiliates and, if applicable, their respective directors and officers, successors and permitted assigns (a “Seller Indemnified Party”), from and against any and all Losses incurred by such Seller Indemnified Party to the extent arising from :

(a)    any breach of or inaccuracy in any representation or warranty of Purchaser set forth in this Agreement (ignoring for this purpose any materiality qualifiers set forth in such representation or warranty):

(b)    any nonfulfillment or breach of any covenant or agreement on the part of Purchaser set forth in this Agreement; and

(c)    any Assumed Liability.

Section 7.3.    Notice of Claims. If any Litigation (in equity or at law) is instituted by a Third Party (a “Third-Party Claim”) with respect to which any of the Persons to be indemnified under this Article VII (the “Indemnified Party”) intends to claim any Loss under this Article VII, the Indemnified Party shall promptly notify the Party from whom indemnification is sought (the “Indemnifying Party”) of such Third-Party Claim (the “Third-Party Claim Notice”). A failure by the Indemnified Party to give notice of any Third-Party Claim in a timely manner pursuant to this Section 7.3 shall not limit the obligation of the Indemnifying Party under this Article VII, except to the extent such Indemnifying Party is actually prejudiced thereby.

 

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Section 7.4.    Indemnification Procedures.

(a)    The Indemnifying Party under this Article VII shall have the right, but not the obligation, exercisable by written notice to the Indemnified Party, to assume the conduct and control, at the expense of the Indemnifying Party and through counsel of its choosing that is reasonably acceptable to the Indemnified Party, any Third-Party Claim, and the Indemnifying Party may compromise or settle the same; provided, that the Indemnifying Party shall give the Indemnified Party advance written notice of any proposed compromise or settlement and shall not, without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed), consent to or enter into any compromise or settlement that commits the Indemnified Party to take, or to forbear to take, any action or does not provide for a full and complete written release by the applicable Third Party of the Indemnified Party. No Indemnified Party may compromise or settle any Third-Party Claim for which it is seeking indemnification hereunder without the consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed). No Indemnifying Party may consent to the entry of any judgment that does not relate solely to monetary damages arising from any such Third-Party Claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed). The Indemnifying Party shall permit the Indemnified Party to participate in, but not control, the defense of any such Third-Party Claim through counsel chosen by the Indemnified Party; provided, that the fees and expenses of such counsel shall be borne by the Indemnified Party. If the Indemnifying Party elects not to control or conduct the defense of a Third-Party Claim, the Indemnifying Party nevertheless shall have the right to participate in the defense of any Third-Party Claim and, at its own expense, to employ counsel of its own choosing for such purpose.

(b)    The Parties shall cooperate in the defense of any Third-Party Claim, with such cooperation to include (i) the retention and the provision to the Indemnifying Party of records and information that are reasonably relevant to such Third-Party Claim and (ii) reasonable access to employees on a mutually convenient basis for providing additional information and explanation of any material provided hereunder.

Section 7.5.    Survival of Representations and Warranties. The representations and warranties of Seller and of Purchaser set forth in this Agreement shall survive the Closing and, except in the case of Fraud, shall expire (a) with respect to representations and warranties contained in Section 4.1 (Organization and Good Standing), Section 4.2 (Authority), Section 4.3(a) (No Conflicts with Organizational Documents), Section 4.5 (Purchased Assets), Section 4.10 (Brokers), Section 5.1 (Organization and Good Standing), Section 5.2 (Authority), Section 5.3(a) (No Conflict with Organizational Documents) and Section 5.7 (Brokers) (the “Fundamental Representations”), upon the expiration of the applicable statute of limitations and (b) with respect to all other representations and warranties, eighteen (18) months after the Closing Date; provided, however, that claims validly asserted prior to the relevant expiry date provided for above shall survive such expiry until final resolution.

 

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Section 7.6.    Limitations.

(a)    Notwithstanding Section 7.1, there shall be no liability for indemnification under Section 7.1(a) or Section 7.2(a) for any individual claim or series of related claims where the Losses related to such claim or series of related claims is less than $[**]; provided that this Section 7.6(a) shall not apply in the case of any Fundamental Representation or in the case of Fraud.

(b)    Notwithstanding Section 7.1, there shall be no liability for indemnification under Section 7.1(a) or Section 7.2(a) unless the aggregate amount of Losses suffered by the Purchaser Indemnified Parties or the Seller Indemnified Parties, as applicable, under this Agreement (excluding claims subject to Section 7.6(a)) exceeds $[**] (the “Seller Indemnification Threshold”), at which time Seller or Purchaser, as applicable, will be obligated to indemnify the Purchaser Indemnified Parties or the Seller Indemnified Parties, as applicable, with respect to the aggregate amount of all Losses described in Section 7.1(a), without regard to the Seller Indemnification Threshold; provided that the Seller Indemnification Threshold shall not apply in the case of any Fundamental Representation or in the case of Fraud.

(c)    The indemnification obligations of Seller or Purchaser under Section 7.1(a) or Section 7.2(a) shall be subject to a limit (the “Cap”) of (i) [**] percent ([**]%) of the aggregate of payments made to Seller until such payments aggregate [**] dollars ($[**]) and [**]%) of any additional payments made to Seller, provided, however, that the Cap shall not apply in the case of Fraud or in the case of indemnification obligations in respect of any breaches of or inaccuracies in any Fundamental Representation, which obligations (when aggregated with Seller’s or Purchaser’s other indemnification obligations under Section 7.1(a) or Section 7.2(a), as applicable), together with Seller’s and Purchaser’s respective indemnification obligations under Section 7.1(b) and Section 7.2(b), as applicable, shall be limited to an amount equal to an amount, in the aggregate, equal to the total amount of all payments made to Seller hereunder.

(d)    The amount of Losses recoverable by the Indemnified Party under this Article VII shall be reduced, on a dollar-for-dollar basis, by the amount of any insurance proceeds or other third party recoveries received by the Indemnified Party in connection with a claim under this Article VII (net of any costs of obtaining such recovery and increases in premiums resulting from such Losses which are borne by the Indemnified Party).

Section 7.7.    Exclusive Remedy. Absent Fraud, the Parties’ sole and exclusive remedy under this Agreement after the Closing with respect to the transactions contemplated hereby shall be indemnification provided in this Article VII, provided that, Section 7.7 shall not affect the Parties’ rights to specific performance or other equitable remedies available pursuant to Section 8.10. Seller and Purchaser each hereby waive any provision of applicable Law to the extent that it would conflict with this Section 7.7.

 

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ARTICLE VIII

MISCELLANEOUS

Section 8.1.    Further Assurances and Post-Closing Covenants. From time to time after the Closing, and for no further consideration, each of the Parties shall, and shall cause its Affiliates to, execute, acknowledge and deliver such assignments, transfers, consents, assumptions and other documents and instruments and take such other commercially reasonable actions as may reasonably be requested to more effectively assign, convey or transfer to or vest in Purchaser the Purchased Assets and the Assumed Liabilities contemplated by this Agreement to be transferred or assumed at the Closing (including transferring, at no additional cost to Purchaser, any Purchased Asset contemplated by this Agreement to be transferred to Purchaser at the Closing and that was not so transferred at the Closing).

Section 8.2.    Notices. All notices or other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the Party for whom it is intended, delivered by registered or certified mail, return receipt requested, or by a national overnight courier service, or sent by electronic means or facsimile (provided, that notice by electronic means or facsimile is promptly confirmed by telephone confirmation thereof and , in the case of facsimile, receipt is promptly confirmed by the sending facsimile machine), to the Person at the address or facsimile number set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such Person:

(a)    If to Seller, to:

Karyopharm Therapeutics Inc.

85 Wells Avenue, Ste 210

Newton, MA 02459

Facsimile: [**]

Attention: Chief Executive Officer

with a copy to:

Karyopharm Therapeutics Inc.

85 Wells Avenue, Ste 210

Newton, MA 02459

Facsimile: [**]

Attention: General Counsel

with a copy to:

WilmerHale LLP

60 State Street

Boston, MA 02109

Facsimile: 617-526-5000

Attention: Steven D. Singer, Esq.

 

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(b)    If to Purchaser, to:

Biogen MA Inc.

225 Binney Street

Cambridge, MA 02142

Facsimile:     [**]

Attention:     Executive Vice President, Chief Legal Corporate Services and Secretary

with a copy to:

Ropes & Gray LLP

Prudential Tower, 800 Boylston Street

Boston, MA 02199-3600

Telephone: (617) 951-7809

Facsimile: [**]

Attention: Christopher D. Comeau, Esq.

All notices and other communications under this Agreement shall be deemed to have been received (i) when delivered by hand, if personally delivered, (ii) three (3) Business Days after being delivered by registered or certified mail, return receipt requested, (iii) one (1) Business Day after being delivered to a national overnight courier service or (iv) on the date of receipt, if sent by facsimile, with a telephonic acknowledgment of sending and confirmation of receipt by the sending facsimile machine.

Section 8.3.    Amendment; Waiver. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed (a) in the case of an amendment, by Purchaser and Seller and (b) in the case of a waiver, by the Party against whom the waiver is to be effective. No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

Section 8.4.    Assignment.

(a)    Neither Party may assign or transfer (whether by operation of law or otherwise) this Agreement or any rights (including any rights to payments) or obligations hereunder without the prior written consent of the other, except (i) in connection with a Rights Transfer Event pursuant to Section 8.4(b), (ii) Seller may make an assignment, in whole or in part, without Purchaser’s consent to an Affiliate or to a successor of Seller, whether in a merger, sale of all or substantially all of Seller’s assets, sale of at least a majority of Seller’s stock with the intent to

 

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change ownership or other transaction intended to be an acquisition of Seller, and (iii) Purchaser may make an assignment, in whole or in part, on a product-by-product, country-by-country basis without Seller’s consent to an Affiliate or to a successor to substantially all of the business to which this Agreement relates, whether in a merger, sale of stock, sale of assets, reorganization or other transaction; provided that, in the cases of (ii) and (iii) such permitted successor or assignee of obligations hereunder has expressly assumed performance of such obligations (and in any event, any Party assigning this Agreement will remain bound by the terms and conditions hereof, subject to Section 8.4(c)). Any permitted assignment will be binding on and inure to the benefit of the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 8.4 will be null, void and of no legal effect.

(b)    If Purchaser determines in good faith that a Third Party has the capabilities and access to financial resources required to Develop a Royalty Product and make the payments required to be made to Seller under this Agreement (a “Permitted Third Party Assignee”), Purchaser may consummate a transaction (a “Rights Transfer Event”) that enables such Permitted Third Party Assignee to research, Develop, market and/or sell such a Royalty Product (if applicable, following further Development and Regulatory Approval) through the transfer, assignment, license, sub-license, sale or other disposition of any Transferred IP from Purchaser to such Permitted Third Party Assignee. In connection with a Rights Transfer Event, if requested by Purchaser, Seller shall engage in a good faith negotiation to amend the definition of “Net Sales,” Section 3.3, Section 3.5 and other provisions of this Agreement to align such provisions with corresponding concepts set forth in the definitive documentation for such Rights Transfer Event, in furtherance of harmonizing the provisions of this Agreement with the definitive agreement effecting the Rights Transfer Event, provided that that foregoing shall not be construed to require that Seller agree to any terms that materially differ from the provisions of this Agreement.

(c)    Purchaser’s obligations hereunder shall terminate, and Purchaser shall be relieved of any liability or obligation thereafter with respect thereto, to the extent such obligations are assumed by a Permitted Third-Party Assignee in connection with a Rights Transfer Event and such Permitted Third-Party Assignee executes an enforceable agreement acknowledging its obligations under this Agreement and agreeing that Seller shall have the right to enforce this Agreement directly against such Permitted Third-Party Assignee.

Section 8.5.    Entire Agreement. This Agreement, together with all other documents and instruments referenced herein, including the Ancillary Agreements, contains the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, but excluding the Confidentiality Agreement, which shall remain in full force and effect for the term provided for therein.

Section 8.6.    No Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than Purchaser, Seller or their successors or permitted assigns, any rights or remedies under or by reason of this Agreement.

 

52


Section 8.7.    Public Disclosure.

(a)    Purchaser and its Affiliates shall have the right to issue press releases at any time and in any form, provided that, for the initial press release following the execution of this Agreement, both Purchaser and Seller and their respective Affiliates may issue a press release as long as (i) such press release is provided to the other Party for its review and comment, and (ii) the other Party approves the issuance of such initial press release, such approval not to be unreasonably withheld or delayed. Thereafter, Seller agrees not to issue any press release or other public statement, whether written, electronic, oral or otherwise, disclosing the existence of this Agreement, the terms hereof, the transactions contemplated therein, or any information relating to or development made under this Agreement without the prior written consent of Purchaser, provided that Seller shall not be required to seek the permission of Purchaser to repeat any such information that has already been publicly disclosed by Purchaser or its Affiliates or licensees so long as such information remains true, correct and consistent with the most recent information publicly disclosed by Purchaser or its Affiliates or licensees on the applicable topic as of such time of disclosure by Seller.

(b)    However, the provisions of this Section 8.7 shall not prohibit (i) any disclosure required to comply with the requirements of any applicable Law or the rules of any nationally recognized stock exchange (in which case such Party shall notify the other Party promptly and shall use commercially reasonable efforts to provide the other Party with a copy of the contemplated disclosure prior to submission or release, as the case may be), and (ii) any disclosure made in connection with the enforcement of any right or remedy relating to this Agreement or the transactions contemplated herein.

Section 8.8.    Publishing and Use of Trademarks.

(a)    Neither Party (nor any of its Affiliates or agents) shall use the registered or unregistered Trademarks, service marks, trade dress, trade names, logos, insignia, domain names, symbols or designs of the other Party or its Affiliates in any press release, publication or other form of promotional disclosure without the prior written consent of the other Party in each instance.

(b)    The Parties recognize the desirability of publishing and publicly disclosing the results of, and scientific information regarding, activities under this Agreement. Accordingly, during the Term, Purchaser will be free to publish and present the results of and information regarding activities under this Agreement, provided that if Purchaser reasonably determines that the proposed publication contains Confidential Information of Seller, Purchaser shall deliver to Seller a copy of the proposed publication or presentation at least [**] days prior to submission for publication or presentation to enable Seller to identify any Confidential Information of Seller which Purchaser shall be required to delete. If Seller wishes to publish or present any information or results relating to any asset under the Transferred IP, Seller shall (a) deliver to

 

53


Purchaser a copy of the proposed written publication or an outline of the proposed presentation at least [**] days prior to submission for publication or presentation in order to give Purchaser the opportunity to comment on such publication or presentation; (b) agree to all reasonable comments and proposed changes of Purchaser to the proposed publication or presentation; and (c) obtain the prior written consent of Purchaser, such consent to be given in the absolute discretion of the Purchaser.

Section 8.9.    Confidentiality; Return of Information.

(a)    The Confidentiality Agreement, to the extent it restricts disclosure or use of Purchased Assets by Purchaser, is hereby amended such that is ceases to do so.

(b)    Each Party shall, and shall cause its Affiliates to, keep confidential and not use, all Confidential Information, including information received from the other Party or a designee in the context of such Party’s performance of its obligations under this Agreement that constitutes Confidential Information, including all Know-How included in the Seller IP, except (A) as required by Law, including under the Order of a Governmental Entity, (B) as necessary to arbitrate, defend or prosecute any indemnification claim or any Litigation or dispute or (C) for information that is available to the public on the Closing Date, or thereafter becomes available to the public other than as a result of a breach of this Section 8.9(b), or is furnished to the other Party after the Closing by a Third Party that, to the knowledge of such Party, is under no obligation of confidentiality to the other Party with respect to such information.

Section 8.10.    Equitable Relief. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement is not performed in accordance with its specific terms or is otherwise breached. It is accordingly agreed that the non-breaching Party shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which Purchaser is entitled at law or in equity. Each Party hereby waives (i) any requirement that the other Party post a bond or other security as a condition for obtaining any such relief and (ii) any defenses in any action for specific performance, including the defense that a remedy at Law would be adequate. Notwithstanding the foregoing, Seller acknowledges that damages would be an adequate remedy for any breach by Purchaser of Section 3.8(a), and hereby waives any right to equitable relief in respect of any breach of such provision.

Section 8.11.    Expenses. Except as otherwise provided in this Agreement, whether or not the Closing takes place, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs and expenses.

Section 8.12.    Governing Law; Jurisdiction; Venue and Service.

(a)    Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the Commonwealth of Massachusetts, excluding any conflicts or choice of Law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

 

54


(b)    Jurisdiction. The Parties hereby irrevocably and unconditionally consent to the exclusive jurisdiction of the courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts for any action, suit or proceeding (other than appeals therefrom) arising out of or relating to this Agreement and agree not to commence any action, suit or proceeding (other than appeals therefrom) related thereto except in such courts. The Parties irrevocably and unconditionally waive their right to a jury trial.

(c)    Venue. The Parties further hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding (other than appeals therefrom) arising out of or relating to this Agreement in the courts of the Commonwealth of Massachusetts or in the United States District Court for the District of Massachusetts, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

(d)    Service. Each Party further agrees that service of any process, summons, notice or document by registered mail to its address set forth in Section 8.2 shall be effective service of process for any action, suit or proceeding brought against it under this Agreement in any such court.

Section 8.13.    Counterparts. This Agreement may be executed in counterparts, and by the Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission or by e-mail of a .pdf attachment shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 8.14.    Headings. The heading references herein and the table of contents hereto are for convenience purposes only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

Section 8.15.    Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any term or other provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid, illegal or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity, illegality or unenforceability, nor shall such invalidity, illegality or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

 

55


Section 8.16.    Force Majeure. Except for the obligation to pay money when due, neither Party shall be liable to the other for failure or delay in the performance of any of its obligations under this Agreement for the time and to the extent such failure or delay is caused by a Force Majeure. The Party affected by the Force Majeure shall provide the other Party in writing with full particulars thereof as soon as it becomes aware of the same (including its best estimate of the likely extent and duration of the interference with its activities), and will use commercially reasonable efforts to overcome the difficulties created thereby and to resume performance of its obligations as soon as practicable. For the avoidance of doubt, under no circumstances shall the alleged or actual inability to pay money be considered a Force Majeure.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

 

56


IN WITNESS WHEREOF, the Parties have executed or caused this Agreement to be executed as of the date first written above.

 

PURCHASER:
BIOGEN MA INC.
By:  

        /s/ Michael Ehlers

  Name:   Michael Ehlers
  Title:   EVP, Research & Development

[Signature Page to Asset Purchase Agreement]


SELLER:
KARYOPHARM THERAPEUTICS INC.
By:  

        /s/ Michael G. Kauffman

  Name:   Michael G. Kauffman
  Title:   Chief Executive Officer

[Signature Page to Asset Purchase Agreement]

 

58


Schedule 1.1(a)

Knowledge of Seller

Karyopharm Representatives:

Chief Executive Officer

Chief Scientific Officer

General Counsel

Chief Financial Officer

Head of Business Development

Head of Pharmaceutical Sciences

 

59


Schedule 1.1(b)

Description of Molecules

KPT-350

 

LOGO

KPT-420

[**]

 

60


Schedule 2.1(a)(i)

Assumed Contracts

(currently active)

[**]

 

61


Schedule 2.1(a)(iv)

Product Registrations & Regulatory Materials

[**]

 

62


Schedule 2.5(d)(i)

Research Projects

 

 

Active Industry Collaborations

Company

   Source
and
Amount of
Funding
  Indication/model   Contact person   Study status    Amount of
compound

Sensorion

   N/A   [**]   [**]   Will begin Dec
1st.2017
   1.3 gram

Active Academia Collaborations

 

Institute

   Source
and
Amount of
Funding
  Indication/model   Contact person   Study status    Amount of
compound

[**]

   N/A   [**]   [**]   On-going    100mg

[**]

   N/A   [**]   [**]   On-going    100mg

[**]

   N/A   [**]   [**]   On-going    100mg

[**]

   ALSA
$[**] total

 

2 years

  [**]   [**]   Will end by
July 2018
   1 gram

[**]

   ALSA

$[**] total

 

3 years

  [**]   [**]   Will begin Dec
1, 2017
   5 gram

[**]

   MDA

$[**] total

 

3 years

  [**]   [**]   Will begin Feb
1, 2018
   TBD

[**]

   NT$[**]
(about US
$[**])
total

 

1 year

  [**]   [**]   Started on Aug
2017
   100 mg

 

63


Schedule 2.10

Transition Plan

 

1. Technology Transfer

 

  a. Within [**] of the date of the Agreement, the Seller shall transfer to the Purchaser all materials identified in Schedule 6.12 of the Agreement.

 

  b. For a period of [**] following the date of the Agreement, the Seller will make available to the Purchaser as reasonably requested for transition purposes the Seller’s transition manager that will act as the primary contact person with respect to all chemistry, Manufacturing and control (CMC) and Manufacturing-related matters.

 

2. Non-Oncology Program

 

  a. For a period of [**] following the date of the Agreement, the Seller will make available to the Purchaser as reasonably requested for transition purposes one or more of Seller’s employees responsible for the Seller’s non-oncology program.

 

64


Schedule 4.6(b)

Assumed Contracts Containing Covenants that Affect Marketability

N/A

 

65


Schedule 4.7(a)(i)

Seller IP

 

Country

   Application
Status
  Application No.   Filing Date   Publication No./
Publication Date
   Patent No./
Patent Date

[**]

   [**]   [**]   [**]     

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 2 pages were omitted. [**]

Last Updated: December 18, 2017

 

                                                             

 

66


Schedule 4.7(a)(ii)

Licensed IP

[**]

 

Country

   Application
Status
  Application
No.
  Filing
Date
  Publication
No.
  Publication
Date
  Patent No.   Patent
Date

[**]

   [**]   [**]   [**]   [**]   [**]   [**]   [**]

[**]

   [**]   [**]   [**]       [**]   [**]

[**]

   [**]   [**]   [**]   [**]   [**]   [**]   [**]

[**]

   [**]   [**]   [**]       [**]   [**]

 

67


Schedule 4.7(c)

IP Contracts that Provide Rights to Third Parties

N/A

 

68


Schedule 4.7(l)

Government and Third Party IP Rights

N/A

 

69


Schedule 4.8

Inventory

 

Material Description

   Manufacturer’s
Lot Number
  Quantity

[**]

   [**]   [**]

[**]

 

Material Description

   Manufacturer’s
Lot Number
  Quantity
(No. of bottles)

[**]

   [**]   [**]

[**]

   [**]   [**]

[**]

   [**]   [**]

[**]

   [**]   [**]

[**]

   [**]   [**]

[**]

   [**]   [**]

Drug Product Expiry: [**]

 

Material Description

   Manufacturer’s
Lot Number
  Quantity

[**]

   [**]   [**]

[**]

 

70


Schedule 6.12

Know-How Transfer

KPT-350 Documents

 

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 4 pages were omitted. [**]

 

71


Exhibit A

Instrument of Assignment and Assumption

This Instrument of Assignment and Assumption is made, executed and delivered as of January [—], 2018 by and between Karyopharm Therapeutics Inc., a Delaware corporation, with its principal corporate offices at 85 Wells Avenue, Newton, MA 02459 (“Seller”) and Biogen MA Inc., a Massachusetts corporation, with its principal corporate offices at 225 Binney Street, Cambridge, MA 02142 (“Purchaser”).

For good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, and as contemplated by Section 2.1 of that certain Asset Purchase Agreement, dated as of the date hereof, by and between Purchaser and Seller (the “Asset Purchase Agreement”) (capitalized terms used but not defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement), Seller hereby sells, transfers, assigns, conveys, grants and delivers to Purchaser, effective as of Closing, all of Seller’s right, title and interest in and to the assets and rights described on Schedule A hereto (the “Purchased Assets”), and, as contemplated by Section 2.3 of the Asset Purchase Agreement and subject to the terms therein, Purchaser hereby assumes, effective as of the Closing, from Seller and agrees to perform and discharge the Assumed Liabilities.

This Instrument of Assignment and Assumption shall be binding upon and shall inure to the benefit of the respective successors and assigns of Purchaser and its Affiliates and the Seller and its Affiliates.

This Instrument of Assignment and Assumption is not intended to in any way conflict with the rights and obligations of the Purchaser and Seller set forth in the Asset Purchase Agreement, and in the event of any conflict or inconsistency between the terms of the Asset Purchase Agreement and the terms of this Instrument of Assignment and Assumption, the terms of the Asset Purchase Agreement shall control.

This Instrument of Assignment and Assumption may be executed in any number of counterparts, including by facsimile copies or by electronic copies delivered by email, each of which will be deemed an original, with the same effect as if the signatures were upon the same instrument.

[Remainder of Page Intentionally Left Blank]


IN WITNESS WHEREOF, Seller and Purchaser have executed this Instrument of Assignment and Assumption as of the date first above written.

 

KARYOPHARM THERAPEUTICS INC.
By:  

                                                              

Name:  
Title:  
BIOGEN MA, INC.
By:  

 

Name:  
Title:  

 

[SIGNATURE PAGE TO INSTRUMENT OF ASSIGNMENT AND ASSUMPTION]


Schedule A

Purchased Assets

 

1. Assumed Contracts;

 

2. Seller IP;

 

3.