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What changed in INSMED Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of INSMED Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+470 added−411 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-23)

Top changes in INSMED Inc's 2023 10-K

470 paragraphs added · 411 removed · 352 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

158 edited+55 added−18 removed284 unchanged
Biggest changeEight patents have been granted by the European Patent Office (EPO) (European Patent Nos. 1581236, 1909759, 1962805, 2823820, 3067046, 3142643, 3427742 and 3466432) that relate to ARIKAYCE and its use in treating NTM, including MAC lung infections. In addition, we have three patent applications pending before the EPO that relate to ARIKAYCE and its use in treating NTM lung disease.
Biggest changeWe anticipate that in the US, we will have patent coverage for ARIKAYCE and its use in treating NTM lung disease, including NTM lung disease caused by MAC, through May 15, 2035. 15 Table of Contents Ten patents have been granted by the European Patent Office (EPO) (European Patent Nos. 1581236, 1909759, 1962805, 2823820, 2852391, 3067046, 3142643, 3427742, 3466432 and 3766501) that relate to ARIKAYCE and its use in treating NTM, including MAC infections.
The benefits of breakthrough therapy designation include more frequent communication and meetings with FDA, eligibility for rolling and priority review, intensive guidance on an efficient drug development program, and organizational commitment from the FDA involving senior managers. In November 2020, brensocatib was granted access to the PRIME scheme from the European Medicines Agency (EMA) for patients with NCFBE.
The benefits of breakthrough therapy designation include more frequent communication and meetings with the FDA, eligibility for rolling and priority review, intensive guidance on an efficient drug development program, and organizational commitment from the FDA involving senior managers. In November 2020, brensocatib was granted access to the PRIME scheme from the European Medicines Agency (EMA) for patients with NCFBE.
Manufacturing We do not have any in-house manufacturing capability other than for small-scale preclinical development programs, and depend completely on a small number of third-party manufacturers and suppliers for the manufacture of our product candidates for use in clinical trials.
Manufacturing We do not have any in-house manufacturing capability other than for small-scale preclinical development programs and we depend completely on a small number of third-party manufacturers and suppliers for the manufacture of our product candidates for use in clinical trials.
PARI is entitled to receive royalty payments in the mid-single digits on the annual global net sales of ARIKAYCE pursuant to the licensing agreement, subject to certain specified annual minimum royalties.
PARI is entitled to receive royalty payments in the mid-single digits on annual global net sales of ARIKAYCE pursuant to the licensing agreement, subject to certain specified annual minimum royalties.
Additionally, under federal law (as amended by the most recent reauthorization of the Prescription Drug User Fee Act (PDUFA VII) in the FDA Reauthorization Act of 2022), most NDAs and BLAs are subject to a substantial application fee and, upon approval, the applicant will be assessed an annual prescription drug program fee, both of which are adjusted annually.
Additionally, under federal law (as amended by the most recent reauthorization of the Prescription Drug User Fee Act (PDUFA VII) in the FDA User Fee Reauthorization Act of 2022), most NDAs and BLAs are subject to a substantial application fee and, upon approval, the applicant will be assessed an annual prescription drug program fee, both of which are adjusted annually.
NDAs and BLAs for orphan drugs are not subject to an application fee, unless the application includes an indication other than an orphan-designated indication. FDA also has the authority to grant waivers of certain user fees, pursuant to the FDCA.
NDAs and BLAs for orphan drugs are not subject to an application fee, unless the application includes an indication other than an orphan-designated indication. The FDA also has the authority to grant waivers of certain user fees, pursuant to the FDCA.
FDA will not approve the product unless, among other requirements, compliance with current good manufacturing practice (cGMP) is satisfactory and the NDA or BLA contains data that provide substantial evidence of effectiveness for the proposed indication, generally consisting of adequate and well-controlled clinical investigations, and that the drug is safe for use under the conditions of use in the proposed labeling.
The FDA will not approve the product unless, among other requirements, compliance with current good manufacturing practice (cGMP) is satisfactory and the NDA or BLA contains data that provide substantial evidence of effectiveness for the proposed indication, generally consisting of adequate and well-controlled clinical investigations, and that the drug is safe for use under the conditions of use in the proposed labeling.
If granted, the applicant is eligible for actions to expedite development and review, such as frequent interaction with the review team, as well as for rolling review, meaning that the applicant may submit sections of the application as they are available.
If granted, the applicant is eligible for actions to expedite development and review, such as frequent interaction with the review team, as well as rolling review, meaning that the applicant may submit sections of the application as they are available.
The timing of FDA's review of these sections depends on a number of factors, and the review clock does not start running until the agency has received a complete NDA or BLA submission. The FDA may withdraw fast track designation if the agency determines that the designation is no longer supported by data emerging in the drug development process.
The timing of the FDA's review of these sections depends on a number of factors, and the review clock does not start running until the agency has received a complete NDA or BLA submission. The FDA may withdraw fast track designation if the agency determines that the designation is no longer supported by data emerging in the drug development process.
The total post-NDA or BLA approval patent term including the extension may not exceed 14 years. The extension also can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. For patents that might expire while a patent term extension application is pending, the patent owner may request an interim patent term extension.
The total post-NDA or BLA approval patent term including the extension may not exceed 14 years. The extension also can be shortened if the FDA determines that the NDA/BLA applicant did not pursue approval with due diligence. For patents that might expire while a patent term extension application is pending, the patent owner may request an interim patent term extension.
A drug that has been designated as both an orphan drug and a QIDP for the same indication, like ARIKAYCE, might be eligible for a combined 12 years of exclusivity for that indication. Under the PHSA, FDA recognizes reference product exclusivity starting from the first licensure of a biological product.
A drug that has been designated as both an orphan drug and a QIDP for the same indication, like ARIKAYCE, might be eligible for a combined 12 years of exclusivity for that indication. Under the PHSA, the FDA recognizes reference product exclusivity starting from the first licensure of a biological product.
If the PMOA is unclear or in dispute, a sponsor may file a Request for Designation with FDA’s Office of Combination Products (OCP), which will render a determination and assign a lead Center. OCP generally assigns jurisdiction based on PMOA.
If the PMOA is unclear or in dispute, a sponsor may file a Request for Designation with the FDA’s Office of Combination Products (OCP), which will render a determination and assign a lead Center. OCP generally assigns jurisdiction based on PMOA.
The FDCA directs the FDA to conduct a review of a combination product under a single marketing application whenever appropriate. Applicants may choose to submit separate applications for constituent parts of a combination product (unless the FDA determines one application is necessary), and in limited situations, FDA may determine an application for each constituent part is warranted.
The FDCA directs the FDA to conduct a review of a combination product under a single marketing application whenever appropriate. Applicants may choose to submit separate applications for constituent parts of a combination product (unless the FDA determines one application is necessary), and in limited situations, the FDA may determine an application for each constituent part is warranted.
There also are continuing, annual user fee requirements. The FDA regulates the content and format of prescription drug labeling, advertising, and promotion, including direct-to-consumer advertising and promotional Internet communications. FDA also establishes parameters for permissible non-promotional communications between industry and the medical community, including industry-supported scientific and educational activities.
There also are continuing, annual user fee requirements. The FDA regulates the content and format of prescription drug labeling, advertising, and promotion, including direct-to-consumer advertising and promotional Internet communications. The FDA also establishes parameters for permissible non-promotional communications between industry and the medical community, including industry-supported scientific and educational activities.
These patents and their expiration dates are as follows: • US Patent No. 7,718,189 (expires June 6, 2025) • US Patent No. 8,226,975 (expires August 15, 2028) • US Patent No. 8,632,804 (expires December 5, 2026) • US Patent No. 8,802,137 (expires April 8, 2024) • US Patent No. 8,679,532 (expires December 5, 2026) • US Patent No. 8,642,075 (expires December 5, 2026) • US Patent No. 9,566,234 (expires January 18, 2034) • US Patent No. 9,827,317 (expires April 8, 2024) • US Patent No. 9,895,385 (expires May 15, 2035) • US Patent No. 10,251,900 (expires May 15, 2035) • US Patent No. 10,751,355 (expires May 15, 2035) • US Patent No. 11,446,318 (expires May 15, 2035) In addition, we own five pending US patent applications that cover the ARIKAYCE composition and/or its use in treating NTM, including MAC lung infections.
These patents and their expiration dates are as follows: • US Patent No. 7,718,189 (expires June 6, 2025) • US Patent No. 8,226,975 (expires August 15, 2028) • US Patent No. 8,632,804 (expires December 5, 2026) • US Patent No. 8,802,137 (expires April 8, 2024) • US Patent No. 8,679,532 (expires December 5, 2026) • US Patent No. 8,642,075 (expires December 5, 2026) • US Patent No. 9,566,234 (expires January 18, 2034) • US Patent No. 9,827,317 (expires April 8, 2024) • US Patent No. 9,895,385 (expires May 15, 2035) • US Patent No. 10,251,900 (expires May 15, 2035) • US Patent No. 10,751,355 (expires May 15, 2035) • US Patent No. 11,446,318 (expires May 15, 2035) In addition, we own five pending US patent applications that cover the ARIKAYCE composition and/or its use in treating NTM, including MAC infections.
Based on information from external sources, including market research funded by us and third parties, and internal analyses and calculations, we estimate the potential addressable market at launch in the US, the European 5 and Japan will be as follows (approximately): Potential Market Estimated Number of Patients Diagnosed with NCFBE United States 450,000 European 5 400,000 Japan 150,000 Today, there are no approved therapies in the US, Europe, or Japan for the treatment of patients with bronchiectasis.
Based on information from external sources, including market research funded by us and third parties, and internal analyses and calculations, we estimate the potential addressable market in bronchiectasis at launch in the US, the European 5 and Japan will be as follows (approximately): Potential Market Estimated Number of Patients Diagnosed with Bronchiectasis United States 450,000 European 5 400,000 Japan 150,000 Today, there are no approved therapies in the US, Europe, or Japan for the treatment of patients with bronchiectasis.
Under the Best Pharmaceuticals for Children Act (BPCA), pediatric research is incentivized by the possibility of six months of pediatric exclusivity, which if granted, is added to existing statutory and patent-based exclusivity periods listed for the applicable drug in the FDA's Orange Book at the time PDA determines that the sponsor has satisfied the FDA's "written request" for pediatric research, provided that FDA makes such determination at least nine months before the expiration of such exclusivity period.
Under the Best Pharmaceuticals for Children Act (BPCA), pediatric research is incentivized by the possibility of six months of pediatric exclusivity, which if granted, is added to existing statutory and patent-based exclusivity periods listed for the applicable drug in the FDA's Orange Book at the time the FDA determines that the sponsor has satisfied the FDA's "written request" for pediatric research, provided that the FDA makes such determination at least nine months before the expiration of such exclusivity period.
However, the guidelines of the MHLW (Handling of Pharmaceuticals during the Reexamination Interval Period (Issue No. 107, February 1, 1999) and Enforcement of the Ministerial Ordinance Partially Revising the Ministerial Ordinance on Standards for Post-marketing Surveillance of Pharmaceutical Products and Review of Post-marketing Surveillance for the Reexamination of Pharmaceutical Products (No. 1324, December 27, 2000)) state as follows: (i) since information on pediatric patients obtained in clinical trials may be limited, the MHLW recommends that pharmaceutical manufacturers conduct adequate post-marketing surveillance during the reexamination interval period and collect as much information as possible for proper use of drugs for pediatric patients; and (ii) if a pharmaceutical manufacturer plans to conduct a clinical trial to set the dose of a pediatric drug to prepare application for manufacturing/marketing approval or after receiving the same approval, the reexamination interval period may be extended up to 10 years.
However, the guidelines of the MHLW (Handling of Pharmaceuticals during the Reexamination Interval Period (Issue No. 107, February 1, 1999) and Enforcement of the Ministerial Ordinance Partially Revising the Ministerial Ordinance on Standards for Post-marketing Surveillance of Pharmaceutical Products and Review of Post-marketing Surveillance for the Reexamination of Pharmaceutical Products (No. 1324, December 27, 2000)) state as follows: (i) since information on pediatric patients obtained in clinical trials may be limited, the MHLW recommends that pharmaceutical manufacturers conduct adequate post-marketing surveillance during the reexamination interval period and collect as much information as possible for proper use of drugs for pediatric patients; and (ii) if a pharmaceutical manufacturer plans to conduct a clinical trial to set the dose of a pediatric drug to prepare application for manufacturing/marketing approval or after receiving the same approval, the reexamination interval period may be extended up to ten years.
On the one hand, the PIP may allow a deferral for one or more of the studies or measures included therein in order not to delay the approval of the drug in adults, and, on another hand, the EMA may grant either a product-specific waiver for the (adult) disease/condition or one or more pediatric subsets or a class waiver for the disease/condition.
A PIP may allow for one or more waivers or deferral for one or more of the studies or measures included therein in order not to delay the approval of the drug in adults, and, on another hand, the EMA may grant either a product-specific waiver for the (adult) disease/condition or one or more pediatric subsets or a class waiver for the disease/condition.
In September 2018, the FDA granted accelerated approval for ARIKAYCE under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) for the treatment of refractory MAC lung disease as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options via the accelerated approval pathway.
In September 2018, the FDA granted accelerated approval for ARIKAYCE under the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) for the treatment of refractory MAC lung disease as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options.
We also own a pending US application that covers methods for making ARIKAYCE. One or more of these patent applications, if issued as patents in their current form, may be eligible for listing in the FDA Orange Book for ARIKAYCE.
One or more of the patent applications, if issued as patents in their current form, may be eligible for listing in the FDA Orange Book for ARIKAYCE. We also own a pending US application that covers methods for making ARIKAYCE.
Japan 18 Table of Contents The MHLW may, after hearing the opinion of the Pharmaceutical Affairs and Food Sanitation Council, grant orphan drug designation to a drug intended to treat a rare disease or condition if the drug meets the following conditions: (i) the number of target patients is less than 50,000 in Japan, (ii) the necessity of orphan drug designation is high from a medical point of view, (iii) there are sufficient theoretical grounds to use the drug for the target disease, and (iv) the plan for development of the drug is appropriate.
Japan The MHLW may, after hearing the opinion of the Pharmaceutical Affairs and Food Sanitation Council, grant orphan drug designation to a drug intended to treat a rare disease or condition if the drug meets the following conditions: (i) the number of target patients is less than 50,000 in Japan; (ii) the necessity of orphan drug designation is high from a medical point of view; (iii) there are sufficient theoretical grounds to use the drug for the target disease; and (iv) the plan for development of the drug 20 Table of Contents is appropriate.
To obtain manufacturing/marketing approval for a new product, a Company must submit an application for approval to the MHLW with results of nonclinical and clinical studies to show the quality, efficacy and safety of the product candidate.
To obtain manufacturing/marketing approval for a new product, a Company must submit an application for approval to the MHLW with results of CMC, nonclinical and clinical studies to show the quality, efficacy and safety of the product candidate.
European Union The EC grants orphan drug designation to promote the development of drugs or biologics (1) for life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the EU, or (2) for life threatening, seriously debilitating or serious and chronic condition in the EU where, without incentives, sales of the drug in the European Economic Area (the EU plus Iceland, Lichtenstein and Norway) (EEA) are unlikely to be sufficient to justify its development.
European Union The EMA grants orphan drug designation to promote the development of drugs or biologics (1) for life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the EU, or (2) for life threatening, seriously debilitating or serious and chronic condition in the EU where, without incentives, sales of the drug in the European Economic Area (the EU plus Iceland, Lichtenstein and Norway) (EEA) are unlikely to be sufficient to justify its development.
When there are no other combination products that present similar questions of safety and effectiveness with regard to the combination product as a whole, the agency will assign the combination product to the Center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product. 23 Table of Contents When evaluating an application or other marketing submission for a combination product, a lead Center may consult other Centers, or it may assign review of a specific section of the application to another Center, delegating its review authority for that section.
When there are no other combination products that present similar questions of safety and effectiveness with regard to the combination product as a whole, the agency will assign the combination product to the Center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product. 25 Table of Contents When evaluating an application or other marketing submission for a combination product, a lead Center may consult other Centers, or it may assign review of a specific section of the application to another Center, delegating its review authority for that section.
An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs or BLAs. 24 Table of Contents As previously mentioned, the FDA also may require Phase 4 studies and may require a REMS, which could restrict the distribution or use of the product.
An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs or BLAs. 26 Table of Contents As previously mentioned, the FDA also may require Phase 4 studies and may require a REMS, which could restrict the distribution or use of the product.
Based on an analysis conducted in 2017, using information from external sources, including market research funded by us and third parties, and internal analyses 9 Table of Contents and calculations, we estimated the potential patient population s i n the US, the European 5 (comprised of France, Germany, Italy, Spain and the UK) and Japan in 2019 were as follows: Potential Market Estimated Number of Patients with Diagnosed NTM Lung Disease Estimated Number of Patients Treated for MAC Lung Disease Estimated Number of MAC lung disease Patients Refractory to Treatment United States 95,000-115,000 48,000-55,000 12,000-17,000 European 5 14,000 4,400 1,400 Japan 125,000-145,000 60,000-70,000 15,000-18,000 We are not aware of any other approved inhaled therapies specifically indicated for NTM lung disease in North America, Europe or Japan.
Based on an analysis conducted in 2017, using information from external sources, including market research funded by us and third parties, and internal analyses and calculations, we estimated the potential patient population s i n the US, the European 5 (comprised of France, Germany, Italy, Spain and the United Kingdom (UK)) and Japan in 2019 were as follows: Potential Market Estimated Number of Patients with Diagnosed NTM Lung Disease Estimated Number of Patients Treated for MAC Lung Disease Estimated Number of MAC lung disease Patients Refractory to Treatment United States 95,000-115,000 48,000-55,000 12,000-17,000 European 5 14,000 4,400 1,400 Japan 125,000-145,000 60,000-70,000 15,000-18,000 We are not aware of any other approved inhaled therapies specifically indicated for NTM lung disease in North America, Europe or Japan.
These initiatives include investigator-initiated studies, which are clinical studies initiated and sponsored by physicians or research institutions with funding from us and may also include new clinical studies sponsored by us.
These initiatives may include new clinical studies sponsored by us and may also include investigator-initiated studies, which are independent clinical studies initiated and sponsored by physicians or research institutions, with funding from us.
The aggregate investment to increase our long-term production capacity, including under the Patheon agreements and related agreements or purchase orders with third parties for raw materials and fixed assets, is estimated to be approximately $99 million. Cystic Fibrosis Foundation Therapeutics, Inc. In 2004 and 2009, we entered into research funding agreements with Cystic Fibrosis Foundation Therapeutics, Inc.
The aggregate investment to increase our long-term production capacity, including under the Patheon agreements and related agreements or purchase orders with third parties for raw materials and fixed assets, is estimated to be approximately $104 million. Cystic Fibrosis Foundation Therapeutics, Inc. In 2004 and 2009, we entered into research funding agreements with Cystic Fibrosis Foundation Therapeutics, Inc.
Patients will be randomized 1:1 to receive ARIKAYCE plus background regimen or placebo plus background regimen once daily for 12 months. Patients will then discontinue all study treatments and remain in the trial for three months for the assessment of durability of culture conversion. The primary endpoint is change from baseline to Month 13 in respiratory symptom score.
Patients are randomized 1:1 to receive ARIKAYCE plus background regimen or placebo plus background regimen once daily for 12 months. Patients will then discontinue all study treatments and remain in the trial for three months for the assessment of durability of culture conversion. The primary endpoint is change from baseline to Month 13 in respiratory symptom score.
In October 2021, the EMA’s Paediatric Committee approved the brensocatib Pediatric Investigational Plan for the treatment of patients with NCFBE. Subsequently, the ASPEN trial will now include 40 adolescent patients between ages 12 to 17, which will fulfill the pediatric study requirements to support marketing applications in this patient population in the US, Europe and Japan.
In October 2021, the EMA’s Paediatric Committee approved the brensocatib Pediatric Investigational Plan for the treatment of patients with NCFBE. Subsequently, the ASPEN trial will now include 41 adolescent patients between ages 12 to 17, which will fulfill the pediatric study requirements to support marketing applications in this patient population in the US, Europe and Japan.
US Patent No. 9,522,894 expires March 12, 2035 while the remaining US patents expire January 21, 2035 (not taking into account any potential patent term extension). Counterpart patents have issued in Australia, Canada, Europe, China, Japan, South Korea, India, Israel, and Mexico.
US Patent No. 9,522,894 expires March 12, 2035 while the remaining US patents expire January 21, 2035 (not taking into account any potential patent term extension). Counterpart patents have issued in Australia, Canada, Europe, China, Japan, South Korea, India, Israel, and Mexico and expire January 21, 2035, not accounting for any potential patent term extension.
An additional period of reference product exclusivity is not available upon approval of a 22 Table of Contents supplemental BLA. Moreover, the PHSA limits the availability of reference product exclusivity for a subsequent BLA filed by the same sponsor or manufacturer of a biological product (or a licensor, predecessor in interest, or other related entity).
An additional period of reference product exclusivity is not available upon approval of a 24 Table of Contents supplemental BLA. Moreover, the PHSA limits the availability of reference product exclusivity for a subsequent BLA filed by the same sponsor or manufacturer of a biological product (or a licensor, predecessor in interest, or other related entity).
Neither the information in or that can be accessed through our website, nor the contents of the SEC's website, are incorporated by reference in this Annual Report on Form 10-K. Financial Information The financial information required under this Item 1 is incorporated herein by reference to Item 8 of this Annual Report on Form 10-K. 31 Table of Contents
Neither the information in or that can be accessed through our website, nor the contents of the SEC's website, are incorporated by reference in this Annual Report on Form 10-K. Financial Information The financial information required under this Item 1 is incorporated herein by reference to Item 8 of this Annual Report on Form 10-K. 33 Table of Contents
NTM lung disease caused by MAC (which we refer to as MAC lung disease) is a rare and often chronic infection that can cause irreversible lung damage and can be fatal. Our clinical-stage pipeline includes brensocatib, TPIP and early-stage research programs.
NTM lung disease caused by MAC (which we refer to as MAC lung disease) is a rare and often chronic infection that can cause irreversible lung damage and can be fatal. Our pipeline includes clinical-stage programs, brensocatib and TPIP, as well as other early-stage research programs.
The aggregate investment to increase the long-term production capacity, including under these agreements, and related agreements or purchase orders with third parties for raw materials and fixed assets, is estimated to be approximately $99 million.
The aggregate investment to increase the long-term production capacity, including under these agreements, and related agreements or purchase orders with third parties for raw materials and fixed assets, is estimated to be approximately $104 million.
As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. Clinical Trials Clinical trials involve the administration of the investigational new drug to human subjects (healthy volunteers or patients) under the supervision of a qualified investigator.
As a result, submission of an IND might not result in the FDA allowing clinical trials to commence. Clinical Trials Clinical trials involve the administration of the investigational new drug to human subjects (healthy volunteers or patients) under the supervision of a qualified investigator.
The CONVERT Study and 312 Study Accelerated approval of ARIKAYCE was supported by preliminary data from the CONVERT study, a global Phase 3 study evaluating the safety and efficacy of ARIKAYCE in adult patients with refractory MAC lung disease, using achievement 8 Table of Contents of sputum culture conversion (defined as three consecutive negative monthly sputum cultures) by Month 6 as the primary endpoint.
The CONVERT Study and 312 Study Accelerated approval of ARIKAYCE was supported by preliminary data from the CONVERT study, a global Phase 3 study evaluating the safety and efficacy of ARIKAYCE in adult patients with refractory MAC lung disease, using achievement of sputum culture conversion (defined as three consecutive negative monthly sputum cultures) by Month 6 as the primary endpoint.
Once the holder has provided a comprehensive data package, the conditional marketing authorization is replaced by a 'regular' marketing authorization. 25 Table of Contents Marketing authorizations under exceptional circumstances may be granted where the applicant demonstrates that, for objective and verifiable reasons, they are unable to provide comprehensive data on the efficacy and safety of the drug under normal conditions of use.
Once the holder has provided a comprehensive data package, the conditional marketing authorization is replaced by a 'regular' marketing authorization. Marketing authorizations under exceptional circumstances may be granted where the applicant demonstrates that, for objective and verifiable reasons, they are unable to provide comprehensive data on the efficacy and safety of the drug under normal conditions of use.
These exclusivities also do not preclude FDA approval of a 505(b)(1) NDA for a duplicate version of the drug during the period of exclusivity, provided that the applicant conducts or obtains a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
These exclusivities also do not preclude FDA approval of a 505(b)(1) NDA for a duplicate version of the approved drug during the period of exclusivity, provided that the follow-on applicant conducts or obtains a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
The grant funding is for the development of a novel PRO tool for use in clinical trials to measure symptoms in patients with NCFBE with and without NTM lung infection. In January 2023, we reported topline data from the Phase 2, multiple-dose, pharmacokinetic/pharmacodynamic study of brensocatib in patients with CF.
The grant funding is for the development of a novel PRO tool for use in clinical trials to measure symptoms in patients with NCFBE with and without NTM lung infection. 12 Table of Contents In January 2023, we reported topline data from the Phase 2, multiple-dose, pharmacokinetic/pharmacodynamic study of brensocatib in patients with CF.
Sponsors may seek to negotiate the terms of a written request during drug development. While the sponsor of an orphan-designated drug may not be required to perform pediatric studies under PREA unless one of the above exceptions applies, they are eligible to participate in the incentives under the BPCA if the FDA issues a written request.
Sponsors may seek to negotiate the terms of a written request during drug development. While the sponsor of an orphan-designated drug may 29 Table of Contents not be required to perform pediatric studies under PREA unless one of the above exceptions applies, they are eligible to participate in the incentives under the BPCA if the FDA issues a written request.
Expedited Review and Approval of Eligible Drugs Under the FDA's accelerated approval program, the FDA may approve certain drugs for serious or life-threatening conditions on the basis of a surrogate or intermediate endpoint that is reasonably likely to predict clinical benefit, which can 20 Table of Contents substantially reduce time to approval.
Expedited Review and Approval of Eligible Drugs Under the FDA's accelerated approval program, the FDA may approve certain drugs for serious or life-threatening conditions on the basis of a surrogate or intermediate endpoint that is reasonably likely to predict clinical benefit, which can substantially reduce time to approval.
In October 2017, we entered into certain agreements with Patheon UK Limited (Patheon), a wholly-owned subsidiary of Thermo Fisher Scientific, Inc. (Thermo Fisher), related to increasing our long-term production capacity for ARIKAYCE commercial inventory. The agreements provide for Patheon to manufacture and supply ARIKAYCE for our long-term anticipated commercial needs.
In October 2017, we entered into certain agreements with Patheon UK Limited (Patheon), a wholly-owned subsidiary of Thermo Fisher Scientific, Inc. (Thermo Fisher), related to increasing our long-term production capacity for ARIKAYCE commercial inventory. The agreements provide for Patheon to manufacture and supply ARIKAYCE for our long-term 14 Table of Contents anticipated commercial needs.
Specifically, the first NDA or biologics license application (BLA) applicant with an FDA orphan drug designation for a particular drug to receive FDA approval of the drug for an indication covered by the orphan designation is entitled to a seven-year exclusive marketing period, often referred to as orphan drug exclusivity, in the US for that drug in that indication.
Specifically, the first NDA or biologics license application (BLA) applicant 19 Table of Contents with an FDA orphan drug designation for a particular drug to receive FDA approval of the drug for an indication covered by the orphan designation is entitled to a seven-year exclusive marketing period, often referred to as orphan drug exclusivity, in the US for that drug in that indication.
We previously reported interim data as of December 2017 for patients in the 312 study, with 28.4% of patients who received GBT only in the CONVERT study (19/67) and 12.3% of patients who had received ARIKAYCE plus GBT in the CONVERT study (7/57) achieving culture conversion by Month 6 of the 312 study.
We previously reported interim data as of December 2017 for patients in the 312 study, with 28.4% of patients who received GBT only in the CONVERT study (19/67) and 12.3% of patients 9 Table of Contents who had received ARIKAYCE plus GBT in the CONVERT study (7/57) achieving culture conversion by Month 6 of the 312 study.
Market Opportunity for brensocatib in bronchiectasis 11 Table of Contents Bronchiectasis is a severe, chronic pulmonary disorder in which the bronchi become permanently dilated due to a cycle of infection, inflammation, and lung tissue damage. The condition is marked by frequent pulmonary exacerbations requiring antibiotic therapy and/or hospitalizations.
Market Opportunity for Brensocatib in Bronchiectasis Bronchiectasis is a severe, chronic pulmonary disorder in which the bronchi become permanently dilated due to a cycle of infection, inflammation, and lung tissue damage. The condition is marked by frequent pulmonary exacerbations requiring antibiotic therapy and/or hospitalizations.
We have entered into project addenda with PPD to perform clinical development services over several years for, but not limited to, our ARISE, ENCORE, ASPEN studies and other brensocatib and TPIP studies. We currently expect to incur approximately $370 million of costs related to these project addenda.
We have entered into project addenda with PPD to perform clinical development services over several years for, but not limited to, our ARISE, ENCORE, ASPEN studies and other brensocatib and TPIP studies. We currently expect to incur approximately $430.1 million of costs related to these project addenda.
A manufacturer that wishes to conduct a clinical study involving the device is subject to the clinical investigation requirements of the MDR, EU member state requirements, and current good clinical practices defined in harmonized standards and guidance documents. After a device is placed on the market, it remains subject to significant regulatory requirements.
A manufacturer that wishes to conduct a clinical study involving the device is subject to the clinical investigation requirements of the MDR, EU member state requirements, and current good clinical practices defined in harmonized standards and guidance documents. 28 Table of Contents After a device is placed on the market, it remains subject to significant regulatory requirements.
Change in concentration of active NE in sputum versus placebo from baseline to the end of the treatment period was also statistically significant (p=0.034 for 10 mg, p=0.021 for 25 mg). WILLOW Safety and Tolerability Data Brensocatib was generally well-tolerated in the study.
Change in concentration of active neutrophil elastase in sputum versus placebo from baseline to the end of the treatment period was also statistically significant (p=0.034 for 10 mg, p=0.021 for 25 mg). WILLOW Safety and Tolerability Data Brensocatib was generally well-tolerated in the study.
Accelerated approval allows drugs that (i) are being developed to treat a serious or life-threatening disease or condition and (ii) provide a meaningful therapeutic benefit over existing treatments to be approved substantially based on an intermediate endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit, rather than a clinical endpoint such as survival or irreversible morbidity.
Accelerated approval allows drugs that (i) are being developed to treat a serious or life-threatening disease or condition and (ii) provide a meaningful therapeutic benefit over existing treatments to be approved substantially based on an intermediate endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit, rather than a clinical endpoint 8 Table of Contents such as survival or irreversible morbidity.
The FDA's breakthrough therapy designation is designed to expedite the development and review of therapies that are intended to treat serious or life-threatening diseases and 10 Table of Contents for which preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy.
The FDA's breakthrough therapy designation is designed to expedite the development and review of therapies that are intended to treat serious or life-threatening diseases and for which preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy.
The agreement has an initial term of five years, which began in October 2018, and will renew automatically for successive periods of two years each, unless terminated by either party by providing the required two years' prior written notice to the other party.
The agreement has an initial term of five years, which began in 17 Table of Contents October 2018, and will renew automatically for successive periods of two years each, unless terminated by either party by providing the required two years' prior written notice to the other party.
In Phase 2, the drug is given to a larger group of subjects (typically up to several hundred) with the target condition to further evaluate its safety and gather 19 Table of Contents preliminary evidence of efficacy. Phase 3 studies typically last between several months and two years.
In Phase 2, the drug is given to a larger group of subjects (typically up to several hundred) with the target condition to further evaluate its safety and gather preliminary evidence of efficacy. Phase 3 studies typically last between several months and two years.
We are 30 Table of Contents cognizant of our environmental impact, currently support several green measures and community service programs, and continue to explore options to improve and build upon our sustainability efforts. We are committed to ensuring the health and well-being of our employees and promoting patient advocacy and safety.
We are cognizant of our environmental impact, currently support several green measures and community service programs, and continue to explore options to improve and build upon our sustainability efforts. We are committed to ensuring the health and well-being of our employees and promoting patient advocacy and safety.
Our key priorities are as follows: • Continue to provide ARIKAYCE to appropriate patients by leveraging and expanding our reliable revenue stream; • Produce topline clinical data readouts in the near and long term; • Advance commercial readiness activities to serve significantly more patients with serious and rare diseases; and • Control spending, prudently deploying capital to support the best return-generating opportunities.
Our key priorities are as follows: • Continue to provide ARIKAYCE to appropriate patients and expand our reliable revenue stream; • Produce topline clinical data readouts in the near and long term; • Advance commercial readiness activities to serve significantly more patients with serious and rare diseases; and • Control spending, prudently deploying capital to support the best return-generating opportunities.
If a drug with an orphan drug designation subsequently receives a marketing authorization for a therapeutic indication which is covered by such designation, the drug is entitled to orphan exclusivity.
If a drug with an orphan drug designation subsequently receives an orphan drug marketing authorization from the EC for a therapeutic indication which is covered by such designation, the drug is entitled to orphan exclusivity.
As a general rule, compassionate use programs can only be put in place for drugs or biologics that are expected to help patients with life-threatening, long-lasting or seriously disabling illnesses who currently cannot be treated satisfactorily with authorized medicines, or who have a disease for which no medicine has yet been authorized.
As a general rule, compassionate use programs can only be put in place for drugs or biologics that are expected to help patients with life-threatening, long-lasting or seriously disabling illnesses who currently cannot be treated satisfactorily with authorized medicines, or who have a disease for which no medicine 30 Table of Contents has yet been authorized.
QIDP designation provides an additional five years of exclusivity for the designated indication. The FDA granted a total of 12 years of exclusivity in the indication for which ARIKAYCE was approved. 7 Table of Contents ARIKAYCE also has been included in the international treatment guidelines for NTM lung disease.
QIDP designation provides an additional five years of exclusivity for the designated indication. The FDA granted a total of 12 years of exclusivity in the indication for which ARIKAYCE was approved. ARIKAYCE also has been included in the international treatment guidelines for NTM lung disease.
Under the Commercialization Agreement, PARI manufactures the Device except in the case of certain defined supply failures, when we 15 Table of Contents will have the right to make the Device and have it made by third parties (but not certain third parties deemed under the Commercialization Agreement to compete with PARI).
Under the Commercialization Agreement, PARI manufactures the Device except in the case of certain defined supply failures, when we will have the right to make the Device and have it made by third parties (but not certain third parties deemed under the Commercialization Agreement to compete with PARI).
However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement with respect to a patent listed with the FDA for the NCE drug.
However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a patent certification for each patent listed with the FDA for the NCE drug (e.g., a certification of patent invalidity or non-infringement with respect to a patent listed with the FDA for the NCE drug).
We anticipate increasing our headcount in 2023. None of our employees are represented by a labor union and we believe that our relations with our employees are generally good. Generally, our employees are at-will employees; however, we have entered into employment agreements with certain of our executive officers.
We anticipate increasing our headcount in 2024. None of our employees are represented by a labor union and we believe that our relations with our employees are generally good. Generally, our US employees are at-will employees; however, we have entered into employment agreements with certain of our executive officers.
Corporate Development We plan to continue to develop, acquire, in-license or co-promote other products, product candidates and technologies, including those that address serious and rare diseases that currently have significant unmet needs. We are focused broadly on serious and rare disease therapeutics and prioritizing those areas that best align with our core competencies.
Corporate Development We plan to continue to develop, acquire, in-license or co-promote other products, product candidates and technologies, including those that address serious and rare diseases with significant unmet need. We are focused broadly on serious and rare disease therapeutics and prioritizing those areas that best align with our core competencies.
For CE marked devices, certain 26 Table of Contents modifications to the device or quality system depending on the conformity assessment procedure used must be submitted to and approved by the Notified Body before placing the modified device on the market. Economic Operators, include device manufactures, must register their establishments and devices in the EUDAMED database once available.
For CE marked devices, certain modifications to the device or quality system depending on the conformity assessment procedure used must be submitted to and approved by the Notified Body before placing the modified device on the market. Economic Operators, include device manufactures, must register their establishments and devices in the EUDAMED database once available.
If granted, the review time is shortened from the standard 10 months to 6 months, beginning either at the 60 day filing date (in the case of NME NDA and original NDA submissions) or the date of receipt (in the case of non-NME original NDA submissions).
If granted, the review time is shortened from the standard 10 months to 6 months, beginning either after the 60-day filing review period (in the case of NME NDA and original NDA submissions) or the date of receipt (in the case of non-NME original NDA submissions).
TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for pulmonary hypertension associated with interstitial lung disease (PH-ILD) and pulmonary arterial hypertension (PAH). Our early-stage research programs encompass a wide range of technologies and modalities, including gene therapy, artificial intelligence-driven protein engineering, and protein manufacturing.
TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for pulmonary hypertension associated with interstitial lung disease (PH-ILD) and pulmonary arterial hypertension (PAH). Our early-stage research programs encompass a wide range of technologies and modalities, including gene therapy, artificial intelligence-driven protein engineering, protein manufacturing, RNA-end joining, and synthetic rescue.
A surrogate endpoint used for accelerated approval is a marker—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.
A surrogate endpoint used for accelerated approval is a marker—a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is not itself a 22 Table of Contents measure of clinical benefit.
In the US and most other jurisdictions, numerous detailed 29 Table of Contents requirements apply to government and private healthcare programs, and a broad range of fraud and abuse laws, transparency laws, and other laws are relevant to pharmaceutical companies.
In the US and most other jurisdictions, numerous detailed requirements apply to government and private healthcare programs, and a broad range of fraud and abuse laws, transparency laws, and other laws are relevant to pharmaceutical companies.
If we elect to develop brensocatib for a second indication, we will be obligated to make an additional series of contingent milestone payments totaling up to $42.5 million, the first of which occurs at the initiation of a Phase 3 trial in the additional indication. We are not obligated to make any additional milestone payments for additional indications.
If we elect to develop brensocatib for a second indication, we will be obligated to make an additional series of contingent milestone payments totaling up to $42.5 million, the first of which occurs at the initiation of a Phase 3 trial in the additional indication.
The "Drug Pricing Organization," which is a division of the Central Social Insurance Medical Council (CSIMC), calculates the price of drugs, the general meeting of the CSIMC approves the calculated price, and the MHLW includes the drugs and the calculated price in the Drug Price List.
The "Drug Pricing Organization," which is a division of the Central Social Insurance 31 Table of Contents Medical Council (CSIMC), calculates the price of drugs, the general meeting of the CSIMC approves the calculated price, and the MHLW includes the drugs and the calculated price in the Drug Price List.
Exclusivities In the US, after NDA or BLA approval, owners of relevant drug patents may obtain up to a five-year patent term extension on a single patent.
Exclusivities In the US, after NDA or BLA approval of a drug not previously approved, owners of relevant drug patents may obtain up to a five-year patent term extension on a single patent.
Brensocatib is a small molecule, oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), which we are developing for the treatment of patients with bronchiectasis , CF and o ther neutrophil-mediated diseases, including chronic rhinosinusitis without nasal polyps (CRSsNP) .
Brensocatib is a small molecule, oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), which we are developing for the treatment of patients with bronchiectasis and other neutrophil-mediated diseases, including chronic rhinosinusitis without nasal polyps (CRSsNP).
ARIKAYCE Patents 13 Table of Contents Of the patents and applications related to ARIKAYCE, there are 12 issued US patents that cover the ARIKAYCE composition and its use in treating NTM that are listed in the FDA Orange Book.
ARIKAYCE Patents Of the patents and applications related to ARIKAYCE, there are 12 issued US patents that cover the ARIKAYCE composition and its use in treating NTM that are listed in the FDA Orange Book.
As a result of the US approval of ARIKAYCE and in accordance with the agreements, as amended, we owe milestone payments to CFFT of $13.4 million in the aggregate payable through 2025, of which $4.9 million has been paid as of December 31, 2022 .
As a result of the US approval of ARIKAYCE and in accordance with the CFFT agreements, as amended, we owe milestone payments to CFFT of $13.4 million in the aggregate payable through 2025, of which $7.4 million has been paid as of December 31, 2023 .
They are subject to "conditions", i.e., the holder is required to complete ongoing studies or to conduct new studies with a view to confirming that the benefit-risk balance is positive or to fulfill specific obligations in relation to pharmacovigilance.
They are subject to "conditions", i.e., the holder is required to complete ongoing studies or to conduct new studies with a view to confirming that the benefit-risk balance is positive or to 27 Table of Contents fulfill specific obligations in relation to pharmacovigilance.
Approval is based on a benefit-risk assessment in the intended limited population, taking into account the severity, rarity, or prevalence of the infection the drug is intended to treat and the availability or lack of alternative treatment for the patient population. Such drugs may not have favorable benefit-risk profiles in a broader population.
Approval is based on a benefit-risk assessment in the intended limited population, taking into account the severity, rarity, or prevalence of the infection the drug is intended to treat and the availability or lack of alternative 23 Table of Contents treatment for the patient population. Such drugs might not have favorable benefit-risk profiles in a broader population.
Orphan drugs very often are subject to compassionate use 28 Table of Contents programs due to their very nature (rare diseases are life-threatening, long-lasting or seriously disabling diseases) and the long time required for both their approval and effective marketing.
Orphan drugs very often are subject to compassionate use programs due to their very nature (rare diseases are life-threatening, long-lasting or seriously disabling diseases) and the long time required for both their approval and effective marketing.
European Patent Nos. 3142643 and 3466432 each expire May 15, 2035 and include claims related to ARIKAYCE and its use for treating MAC lung infections.
European Patent Nos. 3142643, 3466432 and 3766501 each expires May 15, 2035 and include claims related to ARIKAYCE and its use for treating MAC lung infections.
As a condition of NDA or BLA approval, the FDA may require substantial post-approval testing, known as Phase 4 studies, to be conducted in order to gather additional information on the drug's effect in various populations and any side effects associated with long-term use.
As a condition of NDA or BLA approval, the FDA may require substantial post-approval testing, known as Phase 4 studies, to be conducted in order to gather additional information on the drug's effect in various populations and any side effects.
The Law on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (Act No. 145 of 1960) requires a license for marketing authorization when importing to Japan and selling pharmaceutical products manufactured in other countries.
The Law on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (Act No. 145 of 1960) requires a license for marketing authorization when importing to Japan and selling pharmaceutical products manufactured in other countries, a holder of such license is referred to as a marketing authorization holder.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny such failure to obtain regulatory approvals may materially adversely affect us. • If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to obtain regulatory approval for and commercialize our product candidates in the US, Europe, Japan or other markets. • We may not be able to enroll enough patients to conduct and complete our clinical trials or retain a sufficient number of patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates. • If another party obtains orphan drug exclusivity for a product essentially the same as a product we are developing for a particular indication, we may be precluded or delayed from commercializing the product in that indication. • Our early-stage research activities include the research and development of novel gene therapy product candidates.
Biggest changeAny such failure to obtain regulatory approvals, particularly for brensocatib in the US, may materially adversely affect us. • We remain subject to substantial, ongoing regulatory requirements related to ARIKAYCE, and failure to comply with these requirements could lead to enforcement action or otherwise materially harm our business. • If we are unable to obtain or maintain adequate reimbursement from government or third-party payors for ARIKAYCE or if we are unable to obtain or maintain acceptable prices for ARIKAYCE, our prospects for generating revenue and achieving profitability will be materially adversely affected. • ARIKAYCE could develop unexpected safety or efficacy concerns, which would have a material adverse effect on us. • If estimates of the size of the potential markets for ARIKAYCE, brensocatib, TPIP, or our other product candidates are overstated or data we have used to identify physicians is inaccurate, our ability to earn revenue to support our business could be materially adversely affected. • We may not be successful in clinical trials or in obtaining regulatory approvals required to expand the indications for ARIKAYCE, which may materially adversely affect our prospects and the value of our common stock. • Pharmaceutical research and development is very costly and highly uncertain, and we may not succeed in developing product candidates in the future. • Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available, may be interpreted differently if additional data are disclosed, and are subject to audit and verification procedures that could result in material changes in the final data. • Failure to obtain or maintain regulatory approval or clearance of our product devices, including Lamira, as a delivery system for ARIKAYCE and the delivery system for TPIP, could materially harm our business. • If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to obtain regulatory approval for and commercialize our product candidates in the US, Europe, Japan or other markets. • We may not be able to enroll enough patients to conduct and complete our clinical trials or retain a sufficient number of patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates or to permit the use of ARIKAYCE in the broader population of patients with MAC lung disease. • If another party obtains orphan drug exclusivity for a product essentially the same as a product we are developing for a particular indication, we may be precluded or delayed from commercializing the product in that indication. • Our early-stage research activities include the research and development of novel gene therapy product candidates.
Risks Related to the Commercialization and Continued Approval of ARIKAYCE Our prospects are highly dependent on the success of our only approved product, ARIKAYCE, which was approved in the United States as ARIKAYCE (amikacin liposome inhalation suspension), in Europe as ARIKAYCE Liposomal 590 mg Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product).
Risks Related to the Commercialization and Continued Approval of ARIKAYCE Our prospects are highly dependent on the continued success of our only approved product, ARIKAYCE, which was approved in the United States as ARIKAYCE (amikacin liposome inhalation suspension), in Europe as ARIKAYCE Liposomal 590 mg Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product).
Failure to comply with these ongoing regulatory obligations could have significant negative consequences, including: • Issuance of warning letters or untitled letters by the FDA asserting that we are in violation of the law; • Imposition of injunctions or civil monetary penalties or pursuit by regulators of civil or criminal prosecutions and fines against us or our responsible officers; 35 Table of Contents • Suspension or withdrawal of regulatory approval; • Suspension or termination of ongoing clinical trials or refusal by regulators to approve pending marketing applications or supplements to approved applications; • Seizure of products, required product recalls or refusal to allow us to enter into supply contracts, including government contracts, or to import or export products; • Enforcement actions, such as a product recalls, or product shortages due to failure to meet certain manufacturing or regulatory requirements, including the successful completion and results of quality control or release testing; • Suspension of, or imposition of restrictions on, our operations, including costly new manufacturing requirements with respect to ARIKAYCE, brensocatib, TPIP, or any of our other product candidates; and • Negative publicity, including communications issued by regulatory authorities, which could negatively impact the perception of us or ARIKAYCE, brensocatib, TPIP, or any of our other product candidates by patients, physicians, third-party payors or the healthcare community.
Failure to comply with these ongoing regulatory obligations could have significant negative consequences, including: • Issuance of warning letters or untitled letters by the FDA asserting that we are in violation of the law; 37 Table of Contents • Imposition of injunctions or civil monetary penalties or pursuit by regulators of civil or criminal prosecutions and fines against us or our responsible officers; • Suspension or withdrawal of regulatory approval; • Suspension or termination of ongoing clinical trials or refusal by regulators to approve pending marketing applications or supplements to approved applications; • Seizure of products, required product recalls or refusal to allow us to enter into supply contracts, including government contracts, or to import or export products; • Enforcement actions, such as a product recalls, or product shortages due to failure to meet certain manufacturing or regulatory requirements, including the successful completion and results of quality control or release testing; • Suspension of, or imposition of restrictions on, our operations, including costly new manufacturing requirements with respect to ARIKAYCE, brensocatib, TPIP, or any of our other product candidates; and • Negative publicity, including communications issued by regulatory authorities, which could negatively impact the perception of us or ARIKAYCE, brensocatib, TPIP, or any of our other product candidates by patients, physicians, third-party payors or the healthcare community.
COVID-19 may also have an adverse impac t on our operations and supply chain as a result of (i) our or our third-party manufacturers’ employees or other key personnel becoming infected, (ii) preventive and precautionary measures that governments and we and other businesses, including our third-party manufacturers, are taking, such as border closures, prolonged quarantines and other travel restrictions, (iii) shortages of supplies necessary for the manufacture of ARIKAYCE, including as a result of government orders providing for the requisition of personal protective equipment and other medical supplies and equipment, and (iv) cold-chain storage and shipping limitations resulting from the need to prioritize delivery of one or more COVID-19 vaccines, which could cause disruptions or delays in our ability to distribute ARIKAYCE due to lack of sufficient cold-chain storage and shipping capacity.
A pandemic, including a resurgence of COVID-19, may also have an adverse impac t on our operations and supply chain as a result of (i) our or our third-party manufacturers’ employees or other key personnel becoming infected, (ii) preventive and precautionary measures that governments and we and other businesses, including our third-party manufacturers, are taking, such as border closures, prolonged quarantines and other travel restrictions, (iii) shortages of supplies necessary for the manufacture of ARIKAYCE, including as a result of government orders providing for the requisition of personal protective equipment and other medical supplies and equipment, and (iv) cold-chain storage and shipping limitations resulting from the need to prioritize delivery of one or more COVID-19 vaccines, which could cause disruptions or delays in our ability to distribute ARIKAYCE due to lack of sufficient cold-chain storage and shipping capacity.
If we are unable to successfully market and commercialize or maintain approval for ARIKAYCE, our business, financial condition, results of operations and prospects and the value of our common stock will be materially adversely affected. Our long-term viability and growth depend on the successful commercialization of ARIKAYCE, our only approved product.
If we are unable to successfully market and commercialize or maintain approval for ARIKAYCE, our business, financial condition, results of operations and prospects and the value of our common stock will be materially adversely affected. Our long-term viability and growth depend on the continued successful commercialization of ARIKAYCE, our only approved product.
Our inability to retain and attract qualified employees would materially harm our business, financial condition, results of operations and prospects and the value of our common stock. We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
Our inability to retain and attract qualified employees would materially harm our business, financial condition, results of operations and prospects and the value of our common stock. We expect to continue to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We have invested and continue to invest significant efforts and financial resources in the commercialization of ARIKAYCE, and our ability to continue to generate revenue from ARIKAYCE will depend heavily on successfully commercializing and obtaining full regulatory approval for ARIKAYCE from the US FDA by conducting an appropriate confirmatory post-marketing study.
We have invested and continue to invest significant efforts and financial resources in the commercialization of ARIKAYCE, and our ability to continue to generate revenue from ARIKAYCE will depend heavily on successfully commercializing and obtaining full regulatory approval for ARIKAYCE from the FDA by conducting an appropriate confirmatory post-marketing study.
For example, we do not own facilities for clinical-scale or commercial manufacturing of our product candidates, and we expect that our future supply requirements for brensocatib and TPIP will be manufactured by CMOs. We currently rely on Resilience to provide our clinical and commercial supply of ARIKAYCE, and intend to rely on Patheon in the future.
For example, we do not own facilities for clinical-scale or commercial manufacturing of our product candidates, and we expect that our future supply requirements for brensocatib and TPIP will be manufactured by CMOs. We currently rely on Resilience to provide our clinical and commercial supply of ARIKAYCE, and intend to also rely on Patheon in the future.
As a condition of accelerated approval, we must conduct a post-marketing confirmatory clinical trial. Additionally, we are required to submit periodic reports on the progress of this clinical trial. In the fourth quarter of 2020, we commenced the post-marketing confirmatory frontline clinical trial program for ARIKAYCE in patient s with MAC lung disease.
As a condition of accelerated approval, we must conduct a post-marketing confirmatory clinical trial. Additionally, we are required to submit periodic reports on the progress of this clinical trial. In the fourth quarter of 2020, we commenced the post-marketing confirmatory clinical trial program for ARIKAYCE in patient s with MAC lung disease.
In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock. • The existence of a staggered board of directors in which there are three classes of directors serving staggered three-year terms, thus expanding the time required to change the composition of a majority of directors. • The requirement that shareholders provide advance notice when nominating director candidates to serve on our board of directors. 56 Table of Contents • The inability of shareholders to convene a shareholders’ meeting without the chairman of the board, the president or a majority of the board of directors first calling the meeting. • The prohibition against entering into a business combination with the beneficial owner of 10% or more of our outstanding voting stock for a period of three years after the 10% or greater owner first reached that level of stock ownership, unless certain criteria are met. • In addition to severance agreements with our officers and provisions in our incentive plans that permit acceleration of equity awards upon a change in control, a severance plan for eligible full-time employees that provides such employees with severance equal to six months of their then-current base salaries in connection with a termination of employment without cause upon, or within 18 months following, a change in control.
In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock. • The existence of a staggered board of directors in which there are three classes of directors serving staggered three-year terms, thus expanding the time required to change the composition of a majority of directors. • The requirement that shareholders provide advance notice when nominating director candidates to serve on our board of directors. • The inability of shareholders to convene a shareholders’ meeting without the chairman of the board, the president or a majority of the board of directors first calling the meeting. • The prohibition against entering into a business combination with the beneficial owner of 10% or more of our outstanding voting stock for a period of three years after the 10% or greater owner first reached that level of stock ownership, unless certain criteria are met. • In addition to severance agreements with our officers and provisions in our incentive plans that permit acceleration of equity awards upon a change in control, a severance plan for eligible full-time employees that provides such employees with severance equal to six months of their then-current base salaries in connection with a termination of employment without cause upon, or within 18 months following, a change in control.
Our debt service obligations and the degree to which we are leveraged could have negative consequences on our business, such as the following: • We may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing economic conditions; • Our ability to obtain financing in the future may be limited; • We may be required to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet payment obligations; • We may be placed at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources; • A substantial portion of our cash flows from operations in the future may be required for the payment of our interest or principal payments under the Loan Agreement, Revenue Interest Payments under the Royalty Financing Agreement and the principal amounts of the Convertible Notes when they or any additional indebtedness become due, thereby reducing the amount of our cash flow available for other purposes, including funds for clinical development or to pursue future business opportunities; and • We may elect to make cash payments upon conversion of the Convertible Notes, which would reduce our available cash.
Our debt service obligations and the degree to which we are leveraged could have negative consequences on our business, such as the following: • We may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing economic conditions; • Our ability to obtain financing in the future may be limited; • We may be required to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet payment obligations; • We may be placed at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources; 57 Table of Contents • A substantial portion of our cash flows from operations in the future may be required for the payment of our interest or principal payments under the Loan Agreement, Revenue Interest Payments under the Royalty Financing Agreement and the principal amounts of the Convertible Notes when they or any additional indebtedness become due, thereby reducing the amount of our cash flow available for other purposes, including funds for clinical development or to pursue future business opportunities; and • We may elect to make cash payments upon conversion of the Convertible Notes, which would reduce our available cash.
New safety or efficacy data from both market surveillance and our clinical trials may result in negative consequences including the following: • Modification to product labeling or promotional statements, such as additional boxed or other warnings or contraindications, or the issuance of additional “Dear Doctor Letters” or similar communications to healthcare professionals; 37 Table of Contents • Required changes in the administration of ARIKAYCE; • Imposition of additional post-marketing surveillance, post-marketing clinical trial requirements, distribution restrictions or other risk management measures, such as a risk evaluation and mitigation strategy (REMS) or a REMS with elements to assure safe use; • Suspension or withdrawal of regulatory approval; • Suspension or termination of ongoing clinical trials or refusal by regulators to approve pending marketing applications or supplements to approved applications; • Suspension of, or imposition of restrictions on, our operations, including costly new manufacturing requirements with respect to ARIKAYCE; and • Voluntary or mandatory product recalls or withdrawals from the market and costly product liability claims.
New safety or efficacy data from both market surveillance and our clinical trials may result in negative consequences including the following: • Modification to product labeling or promotional statements, such as additional boxed or other warnings or contraindications, or the issuance of additional “Dear Doctor Letters” or similar communications to healthcare professionals; • Required changes in the administration of ARIKAYCE; • Imposition of additional post-marketing surveillance, post-marketing clinical trial requirements, distribution restrictions or other risk management measures, such as a risk evaluation and mitigation strategy (REMS) or a REMS with elements to assure safe use; • Suspension or withdrawal of regulatory approval; • Suspension or termination of ongoing clinical trials or refusal by regulators to approve pending marketing applications or supplements to approved applications; • Suspension of, or imposition of restrictions on, our operations, including costly new manufacturing requirements with respect to ARIKAYCE; and • Voluntary or mandatory product recalls or withdrawals from the market and costly product liability claims.
We may not be able to obtain regulatory approvals for brensocatib, or for our other product candidates and we may not be able to receive approval for ARIKAYCE in new markets. Any such failure to obtain regulatory approvals may materially adversely affect us.
We may not be able to obtain regulatory approvals for brensocatib, or for our other product candidates and we may not be able to receive approval for ARIKAYCE in new markets. Any such failure to obtain regulatory approvals, particularly for brensocatib, may materially adversely affect us.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers, as well as personally identifiable information of clinical trial participants and employees.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers, as well as personally identifiable information of clinical trial participants, patients and employees.
In order to develop a product successfully, we must, among other things: • Identify potential product candidates; • Submit for and receive regulatory approval to perform clinical trials; • Design and conduct appropriate preclinical and clinical trials, including confirmatory clinical trials, according to good laboratory practices and good clinical practices and disease-specific expectations of the FDA and other regulatory bodies; • Select and recruit clinical investigators and subjects for our clinical trials; • Obtain and correctly interpret data establishing adequate safety of our product candidates and demonstrating with statistical significance that our product candidates are effective for their proposed indications, as indicated by satisfaction of pre-established endpoints; • Submit for and receive regulatory approvals for marketing; and • Manufacture the product candidates and device constituent parts according to cGMP and other applicable standards and regulations.
In order to develop a product successfully, we must, among other things: • Identify potential product candidates; • Submit for and receive regulatory approval to perform clinical trials; • Design and conduct appropriate preclinical and clinical trials, including confirmatory clinical trials, according to good laboratory practices and good clinical practices and disease-specific expectations of the FDA and other regulatory bodies; • Select and recruit clinical investigators and subjects for our clinical trials; • Obtain and correctly interpret data establishing adequate safety of our product candidates and demonstrating with statistical significance that our product candidates are effective for their proposed indications, as indicated by satisfaction of pre-established endpoints; 40 Table of Contents • Submit for and receive regulatory approvals for marketing; and • Manufacture the product candidates and device constituent parts according to cGMP and other applicable standards and regulations.
We also anticipate that we will be reliant on CMOs to manufacture supply of brensocatib and TPIP for our future requirements. Esteve and Thermo Fisher manufacture our current supply of brensocatib.
We also anticipate that we will be reliant on CMOs to manufacture supply of brensocatib and TPIP for our future requirements. Esteve and Thermo Fisher manufacture our current clinical supply of brensocatib.
Our operating expenses and long-term investments were significantly higher in 2022 than in 2021, reflecting our continued investment in the build-out of our commercial organization to support global expansion activities for ARIKAYCE and manufacture of commercial inventory, which includes capital and long-term investments, and continued investment in research and development as well as selling, general and administrative expenses.
Our operating expenses and long-term investments were significantly higher in 2023 than in 2022, reflecting our continued investment in the build-out of our commercial organization to support global expansion activities for ARIKAYCE and manufacture of commercial inventory, which includes capital and long-term investments, and continued investment in research and development as well as selling, general and administrative expenses.
Consequently, we are and will continue to be subject to risks related to operating in foreign countries, including: • Limited experience with international regulatory requirements; • An inability to achieve optimal pricing and reimbursement for ARIKAYCE, if approved in another jurisdiction, or subsequent changes in reimbursement, pricing and other regulatory requirements; • Any implementation of, or changes to, tariffs, trade barriers and other import-export regulations in the US or other countries in which we, or our third-party partners, operate; • Unexpected AEs related to ARIKAYCE or our product candidates occurring in foreign markets that we have not experienced in the US, Europe or Japan; • Scrutiny from customers, regulators, investors and other stakeholders related to environmental, health and safety, diversity, labor conditions, human rights and other concerns in the countries in which we, or our third-party partners, operate; • Economic and political conditions, including geopolitical events, such as war and terrorism, foreign currency fluctuations and inflation, which could result in disruption to our international operations, including planned or ongoing clinical studies, reduced revenue, increased or unpredictable operating expenses and other obligations incident to doing business in, or with a company located in, another country; and • Compliance with foreign or US laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import, export and trade restrictions, anti-bribery/anti-corruption laws, regulations or rules, which could lead to actions by us or our distributors, manufacturers, other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could subject us to investigation or prosecution under such foreign or US laws.
Consequently, we are and will continue to be subject to risks related to operating in foreign countries, including: • Limited experience with international regulatory requirements; • An inability to achieve optimal pricing and reimbursement for ARIKAYCE, if approved in another jurisdiction, or subsequent changes in reimbursement, pricing and other regulatory requirements; • Any implementation of, or changes to, tariffs, trade barriers and other import-export regulations in the US or other countries in which we, or our third-party partners, operate; • Unexpected AEs related to ARIKAYCE or our product candidates occurring in foreign markets that we have not experienced in the US, Europe or Japan; • Scrutiny from customers, regulators, investors and other stakeholders related to environmental, health and safety, diversity, labor conditions, human rights and other concerns in the countries in which we, or our third-party partners, operate; • Economic and political conditions, including foreign currency fluctuations and inflation, could result in reduced revenue, increased or unpredictable operating expenses and other obligations incident to doing business in, or with a company located in, another country; • Geopolitical events, such as conflicts, war and terrorism, could cause disruptions in our international operations, including planned or ongoing clinical studies; and 49 Table of Contents • Compliance with foreign or US laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import, export and trade restrictions, anti-bribery/anti-corruption laws, regulations or rules, which could lead to actions by us or our distributors, manufacturers, other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could subject us to investigation or prosecution under such foreign or US laws.
Subsequently, ARIKAYCE was approved in Europe for the treatment of NTM lung infections caused by MAC in adults with limited treatment options who do not have CF, and in Japan for the treatment of patients with NTM lung disease 33 Table of Contents caused by MAC who did not sufficiently respond to prior treatments with a multidrug regimen.
Subsequently, ARIKAYCE was approved in Europe for the treatment of NTM lung infections caused by 35 Table of Contents MAC in adults with limited treatment options who do not have CF, and in Japan for the treatment of patients with NTM lung disease caused by MAC who did not sufficiently respond to prior treatments with a multidrug regimen.
We rely in part on confidentiality agreements with our employees, consultants, advisors, collaborators, and other third parties and partners to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information or may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.
We rely in part on confidentiality and restrictive covenant agreements with our employees, consultants, advisors, collaborators, and other third parties and partners to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information or may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and personnel. For example, we acquired Motus and AlgaeneX in August 2021 and Vertuis in January 2023, each a privately-held, preclinical stage company.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and personnel. For example, we acquired Motus and AlgaeneX in August 2021, Vertuis in January 2023, and Adrestia in June 2023, each a privately-held, preclinical stage company.
Under our license agreement with AstraZeneca, AstraZeneca retains a right of first negotiation pursuant to which it may exclusively negotiate with us before we can negotiate with a third party regarding any transaction to develop or commercialize brensocatib, subject to certain exceptions.
For example, under our license agreement with AstraZeneca, AstraZeneca retains a right of first negotiation pursuant to which it may exclusively negotiate with us before we can negotiate with a third party regarding any transaction to develop or commercialize brensocatib, subject to certain exceptions.
The future occurrence of a potential indicator of impairment could include matters such as (i) a decrease in expected net earnings, (ii) adverse equity market conditions, (iii) a decline in current market multiples, (iv) a decline in our common stock price, (v) a significant adverse change in legal factors or the general business climate, and (vi) an adverse action 55 Table of Contents or assessment by a regulator.
The future occurrence of a potential indicator of impairment could include matters such as (i) a decrease in expected net earnings, (ii) adverse equity market conditions, (iii) a decline in current market multiples, (iv) a decline in our common stock price, (v) a significant adverse change in legal factors or the general business climate, and (vi) an adverse action or assessment by a regulator.
Additionally, the FDA, as part of its Transparency Initiative, continues to consider whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time whether and how the FDA’s disclosure policies may change in the future.
Additionally, the FDA, as part of its Transparency Initiative, continues to consider whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the 52 Table of Contents present time whether and how the FDA’s disclosure policies may change in the future.
Furthermore, patients, investigators, or site staff may be unwilling or unable to comply with clinical trial protocols due to COVID-19 illness, concerns about the pandemic, or quarantines or other travel restrictions that impede their movement. Additionally, any interruption in the supply of the study drug might delay our ability to start or complete clinical trials.
Furthermore, patients, investigators, or site staff may be unwilling or unable to comply with clinical trial protocols due to illness, concerns about a pandemic, or quarantines or other travel restrictions that impede their movement. Additionally, any interruption in the supply of the study drug might delay our ability to start or complete clinical trials.
Accelerated approval of ARIKAYCE 34 Table of Contents was supported by preliminary data from the Phase 3 CONVERT study, which evaluated the safety and efficacy of ARIKAYCE in adult patients with refractory MAC lung disease, using achievement of sputum culture conversion (defined as three consecutive negative monthly sputum cultures) by Month 6 as the primary endpoint.
Accelerated approval of ARIKAYCE was supported by preliminary data from the Phase 3 CONVERT study, which evaluated the safety and efficacy of ARIKAYCE in adult patients with refractory MAC lung disease, using achievement of sputum culture conversion (defined as three consecutive negative monthly sputum cultures) by Month 6 as the primary endpoint.
Patient enrollment is a function of many factors, including: • Investigator identification and recruitment; • Regulatory approvals to initiate study sites; • Patient population size; • The nature of the protocol to be used in the trial; • Patient proximity to clinical sites; • Eligibility criteria for the trial; • Patient willingness to participate in the trial; • Discontinuation rates; and • Competition from other companies’ potential clinical trials for the same patient population.
Patient enrollment is a function of many factors, including: • Investigator identification and recruitment; • Regulatory approvals to initiate study sites; • Patient population size; • The nature of the protocol to be used in the trial; • Patient proximity to clinical sites; • Eligibility criteria for the trial; • Patient willingness to participate in the trial; 43 Table of Contents • Discontinuation rates; and • Competition from other companies’ potential clinical trials for the same patient population.
Approval processes in the US, Europe, Japan and other markets require the submission of extensive preclinical and clinical data, manufacturing and quality information regarding the process and facility, scientific data characterizing our product and other supporting data in order to establish safety and effectiveness. These 39 Table of Contents processes are complex, lengthy, expensive, resource intensive and uncertain.
Approval processes in the US, Europe, Japan and other markets require the submission of extensive preclinical and clinical data, manufacturing and quality information regarding the process and facility, scientific data characterizing our product and other supporting data in order to establish safety and effectiveness. These processes are complex, lengthy, expensive, resource intensive and uncertain.
We currently have only limited product liability insurance for our products. We do not know if we will be able to maintain existing, or obtain additional, product liability insurance on acceptable terms or with adequate coverage against 45 Table of Contents potential liabilities. This type of insurance is expensive and may not be available on acceptable terms.
We currently have only limited product liability insurance for our products. We do not know if we will be able to maintain existing, or obtain additional, product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms.
The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile foreign governments or agencies.
The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist 48 Table of Contents organizations, or hostile foreign governments or agencies.
In addition, third parties may independently develop or discover our trade secrets and proprietary information. Regulators also may disclose information we 49 Table of Contents consider to be proprietary to third parties under certain circumstances, including in response to third-party requests for such disclosure under the Freedom of Information Act or comparable laws.
In addition, third parties may independently develop or discover our trade secrets and proprietary information. Regulators also may disclose information we consider to be proprietary to third parties under certain circumstances, including in response to third-party requests for such disclosure under the Freedom of Information Act or comparable laws.
Risks Related to the Development and Regulatory Approval of Our Product Candidates Generally 38 Table of Contents Pharmaceutical research and development is very costly and highly uncertain, and we may not succeed in developing product candidates in the future. Product development in the pharmaceutical industry is an expensive, high-risk, lengthy, complicated, resource intensive process.
Risks Related to the Development and Regulatory Approval of Our Product Candidates Generally Pharmaceutical research and development is very costly and highly uncertain, and we may not succeed in developing product candidates in the future. Product development in the pharmaceutical industry is an expensive, high-risk, lengthy, complicated, resource intensive process.
Accelerated approval allows drugs that (i) are being developed to treat a serious or life-threatening disease or condition and (ii) provide a meaningful therapeutic benefit over existing treatments to be approved substantially based on an intermediate endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit, rather than a clinical endpoint such as survival or irreversible morbidity.
Accelerated approval allows drugs that (i) are being developed to treat a serious or life-threatening disease or condition and (ii) provide a meaningful therapeutic benefit over existing treatments to be approved substantially based on an intermediate endpoint or a surrogate endpoint that is reasonably likely to predict 36 Table of Contents clinical benefit, rather than a clinical endpoint such as survival or irreversible morbidity.
If a competitor obtains approval of the same drug for the same disease or condition before us, and the FDA grants such orphan drug exclusivity, we would be prohibited from obtaining approval for our product for seven or more years, unless our product can be shown to be clinically superior.
If a competitor obtains approval of the same drug for the same indication before us, and the FDA grants such orphan drug exclusivity, we would be prohibited from obtaining approval for our product for seven or more years, unless our product can be shown to be clinically superior.
In addition, we rely on third parties to manufacture clinical materials for our early-stage research programs, Reliance on these third parties poses a number of risks, including the following: • The diversion of management time and cost of third-party advisers associated with the negotiation, documentation and implementation of agreements with third parties in the pharmaceutical industry; • The inability to control whether third parties devote sufficient resources to our programs or products, including with respect to meeting contractual deadlines; • The inability to control the regulatory and contractual compliance of third parties, including their quality systems, processes and procedures, systems utilized to collect and analyze data, and equipment used to test drug product and/or clinical supplies; • The inability to establish and implement collaborations or other alternative arrangements on favorable terms; • Disputes with third parties, including CROs, leading to loss of intellectual property rights, delay or termination of research, development, or commercialization of product candidates or litigation or arbitration; • Contracts with our collaborators fail to provide sufficient protection of our intellectual property; and • Difficulty enforcing our contractual rights if one of these third parties fails to perform.
Reliance on these third parties poses a number of risks, including the following: • The diversion of management time and cost of third-party advisers associated with the negotiation, documentation and implementation of agreements with third parties in the pharmaceutical industry; • The inability to control whether third parties devote sufficient resources to our programs or products, including with respect to meeting contractual deadlines; • The inability to control the regulatory and contractual compliance of third parties, including their quality systems, processes and procedures, systems utilized to collect and analyze data, and equipment used to test drug product and/or clinical supplies; • The inability to establish and implement collaborations or other alternative arrangements on favorable terms; • Disputes with third parties, including CROs, leading to loss of intellectual property rights, delay or termination of research, development, or commercialization of product candidates or litigation or arbitration; • Contracts with our collaborators fail to provide sufficient protection of our intellectual property; and • Difficulty enforcing our contractual rights if one of these third parties fails to perform.
We do not have any in-house manufacturing capability other than for small-scale preclinical development programs and depend completely on a small number of third-party manufacturers and suppliers for the manufacture of our product candidates on a clinical or commercial scale.
We do not have any in-house manufacturing capability other than for small-scale preclinical development programs and depend completely on a small number of third-party manufacturers and suppliers for the manufacture of our product 45 Table of Contents candidates on a clinical or commercial scale.
The company that obtains the first regulatory approval from the FDA for a designated orphan drug for a rare disease or condition generally receives marketing exclusivity for use of that drug for the designated disease or condition for a period of seven years. Similar laws exist in the EU with a term of 10 years.
The company that obtains the first regulatory approval from the FDA for a designated orphan drug for an indication within the designated rare disease or condition generally receives marketing exclusivity for use of that drug for that indication for a period of seven years. Similar laws exist in the EU with a term of 10 years.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements with our employees could hamper a third party’s acquisition of us or discourage a third party from attempting to acquire control of us, or limit the price that investors might be willing to pay for shares of our common stock.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements between us and our employees could hamper a third party’s acquisition of us or discourage a third party from attempting to acquire control of us. 59 Table of Contents Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements with our employees could hamper a third party’s acquisition of us or discourage a third party from attempting to acquire control of us, or limit the price that investors might be willing to pay for shares of our common stock.
Failure to obtain or maintain regulatory approval or clearance of our product devices could materially harm our business. Lamira must receive separate regulatory approval or clearance in connection with each approved product or product candidate it will be used to administer.
Failure to obtain or maintain regulatory approval or clearance of our product devices could materially harm our business. 42 Table of Contents Lamira must receive separate regulatory approval or clearance in connection with each approved product or product candidate it will be used to administer.
In the case of certain specified supply failures, we have the right under our commercialization agreement with PARI 43 Table of Contents to make the nebulizer and have it made by certain third parties, but not those deemed under the commercialization agreement to compete with PARI.
In the case of certain specified supply failures, we have the right under our commercialization agreement with PARI to make the nebulizer and have it made by certain third parties, but not those deemed under the commercialization agreement to compete with PARI.
We also experience competition for the hiring of our clinical and commercial personnel from universities, research institutions, and other third 44 Table of Contents parties. We cannot assure that we will attract and retain such persons or maintain such relationships.
We also experience competition for the hiring of our clinical and commercial personnel from universities, research institutions, and other third parties. We cannot assure that we will attract and retain such persons or maintain such relationships.
We also may face lower priced generic competitors if third-party payors encourage use of generic or lower-priced versions of our product or 47 Table of Contents if competing products are imported into the US or other countries where we may sell ARIKAYCE.
We also may face lower priced generic competitors if third-party payors encourage use of generic or lower-priced versions of our product or if competing products are imported into the US or other countries where we may sell ARIKAYCE.
These agreements impose a number of obligations on us and our business, including restrictions on our ability to freely 50 Table of Contents develop or commercialize our product candidates and requirements to make milestone and royalty payments to our counterparties upon certain events.
These agreements impose a number of obligations on us and our business, including restrictions on our ability to freely develop or commercialize our product candidates and requirements to make milestone and royalty payments to our counterparties upon certain events.
If we experience delays in our clinical trials or other testing or the results of these trials or tests are not positive or are only modestly positive, including with respect to safety, we may: • Experience increased product development costs; • Be delayed in obtaining, or be unable to obtain, regulatory approval for one or more of our product candidates; • Obtain approval for indications or patient populations that are not as broad as intended or entirely different than those indications for which we sought approval or with labeling with boxed warnings or other warnings or contraindications; • Need to change the way the product is administered; • Be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; • Have regulatory authorities withdraw, or suspend, their approval of the product or impose risk mitigation strategies such as restrictions on distribution or other REMS; • Face a shortened patent protection period during which we may have the exclusive right to commercialize our products; • Have competitors that are able to bring similar products to market before us; • Be sued for alleged injuries caused to patients using our products; or • Suffer reputational damage. 40 Table of Contents Such circumstances would impair our ability to commercialize our products and harm our business and results of operations.
If we experience delays in our clinical trials or other testing or the results of these trials or tests are not positive or are only modestly positive, including with respect to safety, we may: • Experience increased product development costs; • Be delayed in obtaining, or be unable to obtain, regulatory approval for one or more of our product candidates; • Obtain approval for indications or patient populations that are not as broad as intended or entirely different than those indications for which we sought approval or with labeling with boxed warnings or other warnings or contraindications; • Need to change the way the product is administered; • Be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements; • Have regulatory authorities withdraw, or suspend, their approval of the product or impose risk mitigation strategies such as restrictions on distribution or other REMS; • Face a shortened patent protection period during which we may have the exclusive right to commercialize our products; • Have competitors that are able to bring similar products to market before us; • Be sued for alleged injuries caused to patients using our products; or • Suffer reputational damage.
Furthermore, we believe that our competitors have used, and may continue to use, litigation to gain a competitive advantage. Our competitors may also use different technologies or approaches to develop products similar to ARIKAYCE and our product candidates.
Furthermore, we believe that our competitors have used, and may continue to use, litigation to gain a competitive advantage. Our competitors may also use different technologies or approaches to develop products similar to ARIKAYCE, brensocatib, TPIP and our preclinical product candidates.
Similarly, under our license agreement with AstraZeneca, AstraZeneca may terminate our license to brensocatib if we fail to use commercially reasonable efforts to develop and commercialize a product based on brensocatib, or we are subject to a bankruptcy or insolvency.
For instance, under our license agreement with AstraZeneca, AstraZeneca may terminate our license to brensocatib if we fail to use commercially reasonable efforts to develop and commercialize a product based on brensocatib, or we are subject to a bankruptcy or insolvency.
Our reputation could also suffer. In addition, 51 Table of Contents private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.
Our reputation could also suffer. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.
The frontline clinical trial program consists of the ARISE trial, an interventional study designed to validate cross-sectional and longitudinal characteristics of a PRO tool in MAC lung disease, and the ENCORE trial, designed to establish the clinical benefits and evaluate the safety of ARIKAYCE in patients with newly diagnosed MAC lung disease using the PRO tool validated in the ARISE trial.
The confirmatory clinical trial program consists of the ARISE trial, an interventional study designed to validate cross-sectional and longitudinal characteristics of a PRO tool in MAC lung disease, and the ENCORE trial, designed to establish the clinical benefits and evaluate the safety of ARIKAYCE in patients with newly diagnosed or recurrent MAC lung disease using the PRO tool validated in the ARISE trial.
These conditions include but are not limited to inflation, rising interest rates, limited availability of financing, energy availability and costs, the negative impacts caused by the COVID-19 pandemic and other public health crises, negative impacts resulting from the military conflict between Russia and the Ukraine, relations between the US and China, and the effects of governmental initiatives to manage economic conditions.
These conditions include but are not limited to inflation, rising interest rates, limited availability of financing, energy availability and costs, the negative impacts caused by the COVID-19 pandemic and other public health crises, negative impacts resulting from the military conflict between Russia and the Ukraine or the ongoing conflict in the Middle East, relations between the US and China, and the effects of governmental initiatives to manage economic conditions.
For additional information regarding the terms of these agreements, see Business—License and Other Agreements in Item 1 of Part I of this Annual Report on Form 10-K.
For additional information regarding the 53 Table of Contents terms of these agreements, see Business—License and Other Agreements in Item 1 of Part I of this Annual Report on Form 10-K.
In addition, even if we obtain orphan exclusivity, the FDA may approve another product during our orphan exclusivity period for the same disease or condition under certain circumstances. Our early-stage research activities include the research and development of novel gene therapy product candidates.
In addition, even if we obtain orphan exclusivity, the FDA may approve another product during our orphan exclusivity period for the same indication under certain circumstances. Our early-stage research activities include the research and development of novel gene therapy product candidates.
Any such impairment would result in us recognizing a non-cash charge in our consolidated balance sheets, which could adversely affect our business, results of operations and financial condition.
Any such impairment would result in us recognizing a non-cash charge in our consolidated financial statements, which could adversely affect our business, results of operations and financial condition.
In the event that either our own marketing, market access, sales force or third-party marketing, and sales organizations are not effective, our ability to generate revenue would be adversely affected. The commercial success of ARIKAYCE will depend on the degree of market acceptance by physicians, patients, third-party payors and others in the healthcare community.
In the event that either our own marketing, market access, sales force or third-party marketing, and sales organizations are not effective, our ability to generate revenue would be adversely affected. The commercial success of ARIKAYCE depends on continued market acceptance by physicians, patients, third-party payors and others in the healthcare community.
CBER 41 Table of Contents works closely with the National Institutes of Health (the NIH) to accelerate the development of gene therapy. The FDA has published guidance documents with respect to the development and approval of gene therapy products.
CBER works closely with the National Institutes of Health (the NIH) to accelerate the development of gene therapy. The FDA has published guidance documents with respect to the development and approval of gene therapy products.
We currently primarily rely on Esteve Pharmaceuticals, S.A. (Esteve) and Thermo 42 Table of Contents Fisher to provide our clinical supply for brensocatib. Additionally, almost all of our clinical trial work is done by CROs, such as PPD, our CRO for the ARISE, ENCORE and ASPEN trials, and clinical laboratories.
We currently primarily rely on Esteve Pharmaceuticals, S.A. (Esteve) and Thermo Fisher to provide our clinical supply for brensocatib. Additionally, almost all of our clinical trial work is done by CROs, such as PPD, our CRO for the ARISE, ENCORE, ASPEN, BiRCh, and TPIP trials, and clinical laboratories.
If we do not meet our debt 54 Table of Contents obligations, it could materially adversely affect our results of operations, financial condition and the value of our common stock.
If we do not meet our debt obligations, it could materially adversely affect our results of operations, financial condition and the value of our common stock.
The COVID-19 pandemic could also require us to delay the start of new clinical trials or otherwise impair our ability to complete those trials.
A resurgence of the COVID-19 pandemic or another pandemic could also require us to delay the start of new clinical trials or otherwise impair our ability to complete those trials.
Moreover, in the event that we pursue approval of TPIP, or any other product candidate, via the 505(b)(2) regulatory pathway, we will be required to file a certification against any unexpired patents listed in the Orange Book for the third-party drug we rely upon as part of our regulatory submission.
Moreover, in the event that we pursue approval of TPIP, or any other product candidate, via the 505(b)(2) regulatory pathway, we will be required to file a certification of non-infringement or invalidity against any unexpired patents listed in the Orange Book for the third-party drug we reference as part of our regulatory submission.
We currently have limited operations outside of the US. As of December 31, 2022, we had 85 employees located in Europe and 72 employees located in Japan, although we have clinical trial sites and suppliers located around the world.
We currently have limited operations outside of the US. As of December 31, 2023, we had 124 employees located in Europe and 85 employees located in Japan, although we have clinical trial sites and suppliers located around the world.
Despite receiving US FDA, EC and Japan's MHLW approval of ARIKAYCE, market acceptance may vary among physicians, patients, third-party payors or others in the healthcare community. ARIKAYCE was the first product approved in the US via the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) pathway, and its approval under this pathway may impact market acceptance of the product.
Despite receiving FDA, EC and Japan's MHLW approval of ARIKAYCE, market acceptance may vary among physicians, patients, third-party payors or others in the healthcare community. ARIKAYCE was the first product approved in the US via the LPAD pathway, and its approval under this pathway may impact market acceptance of the product.
We have commenced commercialization of ARIKAYCE in the US, Europe and Japan using our sales force, but we may not continue to be successful in these efforts. The establishment, development and maintenance of our own sales force is and will continue to be expensive and time-consuming.
We are commercializing ARIKAYCE in the US, Europe and Japan using our sales force, but we may not continue to be successful in these efforts. The establishment, development and maintenance of our own sales force is and will continue to be expensive and time-consuming.
If patients elect to discontinue participation in our clinical trials at a higher rate than expected, we may be unable to generate the data required by regulators for approval of our product candidates.
Once enrolled, patients may elect to discontinue participation in a clinical trial at any time. If patients elect to discontinue participation in our clinical trials at a higher rate than expected, we may be unable to generate the data required by regulators for approval of our product candidates.
We are in the process of developing in-house clinical manufacturing capability for our gene therapy product candidates, but we expect to rely on third party CMOs for manufacturing of all testing materials until at least 2023. Products intended for use in gene therapies are novel, complex and difficult to manufacture.
We are in the process of developing in-house clinical manufacturing capability for our gene therapy product candidates, but we expect to rely on third-party CMOs for manufacturing of all testing materials for the foreseeable future. Products intended for use in gene therapies are novel, complex and difficult to manufacture.
Failure to obtain or maintain regulatory approval or clearance of our product devices could materially harm our business. • If we are unable to form and sustain relationships with third party service providers that are critical to our business, or if any third-party arrangements that we may enter into are unsuccessful, our ability to develop and commercialize our products may be materially adversely affected. • We may not have, or may be unable to obtain, sufficient quantities of ARIKAYCE, Lamira or our product candidates to meet our required supply for commercialization or clinical studies, which would materially harm our business. • Adverse consequences to our business could result if we and our manufacturing partners fail to comply with applicable regulations or maintain required approvals. • We are dependent upon retaining and attracting key personnel, the loss of whose services could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. • We may encounter difficulties in managing our growth, which could disrupt our operations. 32 Table of Contents • Any acquisitions we make, or collaborative relationships we enter into, may not be clinically or commercially successful, and may require financing or a significant amount of cash, which could adversely affect our business. • Our business and operations, including our drug development and commercialization programs, could be materially disrupted in the event of system failures, security breaches, cyber-attacks, deficiencies in our cybersecurity, violations of data protection laws or data loss or damage by us or third parties. • We have limited experience operating internationally, are subject to a number of risks associated with our international activities and operations and may not be successful in our efforts to expand internationally. • We operate in a highly competitive and changing environment, and if we are unable to adapt to our environment, we may be unable to compete successfully. • We have a limited number of significant customers and losing any of them could have an adverse effect on our financial condition and results of operations. • Deterioration in general economic conditions in the US, Europe, Japan and globally, including the effect of prolonged periods of inflation on our suppliers, third-party service providers and potential partners, could harm our business and results of operations. • The COVID-19 pandemic and efforts to reduce its spread have negatively impacted, and could continue to negatively impact, our business and operations. • If we are unable to adequately protect our intellectual property rights, the value of ARIKAYCE and our product candidates could be materially diminished. • If we fail to comply with obligations in our third party agreements, our business could be adversely affected, including as a result of the loss of license rights that are important to our business. • Government healthcare reform could materially increase our costs, which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. • If we fail to comply with applicable laws, including "fraud and abuse" laws, anti-corruption laws and trade control laws, we could be subject to negative publicity, civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. • Our use of hazardous materials could expose us to damages, fines, penalties and sanctions and materially adversely affect our results of operations and financial condition. • We have a history of operating losses, expect to incur operating losses for the foreseeable future and may never achieve or maintain profitability. • We may need to raise additional funds to continue our operations, but we face uncertainties with respect to our ability to access capital. • We have outstanding indebtedness in the form of convertible senior notes, a term loan and a royalty financing arrangement and may incur additional indebtedness in the future, which could adversely affect our financial position, prevent us from implementing our strategy, and dilute the ownership interest of our existing shareholders. • We may be unable to use certain of our net operating losses and other tax assets. • Goodwill impairment charges in the future could have a material adverse effect on our business, results of operations and financial condition. • Our shareholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock for general corporate purposes and upon the conversion of the Convertible Notes. • The market price of our stock has been and may continue to be highly volatile, which could lead to shareholder litigation against us. • Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements between us and our employees could hamper a third party’s acquisition of us or discourage a third party from attempting to acquire control of us.
It will be difficult to predict the time and cost of development and of subsequently obtaining regulatory approval for any such product candidates, or how long it will take to commercialize any gene therapy product candidates. • If we are unable to form and sustain relationships with third-party service providers that are critical to our business, or if any third-party arrangements that we may enter into are unsuccessful, our ability to develop and commercialize our products may be materially adversely affected. • We may not have, or may be unable to obtain, sufficient quantities of ARIKAYCE, Lamira or our product candidates to meet our required supply for commercialization or clinical studies, which would materially harm our business. • Adverse consequences to our business could result if we and our manufacturing partners fail to comply with applicable regulations or maintain required approvals. • We are dependent upon retaining and attracting key personnel, the loss of whose services could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. 34 Table of Contents • We expect to continue to expand our development, regulatory and sales and marketing capabilities, and as a result, may encounter difficulties in managing our growth, which could disrupt our operations. • Any acquisitions we make, or collaborative relationships we enter into, may not be clinically or commercially successful, and may require financing or a significant amount of cash, which could adversely affect our business. • Our business and operations, including our drug development and commercialization programs, could be materially disrupted in the event of system failures, security breaches, cyber-attacks, deficiencies in our cybersecurity, violations of data protection laws or data loss or damage by us or third parties. • We are subject to data privacy laws and regulations that govern how we can collect, process, store and transfer personal data. • We have limited experience operating internationally, are subject to a number of risks associated with our international activities and operations and may not be successful in any efforts to further expand internationally. • We operate in a highly competitive and changing environment, and if we are unable to adapt to our environment, we may be unable to compete successfully. • We have a limited number of significant customers and losing any of them could have an adverse effect on our financial condition and results of operations. • Deterioration in general economic conditions in the US, Europe, Japan and globally, including the effect of prolonged periods of inflation on our suppliers, third-party service providers and potential partners, could harm our business and results of operations. • If we are unable to adequately protect our intellectual property rights, the value of ARIKAYCE and our product candidates could be materially diminished. • If we fail to comply with obligations in our third-party agreements, our business could be adversely affected, including as a result of the loss of license rights that are important to our business. • Government healthcare reform could materially increase our costs, which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. • If we fail to comply with applicable laws, including "fraud and abuse" laws, anti-corruption laws and trade control laws, we could be subject to negative publicity, civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. • We have a history of operating losses, expect to incur operating losses for the foreseeable future and may never achieve or maintain profitability. • We may need to raise additional funds to continue our operations, but we face uncertainties with respect to our ability to access capital. • We have outstanding indebtedness in the form of convertible senior notes, a term loan and a royalty financing arrangement and may incur additional indebtedness in the future, which could adversely affect our financial position, prevent us from implementing our strategy, and dilute the ownership interest of our existing shareholders. • We may be unable to use certain of our net operating losses and other tax assets. • Goodwill impairment charges in the future could have a material adverse effect on our business, results of operations and financial condition. • Our shareholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock for general corporate purposes and upon the conversion of the Convertible Notes. • The market price of our stock has been and may continue to be highly volatile, which could lead to shareholder litigation against us. • Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements between us and our employees could hamper a third party’s acquisition of us or discourage a third party from attempting to acquire control of us.
Our supply of the active pharmaceutical ingredient for TPIP is dependent upon a single supplier. The supplier owns patents on its manufacturing process and crystalline drug product, and we have filed patent applications for TPIP; however, a competitor in the PAH indication may claim that we or our supplier have infringed upon or misappropriated its proprietary rights.
Our supply of treprostinil palmitil, the treprostinil prodrug present in TPIP, is dependent upon a single supplier. The supplier owns patents on its manufacturing process and crystalline drug product, and we have filed patent applications for TPIP; however, a competitor in the PAH indication may claim that we or our supplier have infringed upon or misappropriated its proprietary rights.
While we have experienced no disruption to date in our 48 Table of Contents supply chain, if we encounter delays or difficulties in the manufacturing process that disrupt our ability to supply ARIKAYCE, we may not be able to satisfy patient demand or we may experience a product stock-out, which would likely have a material adverse effect on our business.
While we have experienced no disruption to date in our supply chain due to the COVID-19 pandemic, if we encounter delays or difficulties in the manufacturing process that disrupt our ability to supply ARIKAYCE, we may not be able to satisfy patient demand or we may experience a product stock-out, which would likely have a material adverse effect on our business.
We have incurred losses each previous year of our operation, except in 2009, when we sold our manufacturing facility and certain other assets to Merck & Co, Inc. As of December 31, 2022, our accumulated deficit was $2.7 billion.
We have incurred losses each previous year of our operation, except in 2009, when we sold our manufacturing facility and certain other assets to Merck & Co, Inc. As of December 31, 2023, our accumulated deficit was $3.4 billion.
Our three largest customers as of December 31, 2022 accounted for 90% and 75% of our total gross product revenue for the years ended December 31, 2022 and 2021, respectively.
Our three largest customers as of December 31, 2023 accounted for 88% and 90% of our total gross product revenue for the years ended December 31, 2023 and 2022, respectively.
Acquisitions involve a number of operational risks, including: • Failure to achieve expected synergies; • The possibility that our acquired technologies, products and product candidates may not be commercially successful; • Difficulty and expense of assimilating the operations, technology and personnel of any acquired business; • The inability to retain the management, key personnel and other employees of any acquired business; • The inability to maintain any acquired company’s relationship with key third parties, such as alliance partners; • Exposure to legal claims or other liabilities for activities of any acquired business prior to acquisition; • Diversion of our management’s attention from our core business; and • Potential impairment of intangible assets, adversely affecting our reported results of operations and financial condition.
Acquisitions involve a number of operational risks, including: • Failure to achieve expected synergies; • The possibility that our acquired technologies, products and product candidates may not be commercially successful; • Difficulty and expense of assimilating the operations, technology and personnel of any acquired business; • The inability to retain the management, key personnel and other employees of any acquired business; • The inability to maintain any acquired company’s relationship with key third parties, such as alliance partners; • Exposure to legal claims or other liabilities for activities of any acquired business prior to acquisition; • Diversion of our management’s attention from our core business; and • Potential impairment of intangible assets, adversely affecting our reported results of operations and financial condition. 47 Table of Contents We also may enter into collaborative relationships that would involve our collaborators conducting proprietary development programs.
While the IRA is still subject to rulemaking (with more information to come via guidance documents from the responsible federal agencies), the IRA, as written, gives the US Department of Health and Human Services (the HHS) the ability and authority to directly negotiate with manufacturers the price that Medicare will pay for certain high-priced drugs and set caps on the negotiated price of such drugs, among other changes.
While the IRA is still subject to rulemaking (with more information to come via guidance documents from the responsible federal agencies), the IRA purports to give the HHS the ability and authority to directly negotiate with manufacturers the price that Medicare will pay for certain high-priced drugs and set caps on the negotiated price of such drugs, among other changes.
There are ambiguities as to what is required to comply with these requirements, and we could be subject to penalties if it is determined that we have failed to comply with an applicable legal requirement. We are subject to anti-corruption laws and trade control laws, as well as other laws governing our operations.
Some of these laws are new or ambiguous as to what is required to comply with their requirements, and we could be subject to penalties if it is determined that we have failed to comply with an applicable legal requirement. We are subject to anti-corruption laws and trade control laws, as well as other laws governing our operations.
Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. In addition to the federal government, some states, as well as other countries, including France, require the disclosure of certain payments to healthcare professionals.
Failure to submit required information may result in civil monetary penalties. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. In addition to the federal government, some states, as well as other countries, including France, require the disclosure of certain payments to healthcare professionals.
For the years ended December 31, 2022, 2021 and 2020, our consolidated net loss was $481.5 million, $434.7 million and $294.1 million, respectively.
For the years ended December 31, 2023, 2022 and 2021, our consolidated net loss was $749.6 million, $481.5 million and $434.7 million, respectively.
We are conducting our confirmatory clinical trial program for full approval of ARIKAYCE, through the ARISE trial and the ENCORE trial, in the broader population of patients with MAC lung disease, but this trial program, along with any other clinical trials of ARIKAYCE may not be successful.
While we reported positive topline results from our ARISE trial, we are continuing to conduct our confirmatory clinical trial program for full approval of ARIKAYCE in the broader population of patients with MAC lung disease through our ENCORE trial, but this trial program, along with any other clinical trials of ARIKAYCE, may not be successful.
Holders may convert their 2028 Convertible Notes and 2025 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding March 1, 2028 and October 15, 2024, respectively, only under certain circumstances.
The accounting method for the Convertible Notes may have an adverse effect on our reported financial results. Holders may convert their 2028 Convertible Notes and 2025 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding March 1, 2028 and October 15, 2024, respectively, only under certain circumstances.
The federal privacy regulations under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), state, and foreign medical record privacy laws may limit access to information identifying those individuals who may be prospective users.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA), state, and foreign privacy laws may limit access to information identifying those individuals who may be prospective users or limit the ability to market to them.
Pursuant to the timetable agreed upon with the FDA when the approval letter of ARIKAYCE was received, confirmatory trial results are to be reported by 2024. We are engaged with FDA regarding the status and execution of the ARISE and ENCORE trials. There is littl e precedent for clinical development and regulatory expectations for agents to treat MAC lung disease.
The trial completion timetable agreed upon with the FDA when the approval letter for ARIKAYCE was received has been delayed. We remain engaged with the FDA regarding the timeline, status and execution of the ARISE and ENCORE trials. There is littl e precedent for clinical development and regulatory expectations for agents to treat MAC lung disease.
The ACA created a similar entity, the Patient-Centered Outcomes Research Institute, designed to review the effectiveness of treatments and medications in federally-funded healthcare programs. An adverse result could lead to a treatment or product being removed from Medicare or Medicare coverage. The decisions of such governmental agencies could affect our ability to sell our products profitably.
The Patient Protection and Affordable Care Act (ACA) created a similar entity, the Patient-Centered Outcomes Research Institute, designed to review the effectiveness of treatments and medications in federally-funded healthcare programs. An adverse result could lead to a treatment or product being removed from Medicare or Medicare coverage.
If estimates of the size of the potential markets for ARIKAYCE, brensocatib, TPIP, or our other product candidates are overstated or data we have used to identify physicians is inaccurate, our ability to earn revenue to support our business could be materially adversely affected.
Any of these circumstances could reduce ARIKAYCE’s market acceptance and would be likely to materially adversely affect our business. 39 Table of Contents If estimates of the size of the potential markets for ARIKAYCE, brensocatib, TPIP, or our other product candidates are overstated or data we have used to identify physicians is inaccurate, our ability to earn revenue to support our business could be materially adversely affected.
We may also encounter substantial delays in completing enrollment for the ENCORE trial and in conducting either trial, and we may not be able to enroll and conduct the trials in a manner satisfactory to the FDA or within the time period required by the FDA.
We may also encounter substantial delays in completing enrollment for the ENCORE trial, including due to any increase to the enrollment target based on pending discussions with the FDA, and in conducting the trial, and we may not be able to enroll and conduct the trial in a manner satisfactory to the FDA or within the time period required by the FDA.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe initial term of this lease will expire in 2030. We lease laboratory space located in Bridgewater for which we exercised the renewal option to extend the lease term until December 2026. In October 2018, we expanded this lease to a total of 28,002 square feet.
Biggest changeThe initial term of this lease will expire in 2030. We lease laboratory space located in Bridgewater for which we exercised the renewal option to extend the lease term until December 2026. In July 2023, we expanded this lease to a total of 46,671 square feet and further extended the lease term until April 2027.
We also lease facilities in California totaling 40,543 square feet and a facility in New Hampshire. In addition, we lease office space outside of the US in France, Ireland, the Netherlands, Switzerland and Japan.
We also lease facilities in California totaling 54,478 square feet and a facility in New Hampshire. In addition, we lease office space outside of the US in France, Ireland, the Netherlands, Switzerland and Japan.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our trading symbol is "INSM." Our common stock currently trades on the Nasdaq Global Select Market. As of February 20, 2023, there were approximately 150 holders of record of our common stock. We have never declared or paid cash dividends on our common stock.
Biggest changeITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our trading symbol is "INSM." Our common stock currently trades on the Nasdaq Global Select Market. As of February 19, 2024, there were approximatel y 176 holders of record of our common stock.
Any future determination as to the payment of dividends will be dependent upon these and any contractual or other restrictions to which we may be subject and, to the extent permissible thereunder, will be at the sole discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors our board of directors deems relevant at that time. 60 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Insmed Incorporated, the NASDAQ Composite Index, the S&P 500 Index, the NASDAQ Biotechnology Index and the SPDR S&P Biotech ETF _________________________________ * $100 invested on 12/31/17 in stock or index, including reinvestment of dividends.
Any future determination as to the payment of dividends will be dependent upon these and any contractual or other restrictions to which we may be subject and, to the extent permissible thereunder, will be at the sole discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors our board of directors deems relevant at that time. 63 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Insmed Incorporated, the NASDAQ Composite Index, the S&P 500 Index, the NASDAQ Biotechnology Index and the SPDR S&P Biotech ETF Index _________________________________ * $100 invested on 12/31/18 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31. Copyright© 2022 Standard & Poor's, a division of S&P Global. All rights reserved. 61 Table of Contents
Fiscal year ending December 31. Copyright© 2022 Standard & Poor's, a division of S&P Global. All rights reserved. 64 Table of Contents
We anticipate that we will retain all earnings, if any, to support operations and to finance the growth and development of our business for the foreseeable future.
We have never declared or paid cash dividends on our common stock. We anticipate that we will retain all earnings, if any, to support operations and to finance the growth and development of our business for the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe increase in cost of product revenues (excluding amortization of intangibles) in the year ended December 31, 2022 was directly attributable to the increase in total revenues discussed above. 65 Table of Contents R&D Expenses R&D expenses for the years ended December 31, 2022 and 2021 were comprised of the following (in thousands): For the Years Ended December 31, Increase (decrease) 2022 2021 $ % External Expenses Clinical development and research $ 144,846 $ 107,096 $ 37,750 35.2% Manufacturing 71,998 29,503 42,495 144.0% Regulatory, quality assurance, and medical affairs 20,129 17,734 2,395 13.5% Subtotal—external expenses $ 236,973 $ 154,333 $ 82,640 53.5% Internal Expenses Compensation and benefit related expenses $ 104,094 $ 82,909 $ 21,185 25.6% Stock-based compensation 26,379 17,814 8,565 48.1% Other internal operating expenses 30,072 17,688 12,384 70.0% Subtotal—internal expenses $ 160,545 $ 118,411 $ 42,134 35.6% Total R&D expenses $ 397,518 $ 272,744 $ 124,774 45.7% R&D expenses increased to $397.5 million during the year ended December 31, 2022 from $272.7 million in 2021.
Biggest changeR&D Expenses R&D expenses for the years ended December 31, 2023 and 2022 were comprised of the following (in thousands): 68 Table of Contents For the Years Ended December 31, Increase (decrease) 2023 2022 $ % External Expenses Clinical development and research $ 166,448 $ 144,846 $ 21,602 14.9% Non-cash asset acquisitions 86,747 — 86,747 NA Manufacturing 73,614 71,998 1,616 2.2% Regulatory, quality assurance, and medical affairs 27,002 20,129 6,873 34.1% Subtotal—external expenses $ 353,811 $ 236,973 $ 116,838 49.3% Internal Expenses Compensation and benefit-related expenses $ 140,861 $ 104,094 $ 36,767 35.3% Stock-based compensation 35,880 26,379 9,501 36.0% Other internal operating expenses 40,459 30,072 10,387 34.5% Subtotal—internal expenses $ 217,200 $ 160,545 $ 56,655 35.3% Total R&D expenses $ 571,011 $ 397,518 $ 173,493 43.6% R&D expenses increased to $571.0 million during the year ended December 31, 2023 from $397.5 million in 2022.
We expect that our future capital requirements may be substantial and will depend on many factors, including: • The timing and cost of our ongoing and anticipated clinical trials for our product candidates, including our Phase 3 ASPEN trial; • The timing and cost of our current and future clinical trials of ARIKAYCE for the treatment of patients with NTM lung infections, including the ARISE and ENCORE trials; • The cost of discovering or in-licensing additional product candidates; • The costs of activities related to the regulatory approval process and the timing of approvals, if received; • The cost of supporting the sales and marketing efforts necessary to support the continued commercial efforts of ARIKAYCE; • The timing and costs of supporting the commercial launch activities of brensocatib; • The cost of eventually supporting the commercial launches of TPIP and our other product candidates; • The cost of filing, prosecuting, defending, and enforcing patent claims; • The costs of our manufacturing-related activities; • The cost of hiring more personnel to support our ongoing development and commercialization efforts; and • The levels, timing and collection of revenue earned from sales of ARIKAYCE and other products approved in the future, if any.
We expect that our future capital requirements may be substantial and will depend on many factors, including: • The timing, outcome, and cost of our ongoing and anticipated clinical trials for our product candidates, including our Phase 3 ASPEN trial; • The timing and cost of our current and future clinical trials of ARIKAYCE for the treatment of patients with NTM lung infections, including the ARISE and ENCORE trials; • The cost of discovering or in-licensing additional product candidates; • The costs of activities related to the regulatory approval process and the timing of approvals, if received; • The cost of supporting the sales and marketing efforts necessary to support the continued commercial efforts of ARIKAYCE; • The timing and costs of supporting the commercial launch activities of brensocatib; • The cost of eventually supporting the commercial launches of TPIP and our other product candidates; • The cost of filing, prosecuting, defending, and enforcing patent claims; • The costs of our manufacturing-related activities; • The cost of hiring more personnel to support our ongoing development and commercialization efforts; and • The levels, timing and collection of revenue earned from sales of ARIKAYCE and other products approved in the future, if any.
We have raised $1.8 billion in net proceeds from securities offerings since 2020. We believe we currently have sufficient funds to meet our financial needs for at least the next 12 months. However, our business strategy may require us to raise additional capital at any time through equity or debt financing(s), strategic transactions or otherwise.
We have raised $1.8 billion in net proceeds from securities offerings since 2021. We believe we currently have sufficient funds to meet our financial needs for at least the next 12 months. However, our business strategy may require us to raise additional capital at any time through equity or debt financing(s), strategic transactions or otherwise.
Although it is difficult to predict our future funding requirements, based upon our current operating plan, we anticipate that our cash and cash equivalents and marketable securities as of December 31, 2022 will enable us to fund our operations for at least the next 12 months.
Although it is difficult to predict our future funding requirements, based upon our current operating plan, we anticipate that our cash and cash equivalents and marketable securities as of December 31, 2023 will enable us to fund our operations for at least the next 12 months.
For all contracts that fall into the scope of ASC 606, we have identified one performance obligation: the sale of ARIKAYCE to its customers. We have not incurred or capitalized any incremental costs associated with obtaining contracts with customers. 71 Table of Contents Product revenues, net, consist of net sales of ARIKAYCE.
For all contracts that fall into the scope of ASC 606, we have identified one performance obligation: the sale of ARIKAYCE to its customers. We have not incurred or capitalized any incremental costs associated with obtaining contracts with customers. 74 Table of Contents Product revenues, net, consist of net sales of ARIKAYCE.
The Term Loan, including the paid-in-kind interest, will be repaid in eight equal quarterly payments starting in the 13th quarter following the closing of the Term Loan (i.e., the quarter ending March 31, 2026), except that the repayment start date may be extended at our option for an additional four quarters, so that repayments start in the 17th quarter following the closing of the Term Loan, subject to the achievement of specified ARIKAYCE data thresholds and certain other conditions.
The Term 70 Table of Contents Loan, including the paid-in-kind interest, will be repaid in eight equal quarterly payments starting in the 13th quarter following the closing of the Term Loan (i.e., the quarter ending March 31, 2026), except that the repayment start date may be extended at our option for an additional four quarters, so that repayments start in the 17th quarter following the closing of the Term Loan, subject to the achievement of specified ARIKAYCE data thresholds and certain other conditions.
Our ability to reduce our operating loss and begin to generate positive cash flow from operations depends on the continued success in commercializing ARIKAYCE and achieving positive results from the ARIKAYCE frontline clinical trial program in order to obtain full approval of ARIKAYCE in the US and potentially reach more patients.
Our ability to reduce our operating loss and begin to generate positive cash flow from operations depends on the continued success in commercializing ARIKAYCE and achieving positive results from the ARIKAYCE confirmatory clinical trial program in order to obtain full approval of ARIKAYCE in the US and potentially reach more patients.
The 2025 Convertible Notes mature on January 15, 2025, unless earlier converted, redeemed, or repurchased. The 2025 Convertible Notes are convertible into common stock of the Company under certain circumstances described in the Indenture. For more information, see Note 8 - Debt in our notes to the consolidated financial statements.
The 2025 Convertible Notes mature on January 15, 2025, unless earlier converted, redeemed, or repurchased. The 2025 Convertible Notes are convertible into common stock of the Company under certain circumstances described in the Indenture. For more information, see Note 10 - Debt in our notes to the consolidated financial statements.
Comparison of the Years Ended December 31, 2021 and 2020 Please refer to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a comparative discussion of our fiscal years ended December 31, 2021 and December 31, 2020.
Comparison of the Years Ended December 31, 2022 and 2021 Please refer to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a comparative discussion of our fiscal years ended December 31, 2022 and December 31, 2021.
For more information, see Note 8 - Debt in our notes to the consolidated financial statements. In January 2018, we completed an underwritten public offering of $450.0 million aggregate principal amount of the 2025 Convertible Notes pursuant to the Indenture.
For more information, see Note 10 - Debt in our notes to the consolidated financial statements. In January 2018, we completed an underwritten public offering of $450.0 million aggregate principal amount of the 2025 Convertible Notes pursuant to the Indenture.
We expect to continue to incur substantial expenses related to our research and development activities as we continue the ARIKAYCE frontline clinical program, conduct the Phase 3 ASPEN trial for brensocatib, continue the trials for TPIP, and fund development of our early-stage research programs.
We expect to continue to incur substantial expenses related to our research and development activities as we continue the ARIKAYCE confirmatory clinical program, conduct the Phase 3 ASPEN trial for brensocatib, continue the trials for TPIP, and fund development of our early-stage research programs.
The net cash used in operating activities during the years ended December 31, 2022 and 2021 was primarily for the commercial, clinical and manufacturing activities related to ARIKAYCE, as well as other SG&A expenses and clinical trial expenses related to brensocatib and TPIP.
The net cash used in operating activities during the years ended December 31, 2023 and 2022 was primarily for the commercial, clinical and manufacturing activities related to ARIKAYCE, as well as other SG&A expenses and clinical trial expenses related to brensocatib and TPIP.
The aggregate investment to increase our long-term production capacity, including under the Patheon agreements and related agreements or purchase orders with third parties for raw materials and fixed assets, is estimated to be approximately $99 million.
The aggregate investment to increase our long-term production capacity, including under the Patheon agreements and related agreements or purchase orders with third parties for raw materials and fixed assets, is estimated to be approximately $104 million.
The total Revenue Interest Payments payable by us to OrbiMed are capped at 1.8x of the purchase price or up to a maximum of 1.9x of the purchase price under certain 67 Table of Contents conditions. Net proceeds from the Royalty Financing Agreement, after deducting the lenders fees and deal expenses of $3.6 million, were $146.4 million.
The total Revenue Interest Payments payable by us to OrbiMed are capped at 1.8x of the purchase price or up to a maximum of 1.9x of the purchase price under certain conditions. Net proceeds from the Royalty Financing Agreement, after deducting the lenders fees and deal expenses of $3.6 million, were $146.4 million.
The Lease contains customary default provisions, including those relating to payment defaults, performance defaults and events of bankruptcy. In October 2017, we entered into certain agreements with Patheon related to the increase of our long-term production capacity for ARIKAYCE. The agreements provide for Patheon to manufacture and supply ARIKAYCE for our anticipated 69 Table of Contents commercial needs.
The Lease contains customary default provisions, including those relating to payment defaults, performance defaults and events of bankruptcy. In October 2017, we entered into certain agreements with Patheon related to the increase of our long-term production capacity for ARIKAYCE. The agreements provide for Patheon to manufacture and supply ARIKAYCE for our anticipated commercial needs.
We have entered into project addenda with PPD to perform clinical development services over several years for, but not limited to, our ARISE, ENCORE, ASPEN studies and other brensocatib and TPIP studies. We currently expect to incur approximately $370 million of costs related to these project addenda.
We have entered into project addenda with PPD to perform clinical development services over several years for, but not limited to, our ARISE, ENCORE, ASPEN studies and other brensocatib and TPIP studies. We currently expect to incur approximately $430.1 million of costs related to these project addenda.
Through December 31, 2022 , we have paid $1.7 million of these additional global sales milestone payments. 70 Table of Contents Future Funding Requirements We may need to raise additional capital to fund our operations, including the continued commercialization of ARIKAYCE, current and future clinical trials related to ARIKAYCE, development of brensocatib and TPIP, and the potential development, acquisition, in-license or co-promotion of other products or product candidates, including those that address orphan or rare diseases.
Through December 31, 2023, we have met and paid $1.7 million of these additional global sales milestone payments. 73 Table of Contents Future Funding Requirements We may need to raise additional capital to fund our operations, including the development and potential commercialization of brensocatib, continued commercialization of ARIKAYCE, current and future clinical trials related to ARIKAYCE, development of TPIP, and the potential development, acquisition, in-license or co-promotion of other products or product candidates, including those that address orphan or rare diseases.
The total royalty payable to OrbiMed is capped at 1.8x of the $150 million purchase price or up to a maximum of 1.9x of the $150 million purchase price under certain conditions. For more information, see Note 8 - Debt and Note 9 - Royalty Financing Agreement in our notes to the consolidated financial statements.
The total royalty payable to OrbiMed is capped at 1.8x of the $150 million purchase price or up to a maximum of 1.9x of the $150 million purchase price under certain conditions. For more information, see Note 10 - Debt and Note 11 - Royalty Financing Agreement in our notes to the consolidated financial statements.
The initial Lease term runs 130 months from the Commencement Date and we have the option to extend that term for up to three additional five-year periods. In addition, we are responsible for operating expenses and taxes pursuant to the Lease. Future minimum payments under the Lease during the initial Lease term are approximately $19.6 million.
The initial Lease term runs 130 months from the Commencement Date and we have the option to extend that term for up to three additional five-year periods. In addition, we are responsible for operating expenses and taxes pursuant to the Lease. Future minimum payments under the Lease during the initial Lease term are approximately $17.9 million.
The income tax provision for the year ended December 31, 2022 reflects the income tax expense recorded as a result of taxable income in certain of our subsidiaries in Europe and Japan as well as a liability for certain state income taxes.
The income tax provision for the years ended December 31, 2023 and 2022 reflects the income tax expense recorded as a result of taxable income in certain of our subsidiaries in Europe and Japan as well as a liability for certain state income taxes.
Under these agreements, we are required to deliver to Patheon the required raw materials, including active pharmaceutical ingredients, and certain fixed assets needed to manufacture ARIKAYCE. Patheon's supply obligations will commence once certain technology transfer and construction services are completed.
Under these agreements, we are required to deliver to Patheon the required raw materials, including active pharmaceutical ingredients, and certain fixed assets needed to manufacture ARIKAYCE. Patheon's supply obligations will 72 Table of Contents commence once certain technology transfer and construction services are completed.
As a result of the US approval of ARIKAYCE and in accordance with the agreements, as amended, we owe milestone payments to CFFT of $13.4 million in the aggregate payable through 2025, of which $4.9 million has been paid as of December 31, 2022 .
As a result of the US approval of ARIKAYCE and in accordance with the agreements, as amended, we owe milestone payments to CFFT of $13.4 million in the aggregate payable through 2025, of which $7.4 million has been paid as of December 31, 2023.
In the first quarter of 2021, we entered into a sales agreement with SVB Leerink LLC (now known as SVB Securities LLC) (SVB Securities), to sell shares of the Company's common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through an “at the market” equity offering program (the ATM program), under which SVB Securities acts as sales agent.
In 2021, we entered into a sales agreement with SVB Leerink LLC (now known as Leerink Partners LLC) (Leerink Partners), to sell shares of our common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through an “at the market” equity offering program (the ATM program), under which Leerink Partners acts as sales agent.
Change in Fair Value of Interest Rate Swap The change in fair value of interest rate swap for the year ended December 31, 2022 was $1.5 million. Adjustments to the fair value are due to changes in interest rates as of December 31, 2022 relative to the interest rate of our Swap Contract.
Change in Fair Value of Interest Rate Swap The change in fair value of interest rate swap for the year ended December 31, 2023 was $0.3 million. Adjustments to the fair value are due to changes in interest rates as of December 31, 2023 relative to the interest rate of our Swap Contract as of December 31, 2022.
Furthermore, if certain global sales milestones are met within five years of the commercialization of ARIKAYCE, we would owe up to an additional $3.9 million.
Furthermore, if certain global sales milestones were met within five years of the commercialization of ARIKAYCE, we would have owed up to an additional $3.9 million.
The accounting estimates discussed below involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual results could differ materially from our estimates. For additional accounting policies, see Note 2 to our Consolidated Financial Statements— Summary of Significant Accounting Policies.
The accounting estimates discussed below involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual results could differ materially from our estimates.
Cash Flows As of December 31, 2022, we had cash and cash equivalents of $1,074.0 million, as compared with $716.8 million as of December 31, 2021. In addition, as of December 31, 2022, we also had marketable securities of $74.2 million.
Cash Flows As of December 31, 2023, we had cash and cash equivalents of $482.4 million, as compared with $1,074.0 million as of December 31, 2022. In addition, as of December 31, 2023, we had marketable securities of $298.1 million as compared with $74.2 million as of December 31, 2022.
Research and Development (R&D) Expenses 63 Table of Contents R&D expenses consist of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions, including medical affairs and program management.
We began capitalizing inventory upon FDA approval of ARIKAYCE in September 2018. Research and Development (R&D) Expenses 66 Table of Contents R&D expenses consist of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions, including medical affairs and program management.
In 2022, the cash used in investing activities was partially offset by the maturity of certain marketable securities. 68 Table of Contents Net cash provided by financing activities was $793.3 million and $612.5 million for the years ended December 31, 2022 and 2021, respectively.
The increase in cash used for investing activities in 2023 is due to the purchases of marketable securities, partially offset by maturity of certain marketable securities. 71 Table of Contents Net cash provided by financing activities was $168.4 million and $793.3 million for the years ended December 31, 2023 and 2022, respectively.
Cost of Product Revenues (Excluding Amortization of Intangibles) Cost of product revenues (excluding amortization of intangibles) for the years ended December 31, 2022 and 2021 were comprised of the following (in thousands): For the Year Ended December 31, Increase (decrease) 2022 2021 $ % Cost of product revenues (excluding amortization of intangibles) $ 55,126 $ 44,152 $ 10,974 24.9% Cost of product revenues, as % of revenues 22.5 % 23.4 % Cost of product revenues (excluding amortization of intangibles) increased by $11.0 million, or 24.9%, to $55.1 million for the year ended December 31, 2022 as compared to $44.2 million in 2021.
Cost of Product Revenues (Excluding Amortization of Intangibles) Cost of product revenues (excluding amortization of intangibles) for the years ended December 31, 2023 and 2022 were comprised of the following (in thousands): For the Year Ended December 31, Increase (decrease) 2023 2022 $ % Cost of product revenues (excluding amortization of intangibles) $ 65,573 $ 55,126 $ 10,447 19.0% Cost of product revenues, as % of revenues 21.5 % 22.5 % Cost of product revenues (excluding amortization of intangibles) increased by $10.4 million, or 19.0%, to $65.6 million for the year ended December 31, 2023 as compared to $55.1 million in 2022.
We recorded a loss on early extinguishment of debt of $17.7 million, primarily related to the premium paid on extinguishment of a portion of the 2025 Convertible Notes.
A portion of the net proceeds from the 2028 Convertible Notes was used to repurchase $225.0 million of our outstanding 2025 Convertible Notes. We recorded a loss on early extinguishment of debt of $17.7 million, primarily related to the premium paid on extinguishment of a portion of the 2025 Convertible Notes.
We are obligated to make a series of additional contingent milestone payments to AstraZeneca totaling up to an additional $72.5 million upon the achievement of clinical development and regulatory filing milestones.
Subsequent to this milestone, we are also obligated to make a series of additional contingent milestone payments totaling up to an additional $60.0 million upon the achievement of regulatory filing milestones.
This final pricing resulted in a change in estimate that reduced revenue by approximately $7.5 million in the fourth quarter of 2022, of which $5.8 million related to periods prior to 2022. In 2023, we anticipate a one-time, prospective price decrease for ARIKAYCE in Japan in the high-single digit to low-double digit range.
This final pricing resulted in a change in estimate that reduced revenue by approximately $7.5 million in the fourth quarter of 2022, of which $5.8 million related to periods prior to 2022.
CRITICAL ACCOUNTING ESTIMATES Preparation of financial statements in accordance with generally accepted accounting principles in the US requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities.
CRITICAL ACCOUNTING ESTIMATES Preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We use our historical experience and other relevant factors when developing our estimates and assumptions and we regularly evaluate these estimates and assumptions.
Provision (Benefit) for Income Taxes The income tax provision was $1.4 million for the year ended December 31, 2022 and the income tax (benefit) was $(1.8) million for the year ended December 31, 2021.
Provision for Income Taxes The income tax provision was $2.6 million for the year ended December 31, 2023 as compared to $1.4 million for the year ended December 31, 2022.
Up to 50% of the interest payable during the first 24 months from the closing of the Term Loan may be paid-in-kind at our election. If elected, paid-in-kind interest will be capitalized and added to the principal amount of the Term Loan.
If elected, paid-in-kind interest will be capitalized and added to the principal amount of the Term Loan.
The following table summarizes revenue by geography for the years ended December 31, 2022 and 2021 (in thousands): For the Year Ended December 31, Increase (decrease) 2022 2021 $ % US $ 185,994 $ 159,510 $ 26,484 16.6% Japan 56,506 16,006 40,500 253.0% Europe and rest of world 2,858 12,945 (10,087) (77.9)% Total product revenues, net $ 245,358 $ 188,461 $ 56,897 30.2% Product revenues, net, for the year ended December 31, 2022 increased to $245.4 million as compared to $188.5 million in 2021 as a result of the growth in sales of ARIKAYCE in Japan and the US.
The following table summarizes revenue by geography for the years ended December 31, 2023 and 2022 (in thousands): For the Year Ended December 31, Increase (decrease) 2023 2022 $ % US $ 224,195 $ 185,994 $ 38,201 20.5% Japan 65,733 56,506 9,227 16.3% Europe and rest of world 15,280 2,858 12,422 NM Total product revenues, net $ 305,208 $ 245,358 $ 59,850 24.4% Product revenues, net, for the year ended December 31, 2023 increased to $305.2 million as compared to $245.4 million in 2022 as a result of the growth in sales of ARIKAYCE in the US, Japan and Europe and the rest of the world.
During the third quarter of 2022, we issued and sold an aggregate of 1,289,995 shares of common stock through the ATM program at a weighted-average public offering price of $26.68 per share and received net proceeds of $33.4 million.
During the year ended December 31, 2023, we issued and sold an aggregate of 6,503,041 shares of common stock through the ATM program at a weighted-average public offering price of $24.12 per share and received net proceeds of $152.2 million.
External R&D expenses by product for the years ended December 31, 2022 and 2021 were comprised of the following (in thousands): For the Year Ended December 31, Increase (decrease) 2022 2021 $ % ARIKAYCE external R&D expenses $ 61,024 $ 61,887 $ (863) (1.4)% Brensocatib external R&D expenses 102,530 62,065 40,465 65.2% Other external R&D expenses 73,419 30,381 43,038 141.7% Total external R&D expenses $ 236,973 $ 154,333 $ 82,640 53.5% We expect R&D expenses to increase in 2023 relative to 2022 primarily due to our clinical trial activities and related spend including our Phase 3 ASPEN trial of brensocatib, our confirmatory clinical trials of ARIKAYCE in a frontline treatment setting for patients with MAC lung disease, our TPIP clinical trials and other research efforts for future product candidates.
External R&D expenses by product for the years ended December 31, 2023 and 2022 were comprised of the following (in thousands): For the Year Ended December 31, Increase (decrease) 2023 2022 $ % ARIKAYCE external R&D expenses $ 62,418 $ 61,024 $ 1,394 2.3% Brensocatib external R&D expenses 108,556 102,530 6,026 5.9% TPIP external R&D expenses 50,185 39,220 10,965 28.0% Non-cash asset acquisitions 86,747 — 86,747 NA Other external R&D expenses 45,905 34,199 11,706 34.2% Total external R&D expenses $ 353,811 $ 236,973 $ 116,838 49.3% We expect R&D expenses to increase in 2024 relative to 2023 primarily due to our clinical trial activities and related spend including our Phase 3 ASPEN trial of brensocatib, our confirmatory clinical trial of ARIKAYCE in a treatment setting for patients with MAC lung disease, our TPIP clinical trials and other research efforts for future product candidates.
In addition, R&D expenses include payments to third parties for the license rights to products in development (prior to marketing approval), such as brensocatib. Our R&D expenses related to manufacturing our product candidates and medical devices for clinical study are primarily related to activities at CMOs that manufacture brensocatib, TPIP and early-stage research activities.
Our R&D expenses related to manufacturing our product candidates and medical devices for clinical study are primarily related to activities at CMOs that manufacture brensocatib, TPIP and early-stage research activities. Our R&D expenses related to clinical trials are primarily related to activities at CROs that conduct and manage clinical trials on our behalf.
Payments under these contracts with CROs primarily depend on performance criteria such as the successful enrollment of patients or the completion of clinical trial milestones as well as time-based fees. Expenses are accrued based on contracted amounts applied to the level of patient enrollment and to activity according to the clinical trial protocol.
These contracts with CROs set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts with CROs primarily depend on performance criteria such as the successful enrollment of patients or the completion of clinical trial milestones as well as time-based fees.
Unamortized debt issuance costs associated with extinguished debt are expensed in the period of the extinguishment. Change in Fair Value of Interest Rate Swap We record derivative and hedge transactions in accordance with GAAP.
Change in Fair Value of Interest Rate Swap We record derivative and hedge transactions in accordance with generally accepted accounting principles in the US (GAAP).
Upon FDA acceptance of our NDA and the subsequent FDA and EMA approvals of ARIKAYCE, we made additional milestone payments of €1.0 million, €1.5 million, and €0.5 million, respectively, to PARI. In October 2017, we exercised an option to buy-down the royalties payable to PARI, which was included within selling, general and administrative expenses in the fourth quarter of 2017.
Upon the FDA acceptance of our NDA and the subsequent FDA and EMA approvals of ARIKAYCE, we made additional milestone payments of €1.0 million, €1.5 million, and €0.5 million, respectively, to PARI.
Amortization of Intangible Assets 66 Table of Contents Amortization of intangible assets for the years ended December 31, 2022 and 2021 was $5.1 million and $5.1 million, respectively. Amortization of intangible assets is comprised of amortization of acquired ARIKAYCE R&D and amortization of the milestones paid to PARI for the FDA and EMA approvals of ARIKAYCE.
Amortization of intangible assets is comprised of amortization of acquired ARIKAYCE R&D and amortization of the milestones paid to PARI for the FDA and EMA approvals of ARIKAYCE. Change in Fair Value of Deferred and Contingent Consideration Liabilities The change in fair value of deferred and contingent consideration liabilities for the year ended December 31, 2023 was $28.7 million.
Prior to 2019, we had not generated significant revenue and through December 31, 2022, we had an accumulated deficit of $2.7 billion. We have financed our operations primarily through the public offerings of our equity securities, debt financings and revenue interest financings.
We have financed our operations primarily through the public offerings of our equity securities, debt financings and revenue interest financings.
Our working capital was $1,083.1 million as of December 31, 2022 as compared with $701.9 million as of December 31, 2021. Net cash used in operating activities was $400.4 million and $363.3 million for the years ended December 31, 2022 and 2021, respectively.
Net cash used in operating activities was $536.2 million and $400.4 million for the years ended December 31, 2023 and 2022, respectively.
SG&A Expenses SG&A expenses for the years ended December 31, 2022 and 2021 were comprised of the following (in thousands): For the Years Ended December 31, Increase (decrease) 2022 2021 $ % Compensation and benefit related expenses $ 92,709 $ 84,447 $ 8,262 9.8% Stock-based compensation 31,307 28,206 3,101 11.0% Professional fees and other external expenses 105,352 94,549 10,803 11.4% Facility related and other internal expenses 36,416 27,071 9,345 34.5% Total SG&A expenses $ 265,784 $ 234,273 $ 31,511 13.5% SG&A expenses increased to $265.8 million during the year ended December 31, 2022 from $234.3 million in 2021.
SG&A Expenses SG&A expenses for the years ended December 31, 2023 and 2022 were comprised of the following (in thousands): For the Years Ended December 31, Increase (decrease) 2023 2022 $ % Compensation and benefit-related expenses $ 117,926 $ 92,709 $ 25,217 27.2% Stock-based compensation 38,898 31,307 7,591 24.2% Professional fees and other external expenses 138,151 105,352 32,799 31.1% Facility related and other internal expenses 49,526 36,416 13,110 36.0% Total SG&A expenses $ 344,501 $ 265,784 $ 78,717 29.6% SG&A expenses increased to $344.5 million during the year ended December 31, 2023 from $265.8 million in 2022.
Deposits for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are then recognized as an expense as the related goods are delivered or the services are performed.
Such amounts are then recognized as an expense as the related goods are delivered or the services are performed.
PARI is entitled to receive royalty payments in the mid-single digits on the annual global net sales of ARIKAYCE, pursuant to the licensing agreement, subject to certain specified annual minimum royalties. In July 2014, we entered into a Commercialization Agreement with PARI for the manufacture and supply of Lamira as optimized for use with ARIKAYCE.
In July 2014, we entered into a Commercialization Agreement with PARI for the manufacture and supply of Lamira as optimized for use with ARIKAYCE.
We have legal entities in the US, France, Germany, Ireland, Italy, the Netherlands, Switzerland, the UK and Japan. Refer to Part I, Item 1. "Business" for a summary of our ongoing commercial and clinical programs for ARIKAYCE and our ongoing clinical activities for brensocatib, TPIP and early-stage research programs.
Our early-stage research programs encompass a wide range of technologies and modalities, including gene therapy, artificial intelligence-driven protein engineering, protein manufacturing, RNA-end joining, and synthetic rescue. We have legal entities in the US, France, Germany, Ireland, Italy, the Netherlands, Switzerland, the UK and Japan. Refer to Part I, Item 1.
The $31.5 million increase was primarily due to a $11.4 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in headcount, as well as a $10.8 million increase in professional fees and other external expenses primarily resulting from our commercial launch efforts in Japan and Europe and from resuming certain commercial activities in the US.
The $78.7 million increase was primarily due to commercial readiness activities for brensocatib, including a $32.8 million increase in professional fees and other external expenses and a $32.8 million increase in compensation and benefit-related expenses and stock-based compensation costs due to an increase in headcount.
Net cash provided by financing activities for the year ended December 31, 2021 was primarily from the issuance and extinguishment of debt, as well as net proceeds from the issuance of common stock. Contractual Obligations In October 2022, we entered into financings resulting in aggregate gross proceeds of $500 million.
The decrease in 2023 is due to net cash proceeds from our Term Loan, Royalty Financing Agreement, and the issuance of our common stock in October 2022. Contractual Obligations In October 2022, we entered into financings resulting in aggregate gross proceeds of $500 million.
The $124.8 million increase was primarily due to a $42.5 million increase in manufacturing expenses to support ongoing clinical trials, a $37.8 million increase in clinical development and research costs related primarily to the Phase 3 ASPEN trial of brensocatib and the ARIKAYCE frontline clinical trial program, as well as a $29.8 million increase in compensation and benefit related expenses and stock-based compensation due to an increase in headcount.
The $173.5 million increase was primarily due to the $86.7 million one-time, non-cash asset acquisition costs of the Adrestia and Vertuis acquisitions, a $46.3 million increase in compensation and benefit-related expenses and stock-based compensation costs due to an increase in headcount, and a $21.6 million increase in clinical development and research expenses to support the Phase 3 ASPEN trial of brensocatib, the ARIKAYCE MAC lung disease clinical trial program, and the ongoing Phase 2 PAH and Phase 2 PH-ILD studies of TPIP.
The net cash used in investing activities during the years ended December 31, 2022 and 2021 was for purchases of marketable securities and p urchases of fixed assets .
Net cash used in investing activities was $223.6 million and $34.6 million for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2022, an aggregate of $215.6 million of shares of common stock remain available to be issued and sold under the ATM program. In May 2021, we completed an underwritten public offering of $575.0 million aggregate principal amount of the 2028 Convertible Notes, including the exercise in full of the underwriters' option to purchase additional notes.
In May 2021, we completed an underwritten public offering of $575.0 million aggregate principal amount of the 2028 Convertible Notes, including the exercise in full of the underwriters' option to purchase additional notes. Our net proceeds from the offering, after deducting underwriting discounts and offering expenses of $15.7 million, were $559.3 million.
The $14.0 million decrease in interest expense in the year ended December 31, 2022 as compared to the prior year period is primarily due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06 partially offset by interest expense from the Term Loan and Royalty Financing entered into in the fourth quarter of 2022.
The $55.2 million increase in interest expense for the year ended December 31, 2023 as compared to the prior year period is primarily due to entering into the Term Loan and Royalty Financing Agreement in the fourth quarter of 2022. See Note 10 - Debt and Note 11 - Royalty Financing Agreement for further details.
Comparison of the Years Ended December 31, 2022 and 2021 Overview - Operating Results Our operating results for the year ended December 31, 2022, included the following: • Product revenues, net, increased $56.9 million, or 30.2%, as compared to the prior year as a result of the growth in ARIKAYCE sales; • Cost of product revenues (excluding amortization of intangibles) increased $11.0 million as compared to the prior year as a result of the increase in sales of ARIKAYCE; • R&D expenses increased $124.8 million as compared to the prior year primarily resulting from increases in manufacturing expenses, as well as increases related to clinical development and research costs, to support ongoing clinical trials; • SG&A expenses increased $31.5 million as compared to the prior year resulting from increases in compensation and benefit related expenses, as well as increases related to our commercial launch efforts in Japan and Europe ; • Amortization of intangible assets was consistent with the prior year; • Change in fair value of deferred and contingent consideration liabilities was $20.8 million as a result of our Business Acquisition in the third quarter of 2021; • Interest expense decreased $14.0 million as compared to the prior year due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06.
RESULTS OF OPERATIONS Comparison of the Years Ended December 31, 2023 and 2022 Overview - Operating Results Our operating results for the year ended December 31, 2023, included the following: 67 Table of Contents • Product revenues, net, increased $59.9 million, or 24.4%, as compared to the prior year as a result of the growth in ARIKAYCE sales; • Cost of product revenues (excluding amortization of intangibles) increased $10.4 million as compared to the prior year as a result of the increase in sales of ARIKAYCE; • R&D expenses increased $173.5 million as compared to the prior year primarily resulting from the non-cash costs of the Adrestia and Vertuis acquisitions; • SG&A expenses increased $78.7 million as compared to the prior year primarily resulting from increases in professional fees and other external expenses; • Amortization of intangible assets was consistent with the prior year; • Change in fair value of deferred and contingent consideration liabilities increased $49.5 million primarily as a result of the change in our share price; and • Interest expense increased $55.2 million as compared to the prior year due to entering into the Term Loan and Royalty Financing Agreement in the fourth quarter of 2022.
Our first commercial product, ARIKAYCE, was approved in the US in September 2018, in the EU in October 2020 and in Japan in March 2021. Our clinical-stage pipeline includes brensocatib and TPIP. Brensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we are developing for the treatment of patients with bronchiectasis, CF and other neutrophil-mediated diseases, including CRSsNP.
Our first commercial product, ARIKAYCE, was approved in the US in September 2018, in the EU in October 2020 and in Japan in March 2021. Our pipeline includes clinical-stage programs, brensocatib and TPIP, as well as other early-stage research programs.
In October 2022, we entered into a $350 million Term Loan with Pharmakon that matures on October 19, 2027. The Term Loan bears interest at a rate based upon the SOFR, subject to a SOFR floor of 2.5%, in addition to a margin of 7.75% per annum.
The Term Loan bears interest at a rate based upon the SOFR, subject to a SOFR floor of 2.5%, in addition to a margin of 7.75% per annum. Up to 50% of the interest payable during the first 24 months from the closing of the Term Loan may be paid-in-kind at our election.
Our December 31, 2022 balance sheet reflects debt, net of debt issuance costs paid to the lender and other third-party costs and our December 31, 2021 balance sheet reflects debt, net of the debt discount, debt issuance costs paid to the lender, and other third-party costs.
Debt issuance costs are amortized to interest expense using the effective interest rate method over the term of the debt. Our balance sheet reflects debt, net of the debt discount, debt issuance costs paid to the lender, and other third-party costs. Unamortized debt issuance costs associated with extinguished debt are expensed in the period of the extinguishment.
The increase in cash used in operating activities for the year ended December 31, 2022 compared to 2021 was primarily due to the increase in R&D expenses to support our ongoing clinical trials and other research activities. Net cash used in investing activities was $34.6 million and $64.3 million for the years ended December 31, 2022 and 2021, respectively.
The increase in cash used in operating activities for the year ended December 31, 2023 compared to 2022 was primarily due to the increase in net loss, excluding the adjustments to reconcile net loss to net cash used in operating activities.
TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for PH-ILD and PAH. We are also advancing our early-stage research programs encompassing a wide range of technologies and modalities, including gene therapy, artificial intelligence-driven protein engineering, and protein manufacturing.
Brensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we are developing for the treatment of patients with bronchiectasis and other neutrophil-mediated diseases, including CRSsNP. TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for PH-ILD and PAH.
Adjustments to the fair value are due to changes in factors such as the probability of achieving milestones, our stock price, or certain other estimated assumptions. Interest Expense Interest expense was $26.4 million for the year ended December 31, 2022 as compared to $40.5 million for 2021.
The change is related to the fair value of the potential future consideration to be paid to former equityholders of the businesses we acquired. Adjustments to the fair value are due to changes in: the probability of achieving milestones; our stock price; or certain other estimated assumptions.
The $357.3 million increase in cash and cash equivalents was primarily due to our Term Loan, Royalty Financing, and underwritten public offering of our common stock in October 2022, partially offset due to cash used in operating activities and the purchase of marketable securities.
The $591.7 million decrease in cash and cash equivalents was primarily due to the cash used in operating activities and purchase of marketable securities. Our working capital was $703.4 million as of December 31, 2023 as compared with $1,083.1 million as of December 31, 2022.
Removed
We began capitalizing inventory upon FDA approval of ARIKAYCE. All costs related to inventory for ARIKAYCE prior to FDA approval were expensed as incurred and therefore not included in cost of product revenues.
Added
"Business" for a summary of our ongoing commercial and clinical programs for ARIKAYCE and our ongoing clinical activities for brensocatib, TPIP and early-stage research programs. Prior to 2019, we had not generated significant revenue and through December 31, 2023, we had an accumulated deficit of $3.4 billion.
Removed
Our R&D expenses related to clinical trials are primarily related to activities at CROs that conduct and manage clinical trials on our behalf. These contracts with CROs set forth the scope of work to be completed at a fixed fee or amount per patient enrolled.
Added
In addition, R&D expenses include payments to third parties for the license rights to products in development (prior to marketing approval), such as brensocatib, and may include the cost of asset acquisitions.
Removed
Debt issuance costs are amortized to interest expense using the effective interest rate method over the term of the debt. Debt discount was accreted to interest expense using the effective interest rate method prior to the adoption of ASU 2020-26, Debt — Accounting for Convertible Instruments (ASU 2020-06).
Added
Expenses are accrued based on contracted amounts applied to the level of patient enrollment and to activity according to the clinical trial protocol. Deposits for goods or services that will be used or rendered for future research and development activities are deferred and capitalized.
Removed
RESULTS OF OPERATIONS COVID-19 Update Though we continue to see use of ARIKAYCE, including new patient adds and continued prescription renewals, there remains a general uncertainty regarding the impact of COVID-19 on all aspects of our business, including how it will impact our patients, physicians, employees, suppliers, vendors, business partners and distribution channels.
Added
The increase in cost of product revenues (excluding amortization of intangibles) in the year ended December 31, 2023 was directly attributable to the increase in total revenues discussed above.
Removed
While the pandemic did not 64 Table of Contents materially affect our financial results and business operations through the year ended December 31, 2022, we are unable to predict the impact that COVID-19 will have on our financial position and operating results in future periods due to these and other numerous uncertainties.
Added
We expect SG&A expenses to continue to increase in 2024 relative to 2023 due, in part, to commercial readiness activities for brensocatib. 69 Table of Contents Amortization of Intangible Assets Amortization of intangible assets for the years ended December 31, 2023 and 2022 was $5.1 million and $5.1 million, respectively.
Removed
We are committed to the safety and well-being of our workforce and will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.
Added
Investment Income Investment income was $42.1 million for the year ended December 31, 2023 as compared to $11.1 million for 2022.
Removed
Change in Fair Value of Deferred and Contingent Consideration Liabilities The change in fair value of deferred and contingent consideration liabilities for the year ended December 31, 2022 was $(20.8) million as a result of our Business Acquisition in the third quarter of 2021.
Added
The $31.1 million increase in investment income for the year ended December 31, 2023 as compared to the prior year period is primarily due to an increase in the marketable securities balance and interest rates in 2023 relative to 2022.
Removed
The income tax (benefit) for the year ended December 31, 2021 is primarily due to the partial reversal of a valuation allowance as a result of the Business Acquisition in the third quarter of 2021.
Added
Interest Expense Interest expense was $81.7 million for the year ended December 31, 2023 as compared to $26.4 million for 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022, our marketable securities were invested in US treasury notes with an original maturity of greater than 90 days. As of December 31, 2022, we had $225 million and $575 million of 2025 Convertible Notes and 2028 Convertible Notes outstanding, respectively.
Biggest changeAs of December 31, 2023, our marketable securities were invested in US treasury notes with an original maturity of 90 days. As of December 31, 2023, we had $225 million and $575 million of 2025 Convertible Notes and 2028 Convertible Notes outstanding, respectively.
Our 2025 Convertible Notes and our 2028 Convertible Notes bear interest at a coupon rate of 1.75% and 0.75%, respectively. In addition, as of December 31, 2022, we had our $350 million term loan and a $150.0 million Royalty Financing Agreement outstanding. The Term Loan accrues interest quarterly at the SOFR plus a margin of 7.75% per annum.
Our 2025 Convertible Notes and our 2028 Convertible Notes bear interest at a coupon rate of 1.75% and 0.75%, respectively. In addition, as of December 31, 2023, we had our $350 million term loan and a $150.0 million Royalty Financing Agreement outstanding. The Term Loan accrues interest quarterly at the SOFR plus a margin of 7.75% per annum.
However, we do conduct certain transactions in other currencies, including Euros, British Pounds and Japanese Yen. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations. During the years ended December 31, 2022, 2021 and 2020, our results of operations were not materially affected by fluctuations in foreign currency exchange rates.
However, we do conduct certain transactions in other currencies, including Euros, British Pounds and Japanese Yen. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations. During the years ended December 31, 2023, 2022 and 2021, our results of operations were not materially affected by fluctuations in foreign currency exchange rates.
If a 10% change in interest rates had occurred on December 31, 2022, it would not have had a material effect on the fair value of our debt as of that date, nor would it have a material effect on our future earnings or cash flows. The majority of our business is conducted in US dollars.
If a 10% change in interest rates had occurred on December 31, 2023, it would not have had a material effect on the fair value of our debt as of that date, nor would it have a material effect on our future earnings or cash flows. The majority of our business is conducted in US dollars.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2022, our cash and cash equivalents were in cash accounts or were invested in money market funds. Our investments in money market funds are not insured by the federal government.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2023, our cash and cash equivalents were in cash accounts or were invested in money market funds. Our investments in money market funds are not insured by the federal government.

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