Form 10K
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`10-K 1 d647728d10k.htm FORM 10K
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`Table of Contents
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`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
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`Form 10-K
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`x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
`OF 1934
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`
`
`For the fiscal year ended December 31, 2013
`¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
`ACT OF 1934
`
`For the transition period from to
`Commission file number 001-31361
`
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`BioDelivery Sciences International, Inc.
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`Delaware
`(State or other jurisdiction of
`incorporation or organization)
`801 Corporate Center Drive, Suite #210
`Raleigh, NC
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`(Address of principal executive offices)
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`Issuer’s telephone number: 919-582-9050
`Securities registered pursuant to Section 12(b) of the Act:
`Title of each class
`Name of exchange on which registered
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`Common stock, par value $.001
`Nasdaq Capital Market
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`Securities registered pursuant to Section 12(g) of the Act: None
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`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
`Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
`subject to such filing requirements for the past 90 days. Yes x No ¨
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
`File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
`the registrant was required to submit and post such files) Yes x No ¨
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
`contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
`K or any amendment to this Form 10-K. Yes ¨ No x
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting
`company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
`(Check one):
` x
` Accelerated filer
`Large accelerated filer ¨
` Smaller reporting company ¨
`Non-accelerated filer
` ¨ (Do not check if a smaller reporting company)
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
`The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 28, 2013 was approximately
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`(Exact name of registrant as specified in its charter)
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`35-2089858
`(I.R.S. Employer
`Identification No.)
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`27607
`(Zip Code)
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`RB Ex. 2045
`BDSI v. RB PHARMACEUTICALS LTD
`IPR2014-00325
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`Form 10K
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`$134,206,938 based on the closing sale price of the company’s common stock on such date of $4.06 per share, as reported by the NASDAQ Capital
`Market.
`As of March 11, 2014, there were 47,947,817 shares of company common stock issued and 47,932,326 shares of company common stock
`outstanding.
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`Table of Contents
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`BioDelivery Sciences International, Inc.
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`Annual Report on Form 10-K
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`For the fiscal year ended December 31, 2013
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`TABLE OF CONTENTS
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`
`Cautionary Note on Forward-Looking Statements
`PART I
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`Item 1.
` Description of Business
`Item 1A. Risk Factors
`Item 1B. Unresolved Staff Comments
` Description of Property
`Item 2.
` Legal Proceedings
`Item 3.
` Mine Safety Disclosure
`Item 4.
`PART II
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`Item 5.
` Market for Common Equity and Related Stockholder Matters
` Selected Financial Data
`Item 6.
` Management’s Discussion and Analysis of Financial Condition and Results of Operations
`Item 7.
`Item 7A. Quantitative and Qualitative Disclosures About Market Risk
` Financial Statements
`Item 8.
` Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
`Item 9.
`Item 9A. Controls and Procedures
`Item 9B. Other Information
`PART III
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`Item 10. Directors, Executive Officers and Corporate Governance
`Item 11. Executive Compensation
`Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
`Item 13. Certain Relationships and Related Transactions, and Director Independence
`Item 14. Principal Accountant Fees and Services
`PART IV
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`Item 15. Exhibits, Financial Statement Schedules
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`Unless we have indicated otherwise, or the context otherwise requires, references in this Report to “BDSI,” the “Company,” “we,” “us” and “our”
`or similar terms refer to BioDelivery Sciences International, Inc., a Delaware corporation and its consolidated subsidiaries.
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`Table of Contents
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`CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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`This Report and the documents we have filed with the SEC that are incorporated by reference herein contain forward-looking statements,
`within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve significant
`risks and uncertainties. Any statements contained, or incorporated by reference, in this Report that are not statements of historical fact may be
`forward-looking statements. When we use the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,”
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`Form 10K
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`“project,” “will” and other similar terms and phrases, including references to assumptions, we are identifying forward-looking statements.
`Forward-looking statements involve risks and uncertainties which may cause our actual results, performance or achievements to be materially
`different from those expressed or implied by forward-looking statements.
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`A variety of factors, some of which are outside our control, may cause our operating results to fluctuate significantly. They include:
`•
` our plans and expectations regarding the timing and outcome of research, development, commercialization, manufacturing, marketing
`and distribution efforts relating to our BEMA® drug delivery technology platform and any proposed products, product candidates,
`including our sole approved product, ONSOLIS®, our partnered product candidate, BEMA® Buprenorphine and our other lead product
`candidates, BUNAVAIL™ and Clonidine Topical Gel;
` the domestic and international regulatory process and related laws, rules and regulations governing our technologies and our approved
`and proposed products and formulations, including: (i) the timing, status and results of our or our commercial partners’ filings with the
`U.S. Food and Drug Administration and its foreign equivalents, (ii) the timing, status and results of non-clinical work and clinical
`studies, including regulatory review thereof and (ii) the heavily regulated industry in which we operate our business generally;
` our ability to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our products
`and product candidates, including for BUNAVAIL™, which we are intending to self-commercialize;
` our ability, or the ability of our commercial partners to actually develop, commercialize, manufacture or distribute our products and
`product candidates;
` our ability to generate commercially viable products and the market acceptance of our BEMA® technology platform and our proposed
`products and product candidates;
` our ability to finance our operations on acceptable terms, either through the raising of capital, the incurrence of convertible or other
`indebtedness or through strategic financing or commercialization partnerships;
` our expectations about the potential market sizes and market participation potential for our approved or proposed products;
` the protection and control afforded by our patents or other intellectual property, and any interest patents or other intellectual property
`that we license, of our or our partners’ ability to enforce our rights under such owned or licensed patents or other intellectual property;
` the outcome of ongoing or potential future litigation (and related activities, including inter partes reviews and inter partes
`reexaminations) or other claims or disputes relating to our business, technologies, products or processes;
` our expected revenues (including sales, milestone payments and royalty revenues) from our products or product candidates and any
`related commercial agreements of ours;
` the ability of our manufacturing partners to supply us or our commercial partners with clinical or commercial supplies of our products
`in a safe, timely and regulatory compliant manner and the ability of such partners to address any regulatory issues that have arisen or
`may in the future arise;
` our ability to retain members of our management team and our employees; and
` competition existing today or that will likely arise in the future.
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`The foregoing does not represent an exhaustive list of risks that may impact upon the forward-looking statements used herein or in the
`documents incorporated by reference herein. Please see “Risk Factors” for additional risks which could adversely impact our business and financial
`performance and related forward-looking statements.
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`Moreover, new risks regularly emerge and it is not possible for our management to predict all risks, nor can we assess the impact of all risks
`on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-
`looking statements. All forward-looking statements included in this Report are based on information available to us on the date hereof. Except to
`the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as
`a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons
`acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Report and the documents we
`have filed with the SEC.
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`3
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`Table of Contents
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`Item 1.
`Overview
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`Description of Business.
`
`PART I
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`We are a specialty pharmaceutical company that is developing and commercializing, either on our own or in partnerships with third parties,
`new applications of proven therapeutics to address important unmet medical needs using both proven and new drug delivery technologies. We have
`developed and are continuing to develop pharmaceutical products aimed principally in the areas of pain management and addiction. We were
`incorporated in the State of Indiana in 1997 and were reincorporated as a Delaware corporation in 2002.
`
`In formulating our products and product candidates, we utilize the novel, patent protected and proprietary BioErodible MucoAdhesive
`(“BEMA®”) drug delivery technology, a small, erodible polymer film for application to the buccal mucosa (the lining inside the cheek). Our first
`U.S. Food and Drug Administration (which we refer to as the FDA) approved product, ONSOLIS® (fentanyl buccal soluble film), as well as other
`product candidates, including BUNAVAIL™, utilize our BEMA® technology.
`
`We have worked with other delivery technologies in the past, and as part of our corporate growth strategy, we may seek to acquire or license
`additional drug delivery technologies or drugs utilizing the delivery or other technologies of other companies. Clonidine Topical Gel, which was
`licensed from Arcion Therapeutics (or Arcion) in 2013, does not utilize the BEMA® technology and allowed us to diversify our portfolio while
`maintaining a focus in pain and addiction. As we gain access to such technologies, we seek to formulate these technologies with proven, FDA
`approved therapeutics and utilize our development and commercialization experience to, either by ourselves or through partnerships, navigate the
`resulting products through the regulatory review process and ultimately bring them to the marketplace.
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`Our current development strategy focuses primarily on our ability to utilize the FDA’s 505(b)(2) approval process to obtain more timely and
`efficient approval of new formulations of previously approved, active therapeutics incorporated into our drug delivery technology. Because the
`505(b)(2) approval process is designed to address new formulations of previously approved drugs, we believe it has the potential to be more cost
`efficient and expeditious and have less regulatory approval risk than other FDA approval approaches.
`
`BEMA® Buprenorphine for Chronic Pain
`BEMA® Buprenorphine is a partial mu-opioid agonist and a potential treatment for moderate to severe chronic pain. In December 2009, we
`announced that the primary efficacy endpoint was achieved in a Phase 2 clinical study evaluating the safety and efficacy of a range of doses of
`BEMA® Buprenorphine. Completion of this Phase 2 study led to the initiation of a Phase 3 double-blind, randomized, placebo-controlled clinical
`study which was initiated in the fourth quarter of 2010. On September 28, 2011, we announced the preliminary findings of our randomized,
`placebo-controlled, Phase 3 clinical study of BEMA® Buprenorphine for the treatment of moderate to severe chronic pain in a mixed opioid naïve
`and opioid experienced population. The primary endpoint of the study, overall pain intensity difference between BEMA® Buprenorphine and
`placebo, was not achieved. Following full analysis of the data, we concluded that we encountered a high placebo response in the opioid naïve
`segment of the patient population, particularly at our starting dose, which we believe accounted for the lack of statistically significant efficacy that
`was observed in the trial overall. We believe this is an occurrence typical of many pain trials. We believe the totality of the study results favored
`BEMA® Buprenorphine, including a near statistically significant difference between BEMA® Buprenorphine and placebo in the opioid
`experienced group of patients in the trial (p=0.067). In addition, when eliminating the group of patients that did not titrate beyond the starting dose,
`a statistically significant difference between BEMA® Buprenorphine and placebo (p=0.025) was identified. Neither of these subgroups was
`sufficiently large enough to be powered to show a statistical difference. Overall, the trial, though not successful, provided a wealth of knowledge
`beneficial in the design of two additional Phase 3 clinical studies, which were initiated in the second half of 2012 under our agreement with Endo
`Pharmaceuticals, Inc. (or Endo), as described below.
`
`In January 2012, we announced the signing of a worldwide licensing and development agreement for BEMA® Buprenorphine (which we
`refer to herein as the Endo Agreement) with Endo under which we granted to Endo the exclusive, worldwide rights to develop and commercialize
`BEMA® Buprenorphine for the treatment of chronic pain. The financial terms of our agreement with Endo include: (i) a $30 million upfront
`license fee, which we received in January 2012; (ii) $95 million in potential milestone payments based on achievement of pre-defined intellectual
`property, clinical development and regulatory events (some of which we received in 2012); (iii) $55 million in potential sales threshold payments
`upon achievement of designated sales levels; and (iv) a tiered, mid- to upper-teen royalty on net sales of BEMA® Buprenorphine in the United
`States and a mid- to high-single digit royalty on net sales of BEMA® Buprenorphine outside the United States. Endo is one of the premier
`companies in the area of pain management and has demonstrated significant achievements in the pain space, particularly with the development,
`launch and commercialization of a portfolio of pain therapeutics including Opana® ER, Lidoderm® and Voltaren® Gel. We believe BEMA®
`Buprenorphine is an excellent fit with Endo’s pain portfolio and will, if approved, add a Schedule III opioid to their branded pain franchise.
`BEMA® Buprenorphine would complement Endo’s pain therapeutics portfolio providing the company with an opportunity to offer a “ladder” of
`pain products, aligned with pain severity and opioid scheduling. In particular, BEMA® Buprenorphine would potentially be aligned with the needs
`of pain specialists and primary care physicians who seek an alternative to Schedule II opioids for the treatment of moderate to severe chronic pain
`that is not adequately controlled with commonly prescribed first-line therapies (e.g., NSAIDs).
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`Table of Contents
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`One of the key intellectual property milestones under our Endo Agreement was achieved in February 2012, when the U.S. Patent and
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`Trademark Office (or USPTO) issued a Notice of Allowance regarding one of our patent applications (No. 13/184306) which, once the patent was
`granted in April 2012, will extend the exclusivity of the BEMA® drug delivery technology for BEMA® Buprenorphine (as well as BUNAVAIL™,
`as discussed below) from 2020 to 2027. As a result, we received a milestone payment in the amount of $15 million in May 2012, and also related
`to the issuance of the patent, will receive an additional milestone payment of $20 million at the time of approval of a New Drug Application (or
`NDA) by the FDA for BEMA® Buprenorphine for the treatment of chronic pain. Such amounts are included in the aforementioned $95 million in
`potential milestone payments based on intellectual property and clinical development and regulatory events.
`
`In May 2012, in close collaboration with Endo, we initiated two Phase 3 clinical studies – one in an opioid naïve and one in opioid
`experienced populations. The Phase 3 clinical trials were enriched-enrollment, double-blind, randomized withdrawal studies to evaluate the
`efficacy and safety of BEMA® Buprenorphine in the treatment of chronic lower back pain in opioid naive patients and a population of patients
`who were opioid experienced. The studies were designed to address some of the issues encountered in the initial Phase 3 study and included
`sample size increases, the use of higher doses and multiple adjustments to inclusion/exclusion criteria. Patients titrated to a well-tolerated, effective
`dose were randomized to either continue on that dose of BEMA® Buprenorphine, or receive placebo (BEMA® film with no active drug), with
`treatment continuing for 12 weeks. The primary efficacy endpoint was the mean change in the daily average pain numerical rating scale (NRS-
`Pain) scores from baseline (just prior to randomization) to week twelve of the double-blind treatment period. Pain was self-reported daily on an
`11-point numeric rating scale (daily NRS; 0=no pain, 10=worst possible pain).
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`Interim analyses were conducted as part of the Phase III protocol in both the opioid naïve and opioid experienced studies to allow for
`adjustments to the sample size in order to maintain appropriate study power to detect statistically significant differences between BEMA®
`Buprenorphine and placebo. The analyses were conducted by an independent biostatistician. We and Endo announced in September 2013 that, as a
`result of the interim analyses, no sample size adjustment would be necessary to the opioid naïve study and that additional patients would be added
`to the ongoing opioid experienced. The outcomes of the interim analyses were significant because they utilized actual study data to confirm or
`adjust sample sizes, and importantly, maintain probability of a successful outcome.
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`On January 23, 2014, we announced with Endo positive top-line results from the Phase 3 efficacy study of BEMA® buprenorphine in
`opioid-“naïve” subjects. The trial successfully met its primary efficacy endpoint in demonstrating that BEMA® Buprenorphine resulted in
`significantly (p<0.005) improved chronic pain relief compared to placebo. Additional secondary endpoints were supportive of the efficacy of
`BEMA® Buprenorphine compared to placebo. The most commonly reported adverse events in patients treated with buprenorphine compared to
`placebo were nausea (10% vs. 8%), vomiting (4% vs. 2%) and constipation (4% vs. 2%). The locking of the database for the opioid naïve study
`triggered a $10 million milestone payment from Endo per the terms of the license agreement, which we received in February 2014. Results from
`the Phase 3 study in opioid experienced patients is anticipated in mid-2014.
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`BUNAVAIL™ (buprenorphine and naloxone buccal film)
`In addition, we believe that the widespread use of buprenorphine for the treatment of opioid dependence presents an additional commercial
`opportunity, and we developed a formulation of BEMA® Buprenorphine specifically for the treatment of opioid dependence. The product
`combines a “high dose” of buprenorphine along with an abuse deterrent agent, naloxone. BUNAVAIL™ provides us with an opportunity to
`compete in the growing opioid dependence market which, according to Wolters Kluwer, exceeded $1.7 billion in sales in the U.S in 2013.
`
`Pharmacokinetic studies have demonstrated the ability of the BEMA® technology to deliver the high doses of buprenorphine necessary for
`the treatment of opioid dependence. Following completion of two studies assessing the pharmacokinetics of BUNAVAIL™, a meeting was held
`with FDA in early February 2012, and following the meeting, we announced that we had reached an agreement with the FDA on the development
`plan for BUNAVAIL™, which includes a pivotal pharmacokinetic study comparing BUNAVAIL™ to Suboxone® in normal volunteers and a
`supporting safety study in opioid dependent patients. The FDA concurred with our strategy.
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`In September 2012, we announced the positive outcome of the pivotal pharmacokinetic study comparing BUNAVAIL™ to Suboxone®. The
`study was designed to compare the relative bioavailability of buprenorphine and naloxone between BUNAVAIL™ and the reference product,
`Suboxone® tablets. The results demonstrated that the two key pharmacokinetic parameters, maximum drug plasma concentration (Cmax) and total
`drug exposure (AUC), for buprenorphine were comparable to Suboxone®, and that the same parameters for naloxone were similar or less than
`Suboxone®. This was followed by initiation of the safety study requested by FDA, assessing the safety and tolerability of BUNAVAIL™ in
`patients converted from a stable dose of Suboxone® (buprenorphine/naloxone) sublingual tablets or films. A total of 249 patients were enrolled in
`the study, (191 patients completed) which completed in December
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`Table of Contents
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`2012. Results of the study showed a very favorable safety and tolerability profile along with strong study subject retention and high dose form
`acceptability ratings. Data showed that over 91% of patients who switched from Suboxone® film or tablets considered the taste of BUNAVAIL™
`to be very pleasant, pleasant or neutral and over 82% rated the ease of use of BUNAVAIL™ as very easy, easy or neutral.
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`On July 31, 2013, we submitted the NDA for BUNAVAIL™ to the FDA for review. The NDA was later accepted for filing in October 2013
`and a Prescription Drug User Fee Act (“PDUFA”) date of June 7, 2014 was assigned, meaning that we expect a response from the FDA on our
`NDA for BUNAVAIL™ by that date.
`
`ONSOLIS®
`On July 16, 2009, we announced the U.S. approval of our first product, ONSOLIS® (fentanyl buccal soluble film). ONSOLIS® is indicated
`for the treatment of breakthrough pain (i.e., pain that “breaks through” the effects of other medications being used to control persistent pain) in
`opioid tolerant patients with cancer. In May 2010, regulatory approvals were granted for Canada, and in October 2010, approval was obtained in
`the European Union (which we refer to herein as E.U.) through the E.U.’s Decentralized Procedure, with Germany acting as the reference member
`state. ONSOLIS® is marketed in Europe under the trade-name BREAKYL™.
`
`The FDA approval of ONSOLIS®, together with our satisfactory preparation of launch supplies of ONSOLIS®, triggered the payment to us
`by our commercial partner, Meda AB, a leading international specialty pharmaceutical company based in Sweden (which we refer to herein as
`Meda), of approval milestones aggregating $26.8 million. The first national approval of BREAKYL™ in the E.U. resulted in a milestone payment
`of $2.5 million from Meda. A second milestone payment of $2.5 million was subsequently realized at the time of first commercial sale in the E.U.
`in October 2012. We began receiving royalties from Meda on net sales of ONSOLIS® in the U.S. and Canada following launch and from
`BREAKYL™ following launch in the E.U. Our royalty revenue from this product remains below original projections due to certain regulatory
`conditions in the U.S., which are discussed below.
`
`We have granted commercialization and distribution rights for ONSOLIS® on a worldwide basis (except in South Korea and Taiwan) to
`Meda. Meda’s U.S. subsidiary, Meda Pharmaceuticals, based in Somerset, New Jersey, is a specialty pharmaceutical company that develops,
`markets and sells branded prescription therapeutics. Meda has an experienced sales force with a focus in specialty therapeutic areas including pain,
`allergy and central nervous system conditions. Meda has secured access to additional markets through acquisition of European businesses from
`Valeant Pharmaceuticals International, Inc., which we refer to herein as Valeant and a joint venture with Valeant covering Australia, Mexico and
`Canada.
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`In 2010, we secured commercialization rights for ONSOLIS® for the remaining worldwide territories through execution of licensing
`agreements with KUNWHA Pharmaceutical Co., Ltd. (“Kunwha”), for South Korea and TTY Biopharm Co., Ltd. (“TTY”) for Taiwan where the
`product will be marketed as PAINKYL™. The following is a summary of the current regulatory and commercial Status of
`ONSOLIS®/BREAKYL™.
`
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`Region
`U.S.
`Canada
`E.U.
`Taiwan
`Australia
`Israel
`South Korea
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`Partner
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`Meda Pharmaceuticals
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`Meda Valeant Pharma Canada Inc.
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`Meda A.B.
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`TTY Biopharm Ltd.
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`Meda Valeant Pharma Canada Inc.
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` Meda (sub-licensed to MegaPharma)
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`Kunwha Pharmaceutical Co. Ltd.
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`Regulatory
`Status
`Commercial Status
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`Launched October 2009
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`Approved
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`Launched 3Q 2011
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`Approved
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`Launched 4Q 2012
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`Approved
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` Launch anticipated 2Q 2015
`Approved
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`—
`Filed
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` Under review
` Pre-registration
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`—
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`Although we have generated licensing-related and other revenue to date from the commercial sales of an approved product —
`ONSOLIS®/BREAKYL™ — such revenue has been minimal to date due to multiple factors, including a highly restrictive Risk Evaluation and
`Mitigation Strategy (REMS) imposed by the FDA and certain formulation issues described below. The lack of approved REMS programs for our
`direct competitors resulted in an un-level playing field, which created an unfavorable selling environment for ONSOLIS® into 2012. In the E.U.,
`BREAKYL™ began to be launched on a country by country basis starting in the fourth quarter of 2012. Sales of BREAKYL™ in 2013 and 2012
`amounted to $1.8 million and $1.1 million respectively.
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`On December 29, 2011, the FDA approved a “class-wide” REMS program covering all transmucosal fentanyl products under a single risk
`management program. The program, which is referred to as the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program, was
`designed to ensure informed risk-benefit decisions before initiating treatment with a transmucosal fentanyl
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`product, and while patients are on treatment, to ensure appropriate use. The approved program covers all marketed transmucosal fentanyl products
`under a single program which will enhance patient safety while limiting the potential administrative burden on prescribers and their patients. One
`common program also ended the disparity in prescribing requirements for ONSOLIS® compared to similar products and provided ONSOLIS®
`with the opportunity for retail and inpatient facility access. Prescribers and patients enrolled in other individual REMS programs will also
`automatically be included into the program. In addition to consistency in educational materials, technological advances will simplify the process of
`participation and verification of program participation. The TIRF REMS program was implemented in March 2012. It is anticipated that the class-
`wide REMS puts ONSOLIS® in a better position to compete on its own merits.
`
`On March 12, 2012, we announced the postponement of the U.S. re-launch of ONSOLIS® following the initiation of the class-wide REMS
`until the product formulation could be modified to address two appearance issues raised by FDA during an inspection of the manufacturing facility
`of our North American manufacturing partner for ONSOLIS®, Aveva Drug Delivery Systems, Inc. (which we refer to herein as Aveva).
`Specifically, the FDA identified the formation of microscopic crystals and a fading of the color in the mucoadhesive layer during the 24-month
`shelf life of the product. While these changes do not affect the product’s underlying integrity, safety or performance, the FDA believes that the
`fading of the color in particular may potentially confuse patients, necessitating a modification of the product and product specification before
`additional product can be manufactured and distributed. The source of microcrystal formation and the potential for fading of the product was found
`to be specific to a buffer used in the manufacturing process for ONSOLIS®. ONSOLIS® has been reformulated and we believe the appearance
`issues have been resolved. Meda, our commercial partner, is working to determine the content and timing of the submission to FDA. Once
`submitted, FDA’s review of the application may take up to 6 months. If the submission is made before mid-2014, and approved by FDA, the
`relaunch could occur by years end, otherwise, the relaunch would move to sometime 2015.
`
`Clonidine Topical Gel
`In March 2013, we announced our entry into a worldwide licensing agreement with privately held Arcion, where we will develop and
`commercialize Clonidine Topical Gel (formerly ARC4558) for the treatment of painful diabetic neuropathy (or PDN) and potentially other
`indications. Under the terms of the agreement, we made an upfront payment of $2 million to Arcion in the form of unregistered shares of our
`common stock. Additional financial terms of the licensing agreement include a milestone payment to Arcion of $2.5 million in unregistered shares
`of our common stock upon acceptance by the FDA of a NDA for topical clonidine gel and a cash payment to Arcion of between $17.5 and $35
`million upon NDA approval, depending on certain regulatory and commercial considerations. In addition, the licensing agreement includes sales
`milestones and low single-digit royalties on net worldwide sales.
`
`PDN market is highly under-served by existing products and there is a strong scientific rationale for developing a topical treatment for PDN
`that delivers analgesia in a way that avoids systemic side effects. Evidence has shown that clonidine stimulates an inhibitory receptor in the skin
`associated with pain fibers. Arcion has assessed its effectiveness in reducing pain in PDN in a double-blind, placebo-controlled, Phase 2 study
`where the primary study endpoint was the change in pain intensity over a 3