AKAO 2017 Annual Report

35 in the upcoming CMS Inpatient Prospective Payment (“IPPS”) Rule to be published in or about August 2018. If successful, the add-on payment will be effective and available to hospitals for up to three years. Outside of the United States, the pricing of pharmaceutical products is subject to governmental control in many countries. For example, in the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular therapy to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. Other countries may allow companies to fix their own prices for products, but monitor and control product volumes and issue guidance to physicians to limit prescriptions. Efforts to control prices and utilization of pharmaceutical products will likely continue as countries attempt to manage healthcare expenditures . Healthcare Reform A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products, implementing reductions in Medicare and other healthcare funding, and applying new payment methodologies. Since taking office, the current administration has continued to support the repeal of all or portions of the ACA and we expect that the administration and U.S. Congress will continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. There is also a considerable amount of uncertainty as to the prospective implementation of the ACA and what similar measures or other changes might be enacted at the federal and/or state level. While there may be significant changes to the healthcare environment in the future, the specific changes, their timing and their potential impact on us are not yet apparent. As a result, there is considerable uncertainty surrounding the ACA including coverage and reimbursement, the exchanges, and many core aspects of the current healthcare marketplace. In addition, other legislative changes have been proposed and adopted in the United States since the ACA to reduce healthcare expenditures, including aggregate reductions of Medicare payments to providers of 2% per fiscal year that will remain in effect through 2025 unless additional action is taken by Congress, and reductions in Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, and this will remain a prominent political issue. We anticipate continued focus, Congressional inquiries and proposed bills designed to, among other things, reform government program reimbursement methodologies and reduce Medicaid and other healthcare funding. Manufacturing We currently contract with third parties for the manufacturing and testing of our product candidates and intend to do so in the future. We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates. We currently have no plans to build or own clinical or commercial scale manufacturing capabilities. The use of contracted manufacturing and reliance on collaboration partners is relatively capital-efficient and has eliminated the need for our direct investment in manufacturing facilities and additional staff. Although we rely on contract manufacturers, we have personnel with extensive manufacturing and quality experience to oversee our contract manufacturers. All of our third-party manufacturers are subject to periodic audits to confirm compliance with applicable regulations and must pass inspection before we can manufacture our drugs for commercial use. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties. These actions could have a material impact on the availability of our products.