ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors, in addition to the other information set forth in this document as well as other information filed in periodic reports we file with the SEC. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as the value of an investment in our common stock.
We are highly dependent on obtaining approval of our most advanced drug product candidate, CINTREDEKIN BESUDOTOX. This drug product candidate failed to meet the statistical endpoint established in its Phase 3 PRECISE clinical trial. As a result, it may never be approved for commercial use, or, if approved, it may not have the market potential that we had hoped for. If we are unable to successfully commercialize CINTREDEKIN BESUDOTOX, our ability to generate revenues would be impaired and our business would be harmed.
We have invested a significant portion of our time and financial resources in the development of CINTREDEKIN BESUDOTOX, a tumor targeting toxin developed as a treatment for gioblastoma
multiforme, or GBM, a deadly form of brain cancer. In December 2006, we suffered a significant setback with the results of our Phase 3 clinical trial of CINTREDEKIN BESUDOTOX, the PRECISE trial, for the treatment of recurrent GBM. Patients in the PRECISE trial received treatment either with CINTREDEKIN BESUDOTOX or with Gliadel ® Wafers, a product currently approved to treat GBM. The primary endpoint of the study was to determine if there was a statistically significant overall patient survival difference between patients treated with CINTREDEKIN BESUDOTOX and patients treated with Gliadel ® Wafers. The Phase 3 PRECISE Clinical trial did not meet the primary endpoint at 215 deaths.
Since the announcement of the PRECISE trial results, the Company has been working with its Scientific Advisory Board to identify potential regulatory paths forward, meaning a rationale for FDA approval, based on the totality of the clinical data gathered to date. We plan to meet with the FDA in late March 2007 to discuss the possibility of approval on the strength of our data and analysis. We cannot predict the outcome of that meeting. The FDA could evaluate the data in a different way, for example using different statistical methods, and could reach different conclusions about the PRECISE trial altogether. The FDA could agree with our conclusions about the PRECISE trial, but still reject the argument that these conclusions may support product approval. Even if the FDA agreed that these conclusions may support product approval, it could require statistically significant results from a second Phase 3 trial. There is no assurance that we would or could generate these additional data. The agency could also reject the data from the PRECISE trial for other reasons, including human errors in the conduct of the trial. Even if we believe that we have submitted all of the data and information necessary to satisfy FDA requirements for approval of the BLA, there is a risk that the FDA will require additional data and information that we are unable to provide. Also, any adverse safety findings in the PRECISE trial, or in future clinical trials, could delay or prevent regulatory approval.
Even if the FDA agrees that the results of the PRECISE trial provide a basis for regulatory approval, prior to commercialization of CINTREDEKIN BESUDOTOX in the United States, we will have to submit, and the FDA will have to approve, a BLA for CINTREDEKIN BESUDOTOX. A BLA is a lengthy, complex submission to the FDA, which must comply in format and content with elaborate and detailed FDA requirements. We have never submitted a BLA before. The FDA may refuse to accept a BLA for filing if it is incomplete. The length and outcome of the FDA’s review of the BLA is uncertain. The FDA’s approval is contingent on many factors, including its evaluation of our preclinical and clinical trial results, its assessment of the manufacturing process we propose as well as the process controls, its review of our drug substance specifications and proposed analytical procedures, the data we provide on the drug’s stability, and its inspection of the facilities where CINTREDEKIN BESUDOTOX is manufactured. The FDA may ask an advisory committee for its recommendations on the BLA, and we cannot predict the outcome of the advisory committee process.
Because the PRECISE trial did not show that CINTREDEKIN BESUDOTOX is superior to Gliadel, the medical community may be unwilling, or less willing, to accept CINTREDEKIN BESUDOTOX as an alternative to Gliadel, or other treatment options. This could diminish the market potential for CINTREDEKIN BESUDOTOX. In addition, because the PRECISE trial did not show that CINTREDEKIN BESUDOTOX is superior to Gliadel, public and private healthcare payors may not provide reimbursement for the drug if it is more expensive than Gliadel. This could also diminish the market potential for CINTREDEKIN BESUDOTOX.
We rely heavily on third parties with respect to, among other things, the production and testing of CINTREDEKIN BESUDOTOX. Even if, despite CINTREDEKIN BESUDOTOX’ failure to meet the primary endpoint of its Phase 3 PRECISE trial, we are able to submit a BLA for CINTREDEKIN BESUDOTOX, the failure of any of these third parties to fulfill its contractual obligations, to perform key tasks appropriately or in a timely manner, or to comply with applicable government regulations, could require us to find alternative third parties to fulfill these functions. This could significantly slow the filing
of a BLA, preclude its timely approval or even preclude its approval altogether. For example, we have contracted with Diosynth RTP. Inc., or Diosynth, to assist in the development of manufacturing processes in connection with the scale-up of manufacturing of CINTREDEKIN BESUDOTOX from preclinical testing and clinical development to commercial-scale operations, including the preparation and filing of documents for process development, method development, and process validation. These programs must be developed in compliance with applicable government regulations, including the FDA’s cGMP requirements for biological products, which are extremely complex and require considerable time, resources, and ongoing investment to comply with. Manufacturing establishments, including contract manufacturers such as Diosynth, are subject to inspections by the FDA for compliance with cGMP. Any errors or omissions in completing the process or method development or process validation, if not promptly corrected by us and/or Diosynth, could significantly delay any potential BLA filing. If FDA approval is delayed, or the FDA requires additional clinical testing or other information, or the FDA does not approve a BLA, our ability to achieve revenues from product sales would be impaired and our stock price would be materially and adversely affected.
Even though the FDA has awarded orphan drug designation to CINTREDEKIN BESUDOTOX, a competitor could obtain orphan drug designation for the same drug for the same indication. The FDA could approve that competitor’s product first and give it seven years of market exclusivity. In this case, even if the FDA were to accept a BLA for CINTREDEKIN BESUDOTOX (and there is no assurance that it will) it would not be able to approve the BLA for seven years. This would have a material adverse effect on our business. The law would permit the FDA to approve our product during the seven years if certain conditions were met, but there is no assurance we could satisfy these conditions. We might be able to market the product outside the United States, if certain conditions were met, but there is no guarantee that we would be able to satisfy those conditions. The export process can be complex, and there are no assurances that export would be permitted or that another country would accept the product. Even if the FDA were to approve CINTREDEKIN BESUDOTOX as an orphan drug, and there is no assurance at this point that we will even be able to pursue such approval, and then award us seven years of exclusivity in connection with its use, the law permits the FDA, in certain situations, to approve a competitor’s product. This could have a material adverse effect on the commercial success of our product.
If we are unable to successfully develop, obtain regulatory approval for, cause to be manufactured, and market our drug product candidates, our business would be harmed.
The process for developing new therapeutic products is inherently long, complex, and uncertain. We must make long-term investments and commit significant resources before knowing whether our development programs will eventually result in products that will receive regulatory approval and achieve market acceptance.
We currently have three drug product candidates in various stages of clinical development. We decided in 2006 based on our review of clinical and commercial data for LE-rafAON not to pursue further development of that drug product candidate at this time. Each current drug product candidate is the subject of an effective Investigation New Drug application, or IND, that we filed with FDA. The protocols for any clinical trials we perform under these INDs must have institutional review board, or IRB, approval, and the trials must comply with the FDA’s good clinical practices, or GCP, and other regulations. There is no assurance that the clinical trials we may seek to conduct under these INDs will obtain IRB approval. There is also no assurance that FDA will allow us to continue the clinical trials that we have begun. FDA may suspend a clinical trial at any time if the agency believes that the patients participating in the study are or will be exposed to unacceptable health risks. FDA may also terminate an IND and require the sponsor to end all clinical trials under that IND, if it finds deficiencies in the IND or in the conduct of a trial under the IND. An IRB also may suspend or terminate a clinical trial. Some of our clinical trials are conducted in foreign countries, and the regulatory authorities of those countries have comparable authority to suspend
and terminate clinical trials. Suspension or termination of the clinical trials of our drug product candidates could substantially delay or even prevent regulatory approval of the drug product candidates. There is no guarantee that clinical studies, if performed, will demonstrate the safety and efficacy of any drug product candidate we have in development.
Sales of our drug product candidates would be subject to pre-market approval requirements in the United States and in other countries. These requirements vary widely from country to country. We cannot assure you that we will receive approval to market any of our drug product candidates in any country, or that any approval we obtain will be on commercially viable terms. We have yet to submit an application for marketing approval for any of the drug product candidates we currently have under development. We cannot predict with certainty if or when we might submit any of these drug product candidates for regulatory review. We cannot assure you that once we submit a drug product candidate for review, the FDA or any other regulatory agency will approve that product on a timely basis or at all.
Approval of our drug product candidates in the United States or a foreign country may depend on our agreement to perform burdensome and expensive post-marketing studies or our agreement to a burdensome risk management plan that could interfere with physician and patient acceptance of our product. We cannot assure you that we will agree to perform such additional studies or to accept such a risk management plan. If we agree to perform post-market studies and then fail to conduct those studies with due diligence, or if those studies fail to verify the product’s clinical benefit, the FDA may withdraw its approval of the product. The FDA may also withdraw its approval of the product if it determines, based on other information, that the product does not present an acceptable balance of benefits and risks
If the FDA or a foreign regulatory authority approves one of our drug product candidates, we will need to manufacture, or contract with third parties to manufacture, a sufficient volume of that product to meet market demand. This will require accurate forecasting of market demand. There is no guarantee that we will accurately forecast the market demand for any of our drug product candidates or that there will be any market demand. There is also no assurance that we will be able to successfully manufacture, or find a third party to manufacture, adequate quantities of any of our drug product candidates to meet any market demand.
The drug product candidate which we have advanced the farthest is CINTREDEKIN BESUDOTOX, IL13-PE38QQR. In September 1997, we exclusively licensed worldwide rights to CINTREDEKIN BESUDOTOX from the National Institute of Health, or NIH, and FDA. In December 2006, we announced that the Phase 3 PRECISE Clinical trial of CINTREDEKIN BESUDOTOX in the treatment of recurrent glioblastoma multiforme did not meet the primary endpoint at 215 deaths, which was a statistically significant difference, or separation, in the overall survival curves versus the Gliadel Wafer®, or Gliadel. There are no assurances that CINTREDEKIN BESUDOTOX will prove to be safe and effective or receive regulatory approval for any indication.
We also have two other drug product candidates in clinical development for the treatment of various cancers: LE-SN38 and LEP-ETU. We have initiated enrollment, currently ongoing, in a Phase 2 clinical trial for LE-SN38 and have completed two Phase 1 clinical trials and we are currently planning a Phase 3 clinical trial for LEP-ETU. We are in ongoing discussion with the FDA on clinical and regulatory plans for LEP-ETU. There are no assurances that any of these drug product candidates will proceed to the next phase of clinical development, or prove to be safe and effective, or that any of them will receive regulatory approval for the treatment of the indications which we may pursue.
Even if we receive regulatory approval for one of our drug product candidates in the United States or a foreign country, there are no assurances that the product will prove to be commercially successful or profitable.
We depend on third parties for a variety of functions, including the research and development, manufacturing, clinical testing, and regulatory compliance of our drug product candidates. No assurance can be given that these third parties arrangements will allow us to successfully or timely develop, manufacture and market our drug product candidates.
We do not have the internal infrastructure to conduct clinical trial management or certain other aspects of clinical testing ourselves. On December 31, 2006, we had 53 full-time employees. We therefore rely on third parties to perform a variety of functions with respect to the clinical development of our drug product candidates, including clinical trial management and manufacturing of our drug product candidates. If we develop additional drug product candidates with commercial potential, we will have to either hire additional personnel skilled in clinical testing or engage third parties to perform such services.
We have engaged PPD to oversee certain aspects of our PRECISE trial for CINTREDEKIN BESUDOTOX. Our agreement with PPD obligates us to compensate PPD on a monthly basis and make milestone payments as the trial progresses. We have engaged other companies on a per study basis for assistance in the management and testing for our Phase I and Phase II clinical trials. To oversee data management in our clinical trials we have contracted, on a per study basis, with Advanced Clinical Services. To conduct our large animal testing, we have engaged, again on a per study basis, Southern Research Institute.
While we have been satisfied with the performance of these various organizations, we do not directly control them. We depend on these organizations to apply the appropriate expertise and resources to expeditiously and competently perform the services for which they have been retained. If any of these third parties with whom we contract breaches its agreement with us or fails to comply with an applicable government regulation, we might be required to find a satisfactory alternative service provider. In addition, our drug development efforts could be delayed or impaired. We are aware of other entities that could offer similar services. We frequently change vendors and consider such items as price, vendor capabilities to meet our needs, and ease of transition in choosing new vendors.
In order to commercialize our drug product candidates successfully, we, or third parties with whom we contract, must be able to manufacture products in commercial quantities in compliance with the FDA’s cGMP requirements at acceptable costs and in a timely manner. We do not currently have commercial scale cGMP compliant manufacturing capacity for any of the drug product candidates we are developing. Currently, all of our liposome compounds are produced at the Center for Advanced Drug Development, the Center, which is affiliated with the University of Iowa Pharmacy School. The Center has indicated that it is currently able to meet our needs for research and clinical trials, but we cannot be sure that it will be able to meet our needs in a timely manner or on a cost-effective basis in the future. If the Center were unable to meet our needs in the future, we cannot be sure that suitable alternatives could be found in a timely manner, or at all.
We have an agreement with Diosynth pursuant to which Diosynth produced CINTREDEKIN BESUDOTOX for our Phase 3 PRECISE clinical trial. If, despite CINTREDEKIN BESUDOTOX’ failure to meet its primary endpoint in this trial, we are nevertheless able to submit a BLA for CINTREDEKIN BESUDOTOX, Diosynth would manufacture on a take-or-pay basis, the drug product substance for the BLA. Thereafter, we would expect to expand our existing agreement with Diosynth to obtain our initial commercial requirements of CINTREDEKIN BESUDOTOX, if it were approved. We would also need to contract with a suitable third party to provide fill and finish services for CINTREDEKIN BESUDOTOX. While we are currently negotiating with third parties to provide these services, we have not yet entered into an agreement.
If either the Center or Diosynth were to breach its agreement with us, or fail to comply with any applicable governmental requirement, or fail to deliver drug product substance in a timely manner, we might be required to find a satisfactory alternate provider. This could significantly delay or impair our drug
development efforts as well as submission of any eventual BLA. If we fail to secure third-party services for the filling and finishing of our drug product candidates, this too could significantly delay or impair our drug development efforts and submission of any eventual BLA.
We also in-license technology from governmental and academic institutions in order to minimize our investment in basic research, and we enter into collaborative arrangements with certain of these entities with respect to research and development of our drug product candidates. No assurance can be given that we will enter into more of these relationships, that we will be able to maintain or renew the research agreement with FDA, that this relationship will provide benefits to us, or that we will be able to establish new relationships on beneficial terms, without undue delays or expenditures.
Because all of our drug product candidates are in pre-clinical or clinical development, there is a high risk that further development and testing will demonstrate that our drug product candidates are not approvable or suitable for commercialization, which could cause our business to suffer.
None of our drug product candidates has received regulatory approval for commercial sale. Before we can obtain regulatory approval for the commercial sale of any of our drug product candidates, we must demonstrate through pre-clinical testing and clinical trials that the drug product candidate is safe and effective. Conducting pre-clinical and clinical testing is a lengthy, expensive, and uncertain process and may take several years or more. Success in pre-clinical testing does not assure success in clinical trials, and positive results in early phase clinical trials do not assure a positive outcome in later trials.
Clinical development of any of our drug product candidates, including, but not limited to, CINTREDEKIN BESUDOTOX, may be curtailed, redirected, delayed, or eliminated at any time for any of the following reasons or for other reasons:
· our inability to demonstrate superiority to existing treatments for targeted diseases;
· our determination that the applicable market, or competition within the market, makes competition uneconomic;
· our inability to manufacture, or secure third party sources to manufacture, sufficient quantities of drug compounds for use in clinical trials;
· our inability to attract suitable and willing investigators for our trials;
· our inability to locate, recruit, and qualify a sufficient number of patients for our trials;
· negative or ambiguous results regarding the effectiveness of the drug product candidate;
· undesirable side effects that delay or extend the trials, or other unforeseen or undesirable safety issues that make the drug product candidate not medically or commercially viable;
· our failure, or the failure of any third party with whom we contract, to comply fully with the investigational new drug regulations and other regulations applicable to clinical trials;
· delays, suspension, or termination of trials imposed by us or an independent institutional review board for a clinical trial site, or a clinical hold placed upon the trial by the FDA;
· regulatory delays or other regulatory actions, including changes in regulatory requirements;
· our inability to adequately follow patients after treatment; and
· delays in importing or exporting clinical trial materials.
A delay or termination of any of our clinical trials would have an adverse effect on our business. If any of our clinical trials is unsuccessful, this could preclude us from obtaining regulatory approval, which would
have an adverse effect on our business. If any of our clinical trials is perceived as unsuccessful by the FDA or physicians, our business, financial condition, and operations would be harmed.
Our business is subject to extensive governmental regulation, and failure to comply with those regulations can lead to unanticipated delays in product development and approval and can prevent commercialization.
The FDA regulates the research, development, and testing of our drug product candidates. If any of our drug product candidates is approved for marketing and introduced into the market, the FDA will continue to regulate the manufacturing, labeling, distribution, marketing, and advertising activities of that product. Public health authorities in foreign countries have comparable authority. Compliance with these requirements before and after approval is expensive and time consuming. Failure to comply can lead to regulatory action that would have a negative impact on our business.
In order to market a new therapeutic product in the United States, we must prove that the product is safe and effective for its intended uses and that the product is manufactured in compliance with current Good Manufacturing Practices, or cGMP. Completing the pre-clinical and clinical testing necessary to prove the safety and effectiveness of a new therapeutic product, and establishing the capability to comply with cGMP, can take many years, be very costly, and still be unsuccessful. The results of pre-clinical testing and Phase 1 and 2 studies are not necessarily indicative of the results in larger patient populations, as evaluated in Phase 3 studies.
In order to market any of our drug product candidates, once this lengthy research and development process is completed, we will need to submit a BLA or NDA to the FDA. This will need to contain pre-clinical, clinical, manufacturing, labeling, and other information, and it must demonstrate that the drug product candidate is safe and effective for use in humans for each proposed indication. The FDA may refuse to accept any of our applications if it views the application as incomplete. The manufacturing facilities must also comply with cGMP, and FDA may inspect the facility before it approves the application.
Even if we complete the lengthy and expensive research and development process for one of our drug product candidates and file a BLA or NDA seeking approval to market the candidate, we do not know whether the FDA will approve the application on a timely basis, on commercially viable terms, or at all. The FDA’s review of a BLA or NDA that it accepts can take several years. The FDA can delay, limit, or deny approval for many reasons, including if:
· it determines that our drug product candidate is not safe or is not effective, or does not present an acceptable benefit-risk profile;
· it interprets the data from our pre-clinical testing and clinical trials differently than we do;
· it determines that our manufacturing processes or facilities, or the processes or facilities of third parties involved in the manufacture of our drug product candidates, do not comply with cGMP;
· it changes its approval policies or adopts new regulations; or
· Congress amends the Food, Drug and Cosmetics Act, the Public Health Service Act, or other applicable laws.
The process of obtaining approvals in foreign countries is subject to uncertainty, delay, and failure for similar reasons.
In addition, the FDA (and foreign regulatory authorities) may approve a drug product candidate for fewer than all the indications requested or require that the drug product be labeled in a way that differs from our proposed labeling. Even if the FDA (or a foreign regulatory authority) approves one of our drug
product candidates, it may require that we perform burdensome post-marketing studies and it may impose other burdensome requirements, including the requirement that we institute and maintain a special risk management plan to monitor and manage potential safety issues. These requirements could reduce or eliminate the drug product’s market potential.
A drug product and its manufacturer are subject to strict regulation after product approval by the FDA and comparable foreign authorities. The FDA regulates manufacturing, labeling, distribution, and promotional activities after product approval, as do comparable foreign regulatory agencies. We must also report certain adverse events and manufacturing issues involving our drug products to these agencies. Application holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. In addition to FDA requirements, sales, marketing and scientific/education grant programs must comply with the anti-fraud and abuse provision of the Social Security Act, the False Claims Act and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, and the Veteran’s Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.
Failure to comply with applicable legal and regulatory requirements can result in, among other things, product seizure, civil penalties, suspensions and withdrawals of regulatory approvals, import and export problems, product recalls, operating restrictions, and criminal prosecution. The restriction, suspension, or revocation of regulatory approvals or other adverse action taken on the basis of failure to comply with applicable regulatory requirements could have a material adverse effect on our business, financial condition, and operations.
Previously unidentified adverse events or an increased frequency of adverse events that may occur post-approval could result in the FDA, or other agencies, requiring us to conduct further clinical research, which could be expensive and could lead to new and unfavorable information about the safety or the effectiveness of our product. New safety or effectiveness information after approval can result in a change in the labeling of our drug products, new or more extensive distribution restrictions, a new or expanded risk management program, product recalls, withdrawal of the drug product from the market, or withdrawal of product approval, any of which could materially affect the commercial success of the product. Any unforeseen problems with one of our drug product candidates after approval could preclude successful commercialization of that product and harm our business and stock price.
We have a history of operating losses, expect to continue to incur losses for the foreseeable future, and may never be profitable.
We have a limited operating history, and our operations consist primarily of the development of our drug product candidates and the sponsorship of research and clinical trials. Over the past three fiscal years ended December 31, 2006, we have incurred aggregate net losses of $129.5 million, with aggregate net losses since inception of $261.2 million. We expect to incur additional losses and, as our development and commercialization efforts and clinical testing activities continue, our losses may increase. We also expect to experience negative cash flows for the foreseeable future as we fund our losses and capital expenditures. Our losses have adversely impacted, and will continue to adversely impact, our working capital, total assets and stockholders’ equity. To date, we have not sold or received approval to sell any drug product candidates, and it is possible that revenues from drug product sales will never be achieved. In the past, we have generated only very limited revenue from license fees and sales of products. We cannot at this time predict when or if we will be able to develop sources of revenue or when or if our operations will become profitable, even if we are able to commercialize some of our drug product candidates.
Budget constraints have in the past and may in the future force us to delay our efforts to develop certain drug product candidates in favor of developing others, which prevents us from commercializing all drug product candidates as quickly as possible.
Because we are a small company with limited resources, and because research and development is an expensive process, we must regularly assess the most efficient allocation of our research and development budget. As a result, we have been forced to prioritize development activities with the result that we will not be able to fully realize the value of some of our drug product candidates in a timely manner, as they will be delayed in reaching the market, if at all. In 2006, we completed a reprioritization of the NeoLipid® program in an effort to substantially decrease our expenses, including a restructuring of our workforce and a reduction in research and development spending. If we are not successful in maintaining the planned level of spending, our efforts to commercialize our drug product candidates will be seriously eroded. Additionally, the reduction in spending on our drug product candidates will necessitate a delay in our commercialization efforts and negatively impact our strategy to diversify our development risk across our drug product candidates.
Competition in the biopharmaceutical field is intense and subject to rapid technological change. Our principal competitors have substantially greater resources to develop and market products that may be superior to ours.
If we obtain regulatory approval for any of our drug product candidates, the extent to which they achieve market acceptance will depend, in part, on competitive factors. Competition in our industry is intense, and it is increased by the rapid pace of technological development. Existing drug products or new drug products developed by our competitors may be more effective or have fewer side effects, or may be more effectively marketed and sold, than any that we may develop. Many of our principal competitors have substantially greater research and development capabilities and experience and greater manufacturing, marketing, financial, and managerial resources than we do. Competitive drug compounds may render our technology and drug product candidates obsolete or noncompetitive prior to our recovery of research, development, or commercialization expenses incurred through sales of any of our drug product candidates. The FDA’s policy of granting “fast track” approval for cancer therapies may also expedite the regulatory approval of our competitors’ drug product candidates.
Each of the drug product candidates currently in clinical development will face competition from drug products currently on the market or under development. The following table lists our current principal competitors and their products which compete with the listed drug product candidates we currently have under development:
|
Our drug product candidate |
Principal competitor |
Competitor’s product |
||||
|
CINTREDEKIN BESUDOTOX(1) |
|
MGI Pharma, Inc. |
|
Gliadel® Wafer |
||
|
LE-SN38 |
|
Pfizer Inc. |
|
Camptosar® |
||
|
LEP-ETU |
|
Bristol-Myers Squibb Co. Abraxis BioScience, Inc. |
|
Taxol®(2) |
||
|
LE-DT |
|
Sanofi Aventis. |
|
Taxotere® |
(1) Meeting currently scheduled with the U.S. FDA late in first-quarter 2007 to discuss possible regulatory paths forward, if any.
(2) This product is currently off-patent and generics are available.
Additionally, other drug companies are currently conducting clinical trials, which are in various stages, for numerous drug compounds that, if ultimately approved for marketing, could be competitive with our drug product candidates, including, but not limited to, clinical trials involving drug compounds for the treatment of glioblastoma multiforme which, if approved, could compete with CINTREDEKIN
BESUDOTOX, if development of that drug in the treatment of recurrent glioblastoma multiforme is continued and if it then is eventually approved for the treatment of that disease.
We also compete with other drug development companies for licenses to novel technologies as well as for collaborations with large pharmaceutical and other companies.
Our stock price has been and is likely to continue to be volatile, and an investment in our common stock could decline in value.
The stock market has experienced significant price and volume fluctuations, which often have been unrelated to the operating performance of particular companies. In addition, the market price of our common stock has been highly volatile and is likely to continue to be so. For example, during 2006, the market price of our common stock fluctuated between $1.66 and $12.67 per share and during 2005 the market price of our common stock fluctuated between $15.47 and $7.16 per share.
The following factors, among others, could have a significant impact on the market price of our stock:
· our ability, or inability, to persuade the FDA that a plausible regulatory pathway exists for CB, that the FDA would approve a BLA for CB, were one to be submitted, or that the FDA would require additional data or testing.
· the success or failure of our clinical trials or those of our competitors;
· our ability to prepare, file and obtain approval of a BLA for CINTREDEKIN BESUDOTOX in a timely manner, if one is ultimately filed.
· our ability to conserve our cash resources or to obtain financing, when needed;
· litigation, including, but not limited to, current class action lawsuits;
· actual or anticipated fluctuations in our financial results;
· economic conditions in the US and abroad;
· comments by or changes in Company assessments or financial estimates by securities analysts;
· adverse regulatory actions or decisions;
· losses of key management;
· changing governmental regulations;
· our ability to secure adequate third party reimbursement for products developed by us;
· developments or disputes concerning patents or other proprietary rights;
· product or patent litigation; and
· public concern as to the safety of products developed by us.
Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, all of whom have been granted stock options.
These factors and fluctuations, as well as political and market conditions, may materially adversely affect the market price of our common stock.
We will need to raise additional capital in the future. If additional capital is not available, or can not be obtained on favorable terms, we may have to curtail or cease operations.
We estimate that as of December 31, 2006, our then existing cash reserves, should be sufficient to finance our operations at current and projected levels of development and general corporate activity into 2008. We do not anticipate being able to generate revenues from product sales in the near term at a rate sufficient to fund our operations. We will need additional future financing depending on a number of factors, including, but not limited to, the following:
· our degree of success in gaining approval for and thereafter successfully commercializing our drug product candidates;
· the rate of progress and cost of research and development and clinical trial activities relating to our drug product candidates;
· a possible obligation to pay damages arising from the ongoing consolidated class action lawsuit, to the extent these possible damages exceed, or are not covered by, our insurance;
· the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our patent claims and other intellectual property rights and investigating and defending against infringement claims asserted against us by others;
· emergence of competing technologies and other adverse market developments;
· changes in or terminations of our existing licensing arrangements;
· the amount of milestone payments we may receive from future collaborators, if any;
· the costs of acquiring or licensing new technology, products or businesses if we desire to expand our product portfolio; and
· the cost of manufacturing scale-up and development of marketing operations, if we undertake those activities.
Additional financing may not be available when we need it or be on terms acceptable to us. If adequate financing is not available, we may be required to delay, scale-back, or eliminate certain of our research and development programs, to relinquish rights to some of our technologies or products, or to grant licenses to third parties to commercialize products or technologies that we would otherwise seek to develop ourselves. We could also be required to cease operations. If additional capital is raised through the sale of equity, our stockholders’ ownership interest could be diluted and such securities may have rights, preferences, or privileges superior to those of our other stockholders. The terms of any debt securities we may sell to raise additional capital may place restrictions on our operating activities. Failure to secure additional financing may cause us to delay or abandon some or all of our development programs.
If we, or our suppliers, fail to comply with FDA and other government regulations, our manufacturing operations could be interrupted, and our drug product development, future sales, and profitability would suffer.
All new drugs, including our drug product candidates under development, are subject to extensive and rigorous regulation by the FDA and comparable foreign authorities. These regulations govern, among other things, the development, pre-clinical and clinical testing, manufacturing, labeling, storage, pre-market approval, advertising, promotion, sale, and distribution of our drug product candidates. We rely on third parties to perform a variety of functions, including research and development, clinical trial management and testing, and manufacturing of our drug product candidates. We currently obtain the necessary raw materials for our drug product candidates, as well as certain services, such as testing, from third parties. We currently contract with suppliers and service providers that are required to comply with
strict standards established by us. Certain suppliers and service providers are required to follow good laboratory practices, or GLP, good clinical practices, or GCP, and current good manufacturing practices, or cGMP, requirements and are subject to routine unannounced periodic inspections by the FDA and by certain state and foreign regulatory agencies for compliance with those requirements and other applicable regulations. There can be no assurance that the FDA and other regulatory agencies will find the manufacturing process or facilities or other operations of our suppliers and other service providers to be in compliance with GLP, GCP, cGMP, or other applicable requirements.
While to our knowledge none of our principal suppliers or service providers has been found to be out of compliance with GLP, GCP, cGMP, or other applicable requirements with respect to the goods or services they provide to us, failure of any of our principal third party suppliers or service providers to maintain satisfactory compliance with applicable requirements could have a material adverse effect on our ability to develop, market, and distribute our drug product candidates in the future and, in the most serious cases, could result in the issuance of warning letters, seizure or recall of drug products, criminal prosecution, civil penalties, or closure of such manufacturing facilities until compliance is achieved.
We have limited sales and marketing personnel and do not yet have distribution organizations, processes or capabilities in place, which means we must either enter into agreements with third parties to provide such capabilities or we must develop such capabilities ourselves.
We currently have limited internal sales and marketing, and do not have distribution resources. If we were ever to receive the required regulatory approvals for one of our drug product candidates, of which there can be no assurance, we could elect to market and sell our drug product candidates through distribution, co-marketing, co-promotion, or licensing arrangements with third parties. If we elect to market our drug product candidates directly, significant additional expenditures and management resources will be required to develop an internal marketing or sales force. We have no historical experience in establishing or maintaining an effective sales or marketing effort. If we were ever to develop and obtain approval of a drug, and we decided to perform sales and marketing activities ourselves, we could face a number of additional risks, including, but not limited to:
· the inability to attract and retain a marketing or sales force with relevant pharmaceutical experience;
· the costs of establishing a marketing or sales force may not be recoverable if product revenues are lower than expected; and
· there could be delays in product launch due to the time needed to develop and train an effective marketing organization or sales force.
On the other hand, to the extent that we elect to enter into arrangements with third parties for the marketing and sale of our drug product candidates, any economic benefit we received would depend primarily on the efforts of these third parties, and the resulting economic benefit received may be lower than if we marketed our drug products directly. In addition, we may not be successful in entering into sales and distribution relationships with third parties and, even if we are successful, we may not control the amount and timing of marketing resources such third parties devote to our drug product candidates.
There can be no assurance that we would be able to establish an effective marketing or sales force should we choose to do so. The inability to successfully employ qualified marketing and sales personnel or to develop other sales and marketing capabilities through third parties would be harmful to our overall business operations.
We are currently named as a defendant in a number of securities class action lawsuits. The volatility of our stock increases the risk that additional securities class action litigation could be instituted against us in the future.
Securities class action litigation is often brought against a company following periods of volatility in the market price of its securities. We, along with certain of our former officers, are currently named as defendants in a number of class action lawsuits which have been consolidated for trial and are currently pending in the U.S. District Court for the Northern District of Illinois, and each of which alleges various violations of the federal securities laws in connection with certain of our public statements as they relate to our LEP drug product candidate. We may be named as a defendant in similar litigation in the future. While we are vigorously defending this litigation, this litigation has resulted, and can be expected to continue to result, in substantial costs and in a diversion of management’s attention and our resources, which could harm our business and financial condition, as well as the market price of our stock. Moreover, it may result in an adverse judgment against us or a settlement, either of which could require us to make a payment to the plaintiffs to the extent a possible payment exceeds or is not covered by our insurance.
Our lack of operating experience may cause us difficulty in managing any future growth.
We have no historical experience in selling pharmaceutical or other products or in manufacturing or procuring drug products in commercial quantities in compliance with FDA rules and we have only limited experience in negotiating, establishing and maintaining collaborative relationships and conducting later stage phases of the regulatory approval process. Our ability to manage our growth, if any, will potentially require us to maintain, improve and expand our management and our operational and financial systems and controls. If our management is unable to manage growth effectively, our business and financial condition would be adversely affected. In addition, if rapid growth occurs, it may strain our operational, managerial and financial resources, which are limited.
We depend on intellectual property rights licensed from third parties. If we fail to meet our obligations under our license agreements, or if technology licensed to us is subject to the rights of others, we could lose our rights of exclusivity of use to key technologies on which our business depends.
Our business depends on our technology, which is based in part on patents and patent applications licensed from third parties. Those third-party license agreements impose obligations on us, such as payment obligations and obligations to diligently pursue development of commercial products under the licensed rights. Our license agreement regarding CINTREDEKIN BESUDOTOX requires us to engage in clinical trials of the compound in patients with renal cell carcinoma. Previous trials demonstrated that CINTREDEKIN BESUDOTOX is toxic in those patients. However, we have instead focused on developing this compound for treating patients with glioblastoma multiforme. We have informed the governmental agency from which we licensed these patents of this change, and we received no objections to it.
Because of our dependence on intellectual property rights licensed to us by third parties, any adverse development in our relationship with these licensors, including a dispute regarding our rights under the agreements or the grant of rights by our licensors to others, could materially and adversely affect our right to commercialize the products we are developing or preclude others from commercializing these products.
If a licensor believes that we have failed to meet our obligations under a license agreement, the licensor could seek to limit or terminate our licensed rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation, our ability to carry out the development and commercialization of potential products could be significantly and negatively affected. If our licensed rights were restricted or ultimately lost, our ability to continue our business based on the affected technology platform would be adversely affected.
We depend in large part on our licensors to have and maintain the patent rights licensed to us. Where our licensors cannot license technologies to us to the exclusion of third parties, our competitive position could be impaired. In this regard, we understand that co-rights to the technologies exclusively licensed to us by NIH relating to CINTREDEKIN BESUDOTOX are claimed by one of the inventors, who has subsequently entered into an agreement assigning such rights as he may have to a third party. We are in the process of determining the nature of his claimed rights and whether or not this assignment is valid.
We have been granted “orphan drug” status with respect to the use of CINTREDEKIN BESUDOTOX for malignant gliomas (a class of brain tumors which includes glioblastoma multiforme), and we are thus potentially eligible to receive orphan drug exclusivity upon approval. In order to receive orphan drug exclusivity, we must be the first CINTREDEKIN BESUDOTOX product approved for malignant glioma. If we receive orphan drug exclusivity, it would prevent the FDA for a period of seven years from approving another sponsor’s marketing application for the same drug for the same indication, except that a subsequent applicant with the same drug could be approved if it demonstrated its product were clinically superior to our product or if we were unable to manufacture sufficient supplies of product. If it were determined that we do not have exclusive rights to the technology licensed to us by NIH, we might be unable to preclude third parties—during or after any period of orphan drug exclusivity—from commercializing a drug based on CINTREDEKIN BESUDOTOX for other indications. Competing CINTREDEKIN BESUDOTOX products, if suitable, could be prescribed by physicians for malignant glioma, even though not FDA-approved for that use. This could cause our business to suffer. Moreover, if it were determined that we do not have exclusive rights to the technology licensed to us by NIH, a third party might be able to develop a CINTREDEKIN BESUDOTOX based drug for the treatment of malignant glioma. If this competitor completed its clinical trials before we complete ours, the FDA could approve that competitor’s product first and give it seven years of market exclusivity. In such a case, we might not be allowed to market our product in the United States for seven years. Further, even if we receive seven years of market exclusivity, other applicants could receive approval of compounds other than CINTREDEKIN BESUDOTOX for malignant glioma, which would compete with our product.
It should be noted that, even if it were determined at a future date that we do not have exclusivity with respect to the patents and patent applications licensed from NIH, we have also filed various additional patent applications related to the methods of administration and use of CINTREDEKIN BESUDOTOX which are not part of the NIH patents. While we believe that patents that may eventually be granted under these patent applications would provide us with additional exclusivity of use for CINTREDEKIN BESUDOTOX, these patent applications are still pending, may not be granted, and are subject to the risks described herein relating to patents in general.
If we are unable to adequately protect our proprietary technologies this could harm our competitive position and have a material adverse effect on our business.
The success of our business depends, in part, on our ability to obtain patents and maintain adequate protection of our intellectual property for our proprietary technology and products in the United States and other countries. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting their proprietary rights in these foreign countries. These problems can be caused, for example, by a lack of rules and processes allowing for meaningful defense of intellectual property rights. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and impair our competitive position, with the result that our business and operating results could be harmed.
The patent positions of pharmaceutical companies, including our patent positions, are often uncertain and involve complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We apply for patents covering our
technologies and drug product candidates, as we deem appropriate. Currently, we either own or have obtained licenses to more than 50 United States patents and patent applications relating to our technology, compounds, and drug product candidates, many of which have foreign counterparts either as issued patents or pending patent applications. However, we may not obtain patents on all inventions for which we seek patents, and any patents we obtain may be challenged and may be narrowed in scope or extinguished as a result of such challenges. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Others may independently develop similar or alternative technologies or design around our patented technologies or drug product candidates. These companies would then be able to develop, manufacture, and sell products, which compete directly with our drug product candidates. In that case, our revenues and operating results would decline.
We rely upon trade secret protection for certain of our confidential information, including certain of our trade secrets, know-how, technology advances and processes. While we have taken measures to protect our confidential information, and to date have not experienced any difficulties in maintaining the confidentiality of our information, these measures may not provide adequate protection for our trade secrets, know-how or other confidential information in the future. We seek to protect our confidential information by entering into confidentiality agreements with employees, collaborators, and consultants. Nevertheless, employees, former employees, collaborators, or consultants may still disclose or misuse our confidential information, and we may not be able to meaningfully protect our trade secrets. In addition, others may independently develop substantially equivalent information or techniques or otherwise gain access to our trade secrets. Disclosure or misuse of our confidential information would harm our competitive position and could cause our revenues and operating results to decline.
We may be sued for infringing on the intellectual property rights of others.
Our commercial success also depends in part on ensuring that we do not infringe the patents or proprietary rights of third parties. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. While we have not been sued for infringing the intellectual property rights of others, there can be no assurance that the drug product candidates that we have under development do not or will not infringe on the patent or proprietary rights of others. Third parties may assert that we are employing their proprietary technology without authorization. We know of patents issued to third parties relating to antisense and oligonucleotide technology, including patents about which such third parties have communicated with us suggesting possible infringement, but the claims of which we believe we do not infringe or are invalid. Moreover, United States patent applications filed in recent years are confidential for 18 months, while older applications are not published until the patent issues. Further, some applications are kept secret during the entire length of their pendency by request of the applicant in special circumstances. As a result, there may be patents of which we are unaware, and avoiding patent infringement may be difficult. Patent holders sometimes send communications to a number of companies in related fields, suggesting possible infringement, and we, like a number of biotechnology companies, have received this type of communication. If we are sued for patent infringement, we would need to demonstrate that we either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, which we may not be able to do. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Parties making claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to further develop, commercialize and sell products, and such claims could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if at all. In that event, we could
encounter delays in product introductions while we attempt to develop alternative methods or products or be required to cease commercializing affected products and our operating results would be harmed.
In the future, others may file patent applications covering technologies that we may wish to utilize with our proprietary technologies, or products that are similar to products developed with the use of our technologies. If these patent applications result in issued patents and we wish to use the claimed technology, we would need to obtain a license from the third party, and this would increase our costs of operations and harm our operating results.
We may in the future be a party to patent litigation, which could be expensive and divert our management’s attention.
The field of biotechnology has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. We may become a party to patent infringement claims and litigation or interference proceedings declared by the US Patent and Trademark Office to determine the priority of inventions. The defense and prosecution of these matters are both costly and time consuming. We may need to commence proceedings against others to enforce our patents, trade secrets or other know-how or defend against claims of infringement asserted against us, which would require investigation and determination of the enforceability, scope and validity of the respective proprietary rights. These proceedings could result in substantial expense to us and significant diversion of efforts by our technical and management personnel.
If we lose key management personnel or are unable to attract and retain the talent required for our business, our business could be harmed.
We are highly dependent on the principal members of our management staff, our President and Chief Executive Officer, Mr. Guillermo A. Herrera, our Executive Vice President, or EVP and Chief Medical Officer, Dr. Jeffrey W. Sherman and our EVP, Commercial Operations, Timothy P. Walbert. These principal members of our management and scientific staff, other than Mr. Herrera, accepted employment on the basis of written offers which set forth the salary and benefits to be provided, including, but not limited to, salary continuation payments upon termination of employment. Mr. Herrera has a written employment contract with us. We do not have key man insurance on any of our management. If we were to lose the services of Mr. Herrera, or other principal members of our management staff, and were unable to replace them, our product development and the achievement of our strategic objectives could be delayed. In addition, our success will depend on our ability to attract and retain qualified commercial, scientific, technical, and managerial personnel. While we have not experienced unusual difficulties to date in recruiting and retaining personnel, there is intense competition for qualified staff and no assurance can be given that we will be able to retain existing personnel or attract and retain qualified staff in the future.
The demand for our drug product candidates, if any, may be adversely affected by health care reform and potential limitations on third-party reimbursement.
In recent years, there have been numerous proposals to change the health care system in the U.S. Some of these proposals have included measures that would limit or eliminate payments for medical procedures and treatments or subject the pricing of pharmaceutical products to government control. We cannot predict the effect that health care reforms may have on our business, and it is possible that such reforms will hurt our business. In addition, in both the U.S. and elsewhere, sales of prescription pharmaceutical products are dependent in part on the availability of reimbursement to the consumer from third party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services with respect to new drug products in particular. If we succeed in bringing any of our drug product candidates to the market, we cannot be
certain that our products will be considered cost effective or that reimbursement to the consumer will be available or will be sufficient to allow us or our collaborators to sell our products on a competitive basis.
In addition, many health maintenance organizations and other third party payors use formularies, or lists of drugs for which coverage is provided under a health care benefit plan, to control the costs of prescription drugs. Each payor that maintains a drug formulary makes its own determination as to whether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs in the same class. This determination often involves an assessment of the clinical appropriateness of the drug and sometimes the cost of the drug in comparison to alternative products. We cannot be assured that:
· our future drug products, if any, will be added to payors’ formularies;
· such future drug products will have preferred status to alternative therapies; or
· the formulary decisions will be conducted in a timely manner.
We may also decide to enter into discount or formulary fee arrangements with payors, which could result in us receiving lower or discounted prices for drug products we may develop in the future.
Physicians, patients, payors, or the medical community in general may be unwilling to accept, utilize, or recommend any of our drug product candidates, and the failure to achieve market acceptance will harm our business.
Even if approved for marketing, our drug product candidates may not achieve market acceptance. The degree of market acceptance of our drug product candidates will depend upon a number of factors, including:
· the establishment and demonstration in the medical community of the safety and clinical efficacy of our drug product candidates and their potential advantages over existing therapeutic products, including current treatments for GBM and non-liposomal forms of the active agents included in our drug products; and
· pricing and reimbursement policies of government and third party payors such as insurance companies, health maintenance organizations and other plan administrators.
Material weaknesses or deficiencies in our internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our ability to obtain financing, and other aspects of our business.
As of September 30, 2006, management had concluded that a control deficiency with respect to the review and verification of the accuracy of the calculation estimating the fair value of non-employee stock options constituted a material weakness in internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. This control deficiency resulted in an adjustment to the unaudited interim condensed consolidated financial statements for the quarter ended March 31, 2006 affecting derivative financial instruments and change in fair value of derivative financial instruments.
During 2006, management revised its policies and procedures with respect to its controls over the review and verification of the accuracy of the calculation estimating the fair value of non-employee stock options to ensure that all reasonable steps will be taken to correct this material weakness. As of December 31, 2006, the deficiency was considered to be remediated as the new internal controls were operational for a period of time, were tested, and management concluded that the controls are operating effectively at that time.
Internal control over financial reporting can provide only reasonable and not absolute assurance that deficiencies or weaknesses are identified. Additionally, potential control deficiencies that are not yet identified could emerge and internal controls that are currently deemed to be in place and operating effectively are subject to the risk that those controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Identification and corrections of these types of potential control deficiencies could have a material impact on our business, financial position, results of operations and disclosures and impact our ability to raise funds.
Our investments could lose market value and consequently harm our ability to fund continuing operations.
The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash, cash equivalents and short-term investments in a variety of securities, including government and corporate obligations and money market funds. The market values of these investments may fluctuate due to market conditions and other conditions over which we have no control. Fluctuations in the market price and valuations of these securities may require us to record losses due to impairment in the value of the securities underlying our investment. This could result in future charges to our earnings. All of our investment securities are denominated in US dollars.
Investments in both fixed-rate and floating-rate interest earning instruments carry varying degrees of interest rate risk. Fixed-rate securities may have their fair market value adversely impacted due to a rise in interest rates. In general, securities with longer maturities are subject to greater interest rate risk than those with shorter maturities. While floating-rate securities generally are subject to less interest rate risk than fixed-rate securities, floating-rate securities may produce less income than expected if interest rates decrease. Due in part to these factors, our investment income may fall short of expectations or we may suffer losses in principal if securities are sold that have declined in market value due to changes in interest rates.
We handle hazardous materials and must comply with environmental laws and regulations, which can be expensive and restrict how we do business. We could also be liable for damages, penalties, or other forms of censure if we are involved in a hazardous waste spill or other accident.
Our research and development processes involve the controlled storage, use, and disposal of hazardous materials and biological hazardous materials. We are subject to federal, state, and local laws and regulations governing the use, manufacture, storage, handling, and disposal of hazardous materials and certain waste products. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, even by a third party, we could be held liable for any damages that result, and such liability could exceed our current general liability insurance coverage of $1,000,000 and our financial resources. In the future, we may not be able to maintain insurance on acceptable terms, or at all. We could also be required to incur significant costs to comply with current or future environmental laws and regulations.
We may have product liability exposure, and insurance against such claims may not be available to us at reasonable rates or at all.
While we maintain insurance to cover the use of our drug product candidates in clinical trials, we currently do not have any product liability insurance for marketed human therapeutic products. Although we plan to obtain product liability insurance when and if any of our drug product candidates become commercially available, we cannot assure you that we will be able to obtain or maintain this insurance on acceptable terms or that any insurance we obtain will provide us with adequate coverage against potential
liabilities. Claims or losses in excess of any liability insurance coverage we obtain could have a material adverse effect on our business.
Anti-takeover provisions could make a third party acquisition of us or the removal of our board of directors or management more difficult.
In June 2003, we adopted a stockholder rights plan that provided for the issuance of rights to purchase shares of our Series A Participating Preferred Stock, the Series A Preferred. Under the plan, we distributed one preferred share purchase right for each outstanding share of common stock. Each purchase right entitles the holder to purchase from us one one-thousandth (1/1000th) of a share of Series A Preferred at a price of $112.00 per share, subject to adjustment. The rights become exercisable, with certain exceptions, ten business days after any party, without prior approval of our Board of Directors, acquires, or announces an offer to acquire, beneficial ownership of 15% or more of our common stock. An exception to this policy exists in the case of our largest shareholder, Dr. John N. Kapoor, who, along with parties affiliated with him, is permitted to acquire up to 30% of our common stock without triggering the rights issuance. In the event that any party acquires 15% or more of our common stock (other than Dr. Kapoor for whom the threshold is 30%), we are acquired in a merger or other business combination, or 50% or more of our assets are sold after the time that the rights become exercisable, the rights provide that each right holder will receive, upon exercise, shares of the common stock of the surviving or acquiring company, as applicable, having a market value of twice the exercise price of the right. The stockholder rights plan may discourage or prevent certain types of transactions involving an actual or potential change in control, which transactions may be beneficial to our shareholders, by causing substantial dilution to a party that attempts to acquire us on terms not approved by our Board of Directors. In addition, Section 203 and other provisions of the Delaware General Corporation Law as well as provisions of our charter and by-laws could make a takeover of us or the removal of the members of the board of directors or management more difficult.
The issuance of preferred stock could adversely affect the holders of our common stock.
Our board of directors has the authority, without further stockholder approval, to issue from time to time shares of preferred stock in one or more designated series or classes. Depending upon the rights and preferences which may be granted to any class of preferred shares which we may elect to issue, issuance of preferred stock could adversely affect the voting power of holders of our common stock and reduce the likelihood that our common stockholders will receive dividend payments and payments upon liquidation. The issuance of preferred stock could also decrease the market price of our common stock, or have terms and conditions that could discourage a takeover or other transaction that might involve a premium price for our shares or that our stockholders might believe to be in their best interests.
If there are substantial sales of common stock, the market price of our common stock could decline.
Sales of substantial numbers of shares of common stock could cause a decline in the market price of our stock. We have filed Form S-8 registration statements registering shares issuable pursuant to our equity compensation plans. Any sales by existing stockholders or holders of options may have an adverse effect on our ability to raise capital and may adversely affect the market price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
