Our lead product candidate, bevirimat, formerly known as PA-457, is a once-daily oral HIV drug candidate in Phase 2 clinical testing. It is the first in a new class of drug candidates that works by a novel mechanism of action called maturation inhibition that is different from the mechanism of any approved drugs or other drugs known by us to be in development. This new target for HIV drugs was discovered by Panacos scientists and their academic collaborators. Based on currently available clinical data, we believe that bevirimat has the potential to play an important role in treating both treatment-experienced HIV patients and patients previously untreated for the disease.
In 2005, we announced the completion of a Phase 2a clinical trial of bevirimat, and provided analysis of the results. The trial met its primary endpoint by demonstrating a statistically significant reduction in the level of HIV in the blood, known as viral load, in patients treated with bevirimat compared to placebo. After ten days of the highest dose of an oral solution of bevirimat in the trial, the median reduction in viral load was 1.050 log 10 , or a 91% decrease.
In June 2006, we initiated a Phase 2b trial of bevirimat at multiple clinical sites in the United States, or U.S. In this trial, bevirimat is administered to HIV-infected patients in combination with approved HIV drugs. We are enrolling patients failing current therapy in this trial, who receive either placebo or bevirimat at one of several doses in conjunction with approved HIV drugs. The primary objective of this trial is to determine an appropriate dose or doses of bevirimat for pivotal clinical trials. The primary efficacy endpoint of the study is viral load reduction after two weeks of bevirimat dosing on top of patients’ failing background drug regimens, referred to as a period of functional monotherapy. Additional planned endpoints of this trial include safety after two weeks and twelve weeks, as well as viral load reduction after twelve weeks of dosing.
In December 2006, we announced preliminary results from the first cohort of the Phase 2b trial of bevirimat, which studied a 400mg bevirimat dose comprising eight 50mg tablets, a formulation that we had developed specifically for this study. The results of this cohort confirmed the antiviral activity of bevirimat shown in previous studies. In the first cohort, however, the bevirimat levels in the blood or plasma concentrations were lower than we expected based on a previous study of the oral bioavailability of the 50mg tablets, suggesting that the tablet formulation used in this cohort did not deliver the drug as expected. We believe that these results support going to higher doses with alternative formulations with the aim of generating greater responses.
We have agreed to a revised trial design with the U.S. Food and Drug Administration, or FDA, which will enable us to continue bevirimat dose escalation in the Phase 2b trial while we continue to develop an optimized formulation of bevirimat for late stage clinical development and commercialization. The next cohorts in Phase 2b will test the efficacy of bevirimat in treatment-experienced patients failing current therapy, at increasing doses
using the oral liquid formulation which was utilized in the Phase 2a trial. Phase 2b dose escalation with the liquid will involve 14-day functional monotherapy similar to the first Phase 2b cohort, except that patients will not continue on to extended dosing. After escalating to the most effective doses of bevirimat, we plan to dose one or more cohorts for a three-month period, using an optimized formulation suitable for pivotal clinical trials.
Prior to the initiation of the Phase 2b trial, we completed two drug interaction studies, chronic toxicology studies and a clinical bioavailability study of a tablet form of the drug. To date, we have dosed over 100 patients and subjects at the highest oral solution dose of bevirimat, or 200 mg, used in the Phase 2a trial and have seen a good safety and tolerability profile for bevirimat with no indication of a relationship between adverse events and drug levels. The FDA has granted Fast Track designation to bevirimat. Fast Track designation may be granted to a new drug when the FDA determines that the specific indication for which the drug is being studied is serious or life-threatening and that the drug demonstrates the potential to address unmet medical needs for that indication.
We have established research and development programs designed to generate second- and third-generation maturation inhibition products. We believe that there is the potential for multiple marketed products in this class. We have filed an Investigational New Drug Application, or IND, for one of our second-generation maturation inhibitors, PA-1050040, and have initiated Phase 1 clinical trials. We also have a research and development program focused on an early step in the HIV virus life cycle, fusion of the HIV virus to human cells. Fusion inhibition is a novel target for oral drug development. Panacos scientists have developed proprietary drug screening technology to identify inhibitors of virus fusion and have used this screening technology successfully to identify novel small-molecule HIV fusion inhibitors. These compounds are currently being optimized with the goal of generating an oral drug candidate suitable for clinical testing.
We believe that we could potentially develop and market bevirimat successfully without a strategic corporate collaboration. We are, however, also exploring corporate collaboration opportunities to facilitate the development and commercialization of bevirimat. We intend to evaluate the relative merits of both approaches on an ongoing basis.
HIV
Infection by HIV causes a slowly progressive deterioration of the immune system resulting in Acquired Immune Deficiency Syndrome, or AIDS. HIV infects cells that are critical to the functioning of the human immune system, resulting in their dysfunction and destruction. Viral infection or replication occurs when the virus binds to a host cell, enters the cell, and by using the cell’s own reproductive machinery, creates many copies of itself within the host cell that are released from the cell, mature and infect additional cells in the body.
Approximately 40 million people worldwide are living with HIV. In North America and Western Europe, HIV infects approximately 1.9 million people. Approximately 475,000 patients are currently being treated for HIV with antiretroviral drug therapy in the U.S.
At present, all approved oral HIV drugs inhibit either the HIV reverse transcriptase enzyme or the HIV protease enzyme, each of which is required for HIV to replicate once it has entered the cell. There are currently three approved classes of oral HIV drugs: Nucleoside (or Nucleotide) Reverse Transcriptase Inhibitors, or NRTIs, Non-Nucleoside Reverse Transcriptase Inhibitors, or NNRTIs, and Protease Inhibitors, or PIs. Up to approximately 85% of treated patients harbor drug-resistant HIV strains, as do up to approximately 25% of newly diagnosed patients, making drug resistance a major problem in the treatment of HIV. Due to drug resistance, patient treatment regimens often include the use of two, three or more drugs in combination and require frequent readjustment. Many HIV drug treatment regimens include multiple drugs from the same class with several combinations of drugs co-formulated in fixed dosage form. Worldwide 2005 sales for the eight approved NRTIs, plus four approved NRTI co-formulations, totaled approximately $4.3 billion. Worldwide 2005 sales for the three approved NNRTIs and the nine approved PIs totaled approximately $1.0 billion and $2.2 billion, respectively.
Because we believe that the most important problem in treating HIV is the emergence of viral strains that are resistant to currently approved drugs, our proprietary discovery technologies focus on novel targets in the virus life cycle, including virus maturation and virus fusion. Our primary aim is to develop small-molecule oral drugs that treat HIV by addressing these novel targets.
Our HIV Programs
Bevirimat
Bevirimat is a once-daily oral small-molecule HIV drug candidate in Phase 2 clinical testing. It is the first in a new class of drug candidates that works by a novel mechanism of action called maturation inhibition that is different from the mechanism of any approved drugs or other drugs known by us to be in development. This new target for HIV drugs was discovered by Panacos scientists and their academic collaborators. Maturation inhibition occurs at the end of the virus life cycle as newly formed HIV matures into infectious virus particles. Bevirimat blocks a key step in the processing of a viral core protein called capsid, so that following bevirimat treatment, virus particles released from cells are immature and non-infectious. Preclinical studies have shown that bevirimat retains full activity against virus strains resistant to currently approved drugs, is effective in an animal model of HIV infection and should be suitable for use in combination therapy with other drugs. Based on currently available clinical data, we believe that bevirimat has the potential to play an important role in treating both treatment-experienced HIV patients and patients previously untreated for the disease.
Phase 2a Bevirimat Clinical Trials
In 2005, we announced the completion and results of a Phase 2a clinical trial of bevirimat. The trial met its primary endpoint by demonstrating a statistically significant reduction in the viral load compared to placebo (p<0.0001 at the highest oral solution dose of 200mg once daily). The median reduction in viral load at this dose was 1.050 log 10 , or a 91% decrease.
In the randomized, double-blind, placebo-controlled Phase 2a trial, performed at leading academic centers in the U.S., bevirimat at one of four doses (25mg, 50mg, 100mg or 200mg) or placebo (six to eight patients per group) was administered orally in a liquid formulation once daily for ten days to HIV-infected patients who were not on other antiretroviral therapy during the trial and for at least the previous 12 weeks. The primary endpoint was viral load reduction on Day 11. Secondary endpoints included safety, tolerability and pharmacokinetics.
At the 50mg, 100mg and 200mg oral solution doses, bevirimat treatment for ten days resulted in statistically significant reductions in viral load compared to placebo, with decreases of up to 1.78 log 10 , or 98%, in individual patients. The reductions in viral load and associated statistics are given in the following table:
Day 11 Median Viral Load Reductions in Phase 2a Study of Bevirimat
| Dose in Liquid Formulation |
Total Patients/Patients |
Log10 Change |
% Change |
P-Value** | ||||
| Placebo | 8/2 | +0.085 | +6% | — | ||||
| 25 mg | 6/4 | +0.046 | +12% | Not significant | ||||
| 50 mg | 6/3 | -0.170 | -32% | 0.0189 | ||||
| 100 mg | 6/1 | -0.483 | -67% | 0.0037 | ||||
| 200 mg | 7***/3 | -1.050 | -91% | <0.0001 |
Reduction in viral load compared to placebo was seen in patients previously treated for HIV infection, as well as in previously untreated patients. Read together, these data indicate that bevirimat has potent antiviral activity. Based on the observed relationship between administered dose and the extent of resulting antiviral activity, we believe that higher doses or longer dosing may further increase the efficacy of bevirimat treatment.
Genetic analysis of HIV by population sequencing in all patients pre- and post-treatment showed no evidence of the development of resistance to bevirimat, the same result as seen previously in a single dose Phase 1/2 study with bevirimat. All doses were observed to be well tolerated with no major (Grade 3 or 4) laboratory abnormalities. All adverse experiences were mild or moderate and no dose-limiting toxicity was identified. One moderate adverse event was classified as possibly related to drug and was categorized as serious based on the subject’s hospitalization for diagnostic tests. It involved a patient with a 5-year history of hypertension and recent poor medication compliance who exhibited transient findings of a probable lacunar cerebrovascular accident, a type of stroke which is a known complication of hypertension.
Phase 2b Bevirimat Clinical Trials
In June 2006, we initiated a Phase 2b trial of bevirimat at multiple clinical sites in the U.S. We are enrolling patients failing current therapy in this trial, who receive either placebo or bevirimat at one of several doses in conjunction with approved HIV drugs. Because we plan to dose patients with higher bevirimat drug levels than those achieved in our previous clinical studies, we have designed the Phase 2b trial as a dose escalation study in which a specific cohort of patients receive one dose level of bevirimat or placebo for two weeks on top of their failing drug regimen, a period of functional monotherapy. If bevirimat is observed to be safe and well tolerated during functional monotherapy at an initial dose level, the study may proceed to a subsequent cohort of patients dosed at higher bevirimat levels or placebo.
For cohorts in the study dosed with a formulation suitable for extended dosing, following the period of functional monotherapy, patients have their background drug regimens optimized on an individual basis by their physician taking into account individual drug resistance profile and treatment history. Patients treated with bevirimat who have greater than a 1log 10 reduction in viral load from baseline during functional monotherapy, as well as those on placebo, may continue on bevirimat or placebo, respectively, on top of their optimized background regimen for a further 10 weeks of treatment. After a total of 12 weeks of treatment, patients on bevirimat who maintain a 1log 10 reduction in viral load from baseline are eligible for continued dosing with bevirimat under a rollover protocol. The primary objective of this trial is to determine an appropriate dose of bevirimat for pivotal clinical trials. The primary efficacy endpoint of the study is viral load reduction after two weeks of functional monotherapy. Additional endpoints of this trial include safety after 2 weeks and, for cohorts with extended dosing, safety and viral-load reduction after 12 weeks of dosing.
In December 2006, we announced preliminary results from the first cohort of the Phase 2b trial of bevirimat, which studied a 400mg bevirimat dose comprising eight 50mg tablets, a formulation that we had developed specifically for this trial. The results of this cohort confirmed the antiviral activity of bevirimat shown in previous studies. In the first cohort, however, the bevirimat levels in the blood or plasma concentrations were lower than we had expected based on a previous study of the oral bioavailability of the 50mg tablets, suggesting that the tablet formulation used in this cohort did not deliver the drug as expected.
We chose the initial Phase 2b dose of 400 mg of bevirimat tablets based on an earlier clinical bioavailability study that had predicted that the plasma concentrations would be comparable to the highest (200 mg) dose of the oral solution used in the Phase 2a trial. Instead, both the plasma concentrations and the antiviral response observed in the 400 mg tablet cohort were similar to the 100 mg Phase 2a oral solution dose. Overall, we believe the data from the first cohort are consistent with the relationship between plasma concentrations of bevirimat and antiviral response that we saw in prior trials. There was no evidence of bevirimat resistance development by population sequencing of patient viruses following functional monotherapy, similar to the lack of resistance development seen in the Phase 2a study. During the initial 15 day dosing period for the first cohort and during
subsequent ten-week bevirimat dosing of four patients from the first cohort, there were no reports of drug-related serious adverse events or withdrawals due to adverse events. These data continue to confirm the good safety and tolerability profile of bevirimat found in previous studies. We believe these results support going to higher doses with alternative formulations with the aim of generating greater responses.
Based on the results obtained from the first cohort, we have agreed to a revised trial design with the FDA which will enable us to continue bevirimat dose escalation in the Phase 2b trial while we continue to develop an optimized formulation of bevirimat for late-stage development and commercialization. The next cohorts in Phase 2b will test the efficacy of bevirimat in treatment-experienced patients failing current therapy, at increasing doses using the oral liquid formulation which was utilized in the Phase 2a trial. Phase 2b dose escalation with the liquid will involve 14-day functional monotherapy similar to the first Phase 2b cohort, except that patients will not continue on to extended dosing. Dosing of the next cohort will be initiated at 250 mg of the oral solution once daily, a higher dose than previously studied in multiple dose trials. Subsequent cohorts will escalate in dose by 50 mg per cohort following review of the safety and antiviral response from each preceding cohort by the Company and the FDA.
After escalating to the most effective doses of bevirimat, we plan to dose one or more cohorts for a three month period using an optimized formulation suitable for pivotal clinical trials. We are working on new tablet formulations for late-stage development and commercialization. Based on our formulation development work and our dose escalation plan, we believe we will be able to initiate pivotal trials of bevirimat in 2008.
Other Bevirimat Clinical Trials
We also evaluated bevirimat in two drug interaction clinical studies in order to study the possible effects of co-administration of the drug with ritonavir or atazanavir, which are commonly prescribed for the treatment of HIV patients. Consistent with ongoing FDA guideline development related to drugs that, like bevirimat, are metabolized by an enzymatic process, called glucuronidation, the FDA recommended that we complete these studies prior to initiation of the Phase 2b trial. We completed these two studies in 2006. Analysis of the results of the atazanavir interaction study indicates that bevirimat has no detectable effect on atazanavir-induced hyperbilirubinemia, a condition known to arise from atazanavir administration that can result in jaundice. The study results also indicated that neither bevirimat nor atazanavir affected levels of the other drug in the blood. Analysis of the results of the ritonavir interaction study indicated that the 100 mg twice daily dose of ritonavir most commonly used in clinical practice to boost levels of most co-administered protease inhibitors reduced plasma exposures of bevirimat by approximately 17%, while a less commonly used ritonavir dose (200 mg twice daily) used primarily to boost levels of co-administered tipranavir reduced bevirimat plasma levels by approximately 31%. Based on this study, we do not believe that the effect of ritonavir on bevirimat plasma levels is likely to be clinically significant, and, with the agreement of the FDA, have not adjusted bevirimat dosing in the Phase 2b study when used in combination with ritonavir.
A previous Phase 1/2 clinical trial indicated that a single oral dose of bevirimat has antiviral activity in HIV-infected patients, including individuals infected with drug-resistant strains. In this study, bevirimat at one of three doses (75mg, 150mg or 250mg; six patients per group) or placebo (six patients) was administered in a single oral solution dose to HIV-infected patients who were not on other antiretroviral therapy during the study and for at least the previous four weeks.
At the 150mg and 250mg doses, a single oral solution dose of bevirimat resulted in statistically significant reductions in viral load compared to placebo at multiple time points following dosing. A decrease in viral load greater than 0.3 log 10 was seen in eight of twelve patients receiving these doses and a decrease of greater than 0.5 log 10 was seen in five of these patients, of which three patients saw a decrease of approximately 0.7 log 10 .
Single dose and multiple dose Phase 1 studies of bevirimat were also performed in uninfected volunteers. In these studies, bevirimat was well tolerated, with good oral bioavailability and favorable pharmacokinetics, including a long half life (approximately 60 hours), which supports a once-daily dosing regimen.
To date, we have dosed over 100 patients and subjects at the highest (200 mg) oral solution dose of bevirimat used in the Phase 2a study and have seen a good safety and tolerability profile for bevirimat with no indication of a relationship between adverse events and drug levels.
Bevirimat Preclinical Studies
We have completed preclinical studies that indicate that bevirimat is non-teratogenic, meaning that it did not cause fetal malformations in the animal models used in the study. We have also completed chronic toxicology studies of bevirimat in which bevirimat was given daily for six months to rats and daily for nine months to marmosets. Based on discussions with the FDA, we believe that we have completed all animal chronic dosing toxicology studies required prior to submission of a New Drug Application, or NDA, to the FDA. We expect to complete all of the required reproductive toxicology studies by the end of 2007. We plan to initiate the required carcinogenicity studies prior to submission of our NDA, consistent with the guidance we have received from the FDA.
Bevirimat Regulatory Plans
Based on previous preclinical and clinical studies of bevirimat, the FDA concurred with the study of doses higher than 200mg of the oral solution (or equivalent doses of other formulations) in the Phase 2b trial using a dose escalation methodology in treatment-experienced patients who are failing current therapy, without need for additional animal toxicology studies. The FDA has granted Fast Track designation to bevirimat. Fast Track designation may be granted to a new drug when the FDA determines that the specific indication for which the drug is being studied is serious or life-threatening and that the drug demonstrates the potential to address unmet medical needs for that indication. Developers of Fast Tracked products have greater access to FDA resources as well as eligibility for submission of a rolling NDA. In addition, Fast Track designation may make the NDA eligible for priority FDA review and/or accelerated approval.
Our Commercial Strategy
We plan to conduct Phase 3 clinical trials for bevirimat in both treatment-experienced and previously untreated HIV-infected patients. We plan to file initially for accelerated regulatory approval of bevirimat for therapy of treatment-experienced patients based on 24-week clinical trial data, followed by therapy of previously untreated patients based on 48-week or longer period data. Although we believe that we could successfully develop and market bevirimat without a strategic corporate collaboration, we are also exploring corporate collaboration opportunities to facilitate the development and commercialization of bevirimat. We intend to evaluate the relative merits of both approaches on an ongoing basis.
Our Other Research and Development Programs
We have established research and development programs designed to generate second- and third-generation maturation inhibition products. Second-generation maturation inhibitors are structural analogs of bevirimat while our third-generation program seeks to discover maturation inhibitors with different chemical structures. We believe that there is the potential for multiple marketed products in this class and are working to bring additional maturation inhibitors into clinical development.
Our second generation maturation inhibitor program is designed to identify analogs of bevirimat with different pharmacological properties with the aim of developing compounds that retain activity against HIV strains resistant to bevirimat, should these resistant strains appear in the clinic in the future. In 2006, we filed an IND for a second generation maturation inhibitor, PA-1050040, and have initiated Phase 1 clinical trials. In vitro studies with PA-1050040 have shown that the compound has a lower level of binding to human serum proteins than bevirimat, which may result in greater levels of free drug in patients dosed with the compound and thus the potential ability to inhibit HIV strains that exhibit partial bevirimat resistance. PA-1050040 retains wild-type
activity against one of two bevirimat-resistant HIV isolates that represents the most-frequently mutated amino acids found by in vitro experiments to date. These amino acids flank the HIV-1 capsid-SP1 cleavage site, and the results suggest PA-1050040 may bind differently than bevirimat to this region of the viral Gag protein, which is the target for maturation inhibitor activity. Our Phase 1 clinical study, currently underway, is designed to examine the safety and pharmacokinetics of PA-1050040 following single doses in humans. We plan to study additional second generation maturation inhibitors in single doses in humans in the future, then select one or more for multiple dose studies if their single dose safety and pharmacokinetics are promising.
Our third generation maturation inhibitor discovery program seeks to identify maturation inhibitors with different chemical structures from bevirimat and the second generation program. We are actively screening compounds to identify third generation maturation inhibitors using our novel, proprietary, drug screening assay.
We also have a research and development program focused on the initial step in the HIV virus life cycle, fusion of the HIV virus to human cells. Fusion inhibition is a novel target for oral drug development. The only approved HIV fusion inhibitor, Fuzeon, is a protein drug which is expensive to manufacture and is administered by injection. Our scientists have developed proprietary drug screening technology to identify inhibitors of virus fusion Our assay identifies compounds that inhibit the fusion process by flocking conformational changes, or alterations in molecular shape, in the HIV surface proteins that drive the fusion process. Using this approach, our scientists have identified several structurally distinct families of small molecules that specifically inhibit HIV-1 infection, some with very high (nanomolar) potency. Our experiments indicate that these fusion inhibitors have a unique molecular target within the viral surface proteins, distinct from that of Fuzeon. This is consistent with the finding that our compounds have activity against most Fuzeon-resistant HIV strains, a characteristic which may provide additional clinical utility. These compounds are currently being optimized with the goal of generating an oral drug candidate suitable for clinical testing.
Intellectual Property
We actively seek to protect the proprietary technology that we consider important to our business, including compounds, formulations and their methods of use. In addition to seeking patent protection in the U.S., we and our collaborators generally file patent applications in European countries and additional foreign countries, including Australia, Canada and Japan, on a selective basis. We also rely upon trade secrets and contracts and confidentiality agreements to protect our proprietary information. We have acquired, and continue to acquire, assignments, options and licenses to patents and applications from our collaborators.
Currently, our patent estate in antiviral therapeutics includes nine issued U.S. patents and seventeen pending U.S. applications. We also maintain a separate docket of thirteen patent families claiming aspects of the INACTINE program, which had been under development by V.I. Technologies, Inc. prior to the merger. Each of the U.S. applications and patents has one or more corresponding foreign applications or patents.
Bevirimat is protected by patents and applications relating to the new chemical entity, crystal forms, specific salt forms, pharmaceutical compositions, synthetic processes and methods of treatment. We co-own the U.S. patent claiming the chemical entity bevirimat with the University of North Carolina at Chapel Hill, or UNC. This patent expires in 2015, subject to patent term extensions and regulatory marketing exclusivities. We have an exclusive worldwide license under this patent, on terms typical of an early stage academic collaboration, from UNC for all indications. Either of us may terminate the license upon customary terms included in the license agreement, including upon an uncured material default by the other party, as defined in the license agreement. Other applications could extend bevirimat patent exclusivity beyond 2025.
We have five additional families of U.S. applications, one of which is patented, relating to structurally distinct maturation inhibitors, including PA-1005040. One issued U.S. patent claims certain molecules that are derivatives of betulin and their use for treating HIV infections. This patent expires in 2019. We have a family of applications claiming methods of inhibiting viral maturation, as well as methods and compositions useful for
identifying inhibitors of viral maturation. These applications are co-owned with the U.S. Public Health Service, or PHS. In 2006, we entered into a license agreement with PHS which grants us exclusive rights to these applications.
In the fusion inhibitor area, we have an issued U.S. patent, expiring in 2021, claiming certain methods of identifying inhibitors of viral fusion to human cells. We also have a pending application claiming a current lead series of fusion inhibitor compounds.
We also maintain a number of additional patents and applications claiming other antiviral compounds, methods and pharmaceutical compositions relating to chemical scaffolds that are not presently the subject of research and development activity.
Competition
Our drug discovery and development activities face and will continue to face intense competition from organizations, such as pharmaceutical and biotechnology companies, as well as academic and research institutions and government agencies. Our major competitors include fully integrated pharmaceutical companies that have extensive drug discovery efforts and are developing novel small-molecule pharmaceuticals. We face significant competition from organizations that are pursuing pharmaceuticals that are competitive with our potential products. Many of these companies and institutions have substantially greater financial resources and greater experience in discovering and developing drugs than we do. As a result, our competitors may succeed in obtaining patent protection, completing development programs, obtaining regulatory approval or commercializing products before we do.
Bevirimat, other maturation inhibitors we may develop and any fusion inhibitors we may develop will compete with numerous existing therapies for HIV. These include:
•
oral NRTIs sold by Gilead, GlaxoSmithKline, Bristol-Myers Squibb and Roche, •
oral NNRTIs sold by Pfizer, Bristol-Myers Squibb and Boehringer Ingelheim, •
oral PIs sold by Abbott, Bristol-Myers Squibb, Pfizer, Merck, GlaxoSmithKline, Johnson & Johnson, Roche and Boehringer Ingelheim and •
an injectable fusion inhibitor sold by Roche and Trimeris. In addition, a number of NRTIs, NNRTIs and PIs are currently under development, and these product candidates may compete with our product candidates.
A number of other novel mechanism approaches to treating HIV have resulted in potentially competing products that are currently in development, including:
•
integrase inhibitors, •
entry inhibitors, including CCR5 and CXCR4 inhibitors and CD4 receptor antagonists and •
fusion inhibitors. Our product candidates will face competition from approved products, as well as products under development, based on a number of factors including efficacy, safety, dosing convenience, price, patient compliance, patent protection, reimbursement and marketing. Some companies, including several multinational pharmaceutical companies, are simultaneously marketing several different drugs, sometimes in convenient fixed dosed combinations, or developing combination therapies that may enhance their market position.
Collaborations
As noted above, we co-own the U.S. patent protecting the chemical entity bevirimat with UNC. This patent expires in 2015. In 2003, we entered into an exclusive worldwide license with UNC for all indications under this patent, in consideration for which we issued approximately 54,000 shares of common stock to UNC and have obligations to pay UNC up to a total of $290,000 per licensed product on the achievement of specified milestones. We also have royalty and sublicense payment obligations to UNC on terms typical of an early stage academic collaboration. Either of us may terminate the license upon customary terms contained in the license agreement, including upon an uncured material default by the other party, as defined in the license agreement.
Manufacturing
We have no commercial–scale manufacturing facilities for our antiviral products. For bevirimat, and for any other antiviral products we may develop, we plan to establish relationships with third-party suppliers to manufacture sufficient quantities of our product candidates to undertake clinical trials and to manufacture sufficient quantities of any products that are approved for commercial sale. If we are unable to contract for large scale manufacturing with third parties on acceptable terms for our future antiviral products and are unable to develop manufacturing capabilities internally, our ability to conduct large-scale clinical trials and to meet customer demand for commercial products would be adversely affected. We have arranged for the manufacture of all bevirimat bulk drug substance used to date in clinical and animal toxicology studies through a single contract manufacturing and development company, Boehringer Ingelheim Chemicals, Inc. We have been developing all of our liquid and tablet formulations of bevirimat for clinical and commercial use through third-party contract manufacturers.
Government Regulation
Our ongoing research and development activities and any manufacturing and marketing of our potential small-molecule products to treat viral diseases are subject to extensive regulation by numerous governmental authorities in the U.S. and other countries. Before marketing in the U.S., any drug we develop must undergo rigorous preclinical testing and clinical trials and an extensive regulatory clearance process conducted by the FDA under the U.S. Food, Drug and Cosmetic Act. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of these products. None of our drug candidates has, to date, been submitted for approval for sale in the U.S. or any foreign market. The regulatory review and approval process, which includes preclinical testing and clinical trials of each drug candidate, is lengthy, expensive and uncertain. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish a drug candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations in humans, we must submit to the FDA an IND for which the FDA does not require additional information. The steps required before a drug may be marketed in the U.S. include:
•
preclinical laboratory tests, animal studies and formulation studies; •
submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may commence; •
adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication; •
submission to the FDA of an NDA, which must be filed, and approved by the FDA; •
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current good manufacturing practices, or cGMP; and •
FDA review and approval of the NDA. Similar requirements exist within many foreign agencies as well. The time required to satisfy FDA requirements or similar requirements of foreign regulatory agencies may vary substantially based on the type, complexity and novelty of the product or the targeted disease.
Preclinical testing includes laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions about issues, such as the conduct of the trials as outlined in the IND. In the latter case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND and each trial must be reviewed and approved by an independent ethics committee or institutional review board, or IRB, of participating clinical sites before it can begin.
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Phase 1 usually involves the initial introduction of the investigational drug into healthy volunteers to evaluate its safety, dosage tolerance, absorption, metabolism, distribution and excretion, and, if possible, to gain an early indication of its effectiveness. Phase 2 usually involves trials in a limited patient population to:
•
evaluate dosage tolerance and optimal dosage; •
identify possible adverse effects and safety risks; and •
evaluate and gain preliminary evidence of the efficacy of the drug for specific indications. Phase 3 trials usually further evaluate clinical efficacy and safety by testing the drug in its final form in an expanded patient population, providing statistical evidence of efficacy and safety and providing an adequate basis for physician labeling. More than one formulation of the drug may be used during the course of clinical studies with Phase 1 clinical bioavailability studies being required for the introduction of a new formulation into the clinical trial program. We cannot guarantee that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within any specified period of time, if at all. Furthermore, we or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.
Additional testing (Phase 4) may be conducted after FDA approval for marketing is granted and would be designed to evaluate alternative utilizations of drug products prior to their being marketed for such additional utilizations, as well as to test for complications resulting from long-term exposure not revealed in earlier clinical testing.
Clinical trials must meet requirements for IRB oversight, informed consent and good clinical practices. Clinical trials must be conducted under FDA oversight. Before receiving FDA clearance to market a product, we must demonstrate that the product is safe and effective for the patient population that will be treated. If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which the product is safe and effective, as demonstrated through clinical trials. Marketing or promoting a drug for an unapproved indication is prohibited. Furthermore, clearance may entail ongoing requirements for post-marketing studies. Even if this regulatory clearance is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA. Discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on this product, manufacturer or facility, including costly recalls or withdrawal of the product from the market.
The length of time and related costs necessary to complete clinical trials varies significantly and may be difficult to predict. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination of our clinical trials, or cause the costs of these trials to increase, include:
•
slow patient enrollment due to the nature of the protocol, the proximity of patients to clinical sites, the eligibility criteria for the study, competition with clinical trials for other drug candidates or other factors; •
inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring clinical trials; •
delays in approvals from a study site’s IRB; •
longer than anticipated treatment time required to demonstrate effectiveness or determine the appropriate product dose; •
lack of sufficient supplies of the drug candidate for use in trials; •
adverse medical events or side effects in treated patients; and •
lack of bioavailability of the formulation being tested or lack of effectiveness of the drug candidate being tested. Any drug is likely to produce some toxicities or undesirable side effects in animals and in humans when administered at sufficiently high doses and/or for sufficiently long periods of time. Unacceptable toxicities or side effects may occur at any dose level, and at any time in the course of animal studies designed to identify unacceptable effects of a drug candidate, known as toxicological studies, or in clinical trials of our potential products. The appearance of any unacceptable toxicity or side effect could cause us or regulatory authorities to interrupt, limit, delay or abort the development of any of our drug candidates, and could ultimately prevent their marketing clearance by the FDA or foreign regulatory authorities for any or all targeted indications.
The FDA’s Fast Track program is intended to facilitate the development and expedite the review of drug candidates intended for the treatment of serious or life-threatening diseases and that demonstrate the potential to address unmet medical needs for these conditions. Under this program, the FDA can, for example, review portions of an NDA for a Fast Track product before the entire application is complete, thus potentially beginning the review process at an earlier time. The FDA has granted Fast Track designation to bevirimat. We may seek to have some of our current or future drug candidates designated as Fast Track products, with the goal of reducing the development and review time.
We cannot guarantee that the FDA will grant any of our future requests for Fast Track designation, that any Fast Track designation would affect the time of review or that the FDA will approve the NDA submitted for any of our drug candidates, whether or not Fast Track designation is granted. Additionally, FDA approval of a Fast Track product can include restrictions on the product’s use or distribution (such as permitting use only for specified medical procedures or limiting distribution to physicians or facilities with special training or experience). Approval of Fast Track products can be conditioned on additional clinical trials after approval.
FDA procedures also provide for priority review of NDAs submitted for drugs that, compared to currently marketed products, offer a significant improvement in the treatment, diagnosis or prevention of a disease. The FDA seeks to review NDAs that are granted priority status more quickly than NDAs given standard status. The FDA’s stated policy is to act on 90% of priority NDAs within six months of receipt. Although the FDA historically has not met these goals, the agency has made significant improvements in the timeliness of the review process. We anticipate seeking priority review of bevirimat, and may do so with regard to some of our other current or future drug candidates. We cannot guarantee that the FDA will grant priority review status in any instance, that priority review status would affect the actual time of review or that the FDA will ultimately approve the NDA submitted for any of our drug candidates, whether or not priority review status is granted.
We and our contract manufacturers are also required to comply with applicable FDA cGMP regulations. cGMP include requirements relating to quality control and quality assurance as well as to corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the applicable regulatory authorities. These facilities, whether our own or our contract manufacturers, must be approved before FDA will approve an NDA for a product that will be manufactured at a particular facility. We or our contract manufacturers may not be able to comply with applicable cGMP regulations and FDA or other regulatory requirements. If we or our contract manufacturers fail to comply, we or our contract manufacturers may be subject to legal or regulatory action, such as suspension of manufacturing, seizure of product, or voluntary recall of product. Furthermore, continued compliance with applicable cGMP regulations will require continual expenditure of time, money and effort on the part of us or our contract manufacturers in the areas of production and quality control and record keeping and reporting in order to ensure full compliance.
Outside the U.S., our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Union, or EU, regional registration procedures are available to companies wishing to market a product in more than one EU member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization may be granted. This foreign regulatory approval process involves all of the risks associated with FDA approval discussed above and may also include additional risks.
Company Background
In March 2005, V.I. Technologies, Inc. merged with Panacos Pharmaceuticals, Inc., a company incorporated in 1999 as a subsidiary of the public company Boston Biomedica Inc. and spun out as an independent private company in 2000. For accounting purposes, the merger was considered a “reverse merger” under which Panacos is considered the acquirer of V.I. Technologies. Accordingly, all financial information prior to the merger date reflects the historical financial results of the former Panacos. The former Panacos was founded to develop small-molecule therapeutics for HIV and other serious viral infections. Following the merger, the combined company was known as V.I. Technologies, Inc. until the name was changed to Panacos Pharmaceuticals, Inc. in August 2005. Prior to the March 2005 merger, the INACTINE ™ Pathogen Reduction System for red blood cells was V.I. Technologies’ principal development stage program. We have since terminated the development program for the INACTINE ™ system.
We were incorporated under the laws of the State of Delaware in December 1992. Our principal executive offices are located at 134 Coolidge Avenue, Watertown, Massachusetts 02472, and our telephone number is (617) 926-1551. We have research and development facilities in Gaithersburg, Maryland.
Employees
As of December 31, 2006, we had 43 full-time employees, 11 of whom hold Ph.D., Pharm.D. or M.D. degrees. As of that date, 26 full-time employees were engaged in research and development and 17 were engaged in general and administrative activities. We believe that we have good relations with our employees. None of our employees is covered by a collective bargaining agreement.
Research and Development
Since inception, we have incurred significant research and development expenses. Research and development expenses for fiscal years 2006, 2005 and 2004 were approximately $24.5 million, $19.8 million and $11.1 million, respectively.
Available Information
Our website address is www.panacos.com. The contents of our website are not part of this annual report. We make available on our website our annual reports on Form 10-K, our quarterly reports on Form 10-Q, any current reports on Form 8-K and any amendments to those reports as soon as reasonably practicable after this material is electronically filed with or furnished to the U.S. Securities and Exchange Commission, or SEC. In addition, we provide paper copies of our filings free of charge upon request.
Item 1A. RISK FACTORS
Risks Relating to Our Company
We have historically incurred operating losses, and we expect that these losses will continue.
We have historically incurred substantial operating losses due to our research and development activities and expect these losses to continue for the foreseeable future. As of December 31, 2006, we had an accumulated deficit of approximately $122.6 million. Net losses for the fiscal year ended December 31, 2006 were $38.1 million. Our fiscal year 2005 and 2004 net losses were $59.1 million and $12.0 million, respectively. We intend to continue research and development activities with respect to our product candidates. We expect to expend significant amounts on research and development programs, including those relating to bevirimat. The bevirimat clinical trial program is being conducted in various geographic locations, and clinical studies may occur in other geographic markets. In addition, we expect that, as bevirimat progresses through the late-stage Phase 2 trial currently underway and into planned Phase 3 trials, bevirimat development expenses will increase. In parallel to the bevirimat clinical development activities, we expect increased expenditures for pre-commercial activities, such as planning for, and preliminary investments in, the scale-up of manufacturing of the drug, and marketing and distribution of the drug both in the U.S. and internationally. As our second generation maturation inhibitor program and our fusion inhibitor program move into clinical trials, we also expect increased expenditures in those programs. We will actively seek new financing from time to time to provide financial support for our activities. We also plan to evaluate potential development and commercial collaborations with strategic partners, which may fund part or all of the late-stage clinical development of bevirimat. These activities will take time and expense, both to identify the best partners and reach agreement on terms, and to negotiate and sign definitive agreements. At this time, we are not able to assess the probability of success in our financing efforts or in identifying suitable commercial collaborators or the terms, if any, under which we may secure financial support, obtain revenues or reduce research and development expenses as a result of any collaborations with strategic partners. We expect to continue to incur operating losses for the foreseeable future.
We will need additional capital in the future, but our access to such capital is uncertain.
Our current resources are insufficient to fund all of our planned development and commercialization efforts. As of December 31, 2006, we had cash, cash equivalents and marketable securities of approximately $60.8 million. During the fourth quarter of 2005, we closed a follow-on public offering, raising approximately $81.0 million in net proceeds, and issued 8.25 million shares of our common stock. At our current level of expenditure, we believe that our cash resources are adequate to meet our requirements through 2008. Our capital needs will depend on many factors, including our research and development activities, the scope and timing of our clinical trial programs, the timing of regulatory approval for our products under development and the successful commercialization of our products. Our needs may also depend on the magnitude and scope of these activities, the progress and the level of success in our clinical trials, the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights, competing technological and market developments, changes in or terminations of existing collaboration and licensing arrangements, the establishment of new collaboration and licensing arrangements and the cost of manufacturing scale-up and development of marketing activities, if undertaken by us. We do not have committed external sources of funding. If adequate funds are not available, we may be required to:
•
delay, reduce the scope of, or eliminate one or more of our research and development programs; •
obtain funds through arrangements with collaboration partners or others that may require us to relinquish rights to technologies, product candidates or products that we would otherwise seek to retain in order to develop or commercialize them ourself; •
license rights to technologies, product candidates or products on terms that are less favorable to us than might otherwise be available; or •
seek a buyer for all or a portion of our business, or wind down our operations and liquidate our assets. We intend to actively seek new financing from time to time to provide financial support for our activities. We have an effective shelf registration statement on file with the SEC pursuant to which we may sell up to $113 million of our common stock and warrants at our discretion, subject to certain limits under federal securities laws and the rules of the NASDAQ Global Market. If we raise additional funds by issuing additional stock, further dilution to our stockholders may result, and new investors could have rights superior to existing stockholders. If funding is insufficient at any time in the future, we may be unable to develop or commercialize our products, take advantage of business opportunities or respond to competitive pressures, which could have a material adverse effect on our business.
Our success will depend on the products which we are and will be developing, but may be unable to commercialize due to numerous factors, including clinical trial outcomes and regulatory requirements imposed on both us and our collaborators and customers.
The success of our business will depend on our successful development and commercialization of our products. Successful commercialization of our products under development depends, in significant part, on our ability to:
•
complete their development in a timely fashion; •
demonstrate their safety and efficacy in clinical trials; •
obtain and maintain patents or other proprietary protections; •
obtain and maintain required regulatory approvals; •
implement efficient, commercial-scale manufacturing processes; •
obtain approval for reimbursement under health care systems; and •
establish and maintain effective development, sales, marketing, and distribution operations and collaborations. Bevirimat is our only product that has reached Phase 2 clinical trials. Bevirimat has not been approved by the FDA for marketing in the U.S. or by regulatory authorities in other countries. The process of obtaining regulatory approvals is lengthy, expensive and uncertain. Satisfaction of pre-market approval or other regulatory requirements of the FDA, or similar requirements of non-U.S. regulatory agencies, typically takes several years, depending upon the type, complexity, novelty and intended purpose of the product. During the fiscal year ended December 31, 2006, we spent approximately $24.5 million on research and development. During fiscal years 2005 and 2004, we spent approximately $19.8 million and $11.1 million on research and development, respectively.
To obtain regulatory approvals for the commercial sale of our product candidates, we or our collaborators must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective. We or our collaborators may delay our development programs or suspend or terminate clinical trials at any time for various reasons, including regulatory actions by the FDA or foreign regulatory agencies, actions by institutional review boards, failure to comply with good clinical practice requirements, failure to demonstrate clinical efficacy and concerns regarding health risks to the subjects of clinical tests. In 2005, we discontinued our development of a product, the INACTINE ™ Pathogen Reduction System, which had been in Phase 3 clinical trials, due to concerns that we would not be successful in addressing certain clinical and regulatory considerations in an economically feasible manner within a commercially reasonable time frame.
Delays in our clinical development program or in approval from government authorities will lengthen our product development time, increase our product development costs and may impair our ability to commercialize our products and allow competitors to bring products to market before we do. For example, in December 2006, we announced results of the first cohort of our Phase 2b study which showed bevirimat plasma concentrations lower than we anticipated, suggesting that the tablet formulation used for the study did not provide the expected drug exposures. We believe that additional development work required as a result of this formulation issue may cause a delay of between three and twelve months in the initiation of bevirimat pivotal trials, although the delay could be longer than twelve months and the formulation issues may not be resolvable by us at all. We have agreed to a revised trial design with the FDA, which will enable us to continue bevirimat dose escalation in the Phase 2b trial while we continue to develop an optimized formulation of bevirimat for late-stage development and commercialization.
Even if our products receive approval for commercial sale, their manufacture, storage, marketing and distribution are and will be subject to extensive and continuing regulation in the U.S. by the federal government, especially the FDA, and state and local governments. The failure to comply with these regulatory requirements could result in enforcement action, including, without limitation, withdrawal of approval, which would materially harm our business. Later discovery of problems with our products may result in additional restrictions on the product, including withdrawal of the product from the market. Regulatory authorities may also require post-marketing testing, which can involve significant expenses. Additionally, governments may impose new regulations, which could further delay or preclude regulatory approval of our products or result in significantly increased compliance costs.
In similar fashion to the FDA, foreign regulatory authorities require demonstration of product quality, safety and efficacy prior to granting authorization for product registration, which allows for distribution of the product for commercial sale. International organizations, such as the World Health Organization, and foreign government agencies, including those in the Americas, Middle East, Europe, and Asia and the Pacific, have laws, regulations and guidelines for reporting and evaluating the data on safety, quality and efficacy of new drug products. Although most of these laws, regulations and guidelines are very similar, each of the individual nations reviews all of the information available on the new drug product and makes an independent determination with respect to product registration.
We cannot assure you that our efforts to develop and commercialize bevirimat, which is still in Phase 2 clinical trials, will succeed.
Bevirimat is our only product that has completed proof-of-concept Phase 2a clinical trials. As a result, any investment in us depends heavily on our efforts to develop and commercialize bevirimat. Bevirimat is still in Phase 2 clinical trials and involves a high degree of development, technical, regulatory and other risks. In our Phase 2b clinical trial, we are studying bevirimat at doses higher than those we have previously studied in clinical trials. We have performed pre-clinical single and multiple dose toxicity studies in animals. In these studies, we have not observed side effects that would prevent our planned testing of bevirimat. Adverse events were observed in marmosets, a species of monkey, and in rats at doses significantly higher than those planned for the Phase 2b clinical trial. The absence of particular side effects in animal studies does not mean that these side effects will not be observed in humans. The results from pre-clinical studies and early clinical trials do not ensure that results obtained in later-stage clinical trials of bevirimat will be satisfactory to the FDA or foreign regulatory authorities. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.
We initiated a Phase 2b trial of bevirimat at multiple clinical sites in the U.S. during the second quarter of 2006, based on a design agreed on with the FDA. Completion of clinical trials may be delayed by slow initiation of clinical sites, slower than anticipated patient enrollment, negative or inconclusive clinical results or other adverse or unanticipated circumstances occurring during the clinical trials. Therefore, we cannot ensure that clinical trials will demonstrate sufficient safety and efficacy to obtain required marketing approvals on a timely basis, if at all.
In our Phase 2b clinical trial, we have provided, and may continue to provide, bevirimat to HIV patients in a tablet or other dosage form that we have not previously used in clinical trials. Previous clinical studies in HIV patients used an orally administered liquid solution formulation of bevirimat. In the results of the first cohort of the Phase 2b study announced in December 2006, bevirimat plasma concentrations were lower than we anticipated, suggesting that the tablet formulation used for that study did not deliver the drug as expected. Development of an acceptable dosage form that adequately delivers bevirimat to patients on extended dosing may cause delays or may not be possible. Failure to develop a solid dosage form may limit the market for bevirimat.
Positive results from pre-clinical and early clinical trials should not be relied upon as evidence that later or larger-scale clinical trials will succeed. Initial clinical trials of bevirimat have been conducted only in small numbers of patients for short periods of dosing that may not fully represent the diversity present in larger populations infected with HIV or the results of long-term drug administration. Therefore, the limited results we obtained may not predict results from more prolonged studies in larger numbers of patients drawn from more diverse populations. These initial trials were not designed to assess the long-term efficacy of bevirimat. We will be required to demonstrate through larger-scale clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely high rate of attrition from the failure of drug candidates proceeding through clinical trials. If bevirimat or any other product candidate fails to demonstrate sufficient safety and efficacy in any clinical trial, we would experience potentially significant delays in, or could be required to abandon development of that product candidate. If we delay or abandon our development efforts related to bevirimat, we may not be able to generate sufficient revenues to become profitable, and our reputation in the industry and in the investment community would likely be significantly damaged, each of which would cause the stock price to decrease significantly.
If we fail to establish relationships with strategic collaborators and distributors, we may be unable to market our products.
We intend to pursue strategic collaborations as a possible way to obtain development, sales, marketing and distribution support and financial support in the development of our products. We may require marketing and distribution partners for the commercialization of our products. If we fail to develop new strategic partnerships for these purposes, the failure could delay or possibly inhibit the commercialization of our products.
For example, in order to effectively market our products outside the U.S., we may need to secure foreign marketing partners who have a strong presence in such foreign markets. Securing new corporate collaborators is a time-consuming process, and we cannot guarantee that the negotiations with new collaborators will yield positive results. Even if we find additional corporate collaborators to assist in the commercialization of existing or new product candidates, the terms of the arrangements may not be favorable or acceptable to us.
If we do not successfully distinguish and commercialize our product candidates, we may be unable to compete successfully or to generate revenue sufficient to sustain our operations.
The biotechnology industry, including the fields of therapeutic products to treat HIV and serious infections, is highly competitive and subject to significant and rapid technological change. Accordingly, our success will depend, in part, on our ability to respond quickly to such change through the development and introduction of new products.
Many of our competitors or potential competitors have substantially greater financial and other resources than we have, greater experience in conducting pre-clinical studies, clinical trials and other regulatory approval procedures, as well as in marketing their products. Major competitors in the market for HIV drugs include large, publicly-traded pharmaceutical companies, such as Abbott, GlaxoSmithKline, Bristol-Myers Squibb, Pfizer, Roche, Merck, Johnson & Johnson and Gilead, public biotechnology companies, such as Trimeris, Incyte, Progenics, Achillion, Avexa and Vertex, and private development stage companies, such as Pharmasset. If we or
our corporate partners commence commercial product sales, we or our corporate partners will be competing against companies with substantial and possibly greater marketing, selling and manufacturing capabilities.
Our ability to compete successfully against currently existing and future alternatives to our product candidates and systems, and competitors who compete directly with us in the biopharmaceutical industry will depend, in part, on our ability to:
•
attract and retain skilled scientific and research personnel; •
develop technologically superior products; •
develop competitively priced products; •
obtain patent or other required regulatory approvals for our products; •
be early entrants to the market; and •
manufacture, market and sell our products, independently or through collaborations. Third-party reimbursement policies may adversely affect our ability to commercialize and sell our products and services.
Our ability to successfully commercialize our products depends, in part, on the extent to which appropriate levels of reimbursement for our products and related treatments are obtained from government authorities, private health insurers, third party payers, and other organizations, such as managed care organizations, or MCOs. Any failure by doctors, hospitals and other users of our products or systems to obtain appropriate levels of reimbursement could adversely affect our ability to sell our potential products.
Federal legislation, enacted in December 2003, has altered the way in which physician-administered drug programs covered by Medicare are reimbursed, generally leading to lower reimbursement levels. The legislation also added an outpatient prescription drug benefit to Medicare, which became effective in 2006. These benefits are provided through private entities, which will attempt to negotiate price concessions from pharmaceutical manufacturers. These negotiations may increase pressures to lower prices. On the other hand, the drug benefit may increase the volume of pharmaceutical drug purchases, offsetting at least in part these potential price discounts. While the new law specifically prohibits the U.S. government from interfering in price negotiations between manufacturers and Medicare drug plan sponsors, some members of Congress are pursuing legislation that would permit de facto price controls on prescription drugs. In addition, the law triggers, for congressional consideration, cost containment measures for Medicare in the event Medicare cost increases exceed a certain level. These cost containment measures could include limitations on prescription drug prices. This legislation could adversely impact our ability to commercialize any of our products successfully.
Significant uncertainty exists about the reimbursement status of newly approved medical products and services. Reimbursement in the U.S. or foreign countries may not be available for any of our products, reimbursement granted may not be maintained, and limits on reimbursement available from third-party payers may reduce the demand for, or negatively affect the price of, our products. We anticipate that we will need to work with a variety of organizations to lobby government agencies for improved reimbursement policies for our products. However, we cannot guarantee that such lobbying efforts will take place or that they will ultimately be successful.
Our ability to successfully integrate the operations of V.I. Technologies, Inc. and Panacos following our merger in 2005 is uncertain and may involve additional costs.
V.I. Technologies, Inc. and Panacos, each of which previously operated independently, are in the process of completing integration of their businesses following the merger that was effected in March 2005. Problems in integrating purchasing and financial reporting could result in control issues, including unplanned costs. Management may have its attention diverted or additional costs may be incurred while trying to integrate the two companies, or consolidate or rationalize the two facilities. Our two facilities are located in Watertown,
Massachusetts and Gaithersburg, Maryland. Such diversion of management’s attention or difficulties in the transition process could have an adverse impact on us. Most of the employees in the merged company work at either the Watertown facility or the Gaithersburg facility. The management team of the combined company has experience in attracting and retaining the technical personnel that will represent the majority of employees in the combined company. However, no assurance can be given that the combined company will succeed in its efforts to integrate the combined companies’ operations successfully without additional costs.
If we are unable to protect our intellectual property, we may not be able to operate our business profitably.
Our success will depend on our ability to develop proprietary products and technologies, to obtain and enforce patents, to protect trade secrets, and to prevent others from infringing our proprietary rights. We have patents and patent applications that claim critical technologies, including new chemical compounds. Currently, our patent estate in antiviral therapeutics includes nine issued U.S. patents and seventeen pending U.S. applications. Each of the U.S. applications and patents has one or more corresponding foreign applications or patents. In addition, we have exclusive licenses to patents and patent applications, including certain jointly owned patents, which claim technologies and compounds critical to our present business endeavors. We also seek to protect our proprietary technology, in part, by entering into confidentiality agreements with our employees, consultants and contractors. Patents, pending patent applications and licensed patents may not afford adequate protection against competitors, and any pending patent applications now or hereafter filed by or licensed to us may result in patents not being issued or may result in the issuance of patents having narrowed claim scope in relation to the originally filed applications. In addition, certain aspects of our technology rely on patented inventions developed using university or U.S. government resources. The U.S. government or universities may have certain rights, as defined by law or applicable agreements, in such patents, and may choose to exercise such rights. Under the terms of a license agreement with UNC, we are an exclusive licensee of certain technologies, including patents and patent applications that relate to certain of our product candidates, including bevirimat. This license agreement imposes various development, commercialization and other obligations on us. If we fail to comply with these and other requirements, our license could convert from exclusive to non-exclusive or terminate entirely. Currently, we are in compliance with the terms of the license agreement, and we do not have any reason to believe that the license may be converted from exclusive status to non-exclusive status or be terminated. We cannot be certain that UNC’s, or any other third party’s, confidentiality agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others, disputes may arise as to the rights related to or resulting from the use of such intellectual property. In our agreements with contractors, we seek warranties that the intellectual property rights of third parties will not be infringed. In addition, the laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of the U.S. Patents involve complex legal and factual questions and, therefore, we cannot predict with certainty their enforceability.
One family of patent applications relating to mechanism of action, which claims methods of inhibiting viral maturation as well as methods and compositions useful for identifying inhibitors of viral maturation, is co-owned with the PHS. In 2006, we entered into a license agreement with PHS, which grants us exclusive rights to these applications. This agreement expires in 2011. At any point prior to the expiration of that agreement, we may negotiate a royalty-bearing license with PHS granting us exclusive rights to these patent applications for a longer term. Currently, we are in compliance with the terms of this agreement and we do not have any reason to believe that the license may be terminated. While one patent in this family has issued, we are not able to provide assurance that other applications in this family will issue into patents. We may not be able to reach agreement on license terms or extensions of the current agreement on an acceptable or timely basis with PHS.
We are a party to various license agreements that give us exclusive rights to use specified technologies applicable to research, development and commercialization of our product candidates, including bevirimat. The agreements pursuant to which such technology is used permit the licensors to terminate agreements in the event that certain
conditions are not met. If these conditions are not met and the agreements are terminated, our product development, research and commercialization efforts may be altered or delayed.
Patents or patent applications, if issued, may be challenged, invalidated or circumvented, or may not provide protection or competitive advantages against competitors with similar technologies. Furthermore, our competitors may obtain patent protection for other technology that could limit our ability to use our technology or commercialize products that we may develop. We may or may not be granted patent term extensions and regulatory marketing exclusivities. If the period of market exclusivity is shorter than we anticipate, the results of our operations would be adversely affected.
Litigation may be necessary to enforce patents issued or licensed to us, to protect trade secrets or know-how, or to determine the scope and validity of the proprietary rights of others. Litigation, opposition or interference proceedings could result in substantial additional costs and diversion of management focus. If we are ultimately unable to protect our technology, trade secrets or know-how, we may be unable to operate profitably. Although we have not been involved in any litigation and are not aware of any threatened litigation regarding patent issues or other intellectual property, or other related court challenges or legal actions, it is possible that we could be involved with such matters in the future.
If we are unable to operate our business without infringing upon the intellectual property rights of others, we may not be able to operate our business profitably.
Our success depends on our ability to operate without infringing upon the proprietary rights of others. We endeavor to follow developments in our field, and we do believe that we have freedom to operate with respect to our core technologies. To the extent that planned or potential products would infringe patents or other intellectual property rights held by third parties, we would need licenses under such patents or other intellectual property rights to continue development and marketing aspects of our products protected by those third party patents or other intellectual property rights. Any required licenses may not be available on acceptable terms, if at all. If we do not obtain such licenses, we may need to design around other parties’ patents or we may not be able to proceed with the development, manufacture or sale of our products.
Litigation may be necessary to defend against claims of infringement or to determine the scope and validity of the proprietary rights of others. Litigation, opposition or interference proceedings could result in substantial additional costs and diversion of management focus. If we are ultimately unsuccessful in defending against claims of infringement, our results of operations would be adversely affected.
Our success depends on the continued services and on the performance of our senior management and scientific staff.
The sudden and unexpected death of Dr. Samuel K. Ackerman, our former President and Chief Executive Officer, on June 14, 2006, caused some disruptions in our ordinary business activities and resulted in our making certain organizational adjustments in 2006. For example, Dr. Peyton J. Marshall, our Chief Financial Officer, also served as our Acting Chief Executive Officer until January 8, 2007 when we announced that Alan W. Dunton, M.D. had joined us as our Chief Executive Officer. In order to achieve our business objectives, we must identify, attract, retain and motivate personnel with experience in specific areas applicable to our technologies and product candidates. Organizational changes may result in turnover of senior management and scientific staff. We compete intensely for all of our personnel and we may be unable to achieve our personnel goals. Our failure to achieve any of these personnel goals or to retain other key members of senior management could seriously limit our ability to conduct our operations and achieve our business and financial objectives.
We use and generate hazardous materials in our research activities. Defending against any claims relating to the improper handling, storage, release or disposal of these materials could be time consuming and costly.
We are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. It is possible that we will be required in the future to incur significant costs to comply with environmental and health and safety regulations. The research and development activities to be undertaken by us involve the use of hazardous materials, including chemicals that may cause cancer, volatile solvents, radioactive materials and biological materials, including materials infected with various viruses, including the Human Immunodeficiency Virus, Human T-Cell Lyphotrophic Virus, and Simian Immunodeficiency Virus. In addition, our operations produce, and will continue to produce, hazardous waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standard prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our insurance limits and our cash resources. We have general liability insurance that covers our use of hazardous materials and chemicals. We have not been notified that we have been the subject of any investigation relating to the generation of hazardous materials in the past.
We may face exposure to product liability claims.
We may face exposure to product liability and other claims due to allegations that our products cause harm. These risks are inherent in the ongoing Phase 2 clinical trials relating to bevirimat as well as in other clinical trials of bevirimat, PA-1050040 and other second generation maturation inhibitors, fusion inhibitors or other products and in the testing, and future manufacturing and marketing of, our products. Although we currently maintain product liability insurance, such insurance may not be adequate, and we may not be able to obtain adequate insurance coverage in the future at a reasonable cost, if at all. If we are unable to obtain product liability insurance in the future at an acceptable cost or to otherwise protect against potential product liability claims, we could be inhibited in the commercialization of our products, which could have a material adverse effect on our business. We currently have a policy covering $10 million of product liability for our clinical trials. At present, none of our products are being sold by us or by a collaborator. The coverage will be maintained and limits reviewed from time to time as we progress to later stages of our clinical trials, initiate trials with different products and as the length of the trials and the number of patients enrolled in the trials changes.
Risks Relating to Our Stock
Our stock price is volatile, and you may not be able to resell your shares at a profit.
We first publicly issued common stock on June 11, 1998 at $120.00 (as adjusted for our March 14, 2005 1:10 reverse stock split) per share in our initial public offering. Between March 11, 2005 and March 1, 2007 the closing sale price has ranged from a high of $10.78 per share to a low of $2.49. The market price of our common stock could continue to fluctuate substantially due to a variety of factors, including:
•
quarterly fluctuations in results of operations; •
the announcement of new products or services by us or competitors; •
sales of common stock by existing stockholders or the perception that these sales may occur; •
adverse judgments or settlements obligating us to pay damages; •
negative publicity; •
loss of key personnel; •
developments concerning proprietary rights, including patents and litigation matters; and •
clinical trial or regulatory developments in both the U.S. and foreign countries. In addition, overall stock market volatility has often significantly affected the market prices of securities for reasons unrelated to a company’s operating performance. In the past, securities class action litigation has been commenced against companies that have experienced periods of volatility in the price of their stock. Securities litigation initiated against us could cause us to incur substantial costs and could lead to the diversion of management’s attention and resources, which could have a material adverse effect on our development programs and our financial position.
We have a large number of authorized but unissued shares of common stock, which our management may issue without further stockholder approval, thereby causing dilution of your holdings of our common stock.
As of March 1, 2007, there were approximately 497.1 million shares of authorized but unissued shares of our common stock. Our management will continue to have broad discretion to issue shares of our common stock in a range of transactions, including capital-raising transactions, mergers, acquisitions, for anti-takeover purposes, and in other transactions, without obtaining stockholder approval, unless stockholder approval is required for a particular transaction under the rules of NASDAQ, Delaware law, or other applicable laws. We currently have no specific plans to issue shares of our common stock for any purpose. However, if our management determines to issue shares of our common stock from the large pool of such authorized but unissued shares for any purpose in the future without obtaining stockholder approval, your ownership position would be diluted without your further ability to vote on that transaction.
The sale of a substantial number of shares of our common stock could cause the market price of our common stock to decline and may impair our ability to raise capital through additional offerings.
We currently have outstanding warrants to purchase an aggregate of 1.4 million shares of our common stock. The shares issuable upon exercise of these warrants have been registered for resale, and thus could be sold at any time following their issuance. These shares represent approximately 3% of the total number of shares of our common stock that are currently outstanding.
Sales of these shares in the public market, or the perception that future sales of these shares could occur, could have the effect of lowering the market price of our common stock below current levels and make it more difficult for us and our shareholders to sell our equity securities in the future.
Our executive officers, directors and holders of more than 5% of our common stock collectively beneficially own approximately 18% of our outstanding common stock as of March 1, 2007. Their beneficial ownership includes approximately 1.6 million shares of common stock issuable upon exercise of vested stock options that could become available for immediate resale if such options were exercised.
Sale or the availability for sale of shares of common stock by stockholders could cause the market price of our common stock to decline and could impair our ability to raise capital through an offering of additional equity securities.
Anti-takeover provisions may frustrate attempts to replace our current management and discourage investors from buying our common stock.
Certain provisions of our restated certificate of incorporation and restated by-laws, as well as the Delaware General Corporation Law, or the DGCL, reduce the power of stockholders generally, even those with a majority of the voting power, to remove incumbent directors and to fill vacancies on the Board of Directors without the support of the incumbent directors.
In addition, our restated certificate of incorporation and restated by-laws provide that stockholder action may not be effected without a duly called meeting. Our restated certificate of incorporation and restated by-laws also do
not permit our stockholders to call special meetings of stockholders. This effectively limits the ability of our stockholders to conduct any form of consent solicitation.
Provisions of the DGCL, our restated certificate of incorporation and restated by-laws could discourage a third party from attempting to acquire, or make it more difficult for a third party to acquire, control of us without approval of our Board of Directors, even if such acquisition were beneficial to other stockholders. Moreover, the provisions of the DGCL and our restated certificate of incorporation and restated by-laws relating to the removal of directors and the filling of vacancies on the Board of Directors preclude a third party from removing incumbent directors without cause and simultaneously gaining control of the Board of Directors by filling, with its own nominees, the vacancies created by removal. Such provisions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. Such provisions also allow the Board of Directors to authorize the issuance of preferred stock with rights superior to those of the common stock.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
