| ADVANCIS PHARMACEUTICAL CORP Item 1A Risk Factors There are a number of important factors that could cause our actual results to differ materially from those that are indicated by forward-looking statements |
| Those factors include, without limitation, those listed below and elsewhere herein |
| Risks Related to our Business We expect to incur losses for the foreseeable future and may never become profitable |
| From the date we began operations in January 2000 through December 31, 2005, we have incurred operating losses of approximately dlra111dtta4 million, including operating losses of approximately dlra34dtta0 million for the fiscal year ended December 31, 2005, dlra34dtta7 million for the fiscal year ended December 31, 2004, and dlra19dtta4 million for 17 _________________________________________________________________ [68]Table of Contents the fiscal year ended December 31, 2003 |
| Our losses to date have resulted principally from research and development costs related to the development of our product candidates, the purchase of equipment and establishment of our facilities and general and administrative costs related to our operations |
| We expect to incur substantial losses for the foreseeable future as a result of increases in our research and development costs, including costs associated with conducting preclinical testing and clinical trials, and regulatory compliance activities |
| Our chances for achieving profitability will depend on numerous factors, including success in: • developing and testing product candidates; • achieving milestones under our collaboration agreements; • receiving regulatory approvals; • developing proprietary antibiotic products; • commercializing our products; and • establishing our competitive position |
| Many of these factors will depend on circumstances beyond our control |
| We cannot assure you that we will ever become profitable |
| Substantially all of our product candidates are based on a finding that could ultimately prove to be incorrect, or could have limited applicability |
| Substantially all of our product candidates are based on our finding that bacteria exposed to antibiotics in front-loaded, rapid sequential bursts are eliminated more efficiently and effectively than those exposed to presently available treatment regimens |
| Ultimately, our finding may be incorrect, in which case our pulsatile drugs would not differ substantially from competing drugs and may be inferior to them |
| If these products are substantially identical or inferior to products already available, the market for our pulsatile drugs will be reduced or eliminated |
| Even if pulsatile dosing is more effective than traditional dosing, we may be unable to apply this finding successfully to a substantial number of products in the anti-infective market |
| Our preliminary studies indicate that pulsatile dosing may not provide superior performance for all types of antibiotics |
| Additionally, we have not conducted any studies with anti-viral or anti-fungal medications |
| If we cannot apply our technology to a wide variety of antibiotics or other anti-infectives, our potential market will be substantially reduced |
| Our delivery technology may not be effective, which would prevent us from commercializing products that are more effective than those of our competitors |
| Even if we are correct that pulsatile dosing is more effective than traditional dosing of antibiotics, our delivery technology must be effective in humans such that the pulsatile administration of drugs are at levels that prove effective in curing infections |
| If our PULSYS delivery technology is not effective in delivering rapid bursts of antibiotics, or is unable to do so at an appropriate concentration and we are not able to create an alternative delivery method for pulsatile dosing that proves to be effective, we will be unable to capitalize on any advantage of our discovery |
| Should this occur, our pulsatile product candidates may not be more effective than those of our competitors, which may decrease or eliminate market acceptance of our products |
| If a competitor produces and commercializes an antibiotic that is superior to our pulsatile antibiotics, the market for our potential products would be reduced or eliminated |
| We have devoted a substantial amount of our research efforts and capital to the development of pulsatile antibiotics |
| Competitors are developing or have developed new drugs that may compete with our pulsatile antibiotics |
| For example, sanofi-aventis recently launched Ketek, a drug that belongs to a new class of antibiotics known as ketolides |
| This antibiotic may compete against our pulsatile antibiotics in the treatment of upper respiratory tract infections |
| A number of pharmaceutical companies are also developing new classes of compounds, 18 _________________________________________________________________ [69]Table of Contents such as oxazolidinones, that may also compete against our pulsatile antibiotics |
| In addition, other companies are developing technologies to enhance the efficacy of antibiotics by adding new chemical entities that inhibit bacterial metabolic function |
| If a competitor produces and commercializes an antibiotic or method of delivery of antibiotics that provides superior safety, effectiveness or other significant advantages over our pulsatile antibiotics, the value of our pulsatile drugs would be substantially reduced |
| As a result, we would need to conduct substantial new research and development activities to establish new product targets, which would be costly and time consuming |
| We have not commissioned an extensive third party patent infringement, invalidity and enforceability investigation on pulsatile dosing and we are aware of one issued patent covering pulsatile delivery |
| Our patents, prior art and infringement investigations were primarily conducted by our senior management and other employees |
| Although our patent counsel has consulted with management in connection with management’s intellectual property investigations, our patent counsel has not undertaken an extensive independent analysis to determine whether our pulsatile technology infringes upon any issued patents or whether our issued patents or patent applications covering pulsatile dosing could be invalidated or rendered unenforceable for any reason |
| We are aware of one issued patent owned by a third party that covers certain aspects of delivering drugs by use of two delayed release pulses |
| The patent covers a drug delivery system employing two delayed release pulses using two polymers |
| The claims made by this patent could be argued to cover certain aspects of our technology |
| However, we believe that we will be able to manufacture and market formulations of our pulsatile products without infringing any valid claims under this patent |
| Any reformulation of our products, if required, could be costly and time-consuming and may not be possible |
| We cannot assure you that a claim will not be asserted by such patent holder or any other holder of an issued patent that any of our products infringe their patent or that our patents are invalid or unenforceable |
| We may be exposed to future litigation by third parties based on claims that our products or activities infringe the intellectual property rights of others |
| We cannot assure you that, in the event of litigation, any claims would be resolved in our favor |
| Any litigation or claims against us, whether or not valid, may result in substantial costs, could place a significant strain on our financial resources, divert the attention of management and harm our reputation |
| In addition, intellectual property litigation or claims could result in substantial damages and force us to do one or more of the following: • cease selling, incorporating or using any of our products that incorporate the challenged intellectual property; • obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, if at all; or • redesign our products, which would be costly and time-consuming and may not be possible |
| We have not sought patent protection for certain aspects of our technology |
| We have not filed for patent protection with respect to specific formulations, materials (including inactive ingredients) or manufacturing process approaches that are incorporated in our individual pulsatile antibiotic products, and we may not seek such patent coverage in the future |
| In producing our pulsatile antibiotics, we expect to use general formulation techniques used in the industry that would be modified by us and which would, therefore, include know-how and trade secrets that we have developed |
| We cannot be certain that a patent would issue to cover such intellectual property and currently, we would prefer to keep such techniques and know-how as our trade secrets |
| In the event a competitor is able to develop technology substantially similar to ours and patent that approach, we may be blocked from using certain of our formulations or manufacturing process approaches, which could limit our ability to develop and commercialize products |
| If we are unable to develop and successfully commercialize our product candidates, we may never achieve profitability |
| We have not commercialized any pulsatile products or recognized any revenue from PULSYS product sales |
| With the exception of our Amoxicillin PULSYS product, all of our pulsatile drugs are in early stages of development with a total of only four pulsatile product candidates having been tested in Phase I/II clinical trials 19 _________________________________________________________________ [70]Table of Contents to date |
| Our Amoxicillin PULSYS product is currently in a Phase III clinical trial, however, we must successfully complete this Phase III clinical trial and obtain regulatory approval for our pulsatile products before we are able to commercialize pulsatile products and generate revenue from their sales |
| We expect that we must conduct significant additional research and development activities on our other pulsatile products successfully completing preclinical, Phase I, Phase I/II or Phase II, and Phase III clinical trials before we will be able to receive final regulatory approval to commercialize these pulsatile products |
| Even if we succeed in developing and commercializing one or more of our pulsatile drugs, we may never generate sufficient or sustainable revenue to enable us to be profitable |
| If we do not successfully attract and retain collaborative partners, or our partners do not satisfy their obligations, we will be unable to develop our partnered product candidates |
| For certain product candidates, we intend to enter into collaborative arrangements with third parties |
| These collaborations may be necessary in order for us to: • fund our research and development activities; • fund manufacturing by third parties; • seek and obtain regulatory approvals; and • successfully commercialize our product candidates |
| We cannot assure you that we will be able to enter into collaborative agreements with partners on terms favorable to us, or at all, and any future agreement may expose us to risks that our partner might fail to fulfill its obligations and delay commercialization of our products |
| We also could become involved in disputes with partners, which could lead to delays in or terminations of our development and commercialization programs and time consuming and expensive litigation or arbitration |
| Our inability to enter into additional collaborative arrangements with other partners, or our failure to maintain such arrangements, would limit the number of product candidates which we could develop and ultimately, decrease our sources of any future revenues |
| If we cannot enter into new licensing arrangements or otherwise gain access to products, our ability to develop a diverse product portfolio could be limited |
| A component of our business strategy is in-licensing or acquiring drug compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories that may be marketed and developed or improved upon using our novel technologies |
| Competition for promising compounds can be intense and currently we have not entered into any arrangement to license or acquire any drugs from other companies |
| If we are not able to identify licensing or acquisition opportunities or enter into arrangements on acceptable terms, we will be unable to develop a diverse portfolio of products |
| Any product candidate that we acquire will require additional research and development efforts prior to commercial sale, including extensive preclinical and/or clinical testing and approval by the FDA and corresponding foreign regulatory authorities |
| All product candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be safe, non-toxic and effective or approved by regulatory authorities |
| In addition, we cannot assure you that any approved products that we develop or acquire will be: manufactured or produced economically; successfully commercialized; widely accepted in the marketplace or that we will be able to recover our significant expenditures in connection with the development or acquisition of such products |
| In addition, proposing, negotiating and implementing an economically viable acquisition is a lengthy and complex process |
| Other companies, including those with substantially greater financial, sales and marketing resources, may compete with us for the acquisition of product candidates and approved products |
| We may not be able to acquire the rights to additional product candidates and approved products on terms that we find acceptable, or at all |
| In addition, if we acquire product candidates from third parties, we will be dependent on third parties to supply such products to us for sale |
| We could be materially adversely affected by the failure or inability of such suppliers to meet performance, reliability and quality standards |
| 20 _________________________________________________________________ [71]Table of Contents Our executive officers and other key personnel are critical to our business and our future success depends on our ability to retain them |
| We are highly dependent on the principal members of our scientific and management teams, especially Edward M Rudnic, our president and chief executive officer |
| In order to pursue our product development, marketing and commercialization plans, we may need to hire additional personnel with experience in clinical testing, government regulation, manufacturing, marketing and business development |
| We may not be able to attract and retain personnel on acceptable terms given the intense competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions |
| We are not aware of any present intention of any of our key personnel to leave our company or to retire |
| However, although we have employment agreements with our executive officers, these employees may terminate their services upon 90 days’ advance notice |
| The loss of any of our key personnel, or the inability to attract and retain qualified personnel, may significantly delay or prevent the achievement of our research, development or business objectives and could materially adversely affect our business, financial condition and results of operations |
| Although we maintain key man life insurance on Dr |
| Rudnic, such insurance may not be sufficient to cover the costs of the loss of his services and the expense of recruiting and hiring a new president and chief executive officer |
| Our ability to complete clinical trials and ultimately commercialize products will be delayed if we are unable to obtain sufficient APIs or finished products from certain suppliers |
| We obtain active pharmaceutical ingredients (APIs) and finished products from certain specialized manufacturers for use in clinical studies that we intend to conduct without assistance from collaborative partners |
| Although the antibiotics and finished products we use in our clinical studies may be obtained from several suppliers, our applications for regulatory approval may authorize only one supplier as our source |
| In the event an authorized supplier in an application for regulatory approval loses its regulatory status as an acceptable source or otherwise becomes unable or unwilling to supply the API or finished products to us at a commercially reasonable price, we would need to locate another source |
| A change to a supplier not previously approved in our application for regulatory approval or an alteration in the procedures or product provided to us by an approved supplier may require formal approval by the US Food and Drug Administration (FDA) before we could use the API in the production of commercial supplies for our products or use the finished product for commercialization |
| These factors could result in delays in conducting or completing our clinical trials and delay our ability to commercialize products |
| Clinical trials for our product candidates may be delayed due to our dependence on third parties for the conduct of such trials |
| We have limited experience in conducting and managing clinical trials |
| We rely, and will continue to rely, on third parties, including clinical research organizations and outside consultants, to assist us in managing and monitoring clinical trials |
| Our reliance on these third parties may result in delays in completion of, or the failure to complete, these trials if they fail to perform their obligations under our agreements |
| If clinical trials for our products are unsuccessful or delayed, we will be unable to meet our anticipated development and commercialization timelines |
| We must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans before we can obtain regulatory approvals for their commercial sale |
| In addition, we will also need to demonstrate through clinical trials any claims we may wish to make that our product candidates are comparable or superior to existing products |
| For drug products which are expected to contain active ingredients in fixed combinations that have not been previously approved by the FDA, clinical studies may also need to be conducted in order to establish the contribution of each active component to the effectiveness of the combination in an appropriately identified patient population |
| Conducting clinical trials is a lengthy, time-consuming and expensive process |
| Currently, we have one Amoxicillin PULSYS product in a Phase III clinical trial for adults and adolescents |
| We expect to have results from the adults and adolescents trial in the third quarter of 2006 |
| For our other products we have not completed preclinical studies and initial clinical trials (Phase I, Phase I/II or Phase II) to extrapolate proper dosage for Phase III clinical 21 _________________________________________________________________ [72]Table of Contents efficacy trials in humans |
| In the event we incorrectly identify a dosage as appropriate for human clinical trials, any results we receive from such trials may not properly reflect the optimal efficacy or safety of our products and may not support approval in the absence of additional clinical trials using a different dosage |
| The commencement and rate of completion of clinical trials for our products may be delayed by many factors, including: • lack of efficacy during the clinical trials; • unforeseen safety issues; • slower than expected rate of patient recruitment; or • government or regulatory delays |
| The results from preclinical testing and early clinical trials are often not predictive of results obtained in later clinical trials |
| Although a new product may show promising results in preclinical and initial clinical trials, it may subsequently prove unfeasible or impossible to generate sufficient safety and efficacy data to obtain necessary regulatory approvals |
| Data obtained from preclinical and clinical studies are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval |
| In addition, we may encounter regulatory delays or rejections as a result of many factors, including results that do not support our claims, perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development |
| Our business, financial condition and results of operations may be materially adversely affected by any delays in, or termination of, our clinical trials or a determination by the FDA that the results of our trials are inadequate to justify regulatory approval |
| We will need additional capital in the future |
| If additional capital is not available, we may be forced to delay or curtail the development of our product candidates |
| We anticipate that our existing capital resources and expected product sales will enable us to maintain our current operations for at least the next 12 months |
| We may need additional capital to fund our operations beyond 2006 |
| Our requirements for additional capital could be substantial and will depend on many other factors, including: • payments received under future collaborative partner agreements; • continued progress of research and development of our pulsatile drugs; • our ability to acquire or license drugs from others for use with PULSYS; • costs associated with protecting our intellectual property rights; • development of sales and marketing capabilities; and • market acceptance of our products |
| We have no significant committed sources of additional capital |
| To the extent our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds to continue the development of our product candidates |
| We cannot assure you that funds will be available on favorable terms, if at all |
| To the extent we raise additional capital through the sale of securities, the issuance of those securities could result in dilution to our stockholders |
| In addition, if we obtain debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities |
| If adequate funds are not available, we may be required to curtail significantly our development and commercialization activities |
| We could be forced to pay substantial damage awards if product liability claims that may be brought against us are successful |
| The use of any of our product candidates in clinical trials, and the sale of any approved products, may expose us to liability claims and financial losses resulting from the use or sale of our products |
| We have obtained limited product liability insurance coverage for our clinical trials, which we believe is adequate to cover our present 22 _________________________________________________________________ [73]Table of Contents activities |
| However, such insurance may not be adequate to cover any claims made against us |
| In addition, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against losses |
| If our PULSYS products are not accepted by the market, our revenues and profitability will suffer |
| Even if we obtain regulatory approval to market our PULSYS products, our products may not gain market acceptance among physicians, patients, healthcare payors and the medical community |
| The degree of market acceptance of any pharmaceutical product that we develop will depend on a number of factors, including: • demonstration of clinical efficacy and safety; • cost-effectiveness; • potential advantages over alternative therapies; • reimbursement policies of government and third-party payors; and • effectiveness of our marketing and distribution capabilities and the effectiveness of such capabilities of our collaborative partners |
| Our product candidates, if successfully developed, will compete with a number of products manufactured and marketed by major pharmaceutical companies, biotechnology companies and manufacturers of generic drugs |
| Physicians, patients, third-party payors and the medical community may not accept and use any product candidates that we or our collaborative partners develop |
| To the extent current antibiotics already successfully treat certain infections, physicians may not be inclined to prescribe our pulsatile drugs for the same indications |
| If our products do not achieve significant market acceptance, we will not be able to generate significant revenues or become profitable |
| Because we depend on a single manufacturer for Keflex, we may be unable to obtain sufficient quantities of these products at commercially acceptable rates |
| We obtained our Keflex products from Eli Lilly under a manufacturing agreement that expired in December 2005 |
| We have transitioned the manufacturing of our Keflex products to Ceph International Corporation, a wholly-owned subsidiary of Patheon’s MOVA Pharmaceutical Corporation |
| Although we believe that the API and finished products for Keflex could be obtained from several suppliers, our applications for regulatory approval currently authorize only Ceph as our source |
| In the event that Ceph is unable to supply the products to us at a commercially reasonable price or breaches its agreement with us, or if Ceph loses its regulatory status as an acceptable source, we would need to locate another source |
| A change to a supplier not previously approved or an alteration in the procedures or product provided to us by an approved supplier may require formal approval by the FDA before the product could be sold |
| These factors could limit our ability to sell Keflex and would materially adversely affect our revenues |
| We rely upon a limited number of pharmaceutical wholesalers and distributors, which could impact our ability to sell our Keflex product |
| We rely largely upon specialty pharmaceutical distributors and wholesalers to deliver Keflex to end users, including physicians, hospitals, and pharmacies |
| There can be no assurance that these distributors and wholesalers will adequately fulfill the market demand for Keflex, nor can there be any guarantee that these service providers will remain solvent |
| Given the high concentration of sales to certain pharmaceutical distributors and wholesalers, we could experience a significant loss if one of our top customers were to declare bankruptcy or otherwise become unable to pay its obligations to us |
| We are subject to therapeutic equivalent substitution, Medicaid reimbursement and price reporting |
| The cost of pharmaceutical products continues to be a subject of investigation and action by governmental agencies, legislative bodies and private organizations in the US and other countries |
| In the US, most states have enacted legislation requiring or permitting a dispensing pharmacist to substitute a generic equivalent to the 23 _________________________________________________________________ [74]Table of Contents prescribed drug |
| Federal legislation requires pharmaceutical manufacturers to pay to state Medicaid agencies prescribed rebates on drugs to enable them to be eligible for reimbursement under Medicaid programs |
| Federal and state governments continue to pursue efforts to reduce spending in Medicaid programs, including restrictions on amounts agencies will reimburse for certain products |
| In addition, some states are seeking rebates in excess of the amounts required by federal law, and there are federal legislative proposals to expand current Medicaid rebates |
| We also must give discounts or rebates on purchases or reimbursements of Keflex by certain other federal and state agencies and programs |
| Our ability to earn sufficient returns on Keflex depends, in part, on the availability of reimbursements from third party payers, such as health insurers, governmental health administration authorities and other organizations and the amount of rebates payable under Medicaid programs |
| Our ability to conduct clinical trials will be impaired if we fail to qualify our clinical supply manufacturing facility and we are unable to maintain relationships with current clinical supply manufacturers or enter into relationships with new manufacturers |
| We currently rely on several contractors to manufacture product samples for our clinical studies |
| In the fourth quarter of 2003, we completed construction of a manufacturing facility for production of clinical supplies sufficient for use through our Phase II and, in some cases, Phase III clinical trials |
| We expect this facility to be qualified and operational in the future |
| We have no experience qualifying manufacturing facilities and we may not be able to qualify the facility |
| If we are unsuccessful in qualifying our own manufacturing facility and fail to maintain our relationships with our current clinical supply manufacturers or enter into relationships with new manufacturers, we will be unable to conduct our clinical trials effectively |
| We intend to rely on third parties to manufacture products that we intend to sell through our own commercialization and sales efforts |
| We believe that there are a variety of manufacturers that we may retain to produce these products |
| However, once we retain a manufacturing source, if we are unable to maintain our relationship with such manufacturer, qualifying a new manufacturing source will be time consuming and expensive, and may cause delays in the development of our products |
| If we fail to establish sales, marketing, and distribution capabilities, or fail to enter into arrangements with third parties, we will not be able to commercialize our products |
| We have limited sales, marketing, and distribution capabilities |
| In order to commercialize any product candidates that receive final regulatory approval, we must considerably expand our commercial capabilities or make arrangements with third parties to perform these services for us |
| In order to market any of our product candidates directly, we must considerably expand our commercial infrastructure, including distribution, marketing, and sales personnel |
| The expansion or contracting of a sales and distribution infrastructure would require substantial resources, which may divert the attention of our management and key personnel and defer our product development efforts |
| To the extent that we enter into sales and marketing arrangements with other companies, our revenues will depend on the efforts of others |
| These efforts may not be successful |
| If we fail to expand sales, marketing and distribution capabilities, or fail to enter into arrangements with third parties, we will experience delays in product sales and incur increased costs |
| Risks Related to our Industry Any inability to protect our intellectual property could harm our competitive position |
| Our success will depend in part on our ability to obtain patents and maintain adequate protection of other intellectual property for our technologies and products in the US and other countries |
| If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate our competitive advantage |
| Further, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the US, and we may encounter significant problems in protecting our proprietary rights in these foreign countries |
| The patent positions of pharmaceutical and biotechnology companies, including our patent positions, involve complex legal and factual questions and, therefore, validity and enforceability cannot be predicted with certainty |
| Patents may be challenged, deemed unenforceable, invalidated or circumvented |
| We will be able to protect our 24 _________________________________________________________________ [75]Table of Contents proprietary rights from unauthorized use by third parties only to the extent that we cover our proprietary technologies with valid and enforceable patents or we effectively maintain such proprietary technologies as trade secrets |
| We will apply for patents covering both our technologies and product candidates as we deem appropriate |
| We may fail to apply for patents on important technologies or products in a timely fashion, or at all, and in any event, the applications we do file may be challenged and may not result in issued patents |
| Any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products |
| Furthermore, others may independently develop similar or alternative technologies or design around our patented technologies |
| In addition, if challenged, our patents may be declared invalid |
| Even if valid, our patents may fail to provide us with any competitive advantages |
| We rely upon trade secrets protection for our confidential and proprietary information |
| We have taken measures to protect our proprietary information; however, these measures may not provide adequate protection |
| We seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants |
| Nevertheless, employees, collaborators or consultants may still disclose our proprietary information, and we may not be able to meaningfully protect our trade secrets |
| In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets |
| If we do not compete successfully in the development and commercialization of products and keep pace with rapid technological change, we will be unable to capture and sustain a meaningful market position |
| The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change |
| While we are not aware of any company using rapid bursts of antibiotics as a treatment method, there are numerous companies actively engaged in the research and development of anti-infectives |
| Our main competitors are: • Large pharmaceutical companies, such as Pfizer, GlaxoSmithKline, Wyeth, Bristol-Myers Squibb, Merck, Johnson & Johnson, Roche, Schering-Plough, Novartis, sanofi-aventis, Abbott Laboratories, AstraZeneca, and Bayer, that may develop new drug compounds that render our drugs obsolete or noncompetitive |
| • Smaller pharmaceutical and biotechnology companies and specialty pharmaceutical companies engaged in focused research and development of anti-infective drugs, such as Trimeris, Vertex, Gilead Sciences, Cubist, Basilea, Intermune, King, and others |
| • Drug delivery companies, such as Johnson & Johnson’s Alza division, Biovail and SkyePharma, which may develop a dosing regimen that is more effective than pulsatile dosing |
| • Generic drug companies, such as Teva, Ranbaxy, IVAX, Sandoz and Stada, which produce low-cost versions of antibiotics that may contain the same active pharmaceutical ingredients as our PULSYS product candidates |
| Many of these competitors, either alone or together with their collaborative partners, have substantially greater financial resources and larger research and development staffs than we do |
| In addition, many of these competitors, either alone or together with their collaborative partners, have significantly greater experience than we do in: • developing products; • undertaking preclinical testing and human clinical trials; • obtaining approvals of products from the FDA and other regulatory agencies; and • manufacturing and marketing products |
| Developments by others may render our product candidates or technologies obsolete or noncompetitive |
| We face and will continue to face intense competition from other companies for collaborative arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses of products or technology |
| These competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are more effective than ours |
| 25 _________________________________________________________________ [76]Table of Contents If we experience delays in obtaining regulatory approvals, or are unable to obtain or maintain regulatory approvals, we may be unable to commercialize any products |
| Our product candidates are subject to extensive and rigorous domestic government regulation |
| The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of pharmaceutical products |
| If our products are marketed abroad, they will also be subject to extensive regulation by foreign governments |
| None of our PULSYS product candidates has been approved for sale in the US or any foreign market |
| The regulatory review and approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies |
| The actual time required for satisfaction of FDA pre-market approval requirements may vary substantially based upon the type, complexity and novelty of the product or the medical condition it is intended to treat |
| Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon a manufacturer’s activities |
| Delays in obtaining regulatory approvals may: • adversely affect the commercialization of any drugs that we or our collaborative partners develop; • impose costly procedures on us or our collaborative partners; • diminish any competitive advantages that we or our collaborative partners may attain; and • adversely affect our receipt of revenues or royalties |
| Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval |
| Any required approvals, once obtained, may be withdrawn |
| Further, if we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we may encounter difficulties including: • delays in clinical trials or commercialization; • product recalls or seizures; • suspension of production and/or distribution; • withdrawals of previously approved marketing applications; and • fines, civil penalties and criminal prosecutions |
| We may rely on future collaborative partners to file investigational new drug applications and generally direct the regulatory approval process for many of our products |
| These collaborative partners may not be able to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates |
| If we fail to obtain required governmental approvals, we or our collaborative partners will experience delays in, or be precluded from, marketing products developed through our research |
| We and our contract manufacturers also are required to comply with applicable FDA good manufacturing practice regulations |
| Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation |
| Manufacturing facilities are subject to inspection by the FDA These facilities must be approved before we can use them in commercial manufacturing of our products |
| We or our contract manufacturers may not be able to comply with the applicable good manufacturing practice requirements and other FDA regulatory requirements |
| If we or our contract manufacturers fail to comply, we could be subject to fines or other sanctions, or be precluded from marketing our products |
| 26 _________________________________________________________________ [77]Table of Contents The manufacture and storage of pharmaceutical and chemical products is subject to environmental regulation and risk |
| Because of the chemical ingredients of pharmaceutical products and the nature of their manufacturing process, the pharmaceutical industry is subject to extensive environmental regulation and the risk of incurring liability for damages or the costs of remedying environmental problems |
| We use a number of chemicals and drug substances that can be toxic to humans |
| These chemicals include acids, solvents and other reagents used in the normal course of our chemical and pharmaceutical analysis, and other materials, such as polymers, inactive ingredients and drug substances, used in the research, development and manufacture of drug products |
| If we fail to comply with environmental regulations to use, discharge or dispose of hazardous materials appropriately or otherwise to comply with the conditions attached to our operating licenses, the licenses could be revoked and we could be subject to criminal sanctions and/or substantial liability or could be required to suspend or modify our operations |
| Environmental laws and regulations can require us to undertake or pay for investigation, clean-up and monitoring of environmental contamination identified at properties that we currently own or operate or that we formerly owned or operated |
| Further, they can require us to undertake or pay for such actions at offsite locations where we may have sent hazardous substances for disposal |
| These obligations are often imposed without regard to fault |
| In the event we are found to have violated environmental laws or regulations, our reputation will be harmed and we may incur substantial monetary liabilities |
| We currently have insurance coverage that we believe is adequate to cover our present activities |
| However, this insurance may not be available or adequate to cover any losses arising from contamination or injury resulting from our use of hazardous substances |
| Market acceptance of our products will be limited if users of our products are unable to obtain adequate reimbursement from third-party payors |
| The commercial success of our product candidates will depend in part on the availability of reimbursement from third-party payors, including government health administrators, managed care providers and private health insurers |
| Even if we succeed in bringing any of our proposed products to market, we cannot assure you that third-party payors will consider our products cost-effective or provide reimbursement in whole or in part for their use |
| Significant uncertainty exists as to the reimbursement status of newly approved health care products |
| Third-party payors may conclude that our products are less safe, effective or cost-effective than existing products |
| Therefore, third-party payors may not approve our products for reimbursement |
| If third-party payors do not approve our products for reimbursement or fail to reimburse them adequately, sales will suffer as some physicians or their patients will opt for a competing product that is approved for reimbursement or is adequately reimbursed |
| Even if third-party payors make reimbursement available, reimbursement levels may not be sufficient for us to realize an appropriate return on our investment in product development |
| Moreover, the trend toward managed healthcare in the United States, the growth of organizations such as health maintenance organizations, and legislative proposals to reform healthcare and government insurance programs could significantly influence the purchase of healthcare services and products, resulting in lower prices and reduced demand for our products |
| In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us |
| While we cannot predict the likelihood of any of these legislative or regulatory proposals, if any government or regulatory agencies adopt these proposals, they could materially adversely affect our business, financial condition and results of operations |
| Other Risks HealthCare Ventures V, LP, HealthCare Ventures VI, LP and HealthCare Ventures VII, LP have substantial control over our business and the interests of the HealthCare Ventures partnerships may not be consistent with the interests of our other stockholders |
| HealthCare Ventures V, LP and HealthCare Ventures VI, LP currently beneficially own an aggregate of 36dtta1prca of our outstanding common stock |
| James H Cavanaugh and Harold R Werner, members of our board of directors, are general partners of HealthCare Partners V, LP and HealthCare Partners VI, LP, which are the general partners of HealthCare Ventures V, LP and HealthCare Ventures VI, LP, respectively |
| Accordingly, the 27 _________________________________________________________________ [78]Table of Contents HealthCare Ventures partnerships are able to exert significant influence over all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets, as well as over the day-to-day management of our business |
| The HealthCare Ventures partnerships may direct our affairs in a manner that is not consistent with the interests of our other stockholders |
| In addition, this concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination or a sale of all or substantially all of our assets |
| Future sales of our common stock, or the perception that these sales may occur, could depress our stock price |
| Sales of substantial amounts of our common stock in the public market, or the perception in the public markets that these sales may occur, could cause the market price of our common stock to decline |
| This could also impair our ability to raise additional capital through the sale of our equity securities |
| Selling of a large number of shares by any of our existing shareholders or management shareholders could cause the price of our common stock to decline |
| Furthermore, if we file a registration statement to offer additional shares of our common stock and have to include shares held by those holders, it could impair our ability to raise needed capital by depressing the price at which we could sell our common stock |
| Our certificate of incorporation and provisions of Delaware law could discourage a takeover you may consider favorable or could cause current management to become entrenched and difficult to replace |
| Provisions in our certificate of incorporation and Delaware law may have the effect of delaying or preventing a merger or acquisition of us, or making a merger or acquisition less desirable to a potential acquirer, even when the stockholders may consider the acquisition or merger favorable |
| Under the terms of our certificate of incorporation, we are authorized to issue 25 million shares of “blank check” preferred stock, and to determine the price, privileges, and other terms of these shares |
| The issuance of any preferred stock with superior rights to our common stock could reduce the value of our common stock |
| In particular, specific rights we may grant to future holders of preferred stock could be used to restrict an ability to merge with or sell our assets to a third party, preserving control by present owners and management and preventing you from realizing a premium on your shares |
| In addition, we are subject to provisions of the Delaware corporation law that, in general, prohibit any business combination with a beneficial owner of 15prca or more of our common stock for five years unless the holder’s acquisition of our stock was approved in advance by our board of directors |
| These provisions could affect our stock price adversely |
| The price of our common stock has been and will likely continue to be volatile |
| Prior to October 2003, there was no public market for our common stock |
| We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market in our common stock |
| The initial public offering price of our common stock was dlra10dtta00 per share |
| Since our initial public offering, the price of our common stock has been as high as dlra10dtta30 and as low as dlra0dtta86 per share |
| Some companies that have had volatile market prices for their securities have been subject to securities class action suits filed against them |
| If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of our management’s attention and resources |
| This could have a material adverse effect on our business, results of operations and financial condition |
| We could be forced to pay liquidated damages if we do not maintain the effectiveness of our S-3 registration statement |
| In April 2005, we completed a private placement of 6cmam846cmam735 shares of our common stock at a price of dlra3dtta98 per share and warrants to purchase a total of 2cmam396cmam357 shares of common stock at an exercise price of dlra4dtta78 per share, resulting in gross proceeds of dlra27dtta25 million |
| Pursuant to the terms of the registration rights agreement, we filed with the SEC a registration statement on Form S-3 covering the resale of common stock |
| The registration rights agreement provides that if a registration statement is not effective within 60 days of closing, or if we do not 28 _________________________________________________________________ [79]Table of Contents subsequently maintain the effectiveness of the registration statement, then in addition to any other rights the investor may have, we will be required to pay the investor liquidated damages, in cash, equal to one percent per month of the aggregate purchase price paid by such investor |
| The SEC declared our Form S-3 effective on June 1, 2005, which was within 60 days of closing |
| We believe that the events that would lead to a suspension of effectiveness are unlikely to occur |
| However, if we fail to maintain the effectiveness of the registration statement in the future, liquidated damages could be substantial |