| ADVENTRX PHARMACEUTICALS INC ITEM 1A RISK FACTORS Risks Relating to Our Business Readers and prospective investors in our securities should carefully consider the following risk factors as well as the other information contained or incorporated by reference in this report |
| The risks and uncertainties described below are not the only ones facing us |
| Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations |
| This report is qualified in its entirety by these risk factors |
| If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected |
| If this were to happen, the value of the Company’s securities could decline significantly, and you could lose all or part of your investment |
| We have a substantial accumulated deficit and limited working capital |
| We had an accumulated deficit of dlra59cmam964cmam840 as of December 31, 2005 |
| Since we presently have no source of revenues and are committed to continuing our product research and development program, significant expenditures and losses will continue until development of new products is completed and such products have been clinically tested, approved by the FDA or other regulatory agencies and successfully marketed |
| In addition, we fund our operations primarily through the sale of equity securities, and have had limited working capital for our product development and other activities |
| We do not believe that debt financing from financial institutions will be available until at least the time that one of our products is approved for commercial production |
| We have no current product sales revenues or profits |
| We have devoted our resources to developing a new generation of therapeutic drug products, but such products cannot be marketed until clinical testing is completed and governmental approvals have been obtained |
| Accordingly, there is no current source of revenues, much less profits, to sustain our present activities, and no revenues will likely be available until, and unless, the new products are clinically tested, approved by the FDA or other regulatory agencies and successfully marketed, either by us or a marketing partner, an outcome which we are not able to guarantee |
| 13 _________________________________________________________________ [73]Table of Contents It is uncertain that we will have access to future capital |
| We do not expect to generate positive cash flow from operations for at least the next several years |
| As a result, substantial additional equity or debt financing for research and development or clinical development will be required to fund our activities |
| Although we have raised equity financing in the past, including in April 2004 and July 2005, we cannot be certain that we will be able to continue to obtain such financing on favorable or satisfactory terms, if at all, or that it will be sufficient to meet our cash requirements |
| Any additional equity financing could result in substantial dilution to stockholders, and debt financing, if available, would likely involve restrictive covenants that preclude us from making distributions to stockholders and taking other actions beneficial to stockholders |
| If adequate funds are not available, we may be required to delay or reduce the scope of our drug development program or attempt to continue development by entering into arrangements with collaborative partners or others that may require us to relinquish some or all of our rights to proprietary drugs |
| The inability to adequately and timely fund our capital requirements would have a material adverse effect on us |
| We are not certain that we will be successful in the development of our drug candidates |
| The successful development of any new drug is highly uncertain and is subject to a number of significant risks |
| Our drug candidates, all of which are in a development stage, require significant, time-consuming and costly development, testing and regulatory clearance |
| This process typically takes several years and can require substantially more time |
| Risks include, among others, the possibility that a drug candidate will (i) be found to be ineffective or unacceptably toxic, (ii) have unacceptable side effects, (iii) fail to receive necessary regulatory clearances, (iv) not achieve broad market acceptance, (v) be subject to competition from third parties who may market equivalent or superior products, (vi) be affected by third parties holding proprietary rights that will preclude us from marketing a drug product, or (vii) not be able to be manufactured by manufacturers in a timely manner in accordance with required standards of quality |
| There can be no assurance that the development of our drug candidates will demonstrate the efficacy and safety of our drug candidates as therapeutic drugs, or, even if demonstrated, that there will be sufficient advantages to their use over other drugs or treatments so as to render the drug product commercially viable |
| We have also chosen to terminate licenses of some drug candidates that were not showing sufficient promise to justify continued expense and development |
| In the event that we are not successful in developing and commercializing one or more drug candidates, investors are likely to realize a loss of their entire investment |
| We have been delayed at certain times in the past in the development of our drug products by limited funding |
| In addition, if certain of our scientific and technical personnel resigned at or about the same time, the development of our drug products would probably be delayed until new personnel were hired and became familiar with the development programs |
| Positive results in preclinical and clinical trials do not ensure that future clinical trials will be successful or that drug candidates will receive all necessary regulatory approvals for the marketing, distribution or sale of such drug candidates |
| Success in preclinical and clinical trials does not ensure that large-scale clinical trials will be successful |
| Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals |
| The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict |
| In the past, we have terminated licenses of drug candidates when our preclinical trials did not support or verify earlier preclinical data |
| There is a significant risk that any of our drug candidates could fail to show satisfactory results in continued trials, and would not justify further development |
| 14 _________________________________________________________________ [74]Table of Contents We will face intense competition from other companies in the pharmaceutical industry |
| We are engaged in a segment of the pharmaceutical industry that is highly competitive and rapidly changing |
| If successfully developed and approved, any of our drug candidates will likely compete with several existing therapies |
| CoFactor, our leading drug candidate, would likely compete against a well-established product, leucovorin |
| In addition, there are numerous companies with a focus in oncology and/or anti-viral therapeutics that are pursuing the development of pharmaceuticals that target the same diseases as are targeted by the drugs being developed by us |
| We anticipate that we will face intense and increasing competition in the future as new products enter the market and advanced technologies become available |
| We cannot assure that existing products or new products developed by competitors will not be more effective, or more effectively marketed and sold than those we may market and sell |
| Competitive products may render our drugs obsolete or noncompetitive prior to our recovery of development and commercialization expenses |
| Many of our likely competitors, such as Merck and Pfizer, will also have significantly greater financial, technical and human resources and will likely be better equipped to develop, manufacture and market products |
| In addition, many of these competitors have extensive experience in preclinical testing and clinical trials, obtaining FDA and other regulatory approvals and manufacturing and marketing pharmaceutical products |
| A number of these competitors also have products that have been approved or are in late-stage development and operate large, well-funded research and development programs |
| Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies |
| Furthermore, academic institutions, government agencies and other public and private research organizations are becoming increasingly aware of the commercial value of their inventions and are actively seeking to commercialize the technology they have developed |
| Companies such as Gilead, Roche and GlaxoSmithKline all have drugs in various stages of development that could become competitors |
| Accordingly, competitors may succeed in commercializing products more rapidly or effectively than us, which would have a material adverse effect on us |
| There is no assurance that our products will have market acceptance |
| Our success will depend in substantial part on the extent to which a drug product, if eventually approved for commercial distribution, achieves market acceptance |
| The degree of market acceptance will depend upon a number of factors, including (i) the receipt and scope of regulatory approvals, (ii) the establishment and demonstration in the medical community of the safety and efficacy of a drug product, (iii) the product’s potential advantages over existing treatment methods and (iv) reimbursement policies of government and third party payors |
| We cannot predict or guarantee that physicians, patients, healthcare insurers or maintenance organizations, or the medical community in general, will accept or utilize any of our drug products |
| The unavailability of health care reimbursement for any of our products will likely adversely impact our ability to effectively market such products and whether health care reimbursement will be available for any of our products is uncertain |
| Our ability to commercialize our technology successfully will depend in part on the extent to which reimbursement for the costs of such products and related treatments will be available from government health administration authorities, private health insurers and other third-party payors |
| Significant uncertainty exists as to the reimbursement status of newly approved medical products |
| We cannot guarantee that adequate third-party insurance coverage will be available for us to establish and maintain price levels sufficient for realization of an appropriate return on our investments in developing new therapies |
| If we are successful in getting FDA approval for CoFactor, we will be competing against a generic drug, leucovorin, which has a lower cost and a long, established history of reimbursement |
| Receiving sufficient reimbursement for purchase costs of CoFactor will be necessary to make it cost effective and competitive versus the established drug, leucovorin |
| Government, private health insurers, and other third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for new therapeutic products approved for marketing by the FDA Accordingly, even if coverage and reimbursement are provided by government, private health insurers, and third-party payors for use of our products, the market acceptance of these products would be adversely affected if the amount of reimbursement available for the use of our therapies proved to be unprofitable for health care providers |
| 15 _________________________________________________________________ [75]Table of Contents Uncertainties related to health care reform measures may affect our success |
| There have been some federal and state proposals in the past to subject the pricing of health care goods and services, including prescription drugs, to government control and to make other changes to the US health care system |
| None of the proposals seems to have affected any of the drugs in our programs |
| However, it is uncertain if future legislative proposals would be adopted that might affect the drugs in our programs or what actions federal, state, or private payors for health care treatment and services may take in response to any such health care reform proposals or legislation |
| Any such health care reforms could have a material adverse effect on the marketability of any drugs for which we ultimately require FDA approval |
| Further testing of our drug candidates will be required and there is no assurance of FDA approval |
| The FDA and comparable agencies in foreign countries impose substantial requirements upon the introduction of medical products, through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures |
| Satisfaction of these requirements typically takes several years or more and varies substantially based upon the type, complexity, and novelty of the product |
| The effect of government regulation and the need for FDA approval will delay marketing of new products for a considerable period of time, impose costly procedures upon our activities, and provide an advantage to larger companies that compete with us |
| There can be no assurance that the FDA or other regulatory approval for any products developed by us will be granted on a timely basis or at all |
| Any such delay in obtaining or failure to obtain, such approvals would materially and adversely affect the marketing of any contemplated products and the ability to earn product revenue |
| Further, regulation of manufacturing facilities by state, local, and other authorities is subject to change |
| Any additional regulation could result in limitations or restrictions on our ability to utilize any of our technologies, thereby adversely affecting our operations |
| Human pharmaceutical products are subject to rigorous preclinical testing and clinical trials and other approval procedures mandated by the FDA and foreign regulatory authorities |
| Various federal and foreign statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of pharmaceutical products |
| The process of obtaining these approvals and the subsequent compliance with appropriate US and foreign statutes and regulations are time-consuming and require the expenditure of substantial resources |
| In addition, these requirements and processes vary widely from country to country |
| Among the uncertainties and risks of the FDA approval process are the following: (i) the possibility that studies and clinical trials will fail to prove the safety and efficacy of the drug, or that any demonstrated efficacy will be so limited as to significantly reduce or altogether eliminate the acceptability of the drug in the marketplace, (ii) the possibility that the costs of development, which can far exceed the best of estimates, may render commercialization of the drug marginally profitable or altogether unprofitable, and (iii) the possibility that the amount of time required for FDA approval of a drug may extend for years beyond that which is originally estimated |
| In addition, the FDA or similar foreign regulatory authorities may require additional clinical trials, which could result in increased costs and significant development delays |
| Delays or rejections may also be encountered based upon changes in FDA policy and the establishment of additional regulations during the period of product development and FDA review |
| Similar delays or rejections may be encountered in other countries |
| Our success will depend on licenses and proprietary rights we receive from other parties, and on any patents we may obtain |
| Our success will depend in large part on our ability and our licensors’ ability to (i) maintain license and patent protection with respect to their drug products, (ii) defend patents and licenses once obtained, (iii) maintain trade secrets, (iv) operate without infringing upon the patents and proprietary rights of others and (iv) obtain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur, both in the US and in foreign countries |
| We have obtained licenses to patents and other proprietary rights from the University of Southern California and SD Pharmaceuticals, Inc |
| The patent positions of pharmaceutical companies, including ours, are uncertain and involve complex legal and factual questions |
| There is no guarantee that we or our licensors have or will develop or obtain the rights to products or processes that are patentable, that patents will issue from any of the pending applications or that claims 16 _________________________________________________________________ [76]Table of Contents allowed will be sufficient to protect the technology licensed to us |
| In addition, we cannot be certain that any patents issued to or licensed by us will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide competitive disadvantages to us |
| Litigation, which could result in substantial cost, may also be necessary to enforce any patents to which we have rights, or to determine the scope, validity and unenforceability of other parties’ proprietary rights, which may affect our rights |
| US patents carry a presumption of validity and generally can be invalidated only through clear and convincing evidence |
| There can be no assurance that our licensed patents would be held valid by a court or administrative body or that an alleged infringer would be found to be infringing |
| The mere uncertainty resulting from the institution and continuation of any technology-related litigation or interference proceeding could have a material adverse effect on us pending resolution of the disputed matters |
| We may also rely on unpatented trade secrets and know-how to maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with employees, consultants and others |
| There can be no assurance that these agreements will not be breached or terminated, that we will have adequate remedies for any breach, or that trade secrets will not otherwise become known or be independently discovered by competitors |
| Our license agreements can be terminated in the event of a breach |
| The license agreements pursuant to which we license our core technologies for our potential drug products permit the licensors, respectively the University of Southern California and SD Pharmaceuticals, Inc, to terminate the agreement under certain circumstances, such as the failure by us to use our reasonable best efforts to commercialize the subject drug or the occurrence of any other uncured material breach by us |
| The license agreements also provide that the licensor is primarily responsible for obtaining patent protection for the technology licensed, and we are required to reimburse the licensor for the costs it incurs in performing these activities |
| The license agreements also require the payment of specified royalties |
| Any inability or failure to observe these terms or pay these costs or royalties could result in the termination of the applicable license agreement in certain cases |
| In the past, we have let lapse certain licenses for drug candidates when we determined that the expense and risk of continued development outweighed the likely benefits of that continued development |
| The termination of any license agreement could have a material adverse effect on us |
| Protecting our proprietary rights is difficult and costly |
| The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions |
| Accordingly, we cannot predict the breadth of claims allowed in these companies’ patents or whether we may infringe or be infringing these claims |
| Although we have not been notified of any patent infringement, nor notified others of patent infringement, such patent disputes are common and could preclude the commercialization of our products |
| Patent litigation is costly in its own right and could subject us to significant liabilities to third parties |
| In addition, an adverse decision could force us to either obtain third-party licenses at a material cost or cease using the technology or product in dispute |
| We may be unable to retain skilled personnel and maintain key relationships |
| The success of our business depends, in large part, on our ability to attract and retain highly qualified management, scientific and other personnel, and on our ability to develop and maintain important relationships with leading research institutions and consultants and advisors |
| Competition for these types of personnel and relationships is intense from numerous pharmaceutical and biotechnology companies, universities and other research institutions |
| We are currently dependent upon our scientific staff, which has a deep background in our drug candidates and the ongoing preclinical and clinical trials |
| Recruiting and retaining senior employees with relevant drug development experience in oncology and anti-viral therapeutics is costly and time-consuming |
| There can be no assurance that we will be able to attract and retain such individuals on an uninterrupted basis and on commercially acceptable terms, and the failure to do so could have a material adverse effect on us by significantly delaying one or more of our drug development programs |
| The loss of any of our senior executive officers, including our chief executive officer and chief financial officer, in particular, could have a material adverse effect on the company and the market for our common stock, particularly if such loss was abrupt or unexpected |
| We do not have non-competition agreements with any of our employees |
| 17 _________________________________________________________________ [77]Table of Contents We currently have no sales capability, and limited marketing capability |
| We currently do not have sales personnel |
| We have limited marketing and business development personnel |
| We will have to develop a sales force, or rely on marketing partners or other arrangements with third parties for the marketing, distribution and sale of any drug product which is ready for distribution |
| There is no guarantee that we will be able to establish marketing, distribution or sales capabilities or make arrangements with third parties to perform those activities on terms satisfactory to us, or that any internal capabilities or third party arrangements will be cost-effective |
| In addition, any third parties with which we may establish marketing, distribution or sales arrangements may have significant control over important aspects of the commercialization of a drug product, including market identification, marketing methods, pricing, composition of sales force and promotional activities |
| There can be no assurance that we will be able to control the amount and timing of resources that any third party may devote to our products or prevent any third party from pursuing alternative technologies or products that could result in the development of products that compete with, or the withdrawal of support for, our products |
| We do not have manufacturing capabilities and may not be able to efficiently develop manufacturing capabilities or contract for such services from third parties on commercially acceptable terms |
| We do not have any manufacturing capacity |
| When and if required, we will seek to establish relationships with third-party manufacturers for the manufacture of clinical trial material and the commercial production of drug products as we have with our current manufacturing partners |
| There can be no assurance that we will be able to establish relationships with third-party manufacturers on commercially acceptable terms or that third-party manufacturers will be able to manufacture a drug product on a cost-effective basis in commercial quantities under good manufacturing practices mandated by the FDA or other regulatory matters |
| The dependence upon third parties for the manufacture of products may adversely affect future costs and the ability to develop and commercialize a drug product on a timely and competitive basis |
| Further, there can be no assurance that manufacturing or quality control problems will not arise in connection with the manufacture of our drug products or that third party manufacturers will be able to maintain the necessary governmental licenses and approvals to continue manufacturing such products |
| Any failure to establish relationships with third parties for our manufacturing requirements on commercially acceptable terms would have a material adverse effect on us |
| We are dependent in part on third parties for drug development and research facilities |
| We do not possess research and development facilities necessary to conduct all of our drug development activities |
| We engage consultants and independent contract research organizations to design and conduct clinical trials in connection with the development of our drugs |
| As a result, these important aspects of a drug’s development will be outside our direct control |
| In addition, there can be no assurance that such third parties will perform all of their obligations under arrangements with us or will perform those obligations satisfactorily |
| In the future, we anticipate that we will need to obtain additional or increased product liability insurance coverage and it is uncertain that such increased or additional insurance coverage can be obtained on commercially reasonable terms |
| Our business will expose us to potential product liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products |
| There can be no assurance that product liability claims will not be asserted against us |
| We intend to obtain additional limited product liability insurance for our clinical trials, directly or through our marketing development partners or contract research organization (CRO) partners, when they begin in the US and to expand our insurance coverage if and when we begin marketing commercial products |
| However, there can be no assurance that we will be able to obtain product liability insurance on commercially acceptable terms or that we will be able to maintain such insurance at a reasonable cost or in sufficient amounts to protect against potential losses |
| A successful product liability claim or series of claims brought against us could have a material adverse effect on us |
| 18 _________________________________________________________________ [78]Table of Contents The market price of our shares, like that of many biotechnology companies, is highly volatile |
| Market prices for our common stock and the securities of other medical and biomedical technology companies have been highly volatile and may continue to be highly volatile in the future |
| Factors such as announcements of technological innovations or new products by us or our competitors, government regulatory action, litigation, patent or proprietary rights developments, and market conditions for medical and high technology stocks in general can have a significant impact on any future market for our common stock |
| If we cannot satisfy AMEX’s listing requirements, it may delist our common stock and we may not have an active public market for our common stock |
| The absence of an active trading market would likely make the common stock an illiquid investment |
| Our common stock is quoted on the American Stock Exchange |
| To continue to be listed, we are required to maintain shareholders equity of dlra6cmam000cmam000 among other requirements |
| We do not satisfy that requirement as of December 31, 2005 |
| The AMEX may consider delisting our common stock and suspend trading in the common stock in which case our common stock would likely trade in the over-the-counter market in the so-called “pink sheets” or, if available, the “OTC Bulletin Board Service |
| ” As a result, an investor would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of, our shares |
| Our ability to raise capital would most likely also be impaired due to our ineligibility to file resale registration statements under the Securities Act |
| If our common stock is delisted, it may become subject to the SEC’s “penny stock” rules and more difficult to sell |
| SEC rules require brokers to provide information to purchasers of securities traded at less than dlra5dtta00 and not traded on a national securities exchange or quoted on the Nasdaq Stock Market |
| If our common stock becomes a “penny stock” that is not exempt from these SEC rules, these disclosure requirements may have the effect of reducing trading activity in our common stock and making it more difficult for investors to sell |
| The rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny market |
| The broker must also give bid and offer quotations and broker and salesperson compensation information to the customer orally or in writing before or with the confirmation |
| The SEC rules also require a broker to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction before a transaction in a penny stock |
| Changes in laws and regulations that affect the governance of public companies has increased our operating expenses and will continue to do so |
| Recently enacted changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and the listing requirements for American Stock Exchange have imposed new duties on us and on our executives, directors, attorneys and independent accountants |
| In order to comply with these new rules, we have hired and expect to hire additional personnel and use additional outside legal, accounting and advisory services, which have increased and are likely to continue increasing our operating expenses |
| In particular, we expect to incur additional administrative expenses as we implement Section 404 of the Sarbanes-Oxley Act, which requires management to extensively evaluate and report on, and our independent registered public accounting firm to attest to, our internal controls |
| For example, we have incurred significant expenses, and expect to incur additional expenses, in connection with the evaluation, implementation, documentation and testing of our existing and newly implemented control systems |
| Management time associated with these compliance efforts necessarily reduces time available for other operating activities, which could adversely affect operating results |
| If we are unable to achieve full and timely compliance with these regulatory requirements, we could be required to incur additional costs, expend additional money and management time on additional remedial efforts which could adversely affect our results of operations |
| Failure to implement effective control systems, or failure to complete our assessment of the effectiveness of our internal control over financial reporting, may subject us to regulatory sanctions and could result in a loss of public confidence, which could harm our operating results |
| Pursuant to Section 404 of the Sarbanes-Oxley Act, beginning with our fiscal year ending December 31, 2005, we are required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting |
| Furthermore, our independent registered public accounting firm is required to issue an opinion on whether our assessment of the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005 |