| ALLOS THERAPEUTICS INC ITEM 1A RISK FACTORS Our business faces significant risks |
| These risks include those described below and may include additional risks of which we are not currently aware or which we currently do not believe are material |
| If any of the events or circumstances described in the following risk factors actually occurs, our business, financial condition and results of operations could be materially adversely affected |
| These risks should be read in conjunction with the other information set forth in this report |
| We have a history of net losses and an accumulated deficit, and we may never achieve or maintain revenue or profitability in the future |
| We have never generated revenue from product sales and have experienced significant net losses since our inception in 1992 |
| To date, we have financed our operations primarily through the private sale of securities and our initial public offering of common stock in March 2000 |
| For the years ended December 31, 2003, 2004 and 2005, we had net losses of dlra23dtta1 million, dlra21dtta8 million, and dlra20dtta8 million, respectively |
| As of December 31, 2005, we have accumulated a deficit of dlra178dtta3 million during our development stage |
| We have incurred these losses principally from costs incurred in our research and development programs and from our general and administrative expenses |
| We expect to continue incurring net losses for the foreseeable future |
| The presence and size of these potential net losses will depend, in large part, on if and when we obtain regulatory approval in the United States or Europe to market EFAPROXYN as an adjunct to radiation therapy for the treatment of brain metastases from breast cancer |
| Our ability to generate revenue and achieve profitability is dependent on our ability, alone or with partners, to successfully complete the development of our product candidates, conduct clinical trials, obtain the necessary regulatory approvals, and manufacture and market our product candidates |
| We may never generate revenue from product sales or become profitable |
| We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials for our product candidates |
| We may not be able to continue as a going concern if we are unable to generate meaningful amounts of revenue to support our operations or cannot otherwise raise the necessary funds to support our operations |
| If we are unable to find a suitable successor to Michael E Hart as the Companyapstas President, Chief Executive Officer and Chief Financial Officer in a timely manner, our business and results of operations may be harmed |
| Hart has notified our Board of Directors of his intent to resign his positions of President, Chief Executive Officer and Chief Financial Officer of the Company once a successor Chief Executive Officer is appointed |
| Our Board of Directors has retained a nationally recognized executive search firm to assist in the recruitment of a successor Chief Executive Officer |
| However, competition for executive personnel is intense, and we may be unable to obtain a suitable replacement for Mr |
| Hart in a timely manner, or at all |
| Hart may choose to leave the Company prior to his successor being appointed, in which case our business and results of operations may be adversely affected |
| Our product candidates are in various stages of development and may never be fully developed in a manner suitable for commercialization |
| If we do not develop commercially successful products, our ability to generate revenue will be limited |
| We currently have no products that are approved for commercial sale |
| All of our product candidates are in various stages of development, and significant research and development, financial resources and personnel will be required to develop commercially viable products and obtain regulatory approvals |
| A majority of our efforts and expenditures over the next few years will be devoted to EFAPROXYN Accordingly, our future prospects are substantially dependent on obtaining regulatory approval in the United States or Europe to market EFAPROXYN as an adjunct to radiation therapy for the treatment of brain metastases originating from breast cancer |
| EFAPROXYN is not expected to be commercially available for this or any other indication until at least 2007 |
| In addition, PDX and 21 _________________________________________________________________ RH1 are in earlier stages of product development relative to EFAPROXYN, and as such, we expect that PDX and RH1 will not be commercially available until after EFAPROXYN is commercially available |
| Further, certain of the indications that we are pursuing have relatively low incidence rates, which may make it difficult for us to enroll a sufficient number of patients in our clinical trials on a timely basis, or at all, and may limit the revenue potential of our product candidates |
| If we are unable to develop, receive approval for, or successfully commercialize any of our product candidates, we may be unable to generate meaningful revenue from product sales and will incur continued net losses |
| We cannot predict when or if we will obtain regulatory approval to commercialize our product candidates |
| A pharmaceutical product cannot be marketed in the United States or most other countries until it has completed a rigorous and extensive regulatory approval process |
| If we fail to obtain regulatory approval to market our product candidates, we will be unable to sell our products and generate revenue, which would jeopardize our ability to continue operating our business |
| Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources |
| Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use |
| We may not obtain regulatory approval for any product candidates we develop, including EFAPROXYN, or we may not obtain regulatory review of such product candidates in a timely manner |
| For a more complete description of the regulatory approval process and related risks, please refer to the "e Government Regulation "e section of Item 1 above |
| If our product candidates do not meet safety and efficacy endpoints in clinical trials, they will not receive regulatory approval, and we will be unable to market them |
| Our product candidates may not prove to be safe and efficacious in clinical trials and may not meet all of the applicable regulatory requirements needed to receive regulatory approval |
| The clinical development and regulatory approval process is extremely expensive and takes many years |
| Failure can occur at any stage of development, and the timing of any regulatory approval cannot be accurately predicted |
| If we fail to obtain regulatory approval for our current or future product candidates, we will be unable to market and sell them and therefore may never be profitable |
| As part of the regulatory process, we must conduct clinical trials for each product candidate to demonstrate safety and efficacy to the satisfaction of the FDA and other regulatory authorities abroad |
| The number and design of clinical trials that will be required varies depending on the product candidate, the condition being evaluated, the trial results and regulations applicable to any particular product candidate |
| For example, based on the interim results from the Phase 1/2 study of PDX in patients with NHL that is currently ongoing, we plan to initiate a Phase 2 open-label, multi-center study of PDX in patients with relapsed or refractory PTCL Given the aggressive nature of PTCL, the absence of an approved agent in this setting and the relative size of other Phase 2 studies that have supported marketing approval for other niche hematology drugs, such as nelarabine, we believe this Phase 2 trial, if positive, may provide the basis to obtain marketing approval for PDX in this indication |
| However, we cannot assure you that the design of, or data collected from this Phase 2 trial, or any of our other current or future clinical trials, we be sufficient to support FDA or any foreign regulatory approval |
| This Phase 2 trial may not demonstrate the safety and efficacy of PDX for the treatment of PTCL, or we may be required to conduct additional trials to support regulatory approval of PDX in this indication |
| The design of our clinical trials is based on many assumptions about the expected effect of our product candidates, and if those assumptions prove incorrect, the clinical trials may not produce statistically significant results |
| Preliminary results may not be confirmed upon full analysis of the detailed results of a trial, and prior clinical trial program designs and results may not be predictive of future clinical trial designs or results |
| Product candidates in later stage clinical trials may fail to show 22 _________________________________________________________________ the desired safety and efficacy despite having progressed through initial clinical trials with acceptable endpoints |
| If our product candidates fail to show clinically significant benefits, they will not be approved for marketing |
| We may experience delays in our clinical trials, including ENRICH, that could adversely affect our financial position and our commercial prospects |
| We do not know when our current clinical trials, including ENRICH, will be completed, if at all |
| We also cannot accurately predict when other planned clinical trials will begin or be completed |
| Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs approved for the conditions we are investigating |
| Other companies are conducting clinical trials and have announced plans for future trials that are seeking or likely to seek patients with the same diseases as those we are studying |
| Competition for patients in some cancer trials is particularly intense because of the limited number of leading specialist physicians and the geographic concentration of major clinical centers |
| As a result of the numerous factors which can affect the pace of progress of clinical trials, our trials may take longer to enroll patients than we anticipate, if they can be completed at all |
| Delays in patient enrollment in the trials may increase our costs and slow our product development and approval process |
| Our product development costs will also increase if we need to perform more or larger clinical trials than planned |
| If other companies &apos product candidates show favorable results, we may be required to conduct additional clinical trials to address changes in treatment regimens or for our products to be commercially competitive |
| Any delays in completing our clinical trials will delay our ability to generate revenue from product sales, and we may have insufficient capital resources to support our operations |
| Even if we do have sufficient capital resources, our ability to become profitable will be delayed |
| We may be required to suspend, repeat or terminate our clinical trials, including ENRICH, if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed |
| Clinical trials must be conducted in accordance with the FDAapstas Good Clinical Practices and are subject to oversight by the FDA and Institutional Review Boards at the medical institutions where the clinical trials are conducted |
| In addition, clinical trials must be conducted with product candidates produced under the FDAapstas Good Manufacturing Practices, and may require large numbers of test subjects |
| Clinical trials may be suspended by the FDA or us at any time if it is believed that the subjects participating in these trials are being exposed to unacceptable health risks or if the FDA finds deficiencies in the conduct of these trials |
| Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials |
| Data obtained from preclinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory clearances, and the FDA can request that we conduct additional clinical trials |
| A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials |
| As a result, there can be no assurance that our ENRICH trial will achieve its primary endpoint |
| In addition, negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated or terminated |
| Also, failure to construct clinical trial protocols to screen patients for risk profile factors relevant to the trial for purposes of segregating patients into the patient populations treated with the drug being tested and the control group could result in either group experiencing a disproportionate number of adverse events and could cause a clinical trial to be repeated or terminated |
| If we have to conduct additional clinical trials, whether for EFAPROXYN or any other product candidate, it would significantly increase our expenses and delay marketing of our products |
| 23 _________________________________________________________________ Adverse events in our clinical trials may force us to stop development of our product candidates or prevent regulatory approval of our product candidates |
| Our product candidates may produce serious adverse events |
| These adverse events could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying approval of our product candidates for any or all targeted indications |
| An independent data safety monitoring board, the FDA, other regulatory authorities or we may suspend or terminate clinical trials at any time |
| We cannot assure you that any of our product candidates will be safe for human use |
| Due to our reliance on contract research organizations and other third parties to conduct clinical trials, we are unable to directly control the timing, conduct and expense of our clinical trials |
| We rely primarily on third parties to conduct our clinical trials, including the ENRICH trial |
| As a result, we have had and will continue to have less control over the conduct of our clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trial than would be the case if we were relying entirely upon our own staff |
| Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities |
| Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials |
| We may experience unexpected cost increases that are beyond our control |
| Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider |
| However, making this change may be costly and may delay our trials, and contractual restrictions may make such a change difficult or impossible |
| Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost |
| Even if our product candidates meet safety and efficacy endpoints in clinical trials, regulatory authorities may not approve them, or we may face post-approval problems that require withdrawal of our products from the market |
| Our product candidates may not be approved even if they achieve their endpoints in clinical trials |
| Regulatory agencies, including the FDA, or their advisors may disagree with our interpretations of data from preclinical studies and clinical trials |
| Regulatory agencies also may approve a product candidate for fewer conditions than requested or may grant approval subject to the performance of post-marketing studies for a product candidate |
| In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates |
| Even if we receive regulatory approvals, our product candidates may later exhibit adverse effects that limit or prevent their widespread use or that force us to withdraw those product candidates from the market |
| In addition, a marketed product continues to be subject to strict regulation after approval and may be required to undergo post-approval studies |
| Any unforeseen problems with an approved product or any violation of regulations could result in restrictions on the product, including its withdrawal from the market |
| Any delay in, or failure to receive or maintain regulatory approval for, any of our products could prevent us from ever generating meaningful revenues or achieving profitability |
| Even if we receive regulatory approval for our product candidates, we will be subject to ongoing regulatory obligations and review |
| Following any regulatory approval of our product candidates, we will be subject to continuing regulatory obligations such as safety reporting requirements and additional post-marketing obligations, including regulatory oversight of the promotion and marketing of our products |
| In addition, we or our third-party manufacturers will be required to adhere to regulations setting forth current Good Manufacturing Practices |
| These regulations cover all aspects of the manufacturing, storage, testing, 24 _________________________________________________________________ quality control and record keeping relating to our product candidates |
| Furthermore, we or our third-party manufacturers must pass a pre-approval inspection of manufacturing facilities by the FDA and foreign authorities before obtaining marketing approval and will be subject to periodic inspection by these regulatory authorities |
| Such inspections may result in compliance issues that could prevent or delay marketing approval, or require the expenditure of financial or other resources to address |
| If we or our third-party manufacturers fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution |
| Budget constraints may force us to delay our efforts to develop certain product candidates in favor of developing others, which may prevent us from commercializing all product candidates as quickly as possible |
| Because we have limited resources, and because research and development is an expensive process, we must regularly assess the most efficient allocation of our research and development budget |
| As a result, we may have to prioritize development candidates and may not be able to fully realize the value of some of our product candidates in a timely manner, as they will be delayed in reaching the market, if at all |
| If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop or commercialize our product candidates |
| We expect that significant additional capital will be required in the future to continue our research and development efforts and to commercialize our product candidates, if approved for marketing |
| Our actual capital requirements will depend on many factors, including, among other factors: • the timing and outcome of our ongoing ENRICH trial; • costs associated with the commercialization of EFAPROXYN, if approved for marketing; • our evaluation of, and decisions with respect to, our strategic alternatives, and • costs associated with securing in-license opportunities, purchasing product candidates and conducting preclinical research and clinical development for our current and future product candidates |
| We intend to raise additional capital in the future through arrangements with corporate partners, equity or debt financings, or from other sources |
| We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders or us |
| If adequate funds are not available to us, we will be required to delay, reduce the scope of or eliminate one or more of our development programs and our business and future prospects for revenue and profitability may be harmed |
| To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution |
| To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us |
| If we are unable to effectively protect our intellectual property, we will be unable to prevent third parties from using our technology, which would impair our competitiveness and ability to commercialize our product candidates |
| In addition, enforcing our proprietary rights may be expensive and result in increased losses |
| Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our products, both in the United States and in other countries |
| We rely on patents to protect a large part of our intellectual property and our competitive position |
| Any patents issued to or licensed by us could be challenged, invalidated, infringed, circumvented or held unenforceable |
| In addition, it is possible that no patents will issue on any of our licensed patent applications |
| It is possible that the 25 _________________________________________________________________ claims in patents that have been issued or licensed to us or that may be issued or licensed to us in the future will not be sufficiently broad to protect our intellectual property or that the patents will not provide protection against competitive products or otherwise be commercially valuable |
| Failure to obtain and maintain adequate patent protection for our intellectual property would impair our ability to be commercially competitive |
| Our commercial success will also depend in part on our ability to commercialize our product candidates without infringing patents or other proprietary rights of others or breaching the licenses granted to us |
| We may not be able to obtain a license to third-party technology that we may require to conduct our business or, if obtainable, we may not be able to license such technology at a reasonable cost |
| If we fail to obtain a license to any technology that we may require to commercialize our technologies or product candidates, or fail to obtain a license at a reasonable cost, we will be unable to commercialize the affected product or to commercialize it at a price that will allow us to become profitable |
| In addition to patent protection, we also rely upon trade secrets, proprietary know-how and technological advances which we seek to protect through confidentiality agreements with our collaborators, employees and consultants |
| Our employees and consultants are required to enter into confidentiality agreements with us |
| We also have entered into non-disclosure agreements, which are intended to protect our confidential information delivered to third parties for research and other purposes |
| However, these agreements could be breached and we may not have adequate remedies for any breach, or our trade secrets and proprietary know-how could otherwise become known or be independently discovered by others |
| Furthermore, as with any pharmaceutical company, our patent and other proprietary rights are subject to uncertainty |
| Our patent rights related to our product candidates might conflict with current or future patents and other proprietary rights of others |
| For the same reasons, the products of others could infringe our patents or other proprietary rights |
| Litigation or patent interference proceedings, either of which could result in substantial costs to us, may be necessary to enforce any of our patents or other proprietary rights, or to determine the scope and validity or enforceability of other parties &apos proprietary rights |
| The defense and prosecution of patent and intellectual property infringement claims are both costly and time consuming, even if the outcome is favorable to us |
| Any adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease selling our future products |
| We are not currently a party to any patent or other intellectual property infringement claims |
| We do not have manufacturing facilities or capabilities and are dependent on third parties to fulfill our manufacturing needs, which could result in the delay of clinical trials, regulatory approvals, product introductions and commercial sales |
| We are dependent on third parties for the manufacture and storage of our product candidates for clinical trials and, if approved, for commercial sale |
| If we are unable to contract for a sufficient supply of our product candidates on acceptable terms, or if we encounter delays or difficulties in the manufacturing process or our relationships with our manufacturers, we may not have sufficient product to conduct or complete our clinical trials or support commercial requirements for our product candidates, if approved |
| We have a contract with Hovione Inter Limited for the supply of EFAPROXYN bulk drug substance, and a contract with Baxter Healthcare for the supply of EFAPROXYN formulated drug product |
| These manufacturers are currently our only contracted sources for the production and formulation of EFAPROXYN Even if we obtain approval to market EFAPROXYN in one or more indications, our current or future manufacturers may be unable to accurately and reliably manufacture commercial quantities of 26 _________________________________________________________________ EFAPROXYN at reasonable costs, on a timely basis and in compliance with the FDAapstas current Good Manufacturing Practices |
| If our current or future contract manufacturers fail in any of these respects, our ability to timely complete our clinical trials, obtain required regulatory approvals and successfully commercialize EFAPROXYN will be materially and adversely affected |
| Our reliance on contract manufacturers exposes us to additional risks, including: • delays or failure to manufacture sufficient quantities needed for clinical trials in accordance with our specifications or to deliver such quantities on the dates we require; • our current and future manufacturers are subject to ongoing, periodic, unannounced inspections by the FDA and corresponding state and international regulatory authorities for compliance with strictly enforced current Good Manufacturing Practice regulations and similar foreign standards, and we do not have control over our contract manufacturers &apos compliance with these regulations and standards; • our current and future manufacturers may not be able to comply with applicable regulatory requirements, which would prohibit them from manufacturing products for us; • if we need to change to other commercial manufacturing contractors, the FDA and comparable foreign regulators must approve these contractors prior to our use, which would require new testing and compliance inspections, and the new manufacturers would have to be educated in, or themselves develop substantially equivalent processes necessary for, the production of our products; • our manufacturers might not be able to fulfill our commercial needs, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market demands; and • we may not have intellectual property rights, or may have to share intellectual property rights, to any improvements in the manufacturing processes or new manufacturing processes for our products |
| Any of these factors could result in the delay of clinical trials, regulatory submissions, required approvals or commercialization of our products under development, entail higher costs and result in our being unable to effectively commercialize our products |
| Acceptance of our products in the marketplace is uncertain, and failure to achieve market acceptance will limit our ability to generate revenue and become profitable |
| Even if approved for marketing, our products may not achieve market acceptance |
| The degree of market acceptance will depend upon a number of factors, including: • the receipt of timely regulatory approval for the uses that we are studying; • the establishment and demonstration in the medical community of the safety and efficacy of our products and their potential advantages over existing and newly developed therapeutic products; • ease of use of our products; • reimbursement and coverage policies of government and private payors such as insurance companies, health maintenance organizations and other plan administrators; and • the scope and effectiveness of our sales and marketing efforts |
| Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend the use of any of our products |
| 27 _________________________________________________________________ The status of reimbursement from third-party payors for newly approved health care drugs is uncertain and failure to obtain adequate reimbursement could limit our ability to generate revenue |
| Our ability to successfully commercialize our products will depend, in part, on the extent to which reimbursement for the products will be available from: • government and health administration authorities; • private health insurers; • managed care programs; and • other third-party payors |
| Significant uncertainty exists as to the reimbursement status of newly approved health care products |
| Third-party payors, including Medicare, are challenging the prices charged for medical products and services |
| Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease conditions for which the FDA has not granted labeling approval |
| Third-party insurance coverage may not be available to patients for our products |
| If government and other third-party payors do not provide adequate coverage and reimbursement levels for our product candidates, their market acceptance may be reduced |
| Health care reform measures could adversely affect our business |
| The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care |
| In the United States and in foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the health care system |
| For example, in some countries other than the United States, pricing of prescription drugs is subject to government control, and we expect proposals to implement similar controls in the United States to continue |
| We are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business |
| The pendency or approval of such proposals or reforms could result in a decrease in our stock price or limit our ability to raise capital or to obtain strategic partnerships or licenses |
| The FDA has designated EFAPROXYN for the treatment of brain metastases from breast cancer as an orphan drug under the Orphan Drug Act |
| The Orphan Drug Act provides incentives to pharmaceutical companies to develop and market drugs for rare diseases, generally by entitling the first developer that receives FDA marketing approval for an orphan drug to a seven-year exclusive marketing period in the United States for that product |
| In recent years, Congress has considered legislation to change the Orphan Drug Act to shorten the period of automatic market exclusivity and to grant marketing rights to simultaneous developers of a drug |
| If the Orphan Drug Act is amended in this manner, any approved drugs for which we have been granted exclusive marketing rights under the Orphan Drug Act will face increased competition, which may decrease the amount of revenue we may receive from these products |
| If we are unable to develop adequate sales, marketing or distribution capabilities or enter into agreements with third parties to perform some of these functions, we will not be able to commercialize our products effectively |
| We have limited experience in sales, marketing and distribution |
| To directly market and distribute any products, we must build a sales and marketing organization with appropriate technical expertise and distribution capabilities |
| We may attempt to build such a sales and marketing organization on our 28 _________________________________________________________________ own or with the assistance of a contract sales organization |
| For some market opportunities, we may need to enter into co-promotion or other licensing arrangements with larger pharmaceutical or biotechnology firms in order to increase the likelihood of commercial success for our products |
| We may not be able to establish sales, marketing and distribution capabilities of our own or enter into such arrangements with third parties in a timely manner or on acceptable terms |
| To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and some or all of the revenues we receive will depend upon the efforts of third parties, and these efforts may not be successful |
| Additionally, building marketing and distribution capabilities may be more expensive than we anticipate, requiring us to divert capital from other intended purposes or preventing us from building our marketing and distribution capabilities to the desired levels |
| If our competitors develop and market products that are more effective than ours, our commercial opportunity will be reduced or eliminated |
| Even if we obtain the necessary regulatory approvals to market EFAPROXYN or any other product candidates, our commercial opportunity will be reduced or eliminated if our competitors develop and market products that are more effective, have fewer side effects or are less expensive than our product candidates |
| Our potential competitors include large fully integrated pharmaceutical companies and more established biotechnology companies, both of which have significant resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals and marketing |
| Academic institutions, government agencies, and other public and private research organizations conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing |
| It is possible that competitors will succeed in developing technologies that are more effective than those being developed by us or that would render our technology obsolete or noncompetitive |
| If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates |
| The testing and marketing of pharmaceutical products entail an inherent risk of product liability |
| Product liability claims might be brought against us by consumers, health care providers or by pharmaceutical companies or others selling our future products |
| If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities or be required to limit the commercialization of our product candidates |
| We have obtained limited product liability insurance coverage for our human clinical trials |
| However, product liability insurance coverage is becoming increasingly expensive, and we may be unable to maintain product liability insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability |
| A successful product liability claim in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations |
| We may not be able to obtain commercially reasonable product liability insurance for any products approved for marketing |
| We are currently involved in a securities class action litigation, which could harm our business if management attention is diverted or the claims are decided against us |
| We have been named as a defendant in an alleged securities class action lawsuit seeking unspecified damages relating to the issuance of allegedly false and misleading statements regarding EFAPROXYN during the period from May 29, 2003 to April 29, 2004 and subsequent declines in our stock price |
| On October 20, 2005, the District Court granted our motion to dismiss the lawsuit with prejudice and entered judgment in our favor |
| On November 20, 2005, the plaintiff appealed the decision to the United States Court of Appeals for the Tenth Circuit |
| We are currently engaged in defending against these claims, which, if decided against us, could have a material adverse effect on our business, financial condition and results of operations |
| The costs incurred in connection with this lawsuit could be significant and may not be covered by our insurance policies |
| This lawsuit could also 29 _________________________________________________________________ result in continued diversion of our time and attention away from business operations, which could harm our business |
| Failure to attract, retain and motivate skilled personnel and cultivate key academic collaborations will delay our product development programs and our research and development efforts |
| We are a small company with 57 full-time employees, and our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions and scientists |
| Competition for personnel and academic collaborations is intense |
| In particular, our product development programs depend on our ability to attract and retain highly skilled clinical development personnel |
| In addition, we will need to hire additional personnel and develop additional academic collaborations as we continue to expand our research and development activities |
| We do not know if we will be able to attract, retain or motivate personnel or maintain our relationships with academic institutions and scientists |
| If we fail to negotiate additional acceptable collaborations with academic institutions and scientists, or if our existing academic collaborations were to be unsuccessful, our product development programs may be delayed |
| We cannot guarantee that we will be in compliance with all potentially applicable regulations |
| The development, manufacturing, and, if approved, pricing, marketing, sales and reimbursement of our products, together with our general obligations, are subject to extensive regulation by federal, state and other authorities within the United States and numerous entities outside of the United States |
| We also have significantly fewer employees than many other companies that have the same or fewer product candidates in late stage clinical development and we rely heavily on third parties to conduct many important functions |
| As a publicly-traded company, we are subject to significant regulations, some of which have either only recently been adopted, including the Sarbanes Oxley Act of 2002, or are currently proposals subject to change |
| We cannot assure that we are or will be in compliance with all potentially applicable regulations |
| If we fail to comply with the Sarbanes Oxley Act of 2002 or any other regulations we could be subject to a range of consequences, including restrictions on our ability to sell equity or otherwise raise capital funds, the de-listing of our common stock from the Nasdaq National Market, suspension or termination of our clinical trials, failure to obtain approval to market our product candidates, restrictions on future products or our manufacturing processes, significant fines, or other sanctions or litigation |
| Warburg Pincus Private Equity VIII, LP ( "e Warburg "e ) controls a substantial percentage of the voting power of our outstanding common stock |
| On March 2, 2005, we entered into a Securities Purchase Agreement with Warburg Pincus Private Equity VIII, LP ( "e Warburg "e ) and certain other investors pursuant to which we issued and sold an aggregate of 2cmam352cmam443 shares of our Series A Exchangeable Preferred Stock (the "e Exchangeable Preferred "e ) at a price per share of dlra22dtta10, for aggregate gross proceeds of approximately dlra52dtta0 million |
| On May 18, 2005, at our Annual Meeting of Stockholders, our stockholders voted to approve the issuance of shares of our common stock upon exchange of shares of the Exchangeable Preferred |
| As a result of such approval, we issued a total of 23cmam524cmam430 shares of common stock upon exchange of 2cmam352cmam443 shares of Exchangeable Preferred (the "e Share Exchange "e ) |
| After giving effect to the Share Exchange, the Company has approximately 55dtta1 million shares of common stock outstanding as of December 31, 2005 |
| Warburg owns approximately 22dtta6 million shares of our common stock, or 41prca of the voting power of our outstanding common stock as of December 31, 2005 |
| As a result, Warburg is able to exercise substantial influence over any actions requiring stockholder approval |
| However, in connection with its purchase of the Exchangeable Preferred, Warburg entered into a standstill agreement agreeing not to pursue, for four years, certain activities the purpose or effect of which may be to change or influence the control of Allos |
| 30 _________________________________________________________________ Anti-takeover provisions in our charter documents and under Delaware law could discourage, delay or prevent an acquisition of us, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management |
| Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders |
| In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors |
| Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team |
| These provisions include: • authorizing the issuance of "e blank check "e preferred stock that could be issued by our board of directors to increase the number of outstanding shares or change the balance of voting control and thwart a takeover attempt; • prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates; • prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; • eliminating the ability of stockholders to call a special meeting of stockholders; and • establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings |
| In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder |
| This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders |
| Notwithstanding the foregoing, the three year moratorium imposed on business combinations by Section 203 will not apply to Warburg because, prior to the date on which Warburg became an interested stockholder, our board of directors approved the transaction which resulted in Warburg becoming an interested stockholder |
| However, in connection with its purchase of Exchangeable Preferred, Warburg entered into a standstill agreement agreeing not to pursue, for four years, certain activities the purpose or effect of which may be to chance or influence the control of Allos |
| We have adopted a stockholder rights plan that may discourage, delay or prevent a merger or acquisition that is beneficial to our stockholders |
| In May 2003, our board of directors adopted a stockholder rights plan that may have the effect of discouraging, delaying or preventing a merger or acquisition of us that is beneficial to our stockholders by diluting the ability of a potential acquirer to acquire us |
| Pursuant to the terms of our plan, when a person or group, except under certain circumstances, acquires 15prca or more of our outstanding common stock or 10 business days after announcement of a tender or exchange offer for 15prca or more of our outstanding common stock, the rights (except those rights held by the person or group who has acquired or announced an offer to acquire 15prca or more of our outstanding common stock) would generally become exercisable for shares of our common stock at a discount |
| In addition, the existence of the plan itself may deter a potential acquirer from acquiring us |
| As a result, either by operation of the plan or by its potential deterrent effect, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur |
| 31 _________________________________________________________________ Because Warburg owns a substantial percentage of our outstanding common stock, we amended the stockholder rights plan in connection with Warburgapstas purchase of the Exchangeable Preferred to provide that Warburg and its affiliates will be exempt from the stockholder rights plan, unless Warburg and its affiliates become, without our prior consent, the beneficial owner of more than 44prca of our common stock |
| Under the stockholder rights plan, our Board of Directors has express authority to amend the rights plan without stockholder approval |
| The market price for our common stock has been and may continue to be highly volatile |
| We cannot be sure that an active trading market for our common stock will exist at any time |
| The trading price of our common stock has been and is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: • actual or anticipated results of our clinical trials; • actual or anticipated regulatory approvals or non-approvals of our product candidates, including EFAPROXYN, or of competing product candidates; • changes in laws or regulations applicable to our product candidates; • changes in the expected or actual timing of our development programs; • actual or anticipated variations in quarterly operating results; • announcements of technological innovations by us or our competitors; • changes in financial estimates or recommendations by securities analysts; • conditions or trends in the biotechnology and pharmaceutical industries; • changes in the market valuations of similar companies; • announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments; • additions or departures of key personnel; • disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; • developments concerning any research and development, manufacturing, and marketing collaborations; • sales of large blocks of our common stock; • sales of our common stock by our executive officers, directors and five percent stockholders; and • economic and other external factors, including disasters or crises |
| In addition, the stock market in general, the Nasdaq National Market and the market for technology companies in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies |
| Further, there has been particular volatility in the market prices of securities of biotechnology and life sciences companies |
| These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance |
| In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies |
| Such litigation, if instituted against us, could result in substantial costs and diversion of managementapstas attention and resources |
| 32 _________________________________________________________________ We are required to recognize stock-based compensation expense relating to employee stock options and stock purchases under our Employee Stock Purchase Plan, and the amount of expense we recognize may not accurately reflect the value of our share-based payment awards |
| Further, the recognition of stock-based compensation expense will cause our net losses to increase and may cause the trading price of our common stock to fluctuate |
| On January 1, 2006, we adopted Statement of Financial Accounting Standards ( "e SFAS "e ) Nodtta 123 (Revised 2004), Share-Based Payment ( "e SFAS 123R "e ), which requires the measurement and recognition of compensation expense for all stock-based compensation based on estimated fair values |
| As a result, our operating results for the first quarter of 2006 and for future periods will contain a charge for stock-based compensation related to employee stock options and employee stock purchases |
| The application of SFAS 123R requires the use of an option-pricing model to determine the fair value of share-based payment awards |
| This determination of fair value is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables |
| These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors |
| Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable |
| Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in managementapstas opinion the existing valuation models may not provide an accurate measure of the fair value of our employee stock options |
| Although the fair value of employee stock options is determined in accordance with SFAS 123R and other relevant accounting pronouncements using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction |
| We expect that our adoption of SFAS 123R will have a material impact on our financial statements and results of operations and this will continue to be the case for future periods |
| We cannot predict the effect that our stock-based compensation expense will have on the trading price of our common stock |
| If we do not progress in our programs as anticipated, our stock price could decrease |
| For planning purposes, we estimate the timing of a variety of clinical, regulatory and other milestones, such as when a certain product candidate will enter clinical development, when a clinical trial will be completed or when an application for regulatory approval will be filed |
| Some of our estimates are included in this report |
| Our estimates are based on information available to us as of the date of this report and a variety of assumptions |
| Many of the underlying assumptions are outside of our control |
| If milestones are not achieved when we estimated that they would be, investors could be disappointed, and our stock price may decrease |
| Substantial sales of shares may impact the market price of our common stock |
| If our stockholders sell substantial amounts of our common stock, the market price of our common stock may decline |
| These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we consider appropriate |
| We are unable to predict the effect that sales may have on the then prevailing market price of our common stock |
| Pursuant to a Registration Rights Agreement entered into between us and the purchasers of Exchangeable Preferred, beginning on March 4, 2007, the purchasers of Exchangeable Preferred will be entitled to certain registration rights with respect to the shares of common stock that were issued upon exchange of the Exchangeable Preferred |