| AMYLIN PHARMACEUTICALS INC Item 1A Risk Factors CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS Except for the historical information contained herein or incorporated by reference, this annual report on Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties |
| These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance |
| These statements are not guarantees of future performance or events |
| Our actual results may differ materially from those discussed here |
| Factors that could cause or contribute to differences in our actual results include those discussed in the following section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this annual report on Form 10-K and in any other documents incorporated by reference into this report |
| You should consider carefully the following risk factors, together with all of the other information included or incorporated in this annual report on Form 10-K Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock |
| There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position |
| We have a history of operating losses, anticipate future losses, and may never become profitable |
| We have experienced significant operating losses since our inception in 1987, including losses of dlra206dtta8 million in 2005, dlra157dtta2 million in 2004 and dlra122dtta8 million in 2003 |
| As of December 31, 2005, we had an accumulated deficit of approximately dlra1dtta0 billion |
| The extent of our future losses and the timing of potential profitability are uncertain, and we may never achieve profitable operations |
| We have been engaged in discovering and developing drugs since inception, which has required, and will continue to require, significant research and development expenditures |
| We derived substantially all of our revenues prior to 2005 from development funding, fees and milestone payments under collaborative agreements and from interest income |
| We may not succeed in commercializing BYETTA or SYMLIN, or any of our other drug candidates |
| We may incur substantial operating losses for at least the next few years as we continue to expand our commercial function in the immediate future for BYETTA and SYMLIN and our research and development activities for the other drug candidates in our development pipeline |
| These losses, among other things, have had and will have an adverse effect on our stockholders’ equity and working capital |
| Even if we become profitable, we may not remain profitable |
| We began selling, marketing and distributing our first products, BYETTA and SYMLIN, in 2005 and we will depend heavily on the success of those products in the marketplace |
| Prior to the launch of BYETTA and SYMLIN, we had never sold or marketed our own products |
| Our ability to generate product revenue in the foreseeable future will depend solely on the commercialization of these products |
| The successful commercialization of BYETTA and SYMLIN will depend on many factors, including the following: • acceptance of these first-in-class medicines by the medical community, patients receiving therapy and third party payors; • a satisfactory efficacy and safety profile as demonstrated in a broad patient population; • successfully building and sustaining manufacturing capacity to meet demand; • the competitive landscape for approved and developing therapies that will compete with the products; and • our ability to expand the indications for which we can market the products |
| If we encounter safety issues with BYETTA or SYMLIN or any other drugs we market or fail to comply with extensive continuing regulations enforced by domestic and foreign regulatory authorities, it could cause us to discontinue marketing those drugs, reduce our revenues and harm our ability to generate future revenues, which would negatively impact our financial position |
| BYETTA and SYMLIN, in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA, and we cannot assure you that newly discovered or developed safety issues will not arise |
| With the use of any of our marketed drugs by a wide patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself, and only if the specific event occurs with some regularity over a period of time does the drug become suspect as having a causal relationship to the adverse event |
| Any safety issues could cause us to suspend or cease marketing of our approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition |
| Moreover, the marketing of our approved products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including adverse event reporting requirements and the FDA’s general prohibition against promoting products for unapproved uses |
| The manufacturing facilities for our approved products are also subject to continual review and periodic 18 ______________________________________________________________________ inspection and approval of manufacturing modifications |
| Manufacturing facilities that manufacture drug products for the US market, whether they are located inside or outside the United States, are subject to biennial inspections by the FDA and must comply with the FDA’s cGMP regulations |
| The FDA stringently applies regulatory standards for manufacturing |
| Failure to comply with any of these post-approval requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecutions |
| Any of these enforcement actions, any unanticipated changes in existing regulatory requirements or the adoption of new requirements, or any safety issues that arise with any approved products, could adversely affect our ability to market products and generate revenues and thus adversely affect our ability to continue our business |
| The manufacturers of our products and drug candidates also are subject to numerous federal, state, local and foreign laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal |
| In the future, our manufacturers may incur significant costs to comply with those laws and regulations, which could increase our manufacturing costs and reduce our ability to operate profitably |
| We do not manufacture our own drug products or drug candidates and may not be able to obtain adequate supplies, which could cause delays, subject us to product shortages, or reduce product sales |
| The manufacturing of sufficient quantities of new and/or approved drug candidates is a time-consuming and complex process |
| We currently have no manufacturing capabilities |
| In order to successfully commercialize our products, including BYETTA and SYMLIN, and continue to develop our drug candidates, including exenatide LAR, we need to contract or otherwise arrange for the necessary manufacturing |
| There are a limited number of manufacturers that operate under the FDA’s cGMP regulations capable of manufacturing for us |
| If we are not able to arrange for and maintain third-party manufacturing on commercially reasonable terms, or we lose one of our sole source suppliers used for our existing products or for some components of our manufacturing processes for our products or drug candidates, we may not be able to market our products or complete development of our drug candidates on a timely basis, if at all |
| Reliance on third-party manufacturers limits our control regarding certain aspects of the manufacturing process and therefore exposes us to a variety of significant risks, including, but not limited to, risks to our ability to commercialize our products or conduct clinical trials, risks of reliance on the third-party for regulatory compliance and quality assurance, third-party refusal to supply on a long-term basis, the possibility of breach of the manufacturing agreement by the third-party and the possibility of termination or non-renewal of the agreement by the third-party, based on its business priorities, at a time that is costly or inconvenient for us |
| If any of our existing or future manufacturers cease to manufacture or are otherwise unable to timely deliver sufficient quantities of BYETTA or SYMLIN, our ability to successfully commercialize our products will be diminished |
| Likewise, if any of our existing or future manufacturers cease to manufacture or are otherwise unable to timely deliver sufficient quantities of BYETTA, SYMLIN, exenatide LAR or our other drug candidates, in either bulk or dosage form, or other product components, including pens for the delivery of these products, we may need to engage additional manufacturers, so that we will be able to continue our commercialization and development efforts for these products or drug candidates |
| The cost and time to establish these new manufacturing facilities would be substantial |
| As a result, using a new manufacturer could disrupt our ability to market our products, subject us to product shortages, reduce product sales, and/or reduce our profit margins |
| Any delay or disruption in the manufacturing of bulk product, the dosage form of our products or other product components, including pens for delivery of our products, could also harm our reputation in the medical and patient communities |
| We have entered into agreements with Bachem California and Mallinckrodt, Inc |
| for the long-term supply of bulk exenatide |
| We have long-term agreements with CP Pharmaceuticals Ltd, a subsidiary of Wockhardt Ltd, and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc, for the dosage form of BYETTA in cartridges |
| Currently, Baxter’s manufacturing process for BYETTA cartridges is undergoing validation |
| We have an agreement with Lilly to supply pens for delivery of BYETTA in cartridges |
| We have long-term agreements with Bachem and Lonza for the commercial manufacture of bulk pramlintide acetate, the active ingredient contained in SYMLIN and used in our treatment of obesity with pramlintide development program |
| We have a long-term contract with Baxter for the dosage form of SYMLIN in vials |
| We have a long-term agreement with CP Pharmaceuticals for the dosage form of SYMLIN in cartridges and are working with a manufacturer, Ypsomed AG, for the manufacture of disposable pens for delivery of SYMLIN in cartridges |
| Our manufacturers have not produced BYETTA or SYMLIN for commercial use for a sustained period of time |
| As such, additional unforeseeable risks may be encountered as we, together with our manufacturers, continue to develop familiarity and experience with regard to manufacturing our products |
| Furthermore, we and the other manufacturers used for our drug candidates may not be able to produce supplies in commercial quantities if our drug candidates are approved |
| While we believe that business relations between us and our manufacturers are generally good, we cannot predict whether any of the manufacturers that we may use will meet our requirements for quality, quantity or timeliness for the manufacture of bulk exenatide or pramlintide acetate, dosage form of BYETTA or SYMLIN, or pens |
| Therefore, we may not be able to obtain supplies of products with 19 ______________________________________________________________________ acceptable quality, on acceptable terms or in sufficient quantities, if at all |
| Our dependence on third parties for the manufacture of products may also reduce our gross profit margins and our ability to develop and deliver products in a timely manner |
| In order to manufacture on a commercial scale the once-weekly formulation of exenatide LAR, if it is approved by the FDA, we must design, construct, validate and license a new facility |
| We will depend upon Alkermes and Parsons to assist us in the design, construction and validation of the manufacturing facility |
| We have never established or operated a manufacturing facility and cannot assure you that we will be able to successfully establish or operate such a facility in a timely or economical manner, or at all |
| In addition, we will depend upon Alkermes to successfully develop and transfer to us its technology for manufacturing the once-weekly formulation of exenatide LAR While Alkermes has manufactured exenatide LAR in small quantities for use in clinical trials, we cannot assure you that a commercial scale manufacturing process for exenatide LAR will be successfully developed and/or transferred to us in a timely or economical manner, or at all |
| In addition, we are dependent upon Alkermes to supply us with commercial quantities of the polymer required to manufacture exenatide LAR We also will need to obtain sufficient supplies of diluent necessary for commercial manufacture of exenatide LAR If we, together with Alkermes, are unable to successfully develop a commercial scale manufacturing process and increase our manufacturing scale to a commercially viable level, we may not be able to commercially launch exenatide LAR Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products from third-party payors |
| The requirements governing product licensing, pricing and reimbursement vary widely from country to country |
| In many countries, the pricing review period begins after product licensing approval is granted |
| As a result, we may obtain regulatory approval for a product in a particular country, but then be subject to price regulations that reduce our revenues from the sale of the product |
| Also, in some foreign markets, pricing of prescription pharmaceuticals is subject to continuing governmental control even after initial marketing approval |
| With respect to BYETTA, SYMLIN, or any of our potential drug candidates, we cannot be certain that the products will be considered cost effective and that reimbursement will be available or will be sufficient to allow us to sell the products on a competitive basis |
| The continuing efforts of government, private health insurers, and other third-party payors to contain or reduce the costs of health care through various means, including efforts to increase the amount of patient co-pay obligations, may limit our commercial opportunity |
| In the United States, we expect that there will continue to be a number of federal and state proposals to implement government control over the pricing of prescription pharmaceuticals |
| In addition, increasing emphasis on managed care in the United States will continue to put pressure on the rate of adoption and pricing of pharmaceutical products |
| Significant uncertainty exists as to the reimbursement status of newly approved health care products such as BYETTA and SYMLIN 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 indications for which the FDA has not granted labeling approval |
| Third-party insurance coverage may not be available to patients for BYETTA and/or SYMLIN or any other products we discover and develop |
| If government and other third-party payors do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced |
| We may require future capital and are uncertain of the availability or terms of additional funding, and if additional capital is not available or not available on acceptable terms, we may have to reduce the size of our operations |
| We may need to continue to find additional sources of capital in order to successfully commercialize BYETTA and SYMLIN and to complete the development and commercialization of our drug candidates |
| Our future capital requirements will depend on many factors, including: • the costs of marketing and selling BYETTA and SYMLIN; • our ability, and the ability of any partner, to effectively market, sell and distribute BYETTA and SYMLIN; • the costs of manufacturing BYETTA, SYMLIN, exenatide LAR, and our other drug candidates; • the time and costs involved in designing, constructing, validating and licensing a facility to manufacture exenatide LAR; • the continuation of our collaboration with Lilly for the commercialization of BYETTA and the further development of sustained-release formulations of BYETTA, including exenatide LAR; • our ability to meet milestone objectives under our collaboration with Lilly; • our access to loan amounts under our collaboration with Lilly; • progress with our preclinical studies and clinical trials; • the time and costs involved in obtaining regulatory approvals for the marketing of any of our drug candidates; • scientific progress in our other research programs and the magnitude of these programs; • our ability to establish one or more development or commercialization arrangements for our drug candidates; 20 ______________________________________________________________________ • the acquisition and implementation cost of any potential realized licenses or acquisitions; • the costs involved in preparing, filing, prosecuting, maintaining and enforcing patents or defending ourselves against competing technological and market developments; and • the potential need to repay existing indebtedness |
| You should be aware that: • we may not be able to obtain additional financial resources in the necessary time frame or on terms favorable to us, if at all; • any available additional financing may not be adequate; and • we may be required to use a portion of future financing to repay existing indebtedness to our current or future creditors |
| In the event we are unable to obtain additional financing on acceptable terms, we may have to delay, scale back or eliminate one or more of our development or commercialization programs, or obtain funds by entering into more arrangements with collaborative partners or others that may require us to relinquish rights to certain of our drug candidates or technologies that we would not otherwise relinquish |
| Competition in the biotechnology and pharmaceutical industries may result in competing products, superior marketing of other products and lower revenues or profits for us |
| There are many companies that are seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders |
| Our competitors include multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions |
| A number of our largest competitors, including AstraZeneca, Bristol-Myers Squibb, Sanofi-Aventis, Lilly, GlaxoSmithKline, Merck & Co, Novartis, Novo Nordisk, Pfizer and Takeda Pharmaceuticals, are pursuing the development or marketing of pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity, cardiovascular disease and other metabolic disorders will increase |
| Many of our competitors have substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market technologically superior products |
| In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products |
| Accordingly, our competitors may succeed in obtaining FDA approval for superior products |
| Furthermore, now that we have received FDA approval for BYETTA and SYMLIN, we may also be competing against other companies with respect to our manufacturing and product distribution efficiency and sales and marketing capabilities, areas in which we have limited or no experience as an organization |
| Our initial target patient population for BYETTA is people with diabetes who have not achieved adequate glycemic control using metformin, a sulfonylurea or both two common oral therapies |
| Our target population for SYMLIN is people with either type 2 or type 1 diabetes whose therapy includes multiple mealtime insulin injections daily |
| Other products are currently in development or exist in the market that may compete directly with the products that we are developing or marketing |
| Various other products are available or in development to treat type 2 diabetes, including: • sulfonylureas; • metformin; • insulins, including injectable and inhaled versions; • glinides; • PPARS; • DPP-IV inhibitors; • alpha-glucosidase inhibitors; and • thiazolidinediones (TZDs) |
| In addition, several companies are developing various approaches to improve treatments for type 1 and type 2 diabetes |
| We cannot predict whether our products will have sufficient advantages to cause health care professionals to adopt them over other products or that our products will offer an economically feasible alternative to other products |
| Our products could become obsolete before we recover expenses incurred in developing these products |
| We are subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business |
| Upon approval of BYETTA and SYMLIN by the FDA, we became subject to various health care “fraud and abuse” laws, such as the Federal False Claims Act, the federal anti-kickback statute and other state and federal laws and regulations |
| Pharmaceutical companies have faced lawsuits and investigations pertaining to violations of these laws and regulations |
| We cannot 21 ______________________________________________________________________ guarantee that measures that we have taken to prevent such violations, including our corporate compliance program, will protect us from future violations, lawsuits or investigations |
| If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions |
| We are substantially dependent on our collaboration with Lilly for the development and commercialization of BYETTA and dependent on Lilly and Alkermes for the development of exenatide LAR We have entered into collaborative arrangements with Lilly, who currently markets diabetes therapies and is developing additional diabetes drug candidates, to commercialize BYETTA and further develop sustained-release formulations of BYETTA, including exenatide LAR We entered into this collaboration in order to: • fund some of our research and development activities; • assist us in seeking and obtaining regulatory approvals; and • assist us in the successful commercialization of BYETTA and exenatide LAR In general, we cannot control the amount and timing of resources that Lilly may devote to our collaboration |
| If Lilly fails to assist in the further development of exenatide LAR or the commercialization of BYETTA, or if Lilly’s efforts are not effective, our business may be negatively affected |
| We are primarily relying on Lilly to obtain regulatory approvals outside the United States for BYETTA and exenatide LAR Our collaboration with Lilly may not continue or result in successfully commercialized drugs |
| Lilly can terminate our collaboration at any time upon 60 days notice |
| If Lilly ceased funding and/or developing and commercializing BYETTA or sustained-release formulations of BYETTA, we would have to seek additional sources for funding and may have to delay, reduce or eliminate one or more of our development programs for these compounds |
| We are also dependent on Alkermes for the development of exenatide LAR If Alkermes’ technology is not successfully developed to effectively deliver exenatide in a sustained release formulation, or Alkermes does not devote sufficient resources to the collaboration, our efforts to develop sustained release formulations of exenatide could be delayed or curtailed |
| If our patents are determined to be unenforceable or if we are unable to obtain new patents based on current patent applications or for future inventions, we may not be able to prevent others from using our intellectual property |
| We own or hold exclusive rights to many issued US patents and pending US patent applications related to the development and commercialization of exenatide, including BYETTA and exenatide LAR, SYMLIN and our other drug candidates |
| These patents and applications cover composition-of-matter, medical indications, methods of use, formulations and other inventive results |
| We do have issued and pending applications for formulations of BYETTA and exenatide LAR We also own or hold exclusive rights to various foreign patent applications that correspond to issued US patents or pending US patent applications |
| Our success will depend in part on our ability to obtain patent protection for our products and drug candidates and technologies both in the United States and other countries |
| We cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us |
| Alternatively, a third party may successfully circumvent our patents |
| Our rights under any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes |
| In addition, because patent applications in the United States are maintained in secrecy for eighteen months after the filing of the applications, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be sure that the inventors of subject matter covered by our patents and patent applications were the first to invent or the first to file patent applications for these inventions |
| In the event that a third party has also filed a patent on a similar invention, we may have to participate in interference proceedings declared by the US Patent and Trademark Office to determine priority of invention, which could result in a loss of our patent position |
| Furthermore, we may not have identified all US and foreign patents that pose a risk of infringement |
| Litigation regarding patents and other proprietary rights may be expensive, cause delays in bringing products to market and harm our ability to operate |
| Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties and preventing others from infringing our patents |
| Challenges by pharmaceutical companies against the patents of competitors are common |
| Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions and the scope of claims made under these patents are still developing |
| Third parties may challenge, in courts or through patent office proceedings, or infringe upon, existing or future patents |
| In the event that a third party challenges a patent, a court or patent office may invalidate the patent or 22 ______________________________________________________________________ determine that the patent is not enforceable |
| Proceedings involving our patents or patent applications or those of others could result in adverse decisions about: • the patentability of our inventions, products and drug candidates; and/or • the enforceability, validity or scope of protection offered by our patents |
| The manufacture, use or sale of any of our products or drug candidates may infringe on the patent rights of others |
| If we are unable to avoid infringement of the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court |
| Patent litigation is costly and time consuming |
| We may not have sufficient resources to bring these actions to a successful conclusion |
| In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to successfully defend an infringement action or have infringing patents declared invalid, we may: • incur substantial monetary damages; • encounter significant delays in bringing our drug candidates to market; and/or • be precluded from participating in the manufacture, use or sale of our products or drug candidates or methods of treatment requiring licenses |
| Our business has a substantial risk of product liability claims, and insurance may be expensive or unavailable |
| Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products |
| Product liability claims could result in the imposition of substantial liability on us, a recall of products, or a change in the indications for which they may be used |
| We currently have limited product liability insurance |
| We cannot assure you that our insurance will provide adequate coverage against potential liabilities |
| Furthermore, product liability insurance is becoming increasingly expensive |
| As a result, we may not be able to obtain additional insurance or obtain insurance at a reasonable cost or in sufficient amounts to protect against losses that could have a material adverse effect on us |
| Delays in the conduct or completion of our clinical trials, the analysis of the data from our clinical trials, or our manufacturing scale-up activities may result in delays in our planned filings for regulatory approvals, and may adversely affect our ability to enter into new collaborative arrangements |
| We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical studies that will cause us or regulatory authorities to delay or suspend our ongoing clinical studies, delay or suspend planned clinical studies, or delay the analysis of data from our completed or ongoing clinical studies |
| We also cannot predict whether we will encounter delays or an inability to create manufacturing processes for drug candidates that allow us to produce drug product in large enough quantities to be economical, otherwise known as manufacturing scale-up |
| If the results of our ongoing or planned clinical studies for our drug candidates are not available when we expect or if we encounter any delay in the analysis of data from our clinical studies or if we encounter delays in our ability to scale-up our manufacturing processes: • we may be unable to complete our development programs for exenatide LAR, the treatment of obesity with pramlintide, or AC2592; • we may have to delay or terminate our planned filings for regulatory approval; • we may not have the financial resources to continue research and development of any of our drug candidates; and • we may not be able to enter into additional collaborative arrangements |
| In addition, Lilly may terminate our collaboration for the development and commercialization of BYETTA and sustained-release formulations of exenatide at any time on 60 days’ notice |
| Moreover, if the FDA does not accept for filing an NDA for a sustained-release formulation of exenatide by December 31, 2007, Lilly will have the right to convert a portion of future milestone payments that we may receive under our collaboration into shares of our common stock at a conversion price equal to the fair market value of our common stock at the time of any such conversion |
| 23 ______________________________________________________________________ Any of the following could delay the completion of our ongoing and planned clinical studies: • ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials; • delays in enrolling volunteers; • lower than anticipated retention rate of volunteers in a clinical trial; • negative results of clinical studies; • insufficient supply or deficient quality of drug candidate materials or other materials necessary for the performance of clinical trials; • our inability to reach agreement with Lilly regarding the scope, design, conduct or costs of clinical trials with respect to sustained-release formulations of BYETTA; or • serious side effects experienced by study participants relating to a drug candidate |
| We may be unable to obtain regulatory clearance to market our drug candidates in the United States or foreign countries on a timely basis, or at all |
| Our drug candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization |
| The process of obtaining FDA and other regulatory approvals is costly, time-consuming, uncertain and subject to unanticipated delays |
| Regulatory authorities may refuse to approve an application for approval of a drug candidate if they believe that applicable regulatory criteria are not satisfied |
| Regulatory authorities may also require additional testing for safety and efficacy |
| Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution, and expanded or additional indications for approved drugs may not be approved, which could limit our revenues |
| Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval |
| The data collected from our clinical trials may not be sufficient to support initial approval of our drug candidates or additional or expanded indications by the FDA or any foreign regulatory authorities |
| Biotechnology stock prices have declined significantly in certain instances where companies have failed to meet expectations with respect to FDA approval or the timing for FDA approval |
| If the FDA’s response is delayed or not favorable for any of our drug candidates, our stock price could decline significantly |
| Moreover, manufacturing facilities operated by the third-party manufacturers with whom we may contract to manufacture our unapproved drug candidates may not pass an FDA or other regulatory authority preapproval inspection |
| Any failure or delay in obtaining these approvals could prohibit or delay us or any of our business partners from marketing these drug candidates |
| Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for our drug candidates, the FDA and foreign regulatory authorities may not ultimately approve our drug candidates for commercial sale in any jurisdiction |
| If our drug candidates are not approved, our ability to generate revenues may be limited and our business will be adversely affected |
| Our ability to enter into and maintain third-party relationships is important to our successful development and commercialization of BYETTA, SYMLIN, and our other drug candidates and to our potential profitability |
| To market any of our products in the United States or elsewhere, we must develop internally or obtain access to sales and marketing forces with technical expertise and with supporting distribution capability in the relevant geographic territory |
| With respect to sales, marketing and distribution outside the United States, we will be substantially dependent on Lilly for activities relating to BYETTA and sustained-release formulations of BYETTA, including exenatide LAR We believe that we will likely need to enter into marketing and distribution arrangements with third parties for, or find a corporate partner who can provide support for, the development and commercialization of SYMLIN or our other drug candidates outside the United States |
| We may also enter into arrangements with third parties for the commercialization of SYMLIN or any of our other drug candidates within the United States |
| With respect to BYETTA and, if approved, exenatide LAR, Lilly is co-promoting within the United States |
| If Lilly ceased commercializing BYETTA or, if approved, exenatide LAR, for any reason, we would likely need to either enter into a marketing and distribution arrangement with a third party for those products or significantly increase our internal sales and commercialization infrastructure |
| We may not be able to enter into marketing and distribution arrangements or find a corporate partner for SYMLIN or our other drug candidates |
| If we are not able to enter into a marketing or distribution arrangement or find a corporate partner who can provide support for commercialization of our drug candidates as we deem necessary, we may not be able to successfully perform these marketing or distribution activities |
| Moreover, any new marketer or distributor or corporate partner for our drug candidates, including Lilly, with whom we choose to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any |
| 24 ______________________________________________________________________ We have a significant amount of indebtedness |
| We may not be able to make payments on our indebtedness, and we may incur additional indebtedness in the future, which could adversely affect our operations |
| We have substantial indebtedness outstanding and have the potential borrowing capacity under our collaboration with Lilly of up to dlra110 million |
| In June and July 2003, we issued dlra175 million of 2dtta25prca convertible senior notes due 2008 |
| Our ability to make payments on our debt, including the notes, will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing |
| During each of the last five years, our operating cash flows were negative and insufficient to cover our fixed charges |
| We may need to use our cash to pay principal and interest on our debt, thereby reducing the funds available to fund our research and development programs, strategic initiatives and working capital requirements |
| Our ability to generate sufficient operating cash flow to service our indebtedness, including the notes, and fund our operating requirements will depend on our ability, alone or with others, to successfully develop, manufacture, obtain required regulatory approvals for and market our drug candidates, as well as other factors, including general economic, financial, competitive, legislative and regulatory conditions, some of which are beyond our control |
| Our debt service obligations increase our vulnerabilities to competitive pressures, because many of our competitors are less leveraged than we are |
| If we are unable to generate sufficient operating cash flow to service our indebtedness and fund our operating requirements, we may be forced to reduce our development programs, sell assets or seek additional debt or equity financing, which may not be available to us on satisfactory terms or at all |
| Our level of indebtedness may make us more vulnerable to economic or industry downturns |
| If we incur new indebtedness, the risks relating to our business and our ability to service our indebtedness will intensify |
| We may be required to redeem our convertible senior notes upon a designated event |
| Holders of our 2dtta25prca convertible senior notes due 2008 and our 2dtta50prca convertible senior notes due 2011 may require us to redeem all or any portion of their notes upon the occurrence of certain designated events which generally involve a change in control of our company |
| We may not have sufficient cash funds to redeem the notes upon a designated event |
| We may elect, subject to certain conditions, to pay the redemption price in our common stock or a combination of cash and our common stock |
| We may be unable to satisfy the requisite conditions to enable us to pay some or all of the redemption price in our common stock |
| In addition, although there are currently no restrictions on our ability to pay the redemption price under our existing debt agreements, future debt agreements may prohibit us from repaying the redemption price in either cash or common stock |
| If we are prohibited from redeeming the notes, we could seek consent from our lenders to redeem the notes |
| If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the notes |
| If we were unable to redeem the notes upon a designated event, it would result in an event of default under the indentures governing the notes |
| An event of default under the indentures could result in a further event of default under our other then-existing debt |
| In addition, the occurrence of a designated event may be an event of default under our other debt |
| If our research and development programs fail to result in additional drug candidates, our ability to generate revenue will be substantially limited |
| Our research and development programs for drug candidates are at an early stage and will require significant research, development, preclinical and clinical testing, manufacturing scale-up activities, regulatory approval and/or commitments of resources before commercialization |
| We cannot predict whether our research will lead to the discovery of any additional drug candidates that could generate revenues for us |
| Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel |
| We are highly dependent on Ginger L Graham, our President and Chief Executive Officer, and the other principal members of our executive and scientific teams |
| The loss of the services of any of these persons might impede the achievement of our research, development and commercialization objectives |
| Recruiting and retaining qualified sales, marketing, scientific and other personnel and consultants will also be critical to our success |
| We may not be able to attract and retain these personnel and consultants on acceptable terms given the competition between numerous pharmaceutical and biotechnology companies |
| We do not maintain “key person” insurance on any of our employees |
| We may be unable to adequately prevent disclosure of trade secrets and other proprietary information |
| In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors |
| These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information |
| In addition, others may independently discover trade secrets and proprietary information |
| 25 ______________________________________________________________________ Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position |
| Our activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities |
| Our research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds |
| Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated |
| If an accident occurs, we could be held liable for resulting damages, which could be substantial |
| We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials |
| Additional federal, state and local laws and regulations affecting our operations may be adopted in the future |
| We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations |
| We have implemented anti-takeover provisions that could discourage or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and as a result our management may become entrenched and hard to replace |
| Provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders |
| These provisions include: • allowing our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors; • allowing our board of directors to issue, without stockholder approval, up to 5dtta5 million shares of preferred stock with terms set by the board of directors; • limiting the ability of holders of our outstanding common stock to call a special meeting of our stockholders; and • preventing stockholders from taking actions by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders |
| Each of these provisions, as well as selected provisions of Delaware law, could discourage potential takeover attempts, could adversely affect the trading price of our securities and could cause our management to become entrenched and hard to replace |
| In addition to provisions in our charter documents and under Delaware law, an acquisition of our company could be made more difficult by our employee benefits plans and our employee change in control plan, under which, in connection with a change in control, stock options held by our employees may become vested and our executive officers may receive severance benefits |
| We also have implemented a stockholder rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire us on a hostile basis |
| Our executive officers, directors and major stockholders control approximately 46prca of our common stock |
| As of December 31, 2005, executive officers, directors and holders of 5prca or more of our outstanding common stock, in the aggregate, owned or controlled approximately 46prca of our outstanding common stock |
| As a result, these stockholders are able to influence all matters requiring approval by our stockholders, including the election of directors and the approval of corporate transactions |
| This concentration of ownership may also delay, deter or prevent a change in control of our company and may make some transactions more difficult or impossible to complete without the support of these stockholders |
| Substantial future sales of our common stock by us or our existing stockholders or the conversion of our convertible senior notes to common stock could cause the trading price of our common stock to fall |
| Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the trading price of our common stock to drop |
| Likewise, the issuance of shares of common stock upon conversion of our convertible notes or redemption of our convertible notes upon a designated event, or upon additional convertible debt or equity financings or other share issuances by us, including shares issued in connection with potential future strategic alliances and the uncertain number of additional shares that we may be required to issue under our agreements with Lilly, could adversely affect the trading price of our common stock |
| Our convertible notes are currently convertible into a total of up to approximately 11dtta2 million shares |
| In addition, the existence of these notes may encourage short selling of our common stock by market participants |
| 26 ______________________________________________________________________ Significant volatility in the market price for our common stock could expose us to litigation risk |
| The market prices for securities of biopharmaceutical and biotechnology companies, including our common stock, have historically been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of these biopharmaceutical and biotechnology companies |
| Since January 1, 2004, the high and low sales price of our common stock varied significantly, as shown in the following table: High Low Year ending December 31, 2006 First Quarter through March 1, 2006 $ 45dtta79 $ 35dtta58 Year ended December 31, 2005 Fourth Quarter $ 42dtta36 $ 32dtta63 Third Quarter 35dtta47 18dtta50 Second Quarter 21dtta73 14dtta50 First Quarter 24dtta95 17dtta15 Year ended December 31, 2004 Fourth Quarter $ 24dtta01 $ 18dtta80 Third Quarter 23dtta25 16dtta48 Second Quarter 26dtta80 19dtta69 First Quarter 25dtta63 18dtta49 Given the uncertainty of our future funding, the successful commercialization of BYETTA and SYMLIN and the regulatory approval of our other drug candidates, we may continue to experience volatility in our stock price for the foreseeable future |
| In addition, the following factors may significantly affect the market price of our common stock: • our financial results; • clinical study results; • determinations by regulatory authorities with respect to our drug candidates; • developments in our relationships with current or future collaborative partners; • our ability to successfully implement our commercialization strategies; • fluctuations in our operating results; • developments in our relationships with third-party manufacturers of our products and other parties who provide services to us; • public concern as to the safety of drugs that we are developing; • technological innovations or new commercial therapeutic products by us or our competitors; • developments in patent or other proprietary rights; and • governmental policy or regulation, including with respect to pricing and reimbursement |
| Broad market and industry factors also may materially adversely affect the market price of our common stock, regardless of our actual operating performance |
| Periods of volatility in the market price of our common stock expose us to securities class-action litigation, and we may continue to be the target of such litigation as a result of market price volatility in the future |
| We are exposed to potential risks from recent legislation requiring companies to evaluate internal controls over financial reporting |
| The Sarbanes-Oxley Act requires that we report annually on the effectiveness of our internal controls over financial reporting |
| Among other things, we must perform systems and processes evaluation and testing |
| We must also conduct an assessment of our internal controls to allow management to report on, and our independent registered public accounting firm to attest to, our assessment of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act |
| These requirements became effective for the first time for our fiscal year ended December 31, 2004, and neither we nor our independent registered public accounting firm had previously performed an evaluation of our internal controls over financial reporting under these new rules |
| In connection with our Section 404 compliance efforts, we have incurred or expended, and expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources |
| We have implemented certain remediation activities resulting from our ongoing assessment of internal controls over financial reporting |
| Our future assessment, or the future assessments by our independent registered public accounting firm, may reveal material weaknesses in our internal controls |
| If material weaknesses are identified in the future we would be required to conclude that our internal controls over financial reporting are 27 ______________________________________________________________________ ineffective and we could be subject to sanctions or investigations by the SEC, the NASDAQ National Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our common stock |