| ANTARES PHARMA INC Item 1A RISK FACTORS The following “risk factors” contain important information about us and our business and should be read in their entirety |
| Additional risks and uncertainties not known to us or that we now believe to be not material could 23 ______________________________________________________________________ [24]Index to Financial Statements also impair our business |
| If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly |
| As a result, the market price of our common stock could decline and you could lose all of your investment |
| In this Section, the terms “we” and “our” refer to Antares Pharma, Inc |
| Risks Related to Our Operations We have incurred significant losses to date, and there is no guarantee that we will ever become profitable We had working capital of dlra965cmam169 at December 31, 2005, and dlra8cmam489cmam253 at December 31, 2004 |
| We incurred net losses of (dlra8cmam497cmam956) and (dlra8cmam348cmam532) in the fiscal years ended 2005 and 2004, respectively |
| In addition, we have accumulated aggregate net losses from the inception of business through December 31, 2005 of (dlra91cmam123cmam107) |
| The costs for research and product development of our drug delivery technologies along with marketing and selling expenses and general and administrative expenses have been the principal causes of our losses |
| We completed private placements in March 2006 and February and March 2004 in which we received aggregate gross proceeds of dlra10cmam962cmam500 and dlra15cmam120cmam000, respectively |
| We believe that the combination of these equity financings and projected product sales and product development and license revenues will provide us with sufficient funds to support operations beyond 2006 |
| However, if we need additional financing and are unable to obtain such financing when needed, or obtain it on favorable terms, we may be required to curtail development of new drug technologies, limit expansion of operations, accept financing terms that are not as attractive as we may desire or be forced to liquidate and close operations |
| Long-term capital requirements will depend on numerous factors, including, but not limited to, the status of collaborative arrangements, the progress of research and development programs and the receipt of revenues from sales of products |
| Our ability to achieve and/or sustain profitable operations depends on a number of factors, many of which are beyond our control |
| These factors include, but are not limited to, the following: • the demand for our technologies from current and future biotechnology and pharmaceutical partners; • our ability to manufacture products efficiently and with the required quality; • our ability to increase and continue to outsource manufacturing capacity to allow for new product introductions; • the level of product competition and of price competition; • our ability to develop, maintain or acquire patent positions; • our ability to develop additional commercial applications for our products; • our limited regulatory and commercialization experience; • our reliance on outside consultants; • our ability to obtain regulatory approvals; • our ability to attract the right personnel to execute our plans; • our ability to control costs; and • general economic conditions |
| As we changed our business model to be more commercially oriented by further developing our own products, we may not have sufficient resources to fully execute our plan |
| We must make choices as to the drugs that we will combine with our transdermal gel, fast-melt tablet and disposable mini-needle technologies to move into the marketplace |
| We may not make the correct choice of drug or technologies when combined with a drug, which may not be accepted by the marketplace as we expected or at all |
| FDA approval processes for the drugs and drugs with devices may be longer in time and/or more costly and/or require more extended clinical evaluation than anticipated |
| Funds required to bring our own products to market may be more than anticipated or may not be available at all |
| We have limited experience in development of compounds and in regulatory matters and bringing such products to market; therefore, we may experience difficulties in making this change or not be able to achieve the change at all |
| 24 ______________________________________________________________________ [25]Index to Financial Statements We currently depend on a limited number of customers for the majority of our revenue, and the loss of any one of these customers could substantially reduce our revenue and impact our liquidity During 2005, we derived approximately 48prca and 12prca of our revenue, from Ferring and JCR Pharmaceuticals, Co, Ltd, respectively |
| The loss of either of these customers would cause our revenues to decrease significantly, increase our continuing losses from operations and, ultimately, could require us to cease operating |
| If we cannot broaden our customer base, we will continue to depend on a few customers for the majority of our revenues |
| Additionally, if we are unable to negotiate favorable business terms with these customers in the future, our revenues and gross profits may be insufficient to allow us to achieve and/or sustain profitability or continue operations |
| If we or our third-party manufacturer are unable to supply Ferring with our devices pursuant to our current license agreement with Ferring, Ferring would own a fully paid up license for certain of our intellectual property Pursuant to our license agreement with Ferring, we licensed certain of our intellectual property related to our needle-free injection devices, including a license that allows Ferring to manufacture our devices on its own for use with its human growth hormone product |
| This license becomes effective if we are unable to continue to supply product to Ferring under our current supply agreement |
| In accordance with the license agreement, we entered into a manufacturing agreement with a third party to manufacture our devices for Ferring |
| If we or this third party are unable to meet our obligations to supply Ferring with our devices, Ferring would own a fully paid up license to manufacture our devices and to use and exploit our intellectual property in connection with Ferring’s human growth hormone product |
| In such event, we would no longer receive royalties or manufacturing margins from Ferring |
| If we do not develop and maintain relationships with manufacturers of our drug candidates, then we may not successfully manufacture and sell our pharmaceutical products |
| We do not possess the capabilities, resources or facilities to manufacture Anturol™, which is currently in clinical studies for over active bladder, or any other of our future drug candidates |
| We must contract with manufacturers to produce Anturol™ according to government regulations |
| Our future development and delivery of our product candidates depends on the timely, profitable and competitive performance of these manufacturers |
| A limited number of manufacturers exist which are capable of manufacturing our product candidates |
| We may fail to contract with the necessary manufacturers or we may contract with manufactures on terms that may not be entirely acceptable to us |
| Our manufacturers must obtain FDA approval for their manufacturing processes, and we have no control over this approval process |
| We have not contracted with a commercial supplier of active pharmaceutical ingredients of oxybutynin for Anturol™ |
| We are currently working towards selecting a manufacturer to provide us with oxybutynin in a manner which meets FDA requirements |
| We have contracted with Patheon, a manufacturing development company, to supply clinical quantities of Anturol™ in a manner that meets FDA requirements |
| The FDA has not approved the manufacturing processes of Patheon |
| Any failure by Patheon to achieve compliance with FDA standards could significantly harm our business since we do not have an approved secondary manufacturer for Anturol™ |
| We have limited device manufacturing experience and may experience manufacturing difficulties related to the use of new device materials and procedures, which could increase our production costs and, ultimately, decrease our profits Our past assembly, testing and device manufacturing experience for certain of our device technologies has involved the assembly of products from machined stainless steel and composite components in limited quantities |
| Our planned future drug delivery device technologies necessitate significant changes and additions to our manufacturing and assembly process to accommodate new components |
| These systems must be manufactured in compliance with regulatory requirements, in a timely manner and in sufficient quantities while maintaining quality and acceptable manufacturing costs |
| In the course of these changes and additions to our manufacturing and 25 ______________________________________________________________________ [26]Index to Financial Statements production methods, we may encounter difficulties, including problems involving yields, quality control and assurance, product reliability, manufacturing costs, existing and new equipment, component supplies and shortages of personnel, any of which could result in significant delays in production |
| Additionally, in February 2003, we entered into a manufacturing agreement under which a third party assembles our MJ7 devices and certain related disposable component parts |
| There can be no assurance that this third-party manufacturer will be able to meet these regulatory requirements or our own quality control standards |
| Therefore, there can be no assurance that we will be able to successfully produce and manufacture our products |
| Any failure to do so would negatively impact our business, financial condition and results of operations |
| We are now in the process of outsourcing manufacturing of our AJ mini-needle products to third parties |
| Such products will be price sensitive and may be required to be manufactured in large quantities, and we have no assurance that this can be done |
| Our products have achieved only limited acceptance by patients and physicians, which continues to restrict marketing penetration and the resulting sales of more units Our business ultimately depends on patient and physician acceptance of our needle-free injectors, gels, fast-melt tablets and our other drug delivery technologies as an alternative to more traditional forms of drug delivery, including injections using a needle, orally ingested drugs and more traditional transdermal patch products |
| To date, our device technologies have achieved only limited acceptance from such parties |
| The degree of acceptance of our drug delivery systems depends on a number of factors |
| These factors include, but are not limited to, the following: • advantages over alternative drug delivery systems or similar products from other companies; • demonstrated clinical efficacy, safety and enhanced patient compliance; • cost-effectiveness; • convenience and ease of use of injectors and transdermal gels; and • marketing and distribution support |
| Physicians may refuse to prescribe products incorporating our drug delivery technologies if they believe that the active ingredient is better administered to a patient using alternative drug delivery technologies, that the time required to explain use of the technologies to the patient would not be offset by advantages, or they believe that the delivery method will result in patient noncompliance |
| Factors such as patient perceptions that a gel is inconvenient to apply or that devices do not deliver the drug at the same rate as conventional drug delivery methods may cause patients to reject our drug delivery technologies |
| Because only a limited number of products incorporating our drug delivery technologies are commercially available, we cannot yet fully assess the level of market acceptance of our drug delivery technologies |
| A 2002 National Institute of Health (“NIH”) study and the 2003 findings from the Million Women Study first launched in 1997 in the UK questioned the safety of hormone replacement therapy for menopausal women, and our female hormone replacement therapy business may suffer as a result In July 2002, the NIH halted a long-term study, known as the Women’s Health Initiative, being conducted on oral female hormone replacement therapy (“HRT”) using a combination of estradiol and progestin because the study showed an increased risk of breast cancer, heart disease and blood clots in women taking the combination therapy |
| The arm of the study using estrogen alone was stopped in March 2004 after the NIH concluded that the benefits of estrogen did not outweigh the stroke risk for women in this trial |
| The halted study looked at only one brand of oral combined HRT and of estrogen, and there is no information on whether brands with different levels of hormones would carry the same risk |
| In January 2003, the FDA announced that it would require new warnings on the labels of HRT products, and it advised patients to consult with their physicians about whether to continue treatment with continuous combined HRT and to limit the period of use to that required to manage post-menopausal vasomotor symptoms only |
| Subsequently, additional analysis from the NIH study has suggested a slight increase in the risk of cognitive dysfunction developing in patients on long-term combined HRT The Million Women Study, conducted in the UK, confirmed that current and recent use of HRT increases a woman’s chance of developing breast cancer and that the risk increased with duration of use |
| Other HRT studies have found potential links between HRT and an increased risk of dementia and asthma |
| These results and recommendations impacted the use of HRT, and product sales have diminished significantly |
| We cannot yet assess the impact any of the studies’ results may have on our contracts or on our partners’ perspective of the market for transdermal gel products designed for HRT We also 26 ______________________________________________________________________ [27]Index to Financial Statements cannot predict whether our alternative route of transdermal administration of HRT products will carry the same risk as the oral products used in the study |
| If transdermal gels do not achieve greater market acceptance, we may be unable to achieve profitability Because transdermal gels are a newer, less understood method of drug delivery, our potential consumers have little experience with manufacturing costs or pricing parameters |
| Our assumption of higher value may not be shared by the consumer |
| To date, transdermal gels have gained successful entry into only a limited number of markets |
| There can be no assurance that transdermal gels will ever gain market acceptance beyond these markets sufficient to allow us to achieve and/or sustain profitable operations in this product area |
| We rely on third parties to supply components for our products, and any failure to retain relationships with these third parties could negatively impact our ability to manufacture our products Certain of our technologies contain a number of customized components manufactured by various third parties |
| Regulatory requirements applicable to medical device manufacturing can make substitution of suppliers costly and time-consuming |
| In the event that we could not obtain adequate quantities of these customized components from our suppliers, there can be no assurance that we would be able to access alternative sources of such components within a reasonable period of time, on acceptable terms or at all |
| The unavailability of adequate quantities, the inability to develop alternative sources, a reduction or interruption in supply or a significant increase in the price of components could have a material adverse effect on our ability to manufacture and market our products |
| We may be unable to successfully expand into new areas of drug delivery technology, which could negatively impact our business as a whole We intend to continue to enhance our current technologies |
| Even if enhanced technologies appear promising during various stages of development, we may not be able to develop commercial applications for them because • the potential technologies may fail clinical studies; • we may not find a pharmaceutical company to adopt the technologies; • it may be difficult to apply the technologies on a commercial scale; • the technologies may not be economical to market; or • we may not receive necessary regulatory approvals for the potential technologies |
| We have not yet completed research and development work or obtained regulatory approval for any technologies for use with any drugs other than insulin, human growth hormone and estradiol |
| There can be no assurance that any newly developed technologies will ultimately be successful or that unforeseen difficulties will not occur in research and development, clinical testing, regulatory submissions and approval, product manufacturing and commercial scale-up, marketing, or product distribution related to any such improved technologies or new uses |
| Any such occurrence could materially delay the commercialization of such improved technologies or new uses or prevent their market introduction entirely |
| As health insurance companies and other third-party payors increasingly challenge the products and services for which they will provide coverage, our individual consumers may not be able to receive adequate reimbursement or may be unable to afford to use our products, which could substantially reduce our revenues and negatively impact our business as a whole Our injector device products are currently sold in the European Community (“EC”) and in the United States for use with human growth hormone or insulin |
| In the case of human growth hormone, our products are provided to users at no cost by the drug manufacturer |
| In the United States the injector products are legally marketed and available for use with insulin |
| Although it is impossible for us to identify the amount of sales of our products that our customers will submit for payment to third-party insurers, at least some of these sales may be dependent in part on the availability of adequate reimbursement from these third-party healthcare payors |
| Currently, insurance companies and other third-party 27 ______________________________________________________________________ [28]Index to Financial Statements payors reimburse the cost of certain technologies on a case-by-case basis and may refuse reimbursement if they do not perceive benefits to a technology’s use in a particular case |
| Third-party payors are increasingly challenging the pricing of medical products and services, and there can be no assurance that such third-party payors will not in the future increasingly reject claims for coverage of the cost of certain of our technologies |
| Insurance and third-party payor practice vary from country to country, and changes in practices could negatively affect our business if the cost burden for our technologies were shifted more to the patient |
| Therefore, there can be no assurance that adequate levels of reimbursement will be available to enable us to achieve or maintain market acceptance of our technologies or maintain price levels sufficient to realize profitable operations |
| There is also a possibility of increased government control or influence over a broad range of healthcare expenditures in the future |
| Any such trend could negatively impact the market for our drug delivery products and technologies |
| The loss of any existing licensing agreements or the failure to enter into new licensing agreements could substantially affect our revenue One of our business pathways requires us to enter into license agreements with pharmaceutical and biotechnology companies covering the development, manufacture, use and marketing of drug delivery technologies with specific drug therapies |
| Under these arrangements, the partner company typically assists us in the development of systems for such drug therapies and collect or sponsor the collection of the appropriate data for submission for regulatory approval of the use of the drug delivery technology with the licensed drug therapy |
| Our licensees may also be responsible for distribution and marketing of the technologies for these drug therapies either worldwide or in specific territories |
| We are currently a party to a number of such agreements, all of which are currently in varying stages of development |
| We may not be able to meet future milestones established in our agreements (such milestones generally being structured around satisfactory completion of certain phases of clinical development, regulatory approvals and commercialization of our product) and thus, would not receive the fees expected from such arrangements or related future royalties |
| Moreover, there can be no assurance that we will be successful in executing additional collaborative agreements or that existing or future agreements will result in increased sales of our drug delivery technologies |
| In such event, our business, results of operations and financial condition could be adversely affected, and our revenues and gross profits may be insufficient to allow us to achieve and/or sustain profitability |
| As a result of our collaborative agreements, we are dependent upon the development, data collection and marketing efforts of our licensees |
| The amount and timing of resources such licensees devote to these efforts are not within our control, and such licensees could make material decisions regarding these efforts that could adversely affect our future financial condition and results of operations |
| In addition, factors that adversely impact the introduction and level of sales of any drug covered by such licensing arrangements, including competition within the pharmaceutical and medical device industries, the timing of regulatory or other approvals and intellectual property litigation, may also negatively affect sales of our drug delivery technology |
| The failure of any of our third-party licensees to develop, obtain regulatory approvals for, market, distribute and sell our products as planned may result in us not meeting revenue and profit targets Pharmaceutical company partners help us develop, obtain regulatory approvals for, manufacture and sell our products |
| If one or more of these pharmaceutical company partners fail to pursue the development or marketing of the products as planned, our revenues and profits may not reach expectations or may decline |
| We may not be able to control the timing and other aspects of the development of products because pharmaceutical company partners may have priorities that differ from ours |
| Therefore, commercialization of products under development may be delayed unexpectedly |
| Generally speaking, in the near term, we do not intend to have a direct marketing channel to consumers for our drug delivery products or technologies except through current distributor agreements in the United States for our insulin delivery device |
| Therefore, the success of the marketing organizations of our pharmaceutical company partners, as well as the level of priority assigned to the marketing of the products by these entities, which may differ from our priorities, will determine the success of the products incorporating our technologies |
| Competition in this market could also force us to reduce the prices of our technologies below currently planned levels, which could adversely affect our revenues and future profitability |
| 28 ______________________________________________________________________ [29]Index to Financial Statements If we cannot develop and market our products as rapidly or cost-effectively as our competitors, then we may never be able to achieve profitable operations |
| Competitors in the over active bladder, transdermal gel drug delivery and needle-free injector market, some with greater resources and experience than us, may enter the market, as there is an increasing recognition of a need for less invasive methods of delivering drugs |
| Additionally, there is an ever increasing list of competitors in the oral disintegrating fast-melt tablet business |
| Our success depends, in part, upon maintaining a competitive position in the development of products and technologies in rapidly evolving fields |
| If we cannot maintain competitive products and technologies, our current and potential pharmaceutical company partners may choose to adopt the drug delivery technologies of our competitors |
| Drug delivery companies that compete with our technologies include Bioject Medical Technologies, Inc, Bentley Pharmaceuticals, Inc, Aradigm, Cellegy Pharmaceuticals, Inc, Watson Pharmaceuticals, Cardinal Health, CIMA Laboratories, Laboratoires Besins-Iscovesco, MacroChem Corporation, NexMed, Inc |
| and Novavax, Inc, along with other companies |
| We also compete generally with other drug delivery, biotechnology and pharmaceutical companies engaged in the development of alternative drug delivery technologies or new drug research and testing |
| Many of these competitors have substantially greater financial, technological, manufacturing, marketing, managerial and research and development resources and experience than we do, and, therefore, represent significant competition |
| Additionally, new drug delivery technologies are mostly used only with drugs for which other drug delivery methods are not possible, in particular with biopharmaceutical proteins (drugs derived from living organisms, such as insulin and human growth hormone) that cannot currently be delivered orally or transdermally |
| Transdermal patches and gels are also used for drugs that cannot be delivered orally or where oral delivery has other limitations (such as high first pass drug metabolism, meaning that the drug dissipates quickly in the digestive system and, therefore, requires frequent administration) |
| Many companies, both large and small, are engaged in research and development efforts on less invasive methods of delivering drugs that cannot be taken orally |
| The successful development and commercial introduction of such a non-injection technique could have a material adverse effect on our business, financial condition, results of operations and general prospects |
| Competitors may succeed in developing competing technologies or obtaining governmental approval for products before we do |
| Competitors’ products may gain market acceptance more rapidly than our products, or may be priced more favorably than our products |
| Developments by competitors may render our products, or potential products, noncompetitive or obsolete |
| Although we have applied for, and have received, several patents, we may be unable to protect our intellectual property, which would negatively affect our ability to compete Our success depends, in part, on our ability to obtain and enforce patents for our products, processes and technologies and to preserve our trade secrets and other proprietary information |
| If we cannot do so, our competitors may exploit our innovations and deprive us of the ability to realize revenues and profits from our developments |
| Currently, we have been granted 32 patents and an additional 111 applications pending in the US and other countries |
| Any patent applications we may have made or may make relating to inventions for our actual or potential products, processes and technologies may not result in patents being issued or may result in patents that provide insufficient or incomplete coverage for our inventions |
| Our current patents may not be valid or enforceable and may not protect us against competitors that challenge our patents, obtain their own patents that may have an adverse effect on our ability to conduct business, or are able to otherwise circumvent our patents |
| Further, we may not have the necessary financial resources to enforce or defend our patents or patent applications |
| To protect our trade secrets and proprietary technologies and processes, we rely, in part, on confidentiality agreements with employees, consultants and advisors |
| These agreements may not provide adequate protection for our trade secrets and other proprietary information in the event of any unauthorized use or disclosure, or if others lawfully and independently develop the same or similar information |
| Others may bring infringement claims against us, which could be time-consuming and expensive to defend Third parties may claim that the manufacture, use or sale of our drug delivery technologies infringe their patent rights |
| If such claims are asserted, we may have to seek licenses, defend infringement actions or challenge the validity of those patents in court |
| If we cannot obtain required licenses, are found liable for infringement or are not 29 ______________________________________________________________________ [30]Index to Financial Statements able to have these patents declared invalid, we may be liable for significant monetary damages, encounter significant delays in bringing products to market or be precluded from participating in the manufacture, use or sale of products or methods of drug delivery covered by the patents of others |
| We may not have identified, or be able to identify in the future, United States or foreign patents that pose a risk of potential infringement claims |
| If the pharmaceutical companies to which we license our technologies lose their patent protection or face patent infringement claims for their drugs, we may not realize our revenue or profit plan The drugs to which our drug delivery technologies are applied are generally the property of the pharmaceutical companies |
| Those drugs may be the subject of patents or patent applications and other forms of protection owned by the pharmaceutical companies or third parties |
| If those patents or other forms of protection expire, become ineffective or are subject to the control of third parties, sales of the drugs by the collaborating pharmaceutical company may be restricted or may cease |
| Our expected revenues, in that event, may not materialize or may decline |
| Our business may suffer if we lose certain key officers or employees or if we are not able to add additional key officers or employees necessary to reach our goals The success of our business is materially dependent upon the continued services of certain of our key officers and employees |
| The loss of such key personnel could have a material adverse effect on our business, operating results or financial condition |
| There can be no assurance that we will be successful in retaining key personnel |
| We consider our employee relations to be good; however, competition for personnel is intense and we cannot assume that we will continue to be able to attract and retain personnel of high caliber |
| We are involved in international markets, and this subjects us to additional business risks We have offices and a research facility in Basel, Switzerland, and we also license and distribute our products in the European Community and the United States |
| These geographic localities provide economically and politically stable environments in which to operate |
| However, in the future, we intend to introduce products through partnerships in other countries |
| As we expand our geographic market, we will face additional ongoing complexity to our business and may encounter the following additional risks: • increased complexity and costs of managing international operations; • protectionist laws and business practices that favor local companies; • dependence on local vendors; • multiple, conflicting and changing governmental laws and regulations; • difficulties in enforcing our legal rights; • reduced or limited protections of intellectual property rights; and • political and economic instability |
| A significant portion of our international revenues is denominated in foreign currencies |
| An increase in the value of the US dollar relative to these currencies may make our products more expensive and, thus, less competitive in foreign markets |
| If we make any acquisitions, we will incur a variety of costs and might never successfully integrate the acquired product or business into ours |
| We might attempt to acquire products or businesses that we believe are a strategic complement to our business model |
| We might encounter operating difficulties and expenditures relating to integrating an acquired product or business |
| These acquisitions might require significant management attention that would otherwise be available for ongoing development of our business |
| In addition, we might never realize the anticipated benefits of any acquisition |
| We might also make dilutive issuances of equity securities, incur debt or experience a decrease in cash available for our operations, or incur contingent liabilities and/or amortization expenses relating to goodwill and other intangible assets, in connection with future acquisitions |
| 30 ______________________________________________________________________ [31]Index to Financial Statements If we do not have adequate insurance for product liability claims, then we may be subject to significant expenses relating to these claims |
| The Company’s business entails the risk of product liability claims |
| Although the Company has not experienced any material product liability claims to date, any such claims could have a material adverse impact on its business |
| The Company maintains product liability insurance with coverage of dlra5 million per occurrence and an annual aggregate maximum of dlra5 million |
| The Company evaluates its insurance requirements on an ongoing basis |
| Geopolitical, economic and military conditions, including terrorist attacks and other acts of war, may materially and adversely affect the markets on which our common stock trades, the markets in which we operate, our operations and our profitability Terrorist attacks, such as those that occurred on September 11, 2001, and other acts of war, and any response to them, may lead to armed hostilities and such developments would likely cause instability in financial markets |
| Armed hostilities and terrorism may directly impact our facilities, personnel and operations, which are located in the United States and Switzerland, as well as those of our clients |
| Furthermore, severe terrorist attacks or acts of war may result in temporary halts of commercial activity in the affected regions, and may result in reduced demand for our products |
| These developments could have a material adverse effect on our business and the trading price of our common stock |
| Risks Related to Regulatory Matters We or our licensees may incur significant costs seeking approval for our products, which could delay the realization of revenue and, ultimately, decrease our revenues from such products The design, development, testing, manufacturing and marketing of pharmaceutical compounds, medical nutrition and diagnostic products and medical devices are subject to regulation by governmental authorities, including the FDA and comparable regulatory authorities in other countries |
| The approval process is generally lengthy, expensive and subject to unanticipated delays |
| Currently, we, along with our partners, are actively pursuing marketing approval for a number of products from regulatory authorities in other countries and anticipate seeking regulatory approval from the FDA for products developed pursuant to our agreement with BioSante |
| Our revenue and profit will depend, in part, on the successful introduction and marketing of some or all of such products by our partners or us |
| There can be no assurance as to when or whether such approvals from regulatory authorities will be received |
| Applicants for FDA approval often must submit extensive clinical data and supporting information to the FDA Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of a drug product |
| Changes in FDA approval policy during the development period, or changes in regulatory review for each submitted new drug application also may cause delays or rejection of an approval |
| Even if the FDA approves a product, the approval may limit the uses or “indications” for which a product may be marketed, or may require further studies |
| The FDA also can withdraw product clearances and approvals for failure to comply with regulatory requirements or if unforeseen problems follow initial marketing |
| In other jurisdictions, we, and the pharmaceutical companies with whom we are developing technologies, must obtain required regulatory approvals from regulatory agencies and comply with extensive regulations regarding safety and quality |
| If approvals to market the products are delayed, if we fail to receive these approvals, or if we lose previously received approvals, our revenues may not materialize or may decline |
| We may not be able to obtain all necessary regulatory approvals |
| We may be required to incur significant costs in obtaining or maintaining regulatory approvals |
| 31 ______________________________________________________________________ [32]Index to Financial Statements Our business could be harmed if we fail to comply with regulatory requirements and, as a result, are subject to sanctions If we, or pharmaceutical companies with whom we are developing technologies, fail to comply with applicable regulatory requirements, the pharmaceutical companies, and we, may be subject to sanctions, including the following: • warning letters; • fines; • product seizures or recalls; • injunctions; • refusals to permit products to be imported into or exported out of the applicable regulatory jurisdiction; • total or partial suspension of production; • withdrawals of previously approved marketing applications; or • criminal prosecutions |
| Our revenues may be limited if the marketing claims asserted about our products are not approved Once a drug product is approved by the FDA, the Division of Drug Marketing, Advertising and Communication, the FDA’s marketing surveillance department within the Center for Drugs, must approve marketing claims asserted by our pharmaceutical company partners |
| If we or a pharmaceutical company partner fails to obtain from the Division of Drug Marketing acceptable marketing claims for a product incorporating our drug technologies, our revenues from that product may be limited |
| Marketing claims are the basis for a product’s labeling, advertising and promotion |
| The claims the pharmaceutical company partners are asserting about our drug delivery technologies, or the drug product itself, may not be approved by the Division of Drug Marketing |
| Product liability claims related to participation in clinical trials or the use or misuse of our products could prove to be costly to defend and could harm our business reputation The testing, manufacturing and marketing of products utilizing our drug delivery technologies may expose us to potential product liability and other claims resulting from their use in practice or in clinical development |
| If any such claims against us are successful, we may be required to make significant compensation payments |
| Any indemnification that we have obtained, or may obtain, from contract research organizations or pharmaceutical companies conducting human clinical trials on our behalf may not protect us from product liability claims or from the costs of related litigation |
| Similarly, any indemnification we have obtained, or may obtain, from pharmaceutical companies with whom we are developing drug delivery technologies may not protect us from product liability claims from the consumers of those products or from the costs of related litigation |
| If we are subject to a product liability claim, our product liability insurance may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses that may have been suffered |
| A successful product liability claim against us, if not covered by, or if in excess of our product liability insurance, may require us to make significant compensation payments, which would be reflected as expenses on our statement of operations |
| Adverse claim experience for our products or licensed technologies or medical device, pharmaceutical or insurance industry trends may make it difficult for us to obtain product liability insurance or we may be forced to pay very high premiums, and there can be no assurance that insurance coverage will continue to be available on commercially reasonable terms or at all |
| Risks Related to our Common Stock Together, certain of our stockholders own or have the right to acquire a significant portion of our stock and could ultimately control decisions regarding our company As a result of our reverse business combination with Permatec in January 2001 and subsequent additional debt and equity financings, Permatec Holding AG and its controlling shareholder, Dr |
| Jacques Gonella, own a substantial portion (as of March 3, 2006, approximately 18prca) of our outstanding shares of common stock |
| Gonella, who is the Chairman of our Board of Directors, also owns warrants to purchase an aggregate of 4cmam198cmam976 shares of common stock and options to purchase 104cmam500 shares of common stock |
| Additionally, five investors (Crestview Capital Master Fund, North Sound Funds, Perceptive Life Sciences Fund, SCO Capital Group and SDS Funds) own warrants that are, as of March 3, 2006, exercisable into an aggregate of 6cmam162cmam904 shares of our common stock |
| Some of these investors plus Atlas Equity also directly own an aggregate of approximately 5cmam419cmam884 shares of our 32 ______________________________________________________________________ [33]Index to Financial Statements common stock |
| Gonella and all of the above investors exercised all of the warrants and options owned by them, Dr |
| Gonella would own approximately 17prca, and the six investors as a group would own approximately 13prca, of our common stock |
| Because the parties described above either currently own or could potentially own a large portion of our stock, they may be able to generally determine or they will be able to significantly influence the outcome of corporate actions requiring stockholder approval |
| As a result, these parties may be in a position to control matters affecting our company, including decisions as to our corporate direction and policies; future issuances of certain securities; our incurrence of debt; amendments to our certificate of incorporation and bylaws; payment of dividends on our common stock; and acquisitions, sales of our assets, mergers or similar transactions, including transactions involving a change of control |
| In addition, if the demand for our common stock is reduced because of these stockholders’ control of the Company, the price of our common stock could be adversely affected |
| Certain of our stockholders own large blocks of our common stock and own securities or exercisable into shares of our common stock, and any exercises, or sales by these stockholders could substantially lower the market price of our common stock Several of our shareholders, including Dr |
| Gonella, whose sales are subject to volume limitations, Atlas Equity, Crestview Capital Master Fund, SCO Capital Group, the SDS funds, the North Sound funds and Perceptive Life Sciences Master Fund, own large blocks of our common stock or could own sizeable blocks of our common stock upon exercise of warrants |
| With the exception of a portion of the stock controlled by Dr |
| Gonella, the shares of our common stock owned by these stockholders (or issuable to them upon exercise of warrants or options) are registered or registration will be applied for in the near future |
| Future sales of large blocks of our common stock by any of the above investors could substantially adversely affect our stock price |
| Future conversions or exercises by holders of warrants or options could substantially dilute our common stock As of March 3, 2006, we have warrants outstanding that are exercisable, at prices ranging from dlra0dtta55 per share to dlra7dtta03 per share, for an aggregate of approximately 22cmam500cmam000 shares of our common stock |
| Purchasers of common stock could therefore experience substantial dilution of their investment upon exercise of the above warrants or options |
| The warrants and the options are not registered and may be sold only if registered under the Securities Act of 1933, as amended, or sold in accordance with an applicable exemption from registration, such as Rule 144 |
| The shares of common stock issuable upon exercise of the warrants or options held by these investors are currently registered or registration will be applied for in the near future |
| Sales of our common stock by our officers and directors may lower the market price of our common stock As of March 3, 2006, our officers and directors beneficially owned an aggregate of approximately 15cmam200cmam000 shares (or approximately 26prca) of our common stock, including stock options exercisable within 60 days |
| If our officers and directors, or other shareholders, sell a substantial amount of our common stock, it could cause the market price of our common stock to decrease and could hamper our ability to raise capital through the sale of our equity securities |
| We do not expect to pay dividends in the foreseeable future We intend to retain any earnings in the foreseeable future for our continued growth and, thus, do not expect to declare or pay any cash dividends in the foreseeable future |
| 33 ______________________________________________________________________ [34]Index to Financial Statements Anti-takeover effects of certain certificate of incorporation and bylaw provisions could discourage, delay or prevent a change in control |
| Our certificate of incorporation and bylaws could discourage, delay or prevent persons from acquiring or attempting to acquire us |
| Our certificates of incorporation authorizes our board of directors, without action of our stockholders, to designate and issue preferred stock in one or more series, with such rights, preferences and privileges as the board of directors shall determine |
| In addition, our bylaws grant our board of directors the authority to adopt, amend or repeal all or any of our bylaws, subject to the power of the stockholders to change or repeal the bylaws |
| In addition, our bylaws limit who may call meetings of our stockholders |