| BIOCRYST PHARMACEUTICALS INC ITEM 1A RISK FACTORS An investment in our stock involves a high degree of risk |
| You should consider carefully the following risks, along with all of the other information included in our other filings with the Securities and Exchange Commission, before deciding to buy our common stock |
| Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also impair our business operations |
| If we are unable to prevent events that have a negative effect from occurring, then our business may suffer |
| Negative events are likely to decrease our revenue, increase our costs, make our financial results poorer and/or decrease our financial strength, and may cause our stock price to decline |
| In that case, you may lose all or a part of your investment in our common stock |
| Risks Relating to Our Business We have incurred substantial losses since our inception in 1986, expect to continue to incur such losses, and may never be profitable |
| Since our inception in 1986, we have not been profitable |
| We expect to incur additional losses for the foreseeable future, and our losses could increase as our research and development efforts progress |
| As of December 31, 2005, our accumulated deficit was approximately dlra151dtta9 million |
| To become profitable, we must successfully develop drug product candidates, enter into profitable agreements with other parties and our product candidates must receive regulatory approval |
| We or these other parties must then successfully manufacture and market our product candidates |
| It could be several years, if ever, before we receive royalties from any current or future license agreements or revenues directly from product sales |
| Because of the numerous risks and uncertainties associated with developing our product candidates and their potential for commercialization, we are unable to predict the extent of any future losses or when we will become profitable, if at all |
| Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis |
| If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline |
| If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates or continue our research and development programs |
| To date, we have financed our operations primarily from sale of our equity securities and, to a lesser extent, revenues from collaborations and interest |
| Our initial projection for 2006 is that our average burn rate for 2006 will be approximately dlra2dtta5 million per month |
| We expect that our monthly cash used by operations will continue to increase for the next couple of years as our clinical programs are expanded |
| We are planning to be in a Phase IIb pivotal trial with Fodosine™ in 2006 in T-cell leukemia and are in the early stages of clinical trials in several other indications with Fodosine™ |
| As these trials increase in size and patient enrollment increases, our costs will increase |
| In addition, we expect our neuraminidase inhibitor, peramivir, to be in clinical trials in the first quarter of 2006 and our hepatitis C drug candidate, BCX-4678 to be in clinical trials during 2006 |
| These additional trials and the related manufacturing, personnel resources and testing required to support these studies will consume significant capital resources and will increase our expenses and our net loss |
| This monthly burn rate could vary significantly depending on many factors, including our ability to raise additional capital, the development progress of our existing partnerships for our drug candidates, the amount of funding or assistance we receive from governmental agencies or other new partnerships with third parties for the development of our drug candidates in general and for peramivir specifically, the progress and results of our current and proposed clinical trials for Fodosine™, peramivir and BCX-4678, the progress made in the manufacturing of our products and the progression of our other programs |
| As of December 31, 2005, we had dlra60dtta0 million in cash, cash equivalents and securities |
| We raised dlra30 million (approximately dlra29dtta9 million, net of expenses) in December 2005 through a sale of equity to provide the resources necessary to continue the development of our existing programs, while prudently maintaining our cash position |
| In addition, we established a collaborative relationship with Roche in November 2005 and a collaborative relationship with Mundipharma in February 2006, which provided additional cash in 2006, net of third party license fees, totaling approximately dlra32 million |
| Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including: 19 • the progress of our research, drug discovery and development programs; • changes in existing collaborative relationships; • our ability to establish additional collaborative relationships with academic institutions, biotechnology or pharmaceutical companies, governmental agencies or other third parties; • the extent to which our collaborators, including governmental agencies will share in the costs associated with the development of our programs or run the development programs themselves; • our ability to negotiate favorable development and marketing alliances for our drug product candidates; • the magnitude of our research and development programs; • the scope and results of preclinical studies and clinical trials to identify drug product candidates and the costs of manufacturing drug product to support these studies and trials; • competitive and technological advances; • the time and costs involved in obtaining regulatory approvals; • the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; • our dependence on others for development and commercialization of our product candidates; and • successful commercialization of our products consistent with our licensing strategy |
| We will be required to raise additional capital to complete the development and commercialization of our current product candidates |
| Additional funding, whether through additional sales of securities or collaborative or other arrangements with corporate partners, governmental agencies or from other sources, may not be available when needed or on terms acceptable to us |
| The issuance of preferred or common stock or convertible securities, with terms and prices significantly more favorable than those of the currently outstanding common stock, could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders |
| In addition, collaborative arrangements may require us to transfer certain material rights to such corporate partners as described in the following risk factor related to collaborative relationships |
| Insufficient funds may require us to delay, scale-back or eliminate certain of our research and development programs |
| If we fail to establish collaborative relationships to commercialize certain of our drug product candidates or if any collaborator terminates or fails to perform its obligations under agreements with us, the commercialization of our product candidates could be delayed or terminated |
| A key aspect of our business strategy is to enter into successful collaborative arrangements with pharmaceutical companies, research institutions, the United States government and universities for the preclinical development, clinical development, regulatory approval, marketing, domestic and international sales and distribution of our drug product candidates |
| Our general strategy is to rely upon other parties for all of these steps so that we can focus exclusively on the key areas of our expertise |
| For some smaller niche markets, we may perform these steps ourselves and outsource those functions where we do not have the internal expertise |
| Currently, we have established collaborative relationships with two pharmaceutical companies, Roche and Mundipharma for development and commercialization of BCX-4208 and Fodosine™, respectively |
| There is currently work being both planned and performed by various governmental agencies for the development of one of our drug candidates, peramivir, for the potential use in avian influenza |
| Any contracts with governmental agencies may not be completed on terms favorable to us, or at all, and any revenues under such contracts may not cover the development costs of our programs |
| The process of establishing collaborative relationships is difficult, time-consuming and involves significant uncertainty |
| Heavy reliance upon collaborative relationships with these third parties for these critical functions presents several risks, including: 20 • our collaborators may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, a change in business strategy, a change of control or other reasons; • our contracts for collaborative arrangements may expire; • our partners may choose to pursue alternative technologies, including those of our competitors; • we may have disputes with a partner that could lead to litigation or arbitration; • we do not have day to day control over the activities of our collaborators and have limited control over their decisions; • our ability to generate future event payments and royalties from our collaborators depends upon our collaborators’ abilities to establish the safety and efficacy of our drug candidates, obtain regulatory approvals and achieve market acceptance of products developed from our drug candidates; • our collaborators may not properly maintain or defend our intellectual property rights, where applicable, or they may utilize our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or expose us to potential liability; • our partners may not devote sufficient capital or resources towards our product candidates; and • our partners may not comply with applicable government regulatory requirements |
| If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, our commercialization efforts related to that collaboration could be delayed or terminated, or it may be necessary for us to assume responsibility for activities that would otherwise have been the responsibility of our collaborator |
| If we are unable to establish and maintain collaborative relationships on acceptable terms, we may have to delay or discontinue further development of one or more of our product candidates, undertake commercialization activities at our own expense or find alternative sources of funding |
| Any delay in the development or commercialization of our compounds would severely affect our business, because if our compounds do not progress through the development process or reach the market in a timely manner, or at all, we may not receive additional future event payments and may never receive product or royalty payments |
| We have not commercialized any products or technologies and our future revenue generation is uncertain |
| We have not yet commercialized any products or technologies, and we may never be able to do so |
| Our revenue from collaborative agreements is dependent upon the status of our preclinical and clinical programs |
| If we fail to advance these programs to the point of being able to enter into successful collaborations, we will not receive any future milestone or other collaborative payments |
| Any future revenue directly from product sales would depend on our ability to successfully complete clinical studies, obtain regulatory approvals, manufacture, market and commercialize any approved drugs |
| If our development collaborations with other parties fail, the development of our drug product candidates will be delayed or stopped |
| We rely heavily upon other parties for many important stages of our drug development programs, including: • discovery of proteins that cause or enable biological reactions necessary for the progression of the disease or disorder, called enzyme targets; • licensing or design of enzyme inhibitors for development as drug product candidates; • execution of some preclinical studies and late-stage development for our compounds and product candidates; 21 • management of our clinical trials, including medical monitoring and data management; • execution of additional toxicology studies that may be required to obtain approval for our product candidates; • manufacturing the starting materials required to formulate our drug products and the drug products to be used in both our clinical trials and toxicology studies; • management of our regulatory function; and • manufacturing, sales, marketing and distribution of our product candidates |
| Our failure to engage in successful collaborations at any one of these stages would greatly impact our business |
| If we do not license enzyme targets or inhibitors from academic institutions or from other biotechnology companies on acceptable terms, our product development efforts would suffer |
| Similarly, if the contract research organizations that conduct our initial or late-stage clinical trials, conduct our toxicology studies, manufacture our starting materials and drug products or manage our regulatory function breached their obligations to us, this would delay or prevent the development of our product candidates |
| Our development of both intravenous and intramuscular dosing of peramivir for avian flu is subject to all disclosed drug development and potential commercialization risks and numerous additional risks |
| Any potential revenue benefits to us are highly speculative |
| We have reinitiated development of our influenza neuraminidase inhibitor, peramivir |
| Further development and potential commercialization of peramivir is subject to all the risks and uncertainties disclosed in our other risk factors relating to drug development and commercialization |
| In addition, potential commercialization of peramivir is subject to further risks, including the following: • the injectable version of peramivir is at an early stage of development, has not been tested in humans and may not be safe or effective; • necessary government or other third party funding and clinical testing for further development of peramivir may not be available timely, at all, or in sufficient amounts; • the avian flu prevention or treatment concerns may not materialize at all, or in the near future; • advances in flu vaccines could substantially replace potential demand for an antiviral such as peramivir; • any substantial demand for avian flu treatments may occur before peramivir can be adequately developed and tested in clinical trials; • numerous large and well-established pharmaceutical and biotech companies will be competing to meet the market demand for avian flu drugs and vaccines; • regulatory authorities may not make needed accommodations to accelerate the drug testing and approval process for peramivir; and • in the next few years, it is expected that a limited number of governmental entities will be the primary potential customers for peramivir |
| If any or all of these and other risk factors occur, we will not attain significant revenues or gross margins from peramivir and our stock price will be adversely affected |
| 22 Because we have limited manufacturing experience, we depend on third-party manufacturers to manufacture our drug product candidates and the materials for our product candidates |
| If we cannot rely on third-party manufacturers, we will be required to incur significant costs and potential delays in finding new third-party manufacturers |
| We have limited manufacturing experience and only a small scale manufacturing facility |
| We currently rely upon third-party manufacturers to manufacture the materials required for our drug product candidates and most of the preclinical and clinical quantities of our product candidates |
| We depend on these third-party manufacturers to perform their obligations in a timely manner and in accordance with applicable governmental regulations |
| Our third-party manufacturers may encounter difficulties with meeting our requirements, including problems involving: • inconsistent production yields; • interruption of the delivery of materials required for the manufacturing process; • scheduling of plant time with other vendors or unexpected equipment failure; • potential catastrophes that could strike their facilities; • poor quality control and assurance or inadequate process controls; and • lack of compliance with regulations and specifications set forth by the FDA or other foreign regulatory agencies |
| These contract manufacturers may not be able to manufacture the materials required or our drug product candidates at a cost or in quantities necessary to make them commercially viable |
| We also have no control over whether third-party manufacturers breach their agreements with us or whether they may terminate or decline to renew agreements with us |
| To date, our third party manufacturers have met our manufacturing requirements, but they may not continue to do so |
| Furthermore, changes in the manufacturing process or procedure, including a change in the location where the drug is manufactured or a change of a third-party manufacturer, may require prior review and approval in accordance with the FDA’s current Good Manufacturing Practices, or cGMPs, and comparable foreign requirements |
| This review may be costly and time-consuming and could delay or prevent the launch of a product |
| The FDA or similar foreign regulatory agencies at any time may also implement new standards, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products |
| If we or our contract manufacturers are unable to comply, we or they may be subject to regulatory action, civil actions or penalties |
| If we are unable to enter into agreements with additional manufacturers on commercially reasonable terms, or if there is poor manufacturing performance on the part of our third party manufacturers, we may not be able to complete development of, or market, our product candidates |
| Our raw materials, drug substances, and drug products are manufactured by a limited group of suppliers and some at a single facility |
| If any of these suppliers were unable to produce these items, this could significantly impact our supply of drugs for further preclinical testing and clinical trials |
| We may be unable to establish sales, marketing and distribution capabilities necessary to successfully commercialize products we may successfully develop |
| We currently have no marketing capability and no direct or third-party sales or distribution capabilities |
| If we successfully develop a drug product candidate and decide to commercialize it ourselves rather than relying on third parties, as we are considering doing in the United States for Fodosine™, we may be unable to establish marketing, sales and distribution capabilities necessary to commercialize and gain market acceptance for that product |
| If the clinical trials of our drug product candidates fail, our product candidates will not be marketed, which would result in a complete absence of product related revenue |
| 23 To receive the regulatory approvals necessary for the sale of our product candidates, we or our licensees must demonstrate through preclinical studies and clinical trials that each product candidate is safe and effective |
| If we or other third party collaborators are unable to demonstrate that our product candidates are safe and effective, our product candidates will not receive regulatory approval and will not be marketed, which would result in a complete absence of product related revenue |
| The clinical trial process is complex and uncertain |
| Because of the cost and duration of clinical trials, we may decide to discontinue development of product candidates that are either unlikely to show good results in the trials or unlikely to help advance a product to the point of a meaningful collaboration |
| Positive results from preclinical studies and early clinical trials do not ensure positive results in clinical trials designed to permit application for regulatory approval, called pivotal clinical trials |
| We may suffer significant setbacks in pivotal clinical trials, even after earlier clinical trials show promising results |
| Any of our product candidates may produce undesirable side effects in humans |
| These side effects could cause us or regulatory authorities to interrupt, delay or halt clinical trials of a product candidate |
| These side effects could also result in the FDA or foreign regulatory authorities refusing to approve the product candidate for any targeted indications |
| We, our licensees, the FDA or foreign regulatory authorities may suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks |
| Clinical trials may fail to demonstrate that our product candidates are safe or effective |
| We are negotiating a special protocol assessment, or SPA, of the clinical trial protocol for the proposed Phase IIb clinical trial of Fodosine™ in T-cell leukemia |
| An SPA is an agreement between an applicant and the FDA on the design and the size of clinical trials that is intended to form the basis of a New Drug Application (“NDA”) |
| In connection with an SPA, an applicant may decide, or the FDA may require the applicant, to modify the proposed protocol by, for example, changing the proposed primary endpoint, the size of the study or otherwise, which may result in a delay in the initiation or completion of the clinical trials that are the subject of the SPA These changes could arise from a change in the standard of care for the proposed indication or other aspects of the protocol for the proposed clinical trials |
| If the FDA and an applicant reach an agreement on an SPA, the SPA cannot be changed after the clinical trial begins, except in limited circumstances such as a change in the science or clinical knowledge about the conditions being studied |
| Any significant change to the protocols for a clinical trial subject to an SPA would require prior FDA approval, which could delay implementation of such a change and continuation and completion of the related clinical trial |
| We or our collaborators incur substantial expense for, and devote significant time to, preclinical testing and clinical trials, yet cannot be certain that the tests and trials will ever result in the commercial sale of a product |
| For example, clinical trials require adequate supplies of drug and sufficient patient enrollment |
| Delays in patient enrollment can result in increased costs and longer development times |
| Even if we or our licensees successfully complete clinical trials for our product candidates, we or our licensees might not file the required regulatory submissions in a timely manner and may not receive regulatory approval for the product candidate |
| If we or our licensees do not obtain and maintain governmental approvals for our products under development, we or our partners will not be able to sell these potential products, which would significantly harm our business because we will receive no revenue |
| We or our licensees must obtain regulatory approval before marketing or selling our future drug products |
| If we or our licensees are unable to receive regulatory approval and do not market or sell our future drug products, we will never receive any revenue from such product sales |
| In the United States, we or our partners must obtain FDA approval for each drug that we intend to commercialize |
| The FDA approval process is typically lengthy and expensive, and approval is never certain |
| Products distributed abroad are also subject to foreign government regulation |
| The FDA or foreign regulatory agencies have not approved any of our drug product candidates |
| If we or our licensees fail to obtain regulatory approval we will be unable to market and sell our future drug products |
| We have several drug products in various stages of preclinical and clinical development; however, we are unable to determine when, if ever, any of these products will be commercially available |
| Because of the risks and uncertainties in biopharmaceutical development, our product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval |
| If the FDA delays regulatory approval of our product candidates, our management’s credibility, our company’s value and our operating results may suffer |
| Even if the FDA or foreign regulatory agencies approve a product candidate, the approval may limit the indicated uses for a product candidate and/or may require post-marketing studies |
| 24 The FDA regulates, among other things, the record keeping and storage of data pertaining to potential pharmaceutical products |
| We currently store most of our preclinical research data at our facility |
| While we do store duplicate copies of most of our clinical data offsite, we could lose important preclinical data if our facility incurs damage |
| If we get approval to market our potential products, whether in the United States or internationally, we will continue to be subject to extensive regulatory requirements |
| These requirements are wide ranging and govern, among other things: • adverse drug experience reporting regulations; • product promotion; • product manufacturing, including good manufacturing practice requirements; and • product changes or modifications |
| Our failure to comply with existing or future regulatory requirements, or our loss of, or changes to, previously obtained approvals, could have a material adverse effect on our business because we will not receive product or royalty revenues if we or our licensees do not receive approval of our products for marketing |
| The FDA inspected us in November 1995 and issued us a List of Inspectional Observations, Form FDA 483, which cited our failure to follow good clinical practices |
| The focus was on the two 1995 Phase II dose-ranging studies of topical BCX-34 for the treatment of CTCL and psoriasis |
| As a result of the investigation, the FDA issued us a Form FDA 483, which cited our failure to follow good clinical practices |
| We are no longer developing BCX-34; however, as a consequence of these two investigations, our ongoing and future clinical studies may receive increased scrutiny, which may delay the regulatory review process |
| If our drug product candidates do not achieve broad market acceptance, our business may never become profitable |
| Our drug product candidates may not gain the market acceptance required for us to be profitable even if they successfully complete initial and final clinical trials and receive approval for sale by the FDA or foreign regulatory agencies |
| The degree of market acceptance of any product candidates that we or our partners develop will depend on a number of factors, including: • our clinical evidence of safety and efficacy; • cost-effectiveness, convenience and ease of use of our product candidates; • their safety, availability and effectiveness relative to alternative treatments; • the actual and potential side effects or other reactions; • reimbursement policies of government and third-party payers; and • the effectiveness of marketing and distribution support for our product candidates |
| Physicians, patients, payers or the medical community in general may not accept or use our product candidates even after the FDA or foreign regulatory agencies approve the drug candidates |
| If our product candidates do not achieve significant market acceptance, we will not have enough revenues to become profitable |
| We face intense competition, and if we are unable to compete effectively, the demand for our products, if any, may be reduced |
| The biotechnology and pharmaceutical industries are highly competitive and subject to rapid and substantial technological change |
| We face, and will continue to face, competition in the licensing of desirable disease targets, licensing of desirable drug product candidates, and development and marketing of our product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical companies |
| Competition may also arise from, among other things: 25 • other drug development technologies; • methods of preventing or reducing the incidence of disease, including vaccines; and • new small molecule or other classes of therapeutic agents |
| Developments by others may render our product candidates or technologies obsolete or noncompetitive |
| We and our licensees are performing research on or developing products for the treatment of several disorders including T-cell mediated disorders (T-cell cancers, psoriasis, transplant rejection, and rheumatoid arthritis), oncology, influenza, hepatitis C and cardiovascular disorders |
| We expect to encounter significant competition for any of the pharmaceutical products we plan to develop |
| Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before their competitors may achieve a significant competitive advantage |
| Such is the case with GSK’s Arranon for T-cell ALL and the current neuraminidase inhibitors marketed by GSK and Roche for influenza |
| In addition, several pharmaceutical and biotechnology firms, including major pharmaceutical companies and specialized structure-based drug design companies, have announced efforts in the field of structure-based drug design and in the fields of PNP, hepatitis C, influenza, and tissue factor/factor VIIa |
| If one or more of our competitors’ products or programs are successful, the market for our products may be reduced or eliminated |
| Compared to us, many of our competitors and potential competitors have substantially greater: • capital resources; • research and development resources, including personnel and technology; • regulatory experience; • preclinical study and clinical testing experience; • manufacturing and marketing experience; and • production facilities |
| Any of these competitive factors could reduce demand for our products |
| If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of those rights would diminish |
| Our success will depend in part on our ability and the abilities of our collaborators to obtain patent protection for our products, methods, processes and other technologies we may license or develop, to preserve our trade secrets, and to operate without infringing the proprietary rights of third parties both domestically and abroad |
| The patent position of biotechnology and pharmaceutical companies is generally highly uncertain, involves complex legal and factual questions and has recently been the subject of much litigation |
| Neither the United States Patent and Trademark Office (“USPTO”), nor the courts have a consistent policy regarding the breadth of claims allowed or the degree of protection afforded under many biotechnology and pharmaceutical patents |
| The validity, enforceability and commercial value of these rights, therefore, is highly uncertain |
| Our success depends in part on avoiding the infringement of other parties’ patents and proprietary rights as well as avoiding the breach of any licenses relating to our technologies and products |
| In the US, patent applications filed in recent years are confidential for 18 months, while older applications are not published until the patent issues |
| As a result, avoiding patent infringement may be difficult and we may inadvertently infringe third-party patents or proprietary rights |
| These third parties could bring claims against us, our collaborators or our licensors that even if 26 resolved in our favor, could cause us to incur substantial expenses and, if resolved against us, could additionally cause us to pay substantial damages |
| Further, if a patent infringement suit were brought against us, our collaborators or our licensors, we or they could be forced to stop or delay research, development, manufacturing or sales of any infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder |
| Such a license may not be available on acceptable terms, or at all, particularly if the third party is developing or marketing a product competitive with the infringing product |
| Even if we, our collaborators or our licensors were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property |
| If we or our partners are unable to adequately protect or enforce our intellectual property rights for our products, methods, processes and other technologies, the value of the drug product candidates that we license to derive revenue would diminish |
| Additionally, if our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs |
| The USPTO has issued to us a number of US patents for our various inventions and we have in-licensed several patents from various institutions |
| We have filed additional patent applications and provisional patent applications with the USPTO We have filed a number of corresponding foreign patent applications and intend to file additional foreign and US patent applications, as appropriate |
| We cannot assure you as to: • the degree and range of protection any patents will afford against competitors with similar products; • if and when patents will issue; or • whether or not others will obtain patents claiming aspects similar to those covered by our patent applications |
| If the USPTO upholds patents issued to others or if the USPTO grants patent applications filed by others, we may have to: • obtain licenses or redesign our products or processes to avoid infringement; • stop using the subject matter claimed in those patents; or • pay damages |
| We may initiate, or others may bring against us, litigation or administrative proceedings related to intellectual property rights, including proceedings before the USPTO Any judgment adverse to us in any litigation or other proceeding arising in connection with a patent or patent application could materially and adversely affect our business, financial condition and results of operations |
| In addition, the costs of any such proceeding may be substantial whether or not we are successful |
| Our success is also dependent upon the skills, knowledge and experience, none of which is patentable, of our scientific and technical personnel |
| To help protect our rights, we require all employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to anyone outside of our company and require disclosure and assignment to us of their ideas, developments, discoveries and inventions |
| These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information, and if any of our proprietary information is disclosed, our business will suffer because our revenues depend upon our ability to license our technology and any such events would significantly impair the value of such a license |
| If we fail to retain our existing key personnel or fail to attract and retain additional key personnel, the development of our drug product candidates and the expansion of our business will be delayed or stopped |
| We are highly dependent upon our senior management and scientific team, the loss of whose services might impede the achievement of our development and commercial objectives |
| Competition for key personnel with the experience that we require is intense and is expected to continue to increase |
| Our inability to attract and retain the required number of skilled and experienced management, operational and scientific personnel, will harm our business because we rely upon these personnel for many critical functions of our business |
| In addition, we rely on members of our scientific advisory 27 board and consultants to assist us in formulating our research and development strategy |
| All of the members of the scientific advisory board and all of our consultants are otherwise employed and each such member or consultant may have commitments to other entities that may limit their availability to us |
| If users of our drug products are not reimbursed for use, future sales of our drug products will decline |
| The lack of reimbursement for the use of our product candidates by hospitals, clinics, patients or doctors will harm our business |
| Medicare, Medicaid, health maintenance organizations and other third-party payers may not authorize or otherwise budget for the reimbursement of our products |
| Governmental and third-party payers are increasingly challenging the prices charged for medical products and services |
| We cannot be sure that third-party payers would view our product candidates as cost-effective, that reimbursement will be available to consumers or that reimbursement will be sufficient to allow our product candidates to be marketed on a competitive basis |
| Changes in reimbursement policies, or attempts to contain costs in the health care industry could limit or restrict reimbursement for our product candidates and would materially and adversely affect our business, because future product sales would decline and we would receive less product or royalty revenue |
| The Medicare prescription drug coverage legislation and future legislative or regulatory reform of the healthcare system may affect our ability to sell our products profitably |
| In the United States, there have been a number of legislative and regulatory proposals, at both the federal and state government levels, to change the healthcare system in ways that could affect our ability to sell our products profitably, if approved |
| For example, the Medicare Prescription Drug and Modernization Act of 2003 (“MMA”), went into effect on January 1, 2006 and has changed the types of drugs covered by Medicare, and the methodology used to determine the price for such drugs |
| Further federal and state proposals and healthcare reforms are likely |
| Our business could be harmed by the MMA, by the possible effect of this legislation on amounts that private payors will pay and by other healthcare reforms that may be enacted or adopted in the future |
| There is a substantial risk of product liability claims in our business |
| If we are unable to obtain sufficient insurance, a product liability claim against us could adversely affect our business |
| We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face even greater risks upon any commercialization by us of our product candidates |
| We have product liability insurance covering our clinical trials in the amount of dlra7 million, which we currently believe is adequate to cover any product liability exposure we may have |
| Clinical trial and product liability insurance is becoming increasingly expensive |
| An individual may bring a product liability claim against us if one of our products or product candidates causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use |
| Any product liability claim brought against us, with or without merit, could result in: • liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available; • an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all; • withdrawal of clinical trial volunteers or patients; • damage to our reputation and the reputation of our products, resulting in lower sales; • regulatory investigations that could require costly recalls or product modifications; • litigation costs; and • the diversion of management’s attention from managing our business |
| 28 If our computer systems fail or our facility incurs damage, our business will suffer |
| Our drug development activities depend on the security, integrity and performance of the computer systems supporting them, and the failure of our computer systems could delay our drug development efforts |
| We currently store most of our preclinical and clinical data at our facility |
| Duplicate copies of most critical data are stored off-site in a bank vault |
| Any significant degradation or failure of our computer systems could cause us to inaccurately calculate or lose our data |
| Loss of data could result in significant delays in our drug development process and any system failure could harm our business and operations |
| In addition, we store numerous clinical and stability samples at our facility that could be damaged if our facility incurred physical damage or in the event of an extended power failure |
| We have backup power systems in addition to backup generators to maintain power to all critical functions, but any loss of these samples could result in significant delays in our drug development process |
| If, because of our use of hazardous materials, we violate any environmental controls or regulations that apply to such materials, we may incur substantial costs and expenses in our remediation efforts |
| Our research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds |
| We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and some waste products |
| Accidental contamination or injury from these materials could occur |
| In the event of an accident, we could be liable for any damages that result and any liabilities could exceed our resources |
| Compliance with environmental laws and regulations could require us to incur substantial unexpected costs, which would materially and adversely affect our results of operations |
| Risks Relating to Our Common Stock Our stock price is likely to be highly volatile and the value of your investment could decline significantly |
| The market prices for securities of biotechnology companies in general have been highly volatile and may continue to be highly volatile in the future |
| Moreover, our stock price has fluctuated frequently, and these fluctuations are often not related to our financial results |
| For the twelve months ended December 31, 2005, the 52-week range of the market price of our stock was from dlra3dtta68 to dlra18dtta64 per share |
| The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock: • announcements of technological innovations or new products by us or our competitors; • developments or disputes concerning patents or proprietary rights; • status of new or existing licensing or collaborative agreements; • we or our licensees achieving or failing to achieve development milestones; • publicity regarding actual or potential medical results relating to products under development by us or our competitors; • publicity regarding certain public health concerns for which we are or may be developing treatments; • regulatory developments in both the United States and foreign countries; • public concern as to the safety of pharmaceutical products; • actual or anticipated fluctuations in our operating results; • changes in financial estimates or recommendations by securities analysts; • changes in the structure of healthcare payment systems, including developments in price control legislation; 29 • announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; • additions or departures of key personnel or members of our board of directors; • sales of substantial amounts of our stock by existing stockholders, including officers or directors; • economic and other external factors or other disasters or crises; and • period-to-period fluctuations in our financial results |
| Because stock ownership is concentrated, you and other investors will have limited influence on stockholder decisions |
| As of December 31, 2005, our directors, executive officers and some principal stockholders and their affiliates beneficially owned approximately 34dtta1prca of our outstanding common stock and common stock equivalents |
| As a result, these holders, if acting together, are able to significantly influence matters requiring stockholder approval, including the election of directors |
| This concentration of ownership may delay, defer or prevent a change in our control |
| We have anti-takeover provisions in our corporate charter documents that may result in outcomes with which you do not agree |
| Our board of directors has the authority to issue up to 3cmam178cmam500 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of those shares without further vote or action by our stockholders |
| The rights of the holders of any preferred stock that may be issued in the future may adversely affect the rights of the holders of common stock |
| The issuance of preferred stock could make it more difficult for third parties to acquire a majority of our outstanding voting stock |
| In addition, our certificate of incorporation provides for staggered terms for the members of the board of directors and supermajority approval of the removal of any member of the board of directors and prevents our stockholders from acting by written consent |
| Our certificate also requires supermajority approval of any amendment of these provisions |
| These provisions and other provisions of our by-laws and of Delaware law applicable to us could delay or make more difficult a merger, tender offer or proxy contest involving us |
| In June 2002, our board of directors adopted a stockholder rights plan and, pursuant thereto, issued preferred stock purchase rights (“Rights”) to the holders of our common stock |
| The Rights have certain anti-takeover effects |
| If triggered, the Rights would cause substantial dilution to a person or group of persons who acquires more than 15prca (19dtta9prca for William W Featheringill, a Director who owned approximately 9dtta95prca as of December 31, 2005, but owned more than 15prca at the time the Rights were put in place) of our common stock on terms not approved by the board of directors |
| We have never paid dividends on our common stock and do not anticipate doing so in the foreseeable future |
| We have never paid cash dividends on our stock |
| We currently intend to retain all future earnings, if any, for use in the operation of our business |
| Accordingly, we do not anticipate paying cash dividends on our common stock in the foreseeable future |
| Information Regarding Forward-Looking Statements This discussion contains forward-looking statements, which are subject to risks and uncertainties |
| These forward-looking statements can generally be identified by the use of words such as “may,” “will,” “intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” the negative of these words or similar expressions |
| Statements that describe our future plans, strategies, intentions, expectations, objectives, goals or prospects are also forward-looking statements |
| Discussions containing these forward-looking statements are principally contained in “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as any amendments we make to those sections in filings with the SEC These forward-looking statements include, but are not limited to, statements about: 30 • the initiation, timing, progress and results of our preclinical and clinical trials, research and development programs; • the further preclinical or clinical development and commercialization of our product candidates; • the implementation of our business model, strategic plans for our business, product candidates and technology; • our ability to establish and maintain collaborations with biotechnology or pharmaceutical companies and governmental agencies or other third parties; • the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology; • our ability to operate our business without infringing the intellectual property rights of others; • estimates of our expenses, future revenues, capital requirements and our needs for additional financing; • the timing or likelihood of regulatory filings and approvals; • our negotiations with the FDA for a special protocol assessment; • our financial performance; and • competitive companies, technologies and our industry |
| These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements |
| Given these uncertainties, you should not place undue reliance on these forward-looking statements |
| ” Also, these forward-looking statements represent our estimates and assumptions only as of the date of this document |
| You should read this discussion completely and with the understanding that our actual future results may be materially different from what we expect |
| We may not update these forward-looking statements, even though our situation may change in the future |
| We qualify all of our forward-looking statements by these cautionary statements |