| BIOENVISION INC ITEM 1A RISK FACTORS |
| 11 Item 1A Risk Factors Factors that May Affect Our Business You should carefully consider the following risks before you decide to buy our common stock |
| Our business, financial condition or operating results may suffer if any of the events described in the following risk factors actually occur |
| All known risks are presented in this annual report on Form 10-K These risks may adversely affect our business, financial condition or operating results |
| If any of the events we have identified occur, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock |
| We have a limited operating history, which makes it difficult to evaluate our business and to predict our future operating results |
| Since our inception in August of 1996, we have been primarily engaged in organizational activities, including developing a strategic operating plan, raising capital, entering into various collaborative agreements for the in-licensing and/or development of products and technologies, hiring personnel and developing and testing our 11 products |
| Accordingly, we have a limited operating history upon which an evaluation of our performance and prospects can be made |
| We have incurred significant net losses since commencing business and expect future losses |
| To date, we have incurred significant net losses, including net loss applicable to common stockholders of approximately dlra24cmam236cmam000 for the fiscal year ended June 30, 2006 |
| At June 30, 2006, we had an accumulated deficit of approximately dlra86cmam567cmam000 |
| We anticipate that we may continue to incur operating losses for the foreseeable future |
| We may never generate substantial revenues or achieve profitability and, if we do achieve profitability, we may not be able to maintain profitability |
| Clinical trials for our products are expensive and time consuming, and may not result in viable products |
| Before obtaining regulatory approval for the commercial sale of a product, we must demonstrate through pre-clinical testing and clinical trials that a product candidate is safe and effective for use in humans |
| Conducting clinical trials is a lengthy, time-consuming and expensive process |
| We will incur substantial expense for, and devote a significant amount of time to pre-clinical testing and clinical trials |
| Even with our lead drugs, Evoltra(R) and Modrenal(R), each of which has received at least one regulatory approval, additional pre-clinical and clinical studies are required in our effort to seek further approved indications for these drugs |
| Modrenal(R) is approved and we market Modrenal(R) in the UK for the treatment of advanced, post-menopausal breast cancer |
| Currently, we are conducting a Phase II clinical trial in the UK for its treatment of pre-menopausal breast cancer which is a new potential indication for this approved drug |
| Evoltra(R) is being studied in pediatric ALL, adult AML, MDS, solid tumor cancers and certain non-cancer indications in studies ranging from pre-clinical to Phase II/III The results from pre-clinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials as a number of new drugs have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals |
| Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval |
| Regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development |
| Regulatory authorities may require additional clinical trials, which could result in increased costs and significant development delays |
| Completion of clinical trials for any product may take several or more years |
| The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate |
| Our commencement and rate of completion of clinical trials may be delayed by many factors, including: o inability of vendors to manufacture sufficient quantities of materials for use in clinical trials; o slower than expected rate of patient recruitment or variability in the number and types of patients in a study; o inability to adequately follow patients after treatment; o unforeseen safety issues or side effects; o lack of efficacy during the clinical trials; or o government or regulatory delays |
| A significant portion of our assets relate to ancillary products, which may not be successfully commercialized |
| Our ancillary products include OLIGON(R), an anti-microbial compound, and Suvus(TM), an anti-viral agent, respectively, which we acquired in February 2002 in the Pathagon acquisition |
| At June 30, 2005, due to the loss of an intellectual property patent suit relating to the international use of Suvus(TM) in fresh frozen plasma, we re-evaluated the fair value of the intangible assets relating to Suvus(TM) |
| At that date, we estimated that our undiscounted future cash flows pertaining solely and exclusively to approved uses of Suvus(TM) were less than the carrying value of our long-lived asset |
| As a result, we recognized a non-cash impairment loss of dlra5cmam276cmam000, equal to the difference between the estimated future cash flows related solely to approved uses of Suvus(TM), discounted at an appropriate rate, and the carrying amount of the asset |
| Making the determinations of impairment and the amount of impairment requires significant judgment by management and assumptions with respect to the future cash flows of the assets |
| At June 30, 2006, subsequent to the recognition of the impairment, the net intangible assets 12 associated with these products amounted to approximately dlra6cmam886cmam000 and constituted approximately 11prca of our total assets and approximately 15prca of our stockholders &apos equity |
| We do not currently devote any significant time or resources to the research and development of OLIGON and only intend to do so if, and to the extent, we successfully commercialize our lead drugs, Evoltra(R) and Modrenal(R), over the next two years |
| Historically, we have not devoted significant time or resource to the research and development of Suvus(TM) but our management and board of directors is currently considering the appropriate level of time and resource to be devoted to Suvus(TM) over the next several years |
| Based on the estimated useful life of these assets of approximately 13 years and market considerations, no assurance can be given that there will not be a further impairment of these assets in the future, which could result in a material impact on our future results of operations |
| Changes in events or circumstances that may affect long-lived assets, particularly in the pharmaceutical industry, makes judgments and assumptions with respect to the future cash flows highly subjective and may include, but are not limited to, cancellations or terminations of license agreements or the risk of competition that could render our products noncompetitive or obsolete |
| We depend on our co- development agreement with Genzyme and if it does not proceed as planned, we may incur delay in the commercial value realized from Evoltra(R) ( clofarabine), which may delay our ability to generate significant revenues and cash flow from the sale of Evoltra(R) |
| We have a co-development agreement with Genzyme, and pursuant to that agreement, Genzyme and any third party to which Genzyme grants a sublicense or transfer its obligations, has primary responsibility for conducting clinical trials and administering regulatory compliance and approval matters in certain cancer indications in the US and Canada |
| If Genzyme fails to meet its obligations under the co-development agreement including its obligation to cooperate and share data with us, we could lose valuable time in further developing clofarabine and further commercializing the drug both in the US and in Europe |
| We can not provide assurance that Genzyme will cooperate with us or that Genzyme will not fail to meet its obligations under the co-development agreement |
| Development of compounds to the stage of approval includes inherent risk at each stage of development that FDA, in its discretion, will mandate a requirement not foreseeable by us or by Genzyme |
| There would also be testing delays if, for example, our sources of drug supply could not produce enough Evoltra(R) to support the then ongoing clinical trials being conducted |
| If this were to occur, it could have a material adverse effect on our ability to develop and/or market Evoltra(R), obtain necessary regulatory approvals, and generate sales and cash flow from the sale of Evoltra(R) |
| If delays in completion constitute a breach by Genzyme or there are certain other breaches of the co-development agreement by Genzyme, then, at our discretion, the primary responsibility for completion would revert to us, but there is no assurance that we would have the financial, managerial or technical resources to successfully complete such responsibilities or, if successfully completed, to complete such tasks in timely fashion |
| We have limited experience in developing products and may be unsuccessful in our efforts to develop products |
| To achieve profitable operations, we, alone or with others, must successfully develop, clinically test, market and sell our products |
| We are developing clofarabine with Genzyme, our US co-development partner since its acquisition of ILEX Oncology, which occurred on December 21, 2004 |
| No assurance can be given that the operational and managerial relations with Genzyme will proceed favorably or that the timeline for development of clofarabine will not be elongated now that Genzyme has replaced ILEX as our US cancer-indication marketing partner |
| No assurance can be given that we or Genzyme have the oncology experience required to work successfully with the applicable regulatory authorities to build upon the licensed indications for Clofarabine |
| With respect to Modrenal(R), our long-term drug development objectives for Modrenal(R) may include attempting to test the drug and get approval in the US for treatment of advanced post-menopausal breast cancer patients |
| These trials would take significant time and resources and no assurance can be given that developing the drug in this indication will result in a US approval for Modrenal(R) in advanced post-menopausal breast cancer patients |
| Certain of our unapproved compounds or potential new indications for our approved drugs are not expected to be available for sale for at least several years, if at all |
| Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons, including: o discovery during pre-clinical testing or clinical trials that the products are ineffective or cause harmful side effects; o failure to receive necessary regulatory approvals; 13 o inability to manufacture on a large or economically feasible scale; o failure to achieve market acceptance; or o preclusion from commercialization by proprietary rights of third parties |
| Most of the existing and future products and technologies developed by us will require extensive additional development, including pre-clinical testing and clinical trials, as well as regulatory approvals, prior to commercialization |
| Our product development efforts may not be successful |
| We may fail to receive required regulatory approvals from US or foreign authorities for any indication |
| Any products, if introduced, may not be capable of being produced in commercial quantities at reasonable costs or being successfully marketed |
| The failure of our research and development activities to result in any commercially viable products or technologies would materially adversely affect our future prospects |
| We rely on compounds and technology licensed from third parties and termination of any of those licenses would result in the loss of significant rights We hold an exclusive worldwide license for clofarabine (outside Japan and Southeast Asia) and we are currently negotiating the terms of a proposed exclusive license for clofarabine in Japan and Southeast Asia |
| We granted an exclusive sublicense to Genzyme to develop and commercialize clofarabine for cancer indications in the US and Canada |
| We hold an exclusive license in the US and Canada for all non-cancer indications |
| We originally obtained clofarabine development and commercialization rights under patents held by Southern Research Institute ( "e SRI "e ) |
| Our licenses generally may be terminated by SRI under the co-development agreement under certain circumstances |
| If any of our licenses are terminated, we may lose certain rights to manufacture, sell, market and distribute clofarabine or other product candidates which would significantly reduce our actual and potential revenues and have a material and negative impact on our operations |
| With regard to our license negotiations with SRI pursuant to which we may license the rights to manufacture, sell, market and distribute clofarabine in Japan and Southeast Asia, no assurance can be given that we will successfully in-license these rights; or if we do that these rights will be in-licensed on terms favorable to us |
| If we are unsuccessful in developing and commercializing our products, our business, financial condition and results of operations could be materially adversely affected which could have a negative impact on the value of our securities |
| Many of our products and processes are in the early or mid-stages of research, development and/or commercialization and, therefore, will require the commitment of substantial financial resources, extensive research, development, sales and marketing activities prior to being ready for sale or marketed in significant quantities |
| All of our commercially available products will require further development, clinical testing and regulatory approvals as we seek approvals in new indications and geographic markets |
| If it becomes too expensive to sustain our present commitment of resources on a long-term basis, we will be unable to continue certain necessary research and development activities |
| Furthermore, we cannot be certain that our clinical testing will render satisfactory results, or that we will receive required regulatory approvals for our new products or new indications |
| If any of our products, even if developed and approved, cannot be successfully commercialized, our business, financial condition, results of operations and liquidity could be materially adversely affected which could have a negative impact on the value of our common stock or debt securities obligations |
| During the next several years, we will be very dependent on the commercial success of Evoltra(R) |
| At our present and anticipated level of operations, we may not be able to achieve and maintain profitability without continued growth in our revenues |
| The growth of our business during the next several years will be largely dependent on the commercial success of Evoltra(R) and our other products |
| We do not have long-term data on the use of the product and cannot predict whether Evoltra(R) will gain widespread acceptance, which will mostly depend on the acceptance of regulators, physicians, patients and other key opinion leaders as a relatively safe and effective drug that has certain advantages as compared to existing or future therapies |
| 14 Our industry is subject to extensive government regulation and our products require other regulatory approvals which makes it more expensive to operate our business |
| Regulation in General |
| Virtually all aspects of our business are regulated by federal, state and local statutes and governmental agencies in the US and other countries |
| Failure to comply with applicable statutes and government regulations could have a material adverse effect on our ability to develop and sell products which would have a negative impact on our cash flow |
| The development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record-keeping, distribution, storage and advertising of pharmaceutical products, and disposal of waste products arising from these activities, are subject to regulation by one or more federal agencies |
| These activities are also regulated by similar state and local agencies and equivalent foreign authorities |
| In our material contracts with vendors providing any portion of these types of services, we seek assurances that our vendors comply and will continue to maintain compliance with all applicable rules and regulations |
| This is the case, for example, with respect to our contracts with Ferro Pfanstiehl and Penn Pharmaceuticals |
| No assurance can be given that our most significant vendors will continue to comply with these rules and regulations |
| All pharmaceutical manufacturers in the US are subject to regulation by the FDA under the authority of the Federal Food, Drug, and Cosmetic Act |
| Under the Act, the federal government has extensive administrative and judicial enforcement powers over the activities of pharmaceutical manufacturers to ensure compliance with FDA regulations |
| Those powers include, but are not limited to the authority to: o initiate court action to seize unapproved or non-complying products; o enjoin non-complying activities; o halt manufacturing operations that are not in compliance with current good manufacturing practices prescribed by the FDA; o recall products which present a health risk; and o seek civil monetary and criminal penalties |
| Other enforcement activities include refusal to approve product applications or the withdrawal of previously approved applications |
| Any enforcement activities, including the restriction or prohibition on sales of products marketed by us or the halting of manufacturing operations of us or our collaborators, would have a material adverse effect on our ability to develop and sell products which would have a negative impact on our cash flow |
| In addition, product recalls may be issued at our discretion or by the FDA or other domestic and foreign government agencies having regulatory authority for pharmaceutical product sales |
| Recalls may occur due to disputed labeling claims, manufacturing issues, quality defects or other reasons |
| Recalls of pharmaceutical products marketed by us may occur in the future |
| Any product recall could have a material adverse effect on our revenue and cash flow |
| FDA Approval Process |
| We have a variety of products under development, including line extensions of existing products, reformulations of existing products and new products |
| All "e new drugs "e must be the subject of an FDA-approved new drug application before they may be marketed in the US All generic equivalents to previously approved drugs or new dosage forms of existing drugs must be the subject of an FDA-approved abbreviated new drug application before they may by marketed in the US In both cases, the FDA has the authority to determine what testing procedures are appropriate for a particular product and, in some instances, has not published or otherwise identified guidelines as to the appropriate procedures |
| The FDA has the authority to withdraw existing new drug application and abbreviated application approvals and to review the regulatory status of products marketed under the enforcement policy |
| The FDA may require an approved new drug application or abbreviated application for any drug product marketed under the enforcement policy if new information reveals questions about the drugapstas safety or effectiveness |
| All drugs must be manufactured in conformity with current good manufacturing practices and drugs subject to an approved new drug application or abbreviated application must be manufactured, processed, packaged, held and labeled in accordance with information contained in the new drug application or abbreviated application |
| The required product testing and approval process can take a number of years and require the expenditure of substantial resources |
| Testing of any product under development may not result in a commercially-viable product |
| Further, we may decide to modify a product in testing, which could materially extend the test period and increase the development costs of the product in question |
| Even after time and expenses, regulatory approval by the FDA may not be obtained for any products we develop |
| In addition, delays or rejections may be encountered based upon changes in FDA policy during the period of product development and FDA review |
| Any regulatory approval may impose limitations in the indicated use for the product |
| Even if regulatory approval is obtained, a marketed 15 product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections |
| Subsequent discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on the product or manufacturer, including withdrawal of the product from the market |
| Foreign Regulatory Approval |
| Even if required FDA approval has been obtained with respect to a product, foreign regulatory approval of a product must also be obtained prior to marketing the product internationally |
| Foreign approval procedures vary from country to country and the time required for approval may delay or prevent marketing |
| In certain instances, we or our collaborative partners may seek approval to market and sell some of our products outside of the United States before submitting an application for approval to the FDA The clinical testing requirements and the time required to obtain foreign regulatory approvals may differ from that required for FDA approval |
| Although there is now a centralized European Union approval mechanism for new pharmaceutical products in place, each European Union country may nonetheless impose its own procedures and requirements, many of which are time consuming and expensive, and some European Union countries require price approval as part of the regulatory process |
| Thus, there can be substantial delays in obtaining required approval from both the FDA and foreign regulatory authorities after the relevant applications are filed |
| Changes in Requirements |
| The regulatory requirements applicable to any product may be modified in the future |
| We cannot determine what effect changes in regulations or statutes or legal interpretations may have on our business in the future |
| Changes could require changes to manufacturing methods, expanded or different labeling, the recall, replacement or discontinuation of certain products, additional record keeping and expanded documentation of the properties of certain products and scientific substantiation |
| Any changes or new legislation could have a material adverse effect on our ability to develop and sell products and, therefore, generate revenue and cash flow |
| The products under development by us may not meet all of the applicable regulatory requirements needed to receive regulatory marketing approval |
| Even after we expend substantial resources on research, clinical development and the preparation and processing of regulatory applications, we may not be able to obtain regulatory approval for any of our products |
| Moreover, regulatory approval for marketing a proposed pharmaceutical product in any jurisdiction may not result in similar approval in other jurisdictions |
| Our failure to obtain and maintain regulatory approvals for products under development would have a material adverse effect on our ability to develop and sell products and, therefore, generate revenue and cash flow |
| We may not be successful in receiving orphan drug status for certain of our products or, if that status is obtained, fully enjoying the benefits of orphan drug status |
| Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition |
| A disease or condition that affects populations of fewer than 200cmam000 people in the US generally constitutes a rare disease or condition |
| We may not be successful in receiving orphan drug status for certain of our products |
| Orphan drug designation must be requested before submitting a new drug application |
| After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are publicized by the FDA Under current law, orphan drug status is conferred upon the first company to receive FDA approval to market the designated drug for the designated indication |
| Orphan drug status also grants marketing exclusivity in the US for a period of seven years following approval of the new drug application, subject to limitations |
| Orphan drug designation does not provide any advantage in, or shorten the duration of, the FDA regulatory approval process |
| Although obtaining FDA approval to market a product with orphan drug status can be advantageous, the scope of protection or the level of marketing exclusivity that is currently afforded by orphan drug status and marketing approval may not remain in effect in the future |
| Our business strategy involves obtaining orphan drug designation for certain of the oncology products we have under development |
| Although clofarabine has received orphan drug designation with the FDA and EMA, we do not know whether any of our other products will receive an orphan drug designation |
| Orphan drug designation does not prevent other manufacturers from attempting to develop similar drugs for the designated indication or from obtaining the approval of a new drug application for their drug prior to the approval of our new drug application |
| If another sponsorapstas new drug application for a competing drug in the same indication is approved first, that sponsor is entitled to exclusive marketing rights if that sponsor has received orphan drug designation for its drug |
| In that case, the FDA would refrain from approving an application by us to market our competing product for seven years, subject to limitations |
| Competing products may receive orphan drug designations and FDA marketing approval before the products under development by us |
| New drug application approval for a drug with an orphan drug designation does not prevent the FDA from approving the same drug for a different indication, or a molecular variation of the same drug for the same indication |
| Because doctors are not restricted by the FDA from prescribing an approved drug for uses not approved by the FDA, it is also possible that another companyapstas drug could be prescribed for indications for which products 16 developed by us have received orphan drug designation and new drug application approval, and the same is true with the EMA in Europe |
| Prescribing of approved drugs for unapproved uses, commonly referred to as "e off label "e sales, could adversely affect the marketing potential of products that have received an orphan drug designation and new drug application approval |
| In addition, new drug application approval of a drug with an orphan drug designation does not provide any marketing exclusivity in foreign markets |
| The possible amendment of the Orphan Drug Act by the United States Congress has been the subject of frequent discussion |
| Although no significant changes to the Orphan Drug Act have been made for a number of years, members of Congress have from time to time proposed legislation that would limit the application of the Orphan Drug Act |
| The precise scope of protection that may be afforded by orphan drug designation and marketing approval may be subject to change in the future |
| The use of our products may be limited or eliminated by professional guidelines which would decrease our sales of these products and, therefore, our revenue and cash flows |
| In addition to government agencies, private health/science foundations and organizations involved in various diseases may also publish guidelines or recommendations to the healthcare and patient communities |
| These private organizations may make recommendations that affect the usage of therapies, drugs or procedures, including products developed by us |
| These recommendations may relate to matters such as usage, dosage, route of administration and use of concomitant therapies |
| Recommendations or guidelines that are followed by patients and healthcare providers and that result in, among other things, decreased use or elimination of products developed by us could have a material adverse effect on our revenue and cash flows |
| For example, if clofarabine is definitively determined in clinical trials to be an active agent to treat solid tumor cancer patients, but the required dose is high, private healthcare/science foundations could recommend various other regimens of treatment which may from time to time show activity at lower doses |
| Generic products which third parties may develop may render our products noncompetitive or obsolete |
| An increase in competition from generic pharmaceutical products could have a material adverse effect on our ability to generate revenue and cash flow |
| For example, many of the indications in which Evoltra(R) and Modrenal(R), our co-lead drugs, have demonstrated activity are areas of unmet clinical need, such as Evoltraapstas(R) application to pediatric acute leukemias in which, initially, the drug will be used as a salvage therapy, after other regimens of treatment have failed |
| Our lead investigators, who have assisted with the development of Modrenal(R), envision, initially, that Modrenal(R) would be used as second or third line therapy, only after patients with advanced post-menopausal breast cancer receive regimens of tamoxifen and/or aromatase inhibitors (or similar drug) treatments |
| If generic drug companies develop a compound which is more effective than either Evoltra(R) or Modrenal(R) in these areas of unmet clinical need, or equally as effective but at lower doses, it could adversely affect our market and/or render our drugs obsolete |
| Because many of our competitors have substantially greater capabilities and resources than us, they may be able to develop products before us or develop more effective products or market them more effectively, which would adversely affect our ability to generate revenue and cash flow |
| Competition in our industry is intense |
| Potential competitors in the US and Europe are numerous and include pharmaceutical, chemical and biotechnology companies, most of which have substantially greater capital resources, marketing experience, research and development staffs and facilities than us |
| Potential competitors for certain indications of our lead drugs include, with respect to Evoltra(R), Schering AG, which markets fludarabine, and certain generic drug companies in Europe which could market fludarabine upon expiry of the patent protections held by Schering AG Potential competitors with respect to Modrenal(R) include Astra-Zeneca and Novartis, which market tamoxifen and other aromatase inhibitors, which could be used by clinicians as first and second line therapies in patients with hormone sensitive, advanced, post-menopausal breast cancer prior to a Modrenal(R) regimen of treatment |
| No assurance can be given that the ongoing business activities of our competitors will not have a material adverse effect on our business prospects and projections going forward |
| Although we seek to limit potential sources of competition by developing products that are eligible for orphan drug designation and new drug application approval or other forms of protection, our competitors may develop similar technologies and products more rapidly than us or market them more effectively |
| Competing technologies and products may be more effective than any of those that are being or will be developed by us |
| The generic drug industry is intensely competitive and includes large brand name and multi-source pharmaceutical companies |
| Because generic drugs do not have patent protection or any other market exclusivity, our competitors may introduce competing generic products, which may be sold at lower prices or with more aggressive marketing |
| Conversely, as we introduce branded drugs into our product portfolio, we will face competition from manufacturers 17 of generic drugs which may claim to offer equivalent therapeutic benefits at a lower price |
| The aggressive pricing activities of our generic competitors could have a material adverse effect on our operations, revenue and cash flow |
| If we are unable to respond to rapid technological change and evolving therapies, our technologies and products could become less competitive or obsolete and our revenues and results of operations will be adversely affected |
| The pharmaceutical industry is characterized by rapid and significant technological change |
| We expect that pharmaceutical technology will continue to develop rapidly, and our future success will depend on our ability to develop and maintain a competitive position |
| Technological development by others may result in products developed by us, branded or generic, becoming obsolete before they are marketed or before we recover a significant portion of the development and commercialization expenses incurred with respect to these products |
| Alternative therapies or new medical treatments could alter existing treatment regimes, and thereby reduce the need for one or more of the products developed by us, which would adversely affect our revenue and cash flow |
| See also "e --Generic products which third parties may develop may render our products noncompetitive or obsolete "e above |
| We depend on others for clinical testing of our products which could delay our ability to develop products |
| We do not currently have any internal product testing capabilities |
| Our inability to retain third parties for the clinical testing of products on acceptable terms would adversely affect our ability to develop products |
| Any failures by third parties to adequately perform their responsibilities may delay the submission of products for regulatory approval, impair our ability to deliver products on a timely basis or otherwise impair our competitive position |
| Our dependence on third parties for the development of products may adversely affect our potential profit margins and our ability to develop and deliver products on a timely basis |
| We have no commercial manufacturing facilities and if the third-party manufacturers upon whom we rely fail to produce consistently and on a timely basis the raw materials or finished products in the volumes that we require or fail to meet quality standards and maintain necessary licensure from regulatory authorities, we may be unable to meet demand for our products, potentially resulting in lost revenues |
| We have never manufactured any of our products and our third party manufacturers will need to consistently manufacture appropriate commercial quantities of drug supply for our products in order to fully exploit the commercial potential for our commercial products |
| No assurance can be given our products will be consistently manufactured in a cost effective manner |
| Manufacturers of products developed by us will be subject to current good manufacturing practices prescribed by the FDA or other rules and regulations prescribed by foreign regulatory authorities |
| We may not be able to enter into or maintain relationships either domestically or abroad with manufacturers whose facilities and procedures comply or will continue to comply with current good manufacturing practices or applicable foreign requirements |
| Failure by a manufacturer of our products to comply with current good manufacturing practices or applicable foreign requirements could result in significant time delays or our inability to commercialize or continue to market a product and could have a material adverse effect on our sales of products and, therefore, our cash flow |
| In the US, failure to comply with current good manufacturing practices or other applicable legal requirements can lead to federal seizure of violative products, injunctive actions brought by the federal government, and potential criminal and civil liability on the part of a company and our officers and employees |
| The creation of infrastructure to commercialize oncology products is a difficult, expensive and time-consuming process |
| We may not be able to establish direct or indirect sales and distribution capabilities outside of the UK or be successful in gaining market acceptance for proprietary products or for other products |
| We currently have very limited sales and marketing capabilities outside of the UK We currently employ six full-time sales employees and two full-time marketing employees |
| Recently, we have entered into arrangements with Innovex, an affiliate of Quintiles Corporation, for the sales and marketing of Evoltra(R) (clofarabine) in certain EU countries from the date of marketing approval in May 2006 through November 2007, subject to certain circumstances To market any products directly, we will need to develop a more fulsome marketing and sales force with technical expertise and distribution capability or contract with other pharmaceutical and/or health care companies with distribution systems and direct sales forces |
| To the extent that we enter into co-promotion or other licensing arrangements, any revenues to be received by us will be dependent on the efforts of third parties |
| The efforts of third parties may not be successful |
| Our failure to establish marketing and distribution capabilities or to enter into marketing and distribution arrangements with third parties could have a material adverse effect on our revenue and cash flows |
| 18 We are dependent on certain key personnel and the loss of one or more these individuals could disrupt our operations and adversely affect our financial results |
| We are highly dependent on our Chief Executive Officer to develop our lead drug |
| Wood has an employment agreement with us, dated December 31, 2002, for an initial term of one year which automatically extends for additional one year periods until either party gives the other written notice of termination at least 90 days prior to the end of the current term |
| Wood is near retirement age and although he does not, to our knowledge, plan on leaving us in the near future, no assurance can be given that he will not do so |
| Wood is one of our founders and he is intimately familiar with the science that underlies our lead drugs and ancillary technologies |
| He also maintains a position on the Evoltra(R) management team that is responsible for all drug development activities relating to that lead drug, and has been instrumental in the development and maintenance of our key relationships within the scientific research and medical communities, and those with our vendors, inventors, co-development partners and licensors |
| Wood was no longer employed by us, the development of our drugs would be significantly delayed and otherwise would be adversely impacted, and we may be unable to maintain and develop these important relationships |
| In addition, we will be required to hire additional qualified scientific and technical personnel, as well as personnel with expertise in clinical testing and government regulation to expand our research and development programs and pursue our product development and marketing plans |
| There is intense competition for qualified personnel in the areas of our activities, and there can be no assurance that we will be able to attract and retain the qualified personnel necessary for the development of its business |
| We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and research institutions |
| The failure to attract and retain key scientific, marketing and technical personnel would have a material adverse effect on the development of our business and our ability to develop, market and sell our products |
| See also "e - We have limited sales and marketing capability, and may not be successful in selling or marketing our products "e above |
| Our management and internal systems might be inadequate to handle our potential growth |
| Our success will depend in significant part on the expansion of our operations and the effective management of growth |
| This growth has and will continue to place a significant strain on our management and information systems and resources and operational and financial systems and resources |
| To manage future growth, our management must continue to improve our operational and financial systems and expand, train, retain and manage our employee base |
| Our management may not be able to manage our growth effectively |
| If our systems, procedures, controls, and resources are inadequate to support our operations, our expansion would be halted or delayed and we could lose our opportunity to gain significant market share or the timing with which we would otherwise gain significant market share |
| Any inability to manage growth effectively may harm our ability to institute our business plan |
| The strain on our systems, procedures, controls and resources is further heightened by the fact that our executive office and operational development facilities are located in separate time zones (New York, New York and Edinburgh, Scotland, respectively) |
| We depend on patent and proprietary rights to develop and protect our technologies and products, which rights may not offer us sufficient protection |
| The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes |
| Our success will depend on our ability to obtain and enforce protection for products that we develop under US and foreign patent laws and other intellectual property laws, preserve the confidentiality of our trade secrets and operate without infringing the proprietary rights of third parties |
| Through our current license agreements, we have acquired the right to utilize the technology covered by issued patents and patent applications, as well as additional intellectual property and know-how that could be the subject of further patent applications in the future |
| Several of the original patents to Modrenal(R) have expired in the US and foreign countries |
| Thus, we and our licensor, Stegram Pharmaceutical Ltd, are pursuing patent applications to specific uses, combination therapy and dosages or formulations of Modrenal(R) |
| We cannot guarantee that such applications will result in issued patents or that such patents if issued will provide adequate protection against competitors |
| Patents may not be issued from these applications and issued patents may not give us adequate protection or a competitive advantage |
| Issued patents may be challenged, invalidated, infringed or circumvented, and any rights granted thereunder may not provide us with competitive advantages |
| Parties not affiliated with us have obtained or may obtain US or foreign patents or possess or may possess proprietary rights relating to products being developed or to be developed by us |
| Patents now in existence or hereafter issued to others may adversely affect the development or commercialization of products developed or to be developed by us |
| Our planned activities may infringe patents owned by others |
| Our patents to clofarabine are licensed from SRI The current projected expiration date of the license is March 2021 |
| These patents cover pharmaceutical compositions and methods of using clofarabine |
| We cannot guarantee that these patents would survive an attack on their validity or that they will 19 provide a competitive advantage over our competitors |
| In addition, we are aware of a third party US patent which is directed to the treatment of chronic myeloid leukemia, or CML, using specific doses of clofarabine |
| We believe that our development and marketing of clofarabine for treatment of acute leukemias will not infringe any of the claims of this US patent |
| Further, we believe that our development and potential marketing of clofarabine for treatment of chronic lymphocytic leukemia will not infringe any of the claims of this US patent |
| If this patent is asserted against us, even though we may be successful in defending against such an assertion, our defense would require substantial financial and human resources |
| In addition, we may need a license to this patent to use the claimed dose in the treatment of CML However, we do not know if such a license is available at commercially reasonable terms, if at all |
| We could incur substantial costs in defending infringement suits brought against us or any of our licensors or in asserting any infringement claims that we may have against others |
| We could also incur substantial costs in connection with any suits relating to matters for which we have agreed to indemnify our licensors or distributors |
| An adverse outcome in any litigation could have a material adverse effect on our ability to sell products or use patents in the future |
| In addition, we could be required to obtain licenses under patents or other proprietary rights of third parties |
| These licenses may not be made available on terms acceptable to us, or at all |
| If we are required to, and do not obtain any required licenses, we could be prevented from, or encounter delays in, developing, manufacturing or marketing one or more products |
| We also rely upon trade secret protection for our confidential and proprietary information |
| Others may independently develop substantially equivalent proprietary information and techniques or gain access to our trade secrets or disclose our technology |
| We may not be able to meaningfully protect our trade secrets which could limit our ability to exclusively produce products |
| We require our employees, consultants and parties to collaborative agreements to execute confidentiality agreements upon the commencement of employment or consulting relationships or a collaboration with us |
| These agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information |
| Our international operations subject us to social, political and economic risks of doing business in foreign countries |
| We have the right to manufacture, market and distribute our lead drugs, Evoltra(R) and Modrenal(R), in territories outside of the US Specifically, we currently market Modrenal(R) in the United Kingdom and Evoltra(R) throughout Europe |
| Further, more than half of our employees are employed by Bioenvision Limited, our wholly-owned subsidiary with offices in Edinburgh, Scotland |
| Because we have international operations in the conduct of our business, we are subject to the risks of conducting business in foreign countries, including: o difficulty in establishing or managing distribution relationships; o different standards for the development, use, packaging, pricing and marketing of our products and technologies; o our inability to locate qualified local employees, partners, distributors and suppliers; o the potential burden of complying with a variety of foreign laws, trade standards and regulatory requirements, including the regulation of pharmaceutical products and treatment; o general geopolitical risks, such as political and economic instability, changes in diplomatic and trade relations, and foreign currency risks; and o risks related to the fluctuation in currency exchange rates |
| We do not engage in forward currency transactions which means we are susceptible to fluctuations in the US dollar against foreign currencies such as the pound sterling |
| Accordingly, as the value of the dollar becomes weaker against the pound sterling, ongoing services provided by our UK employees, Clinical research organizations and other service providers become more expensive to us |
| No assurance can be given that the US dollar will not continue to weaken which could have a material adverse effect on the costs associated with our drug development activities |
| 20 We cannot predict our future capital needs and we may not be able to secure additional financing which could affect our ability to operate as a going concern |
| As of June 30, 2006, we had stockholders &apos equity of approximately dlra46cmam588cmam000 and working capital of approximately dlra40cmam065cmam000 |
| However, we may need additional financing to continue to fund the research and development and marketing programs for our products and to generally expand and grow our business |
| Because we will be required to fund additional operating losses in the foreseeable future, our financial position will continue to deteriorate |
| There can be no assurance that we will be able to find significant additional financing at all or on terms favorable to us |
| If equity securities are issued in connection with a financing, dilution to our stockholders would result, and if additional funds are raised through the incurrence of debt, we may be subject to restrictions on our operations and finances |
| Furthermore, if we do incur debt, we may be limiting our ability to repurchase capital stock, engage in mergers, consolidations, acquisitions and asset sales, or alter our lines of business or accounting methods, even though these actions would otherwise benefit our business |
| If adequate financing is not available, we may be required to delay, scale back or eliminate some of our research and development programs, to relinquish rights to certain technologies or products, or to license third parties to commercialize technologies or products that we would otherwise seek to develop |
| Any inability to obtain additional financing, if required, would have a material adverse effect on our ability to continue our operations and implement our business plan |
| The prices we charge for our products and the level of third-party reimbursement may decrease and our revenues could decrease |
| Our ability to commercialize products successfully depends in part on the price we may be able to charge for our products and on the extent to which reimbursement for the cost of our products and related treatment will be available from government health administration authorities, private health insurers and other third-party payors |
| We believe that Government officials and private health insurers are increasingly challenging the price of medical products and services |
| Significant uncertainty exists as to the pricing flexibility which distributors will have with respect to newly approved health care products as well as the reimbursement status for such approved healthcare products |
| Third-party payors may attempt to control costs further by selecting exclusive providers of their pharmaceutical products |
| If third-party payors were to make this type of arrangement with one or more of our competitors, they would not reimburse patients for purchasing our competing products |
| For example, if a third-party payor in the UK were to pay patients for regimens of aromatase inhibitor treatment but not treatments of Modrenal(R), this would cause a decline in sales of Modrenal(R) |
| This lack of reimbursement would diminish the market for products developed by us and would have a material adverse effect on us |
| Our products may be subject to recall |
| Product recalls may be issued at our discretion or by the EMA, FDA, the FTC or other government agencies having regulatory authority for product sales |
| Product recalls, if any in the future, may harm our reputation and cause us to lose development opportunities, or customers or pay refunds |
| Products may need to be recalled due to disputed labeling claims, manufacturing issues, quality defects, or other reasons |
| We do not carry any insurance to cover the risk of potential product recall |
| Any product recall could have a material adverse effect on us, our prospects, our financial condition and results of operations |
| We may face exposure from product liability claims and product liability insurance may not be sufficient to cover the costs of our liability claims related to technologies or products |
| We face exposure to product liability claims if the use of our technologies or products or those we license from third parties is alleged to have resulted in adverse effects to users of such products |
| Product liability claims may be brought by clinical trial participants, although to date, no such claims have been brought against us |
| If any such claims were brought against us, the cost of defending such claims may adversely affect our business |
| Regulatory approval for commercial sale of our products does not mitigate product liability risks |
| Any precautions we take may not be sufficient to avoid significant product liability exposure |
| Although we have obtained product liability and clinical trial insurance on our technologies and products at levels with which management deems reasonable, no assurance can be given that this insurance will cover any particular claim or that we have obtained an appropriate level of liability insurance coverage for our development activities |
| We currently maintain claims made product liability insurance coverage in an amount which we believe is commercially reasonable |
| Existing coverage may not be adequate as we further develop our products |
| In the future, adequate insurance coverage or indemnification by collaborative partners may not be available in sufficient amounts, or at acceptable costs, if at all |
| To the extent that product liability insurance, if available, does not cover potential claims, we will be required to 21 self-insure the risks associated with those claims |
| The successful assertion of any uninsured product liability or other claim against us could limit our ability to sell our products or could cause monetary damages |
| In addition, future product labeling may include disclosure of additional adverse effects, precautions and contra indications, which may adversely impact product sales |
| The pharmaceutical industry has experienced increasing difficulty in maintaining product liability insurance coverage at reasonable levels, and substantial increases in insurance premium costs, in many cases, have rendered coverage economically impractical |
| Complying with changing corporate governance regulations, including an evaluation of our internal controls, may adversely affect our business and operations |
| Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq market rules, are creating uncertainty for companies such as ours |
| These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity |
| As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices |
| We are committed to maintaining high standards of corporate governance, internal control and public disclosure |
| As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities |
| If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, our reputation may be harmed and our operations and revenues may be adversely affected |
| We are exposed to potential risks from recent legislation requiring companies to evaluate their internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 |
| We are evaluating our internal controls systems in order to allow management to report on the effectiveness of our internal control over financial reporting and our registered independent public accounting firm to attest to this report, as required by Section 404 of the Sarbanes-Oxley Act |
| We are performing the system and process evaluation and testing, and implementing any necessary remediation, required in an effort to comply with the management report and public accounting firm attestation requirements and continue to incur additional expenses and devote significant management time towards completing actions required for managementapstas evaluation |
| The evaluation and attestation processes required by Section 404 are new and neither public companies nor public accounting firms have significant experience in testing or complying with these requirements |
| While we have developed and are implementing plans to fully implement the requirements relating to internal controls and all other aspects of Section 404 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since, like other public companies, we and our registered independent public accounting firm are undergoing the process for the first time in a regulatory environment where the standards to assess adequacy of compliance are under development |
| We cannot assure you that there may not be significant deficiencies or material weaknesses that would be required to be reported as a result of the process |
| The price of our common stock is likely to be volatile and subject to wide fluctuations |
| The market price of the securities of biotechnology companies has been especially volatile |
| Thus, the market price of our common stock is likely to be subject to wide fluctuations |
| For the twelve month period ended June 30, 2006, our stock price has ranged from a high of dlra9dtta18 to a low of dlra4dtta76 |
| If our revenues do not grow or grow more slowly than we anticipate, or, if operating or capital expenditures exceed our expectations and cannot be adjusted accordingly, or if some other event adversely affects us, the market price of our common stock could decline |
| In addition, if the market for pharmaceutical and biotechnology stocks or the stock market in general experiences a loss in investor confidence or otherwise fails, the market price of our common stock could fall for reasons unrelated to our business, results of operations and financial condition |
| The market price of our stock also might decline in reaction to events that affect other companies in our industry even if these events do not directly affect us |
| In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation |
| If we were to become the subject of securities class action litigation, it could result in substantial costs and a diversion of managementapstas attention and resources |
| 22 Future sales or the possibility of future sales of substantial amounts of our common stock by stockholders or by our officers and directors may cause the price of our common stock to decline |
| Officers, directors and employees, and certain other stockholders hold significant numbers of shares of our common stock |
| Some of those shares are freely tradable without restriction under the federal securities laws, and those that are not may be sold in the future pursuant to newly filed effective registration statements, in compliance with the requirements of Rule 144 under the Securities Act |
| Sales in the public market of substantial amounts of our common stock, whether by our officers, directors, employees or others, or the perception that such sales could occur, could materially adversely affect prevailing market prices for our common stock and our ability to raise additional capital through the sale of equity securities |
| Anti-takeover laws, our shareholder rights plan, and provisions of our certificate of incorporation may discourage, delay, or prevent a merger or acquisition that our stockholders may consider favorable |
| Section 203 of the Delaware General Corporation Law contains provisions that may delay or prevent a third party from acquiring control of us, even if doing so might be beneficial to our stockholders by providing them an opportunity to sell their shares at a premium to the then current market price |
| In general, Section 203 prohibits designated types of business combinations, including mergers, for a period of three years between us and any third party who owns 15prca or more of our common stock |
| This provision does not apply if: o our board of directors approves the transaction before the third party acquires 15prca of our common stock; o the third party acquires at least 85prca of our common stock at the time its ownership exceeds the 15prca level; or o our board of directors and two-thirds of the shares of our common stock not held by the third party vote in favor of the transaction |
| We also adopted a shareholder rights plan on November 17, 2004 to deter hostile or coercive attempts to acquire us |
| Under the plan, if any person or group acquires more than 15prca of our common stock without approval of the board of directors under specified circumstances, our other stockholders have the right to purchase shares of our common stock, or shares of the acquiring company, at a substantial discount to the public market price |
| This plan makes an acquisition much more costly to a potential acquirer, which may deter a potential acquisition |
| Our certificate of incorporation also authorizes us to issue up to 20cmam000cmam000 shares of preferred stock in one or more different series with terms fixed by the board of directors |
| Stockholder approval is not necessary to issue preferred stock in this manner |
| Thus, our board of directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock and thereby reduce its value |
| These rights could have the effect of making it more difficult for a person or group to acquire control of us, as well as prevent or frustrate any attempt by stockholders to change our direction or management |
| While our board of directors has no current intention to issue any preferred stock, the issuance of these shares may deter potential acquirors |
| Certain events could result in a dilution of holders of our common stock |
| As of June 30, 2006, we had 41cmam456cmam616 shares of common stock outstanding, 2cmam250cmam000 shares of Series A Convertible Participating Preferred Stock outstanding which are currently convertible into 4cmam500cmam000 shares of common stock and common stock equivalents, and warrants and stock options, convertible or exercisable into 11cmam563cmam313 shares of our common stock |
| The exercise and conversion prices of the common stock equivalents range from dlra1dtta25 to dlra8dtta80 per share |
| We have also reserved for issuance an aggregate of 4cmam500cmam000 shares of common stock for a stock option plan for our employees |
| Historically, from time to time, we have awarded our common stock to our officers, in lieu of cash compensation, although we do not expect to do so in the future |
| As of June 30, 2006, we have the sale of shares of common stock underlying 4cmam500cmam000 options are registered under the Securities Act on Form S-8 |
| The future resale of these shares underlying stock options will result in a dilution to your percentage ownership of our common stock and could adversely affect the market price of our common stock |
| The terms of our cumulative Series A Convertible Participating Preferred Stock include antidilution protection upon the occurrence of sales of our common stock below certain prices, stock splits, redemptions, mergers and other similar transactions |
| If one or more of these events occurs the number of shares of our common stock that may be acquired upon conversion or exercise would increase |
| If converted or exercised, these securities will result in a dilution to the holderapstas percentage ownership of our common stock |
| The resale of many of the shares of 23 common stock which underlie these options and warrants are registered under this prospectus and the sale of such shares may adversely affect the market price of our common stock |