| BIOSANTE PHARMACEUTICALS INC “Item 1A Risk Factors” below, as well as others that we may consider immaterial or do not anticipate at this time |
| Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct |
| Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described below under the heading “Item 1A Risk Factors |
| ” The risks and uncertainties described under the heading “Item 1A Risk Factors” below are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time |
| We assume no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements |
| We advise you, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the Securities and Exchange Commission |
| Available Information Our company, which was initially formed as a corporation organized under the laws of the Province of Ontario on August 29, 1996, was continued as a corporation under the laws of the State of Wyoming on December 19, 1996 and pursuant to stockholder approval was reincorporated in Delaware on June 26, 2001 |
| Our company is the continuing corporation resulting from an amalgamation, or consolidation, of three companies — our company, which was previously named “Ben-Abraham Technologies Inc,” Structured Biologicals Inc, a corporation organized under the laws of the Province of Ontario, and 923934 Ontario Inc, a corporation organized under the laws of the Province of Ontario and a wholly owned subsidiary of Structured Biologicals |
| The amalgamation was approved by our stockholders on November 27, 1996 and the articles of arrangement were filed and became effective as of December 6, 1996 |
| In November 1999, our stockholders approved the change of our corporate name from Ben-Abraham Technologies Inc |
| Our principal executive offices are located at 111 Barclay Boulevard, Lincolnshire, Illinois 60069 |
| Our telephone number is (847) 478-0500, and our Internet web site address is www |
| The information contained on our web site or connected to our website is not incorporated by reference into and should not be considered part of this annual report on Form 10-K We make available, free of charge and through our Internet web site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC We also make available, free of charge and through our Internet web site, to any stockholder who requests, our corporate governance guidelines, the charters of our board committees and our Code of Conduct and Ethics |
| Requests for copies can be directed to Investor Relations at (847) 478-0500 x120 |
| 21 ______________________________________________________________________ Item 1A RISK FACTORS The following are significant risk factors known to us that could materially adversely affect our business, financial condition or operating results |
| We have a history of operating losses, expect continuing losses and may never achieve profitability |
| We have incurred losses in each year since our amalgamation in 1996 and expect to incur substantial and continuing losses for the foreseeable future |
| We incurred a net loss of dlra9cmam651cmam036 for the year ended December 31, 2005, and as of December 31, 2005, our accumulated deficit was dlra49cmam688cmam320 |
| All of our revenue to date has been derived from upfront and milestone payments earned on licensing and sub-licensing transactions and revenue earned from subcontracts |
| We have not commercially introduced any products |
| We expect to incur substantial and continuing losses for the foreseeable future as our own product development programs expand and various preclinical and clinical trials commence |
| The amount of these losses may vary significantly from year-to-year and quarter-to-quarter and will depend on, among other factors: • the timing and cost of product development; • the progress and cost of preclinical and clinical development programs; • the costs of licensure or acquisition of new products; • the timing and cost of obtaining necessary regulatory approvals; • the timing and cost of obtaining third party reimbursement; • the timing and cost of sales and marketing activities for future products; and • the costs of pending and any future litigation of which we may be subject |
| In order to generate new and significant revenues, we must successfully develop and commercialize our own proposed products or enter into collaborative agreements with others who can successfully develop and commercialize them |
| Even if our proposed products and the products we may license or otherwise acquire are commercially introduced, they may never achieve market acceptance and we may never generate significant revenues or achieve profitability |
| We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms |
| We currently do not have sufficient resources to complete the commercialization of any of our proposed products |
| Therefore, we will need to raise substantial additional capital to fund our operations sometime in the future |
| Based on our current rate of cash outflows, we believe that our cash and short-term investments of dlra9cmam101cmam531 at December 31, 2005, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months |
| We have based this estimate on assumptions, however, that may prove to be wrong |
| As a result, we may need to obtain additional financing prior to that time |
| Our future capital requirements will depend upon numerous factors, including: • the progress and costs of our research and development programs; 22 ______________________________________________________________________ • the scope, timing and results of our clinical trials; • patient recruitment and enrollment in our current and future clinical trials; • the cost, timing and outcome of regulatory reviews; • the rate of technological advances; • ongoing determinations of the potential commercial success of our proposed products; • our general and administrative expenses, including legal expenses incurred in connection with pending any and future litigation of which we may be subject; • if we receive FDA approval of any of our proposed products and choose to commercialize them ourselves, the amount of resources we devote to sales and marketing capabilities; • the activities of our competitors; and • our opportunities to acquire new products or take advantage of other unanticipated opportunities |
| We cannot be certain that any financing will be available when needed or will be on terms acceptable to us |
| Insufficient funds may require us to delay, scale back or eliminate some or all of our programs designed to obtain regulatory approval of our proposed products, facilitate the commercial introduction of our proposed products, prevent commercial introduction of our products altogether or restrict us from acquiring new products that we believe may be beneficial to our business |
| We are a development stage company, making it difficult for you to evaluate our business and your investment |
| We are in the development stage and our operations and the development of our proposed products are subject to all of the risks inherent in the establishment of a new business enterprise, including: • the absence of an operating history; • the lack of commercialized products; • insufficient capital; • expected substantial and continual losses for the foreseeable future; • limited experience in dealing with regulatory issues; • limited marketing and manufacturing experience; • an expected reliance on third parties for the development and commercialization of some of our proposed products; • a competitive environment characterized by numerous, well-established and well-capitalized competitors; • uncertain market acceptance of our proposed products; and 23 ______________________________________________________________________ • reliance on key personnel |
| Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our company |
| Our proposed products are in the development stages and will likely not be commercially introduced for one or more years, if at all |
| Our proposed products are in the development stages and will require further development, preclinical and clinical testing and investment prior to commercialization in the United States and abroad |
| We have not commercially introduced any products and do not expect to do so until early 2007 at the earliest depending upon the timing of the FDA’s decision on our New Drug Application for our Bio-E-Gel product which was submitted in February 2006 and the approval of such application |
| We cannot assure you that any of our proposed products will: • be successfully developed; • prove to be safe and efficacious in clinical trials; • meet applicable regulatory standards or obtain required regulatory approvals; • demonstrate substantial protective or therapeutic benefits in the prevention or treatment of any disease; • be capable of being produced in commercial quantities at reasonable costs; • obtain coverage and favorable reimbursement rates from insurers and other third-party payors; or • be successfully marketed or achieve market acceptance by physicians and patients |
| If we fail to obtain regulatory approval to commercially manufacture or sell any of our future products, or if approval is delayed or withdrawn, we will be unable to generate revenue from the sale of our products |
| We must obtain regulatory approval to sell any of our products in the United States and abroad |
| In the United States, we must obtain the approval of the FDA for each product or drug that we intend to commercialize |
| The FDA approval process is typically lengthy and expensive, and approval is never certain |
| Products to be commercialized abroad are subject to similar foreign government regulation |
| Generally, only a very small percentage of newly discovered pharmaceutical products that enter preclinical development are approved for sale |
| Because of the risks and uncertainties in biopharmaceutical development, our proposed products could take a significantly longer time to gain regulatory approval than we expect or may never gain approval |
| If regulatory approval is delayed or never obtained, our management’s credibility, the value of our company and our operating results and liquidity would be adversely affected |
| Furthermore, even if a product gains regulatory approval, the product and the manufacturer of the product may be subject to continuing regulatory review |
| Even after obtaining regulatory approval, we may be restricted or prohibited from marketing or manufacturing a product if previously unknown problems with the product or its manufacture are subsequently discovered |
| The FDA may also require us to commit to perform lengthy post-approval studies, for which we would 24 ______________________________________________________________________ have to expend significant additional resources, which could have an adverse effect on our operating results and financial condition |
| To obtain regulatory approval to market our products, costly and lengthy pre-clinical studies and human clinical trials are required, and the results of the studies and trials are highly uncertain |
| As part of the FDA approval process, we must conduct, at our own expense or the expense of current or potential licensees, clinical trials on humans on each of our proposed products |
| Pre-clinical studies on animals must be conducted on some of our proposed products |
| We expect the number of pre-clinical studies and human clinical trials that the FDA will require will vary depending on the product, the disease or condition the product is being developed to address and regulations applicable to the particular product |
| We may need to perform multiple pre-clinical studies using various doses and formulations before we can begin human clinical trials, which could result in delays in our ability to market any of our products |
| Furthermore, even if we obtain favorable results in pre-clinical studies on animals, the results in humans may be different |
| After we have conducted pre-clinical studies in animals, we must demonstrate that our products are safe and effective for use on the target human patients in order to receive regulatory approval for commercial sale |
| The data obtained from pre-clinical and human clinical testing are subject to varying interpretations that could delay, limit or prevent regulatory approval |
| We face the risk that the results of our clinical trials in later phases of clinical trials may be inconsistent with those obtained in earlier phases |
| A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in early animal or human testing |
| Adverse or inconclusive human clinical results would prevent us from filing for regulatory approval of our products |
| Additional factors that can cause delay or termination of our human clinical trials include: • slow patient enrollment; • timely completion of clinical site protocol approval and obtaining informed consent from subjects; • longer treatment time required to demonstrate efficacy or safety; • adverse medical events or side effects in treated patients; and • lack of effectiveness of the product being tested |
| Delays in our clinical trials could allow our competitors additional time to develop or market competing products and thus can be extremely costly in terms of lost sales opportunities and increased clinical trial costs |
| A request by an FDA advisory committee for additional safety data which may require Procter & Gamble to conduct additional studies to learn more about the long-term safety of testosterone treatment in women for FSD prior to granting approval of Procter & Gamble’s Intrinsa testosterone patch could increase the time, cost and expense of obtaining regulatory approval for our LibiGel product, which might cause us to abandon the product depending on the extent of the additional time and cost to develop LibiGel |
| In December 2004, the FDA’s Reproductive Health Drugs Advisory Committee panel voted unanimously against recommendation for approval of Procter & Gamble’s Intrinsa testosterone patch for hypoactive sexual desire disorder |
| The panel’s main concern was the desire to have long-term safety data particularly 25 ______________________________________________________________________ as it pertains to potential increased risk of cardiovascular disease and breast cancer in women treated chronically with testosterone in combination with estrogen |
| Currently, the FDA has not explicitly publicly stated nor set any type of public policy or guidance document as to what size or duration of a safety trial would be required for approval |
| This FDA action with respect to Intrinsa or testosterone products in general may affect the regulatory pathway for our LibiGel product, as well as other similarly competitive products to treat HSDD with testosterone therapy |
| The FDA’s final decision could increase the time, cost and expense of obtaining regulatory approval for our LibiGel product, which might cause us to delay or abandon further development of the product depending on the extent of the additional time and cost to develop LibiGel |
| Several pharmaceutical products have been found to have potentially life threatening side effects and have been subsequently removed from the market |
| These drugs had been previously approved for sale by the FDA The withdrawals of approved drugs from the market create an increased risk for the pharmaceutical industry in general in that certain proposed products may not receive the required regulatory approval on a timely basis or ever |
| has increased safety concerns of various groups including physicians, patients, members of US Congress and the FDA Although marketed product withdrawals have occurred over time, these withdrawals have resulted and may continue to result in a more cautious approach by the FDA in terms of requirements for approval of new products before approval to market is granted |
| These recent withdrawals could also result in additional requirements for safety monitoring called pharmacovigilence after approval to market is granted |
| This collective concern could result in longer, more expensive clinical trials before approval and costly post-marketing surveillance programs and at the same time could affect physicians’ desire to prescribe new medication before they are on the market for a long period of time, all of which would adversely affect our business, operating results and financial condition |
| Uncertainties associated with the impact of published studies regarding the adverse health effects of certain forms of hormone therapy could adversely affect the market for hormone therapy products and the trading price of our common stock |
| The market for hormone therapy products has been negatively affected by the Women’s Health Initiative study and other studies that have found that the overall health risks from the use of certain hormone therapy products exceed the benefits from the use of those products among healthy postmenopausal women |
| In July 2002, the National Institutes of Health (NIH) released data from its Women’s Health Initiative (WHI) study on the risks and benefits associated with long-term use of oral hormone therapy by healthy women |
| The NIH announced that it was discontinuing the arm of the study investigating the use of oral estrogen/progestin combination hormone therapy products after an average follow-up period of 5dtta2 years because the product used in the study was shown to cause an increase in the risk of invasive breast cancer |
| The study also found an increased risk of stroke, heart attacks and blood clots and concluded that overall health risks exceeded benefits from use of combined estrogen plus progestin for an average of 5dtta2 year follow-up among healthy postmenopausal women |
| Also in July 2002, results of an observational study sponsored by the National Cancer Institute on the effects of estrogen therapy were announced |
| The main finding of the study was that postmenopausal women who used estrogen therapy for 10 or more years had a higher risk of developing ovarian cancer than women who never used hormone therapy |
| In October 2002, a significant hormone therapy study being conducted in the United Kingdom was also halted |
| Our proposed hormone therapy products differ from the products used in the Women’s Health Initiative study and the primary products observed in the National Cancer Institute and United Kingdom studies |
| In March 2004, the NIH announced that the estrogen-alone study was discontinued after nearly seven years because the NIH concluded that estrogen alone does not affect (either increase or decrease) heart disease, the major question being evaluated in the study |
| The findings indicated a slightly increased risk of stroke as well as a decreased risk of hip fracture and breast cancer |
| Preliminary data from the memory portion of the WHI study suggested that estrogen alone may possibly be associated with a slight 26 ______________________________________________________________________ increase in the risk of dementia or mild cognitive impairment |
| Researchers continue to analyze data from both arms of the WHI study and other studies |
| Recent reports indicate that the safety of estrogen products may be affected by the age of the woman at initiation of therapy |
| There currently are no studies published comparing the safety of our proposed hormone therapy products against other hormone therapies |
| The markets for female hormone therapies for menopausal symptoms have declined as a result of these published studies |
| The release of any follow-up or other studies that show adverse affects from hormone therapy, including in particular, hormone therapies similar to our proposed products, would also adversely affect our business |
| Because our industry is very competitive and many of our competitors have substantially greater capital resources and more experience in research and development, manufacturing and marketing than us, we may not succeed in developing our proposed products and bringing them to market |
| Competition in the pharmaceutical industry is intense |
| Potential competitors in the United States and abroad are numerous and include pharmaceutical, chemical and biotechnology companies, most of which have substantially greater capital resources and more experience in research and development, manufacturing and marketing than us |
| Academic institutions, hospitals, governmental agencies and other public and private research organizations are also conducting research and seeking patent protection and may develop and commercially introduce competing products or technologies on their own or through joint ventures |
| We cannot assure you that our competitors (some of whom are our development partners) will not succeed in developing similar technologies and products more rapidly than we do, commercially introducing such technologies and products to the marketplace prior than us, or that these competing technologies and products will not be more effective or successful than any of those that we currently are developing or will develop |
| We license the technology underlying most of our proposed hormone therapy products and a portion of our CaP technology from third parties and may lose the rights to license them, which could have a material adverse effect on our business, financial position and operating results and could cause the market value of our common stock to decline |
| We license most of the technology underlying our proposed hormone therapy products from Antares Pharma, Inc |
| and a portion of our CaP technology from the University of California |
| We may lose our right to license these technologies if we breach our obligations under the license agreements |
| Although we intend to use our reasonable best efforts to meet these obligations, if we violate or fail to perform any term or covenant of the license agreements or with respect to the University of California’s license agreement within 60 days after written notice from the University of California, the other party to these agreements may terminate these agreements or certain projects contained in these agreements |
| The termination of these agreements, however, will not relieve us of our obligation to pay any royalty or license fees owing at the time of termination |
| Our failure to retain the right to license the technology underlying our proposed hormone therapy products or CaP technology could harm our business and future operating results |
| For example, if we were to enter into an outlicense agreement with a third party under which we agree to outlicense our hormone therapy technology or CaP technology for a license fee, the termination of the main license agreement with Antares Pharma, Inc |
| or the University of California could either, depending upon the terms of the outlicense agreement, cause us to breach our obligations under the outlicense agreement or give the other party a right to terminate that agreement, thereby causing us to lose future revenue generated by the outlicense fees |
| 27 ______________________________________________________________________ We have licensed two of our proposed hormone therapy products to third parties and any breach by these parties of their obligations under these sublicense agreements or a termination of these sublicense agreements by these parties could adversely affect the development and marketing of our licensed products |
| In addition, these third parties also may compete with us with respect to some of our proposed products |
| We have licensed two of our proposed hormone therapy product to third parties, Solvay Pharmaceuticals, BV and Teva Pharmaceuticals USA, Inc, which have agreed to be responsible for continued development, regulatory filings and manufacturing and marketing associated with the products |
| In addition, we may in the future enter into additional similar license agreements |
| Our partnered products that we have licensed to others are thus subject to not only customary and inevitable uncertainties associated with the drug development process, regulatory approvals and market acceptance of products, but also depend on the respective licensees for timely development, obtaining required regulatory approvals, commercialization and otherwise continued commitment to the products |
| Our current and future licensees may have different and, sometimes, competing priorities |
| Teva USA has discontinued development of Bio-T-Gel and indicated to us a desire to formally terminate this agreement |
| Accordingly, we are in the process of exploring various alternatives with respect to our Bio-T-Gel product, including licensing the product to another third party or continuing the development of the product ourselves |
| We cannot assure you that Solvay or any future third party to whom we may license our proposed products will remain focused on the development and commercialization of our partnered products or will not otherwise breach the terms of our agreements with them, especially since these third parties may also compete with us with respect to some of our proposed products |
| Any breach by Solvay or any other third party of their obligations under these agreements or a termination of these agreements by these parties could adversely affect development of the products in these agreements if we are unable to sublicense the proposed products to another party on substantially the same or better terms or continue the development and future commercialization of the proposed products ourselves |
| We do not have any facilities appropriate for clinical testing, we lack significant manufacturing experience and we have very limited sales and marketing personnel |
| We are currently dependent upon our licensees or others for several of these functions and may remain dependent upon others for these functions |
| We do not have a manufacturing facility that can be used for production of our products |
| In addition, at this time, we have very limited sales and marketing personnel |
| We are currently dependent upon our licensees or others for several of these functions |
| In the course of our development program, we may be required to enter into additional arrangements with other companies, universities or clinical investigators for our animal testing, human clinical testing, manufacturing and sales and marketing activities |
| Alternatively, we may decide to add additional personnel and perform some of these functions ourselves, such as sales and marketing activities |
| If our licensees or other third parties in which we have entered into agreements breach their obligations under our agreements to perform these functions or if we are otherwise unable to retain third parties for these purposes on acceptable terms or perform such functions successfully ourselves, we may be unable to successfully develop, manufacture and market our proposed products |
| In addition, any failures by our licensees or other third parties to adequately perform their responsibilities may delay the submission of our proposed products for regulatory approval, impair our ability to deliver our products on a timely basis or otherwise impair our competitive position |
| Our dependence on our licensees and other third parties for the development, manufacture, sale and marketing of our products also may adversely affect our profit margins |
| 28 ______________________________________________________________________ Even if our proposed products receive FDA approval, they may not achieve expected levels of market acceptance, which could have a material adverse effect on our business, financial position and operating results and could cause the market value of our common stock to decline |
| Even if we are able to obtain required regulatory approvals for our proposed products, the success of those products is dependent upon market acceptance by physicians and patients |
| Levels of market acceptance for our new products could be impacted by several factors, including: • the availability of alternative products from competitors; • the price of our products relative to that of our competitors; • the timing of our market entry; and • the ability to market our products effectively |
| Our proposed products may not achieve expected levels of market acceptance |
| Additionally, continuing studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others |
| Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety and efficacy of previously marketed products |
| In some cases, these studies have resulted, and may in the future result, in the discontinuance of product marketing |
| These situations, should they occur, could have a material adverse effect on our business, financial position and results of operations, and the market value of our common stock could decline |
| Because the pharmaceutical industry is heavily regulated, we face significant costs and uncertainties associated with our efforts to comply with applicable regulations |
| Should we fail to comply we could experience material adverse effects on our business, financial position and results of operations, and the market value of our common stock could decline |
| The pharmaceutical industry is subject to regulation by various federal and state governmental authorities |
| For example, we must comply with FDA requirements with respect to the development of our proposed products and our clinical trials, and if any of our proposed products are approved, the manufacture, labeling, sale, distribution, marketing, advertising and promotion of our products |
| Failure to comply with FDA and other governmental regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of NDAs, enforcement actions, injunctions and criminal prosecution |
| Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals |
| Despite our efforts at compliance, there is no guarantee that we may not be deemed to be deficient in some manner in the future |
| If we were deemed to be deficient in any significant way, our business, financial position and results of operations could be materially affected and the market value of our common stock could decline |
| If we are unable to protect our proprietary technology, we may not be able to compete as effectively |
| The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes |
| Our success will depend, in part, upon our ability to obtain, enjoy and enforce protection for any products we develop or acquire under United States 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 |
| 29 ______________________________________________________________________ Where appropriate, we seek patent protection for certain aspects of our technology |
| However, our owned and licensed patents and patent applications may not ensure the protection of our intellectual property for a number of other reasons: • We do not know whether our licensor’s patent applications will result in issued patents |
| • Competitors may interfere with our patents and patent process in a variety of ways |
| Competitors may claim that they invented the claimed invention before us or may claim that we are infringing on their patents and therefore we cannot use our technology as claimed under our patent |
| Competitors may also have our patents reexamined by showing the patent examiner that the invention was not original or novel or was obvious |
| • We are in the development stage and are in the process of developing proposed products |
| Even if we receive a patent, it may not provide much practical protection |
| If we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent |
| Even if the development of our proposed products is successful and approval for sale is obtained, there can be no assurance that applicable patent coverage, if any, will not have expired or will not expire shortly after this approval |
| Any expiration of the applicable patent could have a material adverse effect on the sales and profitability of our proposed product |
| • Enforcing patents is expensive and may require significant time by our management |
| In litigation, a competitor could claim that our issued patents are not valid for a number of reasons |
| • We also may support and collaborate in research conducted by government organizations or universities |
| We cannot guarantee that we will be able to acquire any exclusive rights to technology or products derived from these collaborations |
| If we do not obtain required licenses or rights, we could encounter delays in product development while we attempt to design around other patents or we may be prohibited from developing, manufacturing or selling products requiring these licenses |
| There is also a risk that disputes may arise as to the rights to technology or products developed in collaboration with other parties |
| It also is unclear whether efforts to secure our trade secrets will provide useful protection |
| While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our proprietary information to competitors resulting in a loss of protection |
| Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable |
| In addition, courts outside the United States are sometimes less willing to protect trade secrets |
| Finally, our competitors may independently develop equivalent knowledge, methods and know-how |
| Claims by others that our products infringe their patents or other intellectual property rights could adversely affect our financial condition |
| The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights |
| Patent applications are maintained in secrecy in the United States and also are maintained in secrecy outside the United States until the application is published |
| Accordingly, we can conduct only limited searches to determine whether our technology infringes the patents or patent applications of others |
| Any claims of patent infringement asserted by third parties would be time-consuming and could likely: 30 ______________________________________________________________________ • result in costly litigation; • divert the time and attention of our technical personnel and management; • cause product development delays; • require us to develop non-infringing technology; or • require us to enter into royalty or licensing agreements |
| Although patent and intellectual property disputes in the pharmaceutical industry often have been settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and often require the payment of ongoing royalties, which could hurt our gross margins |
| In addition, we cannot be sure that the necessary licenses would be available to us on satisfactory terms, or that we could redesign our products or processes to avoid infringement, if necessary |
| Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing, manufacturing and selling some of our products, which could harm our business, financial condition and operating results |
| We have very limited staffing and will continue to be dependent upon key employees |
| Our success is dependent upon the efforts of a small management team and staff |
| We have employment arrangements in place with all of our executive officers, but none of our executive officers is legally bound to remain employed for any specific term |
| Although we have key man life insurance on our President and Chief Executive Officer, Stephen M Simes, we do not have key man life insurance policies covering any of our other executive officers or employees |
| If key individuals leave BioSante, we could be adversely affected if suitable replacement personnel are not quickly recruited |
| On November 30, 2005, we sent written notice to Leah M Lehman, Ph |
| D, our former Vice President, Product Development, that we were exercising our contractual right not to renew her employment agreement |
| Lehman’s employment agreement expired by its terms on December 31, 2005 |
| Although we immediately engaged Michael C Snabes, MD, Ph |
| D as an independent consultant to work with our product development team in completion of our Bio-E-Gel NDA activities, as well as work on LibiGel development, it is possible that the departure of Dr |
| Simes and Dr |
| There is competition for qualified personnel in all functional areas, which makes it difficult to attract and retain the qualified personnel necessary for the development and growth of our business |
| Our future success depends upon our ability to continue to attract and retain qualified personnel |
| We are engaged in pending legal proceedings with two former employees which have caused and will continue to cause us to incur significant legal fees and expenses and may distract our management from the operation of our business |
| Lehman’s employment agreement expired by its terms on December 31, 2005 |
| On February 15, 2006, we received notice that on February 10, 2006, Dr |
| Lehman had filed a complaint against us, our Chief Executive Officer, our Chief Financial Officer and one of our directors, with the Occupational Safety and Health Administration under the Sarbanes-Oxley Act of 2002 seeking reinstatement of her employment with back pay, interest and attorney’s fees and claiming, among 31 ______________________________________________________________________ other things, wrongful termination |
| On February 17, 2006, we filed a complaint against Dr |
| Lehman in the Circuit Court of Cook County, Illinois alleging breach of fiduciary duty, breach of contract in regard to her employment agreement, tortious interference with prospective economic advantage and abuse of process |
| We are seeking an unspecified amount of damages, punitive damages, declaratory judgment regarding a breach by Dr |
| Lehman of her employment agreement and the amount of severance pay, if any, to be owed to Dr |
| Lehman, reimbursement of our legal fees and costs and such other relief as the Court may deem proper |
| Lehman filed a charge with the Equal Employment Opportunity Commission claiming sex discrimination and retaliation in violation of Title VII of the Civil Rights Act of 1964 |
| Lehman’s charges with the EEOC are wholly without merit and intend to vigorously defend our position |
| In addition, in January 2006, a former employee filed charges of sexual harassment, gender discrimination and retaliation against us and our Chief Executive Officer with the Illinois Department of Human Rights |
| Lehman’s allegations of wrongful termination, violations of the Sarbanes-Oxley Act, the EEOC claim and the other former employee’s employment related claims are wholly without merit and intend to vigorously defend our position |
| Such defenses, however, have caused us to incur and will likely cause us to continue to incur significant legal fees and expenses and may distract our management from the operation of our business |
| The price and trading volume of our common stock has been, and may continue to be, volatile |
| Historically, the market price and trading volume of our common stock has fluctuated over a wide range |
| In 2005, our common stock traded in a range from a low of dlra2dtta72 to a high of dlra5dtta94, and our daily trading volume ranged from 8cmam900 shares to 405cmam300 shares |
| It is likely that the price and trading volume of our common stock will continue to fluctuate in the future |
| The securities of small capitalization, biopharmaceutical companies, including our company, from time to time experience significant price and volume fluctuations, often unrelated to the operating performance of these companies |
| In particular, the market price and trading volume of our common stock may fluctuate significantly due to a variety of factors, including: • governmental agency actions, including in particular decisions or actions by the FDA or FDA advisory committee panels with respect to our products or our competitors’ products; • the results of our clinical trials or those of our competitors; • announcements of technological innovations or new products by us or our competitors; • announcements by licensors or licensees of our technology; • public concern as to the safety or efficacy of or market acceptance of products developed by us or our competitors; • developments or disputes concerning patents or other proprietary rights; • our ability to obtain needed financing; • period-to-period fluctuations in our financial results, including our cash, cash equivalents and short-term investment balance, operating expenses, cash burn rate or revenues; • loss of key management; • common stock sales in the public market by one or more of our larger stockholders, officers or directors; 32 ______________________________________________________________________ • other potentially negative financial announcements, including delisting of our common stock from the American Stock Exchange, review of any of our filings by the SEC, changes in accounting treatment or restatement of previously reported financial results or delays in our filings with the SEC; • developments in pending and any future litigation of which we may be subject; and • economic conditions in the United States and abroad |
| In addition, the occurrence of any of the risks described above or elsewhere in this report or otherwise in reports we file with or submit to the SEC from time to time could have a material and adverse impact on the market price of our common stock |
| For example, in December 2004, primarily as a result of the unanimous vote by the FDA’s Reproductive Health Drugs Advisory Committee panel against recommendation for approval of Procter & Gamble’s Intrinsa testosterone patch for hypoactive sexual desire disorder, the price of our common stock decreased over 35prca in one trading day and over 50prca over the course of three trading days |
| In addition, on the day of and first two trading days after the public announcement of FDA advisory panel’s recommendation, the daily trading volume of our common stock went from an average of approximately 166cmam000 shares per day to an average of over approximately 3 million shares per day for those same three days and then back down to an average of approximately 140cmam000 shares per day |
| Our current trading volume is approximately 80cmam000 shares per day |
| Securities class action litigation is sometimes brought against a company following periods of volatility in the market price of its securities or for other reasons |
| We may become the target of similar litigation |
| Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm our business and financial condition, as well as the market price of our common stock |
| Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our stock price |
| We are in the process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which will become applicable to BioSante beginning with our fiscal year ended December 31, 2007 (or earlier, if BioSante becomes an accelerated filer under the Exchange Act) |
| Section 404 of the Sarbanes-Oxley Act requires annual management assessment of the effectiveness of our internal controls over financial reporting (ICFR) a report by our registered independent public accounting firm addressing management’s assessment and independent audit of ICFR The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve their internal control systems |
| While we feel that our key controls are currently effective, we have not yet completed a formal assessment of our ICFR We continue to enhance our ICFR by adding additional resources in key functional areas and bringing all of our operations up to the level of documentation, segregation of duties, and systems security necessary, as well as transactional control procedures required, under the new standard issued by the Public Company Accounting Oversight Board |
| We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effects on our operations |
| If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigations by regulatory authorities, such as the Securities and Exchange Commission or the American Stock Exchange |
| Any such action could adversely affect our financial results, financial position and the market price of our common stock |
| In addition, if one or more material weaknesses is identified in ICFR, we will be unable to assert that our ICFR is effective |
| If we are unable to assert that our ICFR is effective (or if 33 ______________________________________________________________________ our auditors are unable to attest that management’s report is fairly stated, they are unable to express an opinion on our management’s evaluation or on the effectiveness of the internal controls or they issue an adverse opinion on ICFR), we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on our stock price |
| If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective ICFR in accordance with Section 404 of the Sarbanes-Oxley Act |
| Failure to achieve and maintain effective ICFR could have an adverse effect on our common stock price |