| CALLISTO PHARMACEUTICALS INC ITEM 1A RISK FACTORS You should carefully consider the following risk factors and the other information included herein as well as the information included in other reports and filings made with the SEC before investing in our common stock |
| If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed |
| The trading price of our common stock could decline due to any of these risks, and you may lose part or all of your investment |
| RISKS RELATED TO OUR BUSINESS WE ARE AT AN EARLY STAGE OF DEVELOPMENT AS A COMPANY, CURRENTLY HAVE NO SOURCE OF REVENUE AND MAY NEVER BECOME PROFITABLE We are a development stage biopharmaceutical company |
| Currently, we have no products approved for commercial sale and, to date, we have not generated any revenue |
| Our ability to generate revenue depends heavily on: · demonstration in Phase I/IIa and Phase IIb clinical trials that our two product candidates, Atiprimod for the treatment of relapsed multiple myeloma and advanced carcinoid cancer and L-Annamycin for the treatment of relapsed acute leukemia, respectively, are safe and effective; · the successful development of our other product candidates; · our ability to seek and obtain regulatory approvals, including with respect to the indications we are seeking; · the successful commercialization of our product candidates; and · market acceptance of our products |
| All of our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they could provide us with any revenue |
| For example, Atiprimod for the treatment of multiple myeloma entered Phase I/IIa clinical trials in May 2004 and L-Annamycin for the treatment of acute leukemia entered clinical trials in December 2005 |
| Our other product candidates are in preclinical development |
| As a result, if we do not successfully develop and commercialize Atiprimod or L-Annamycin, we will be unable to generate any revenue for many years, if at all |
| We do not anticipate that we will generate revenue for several years, at the earliest, or that we will achieve profitability for at least several years after generating material revenue, if at all |
| If we are unable to generate revenue, we will not become profitable, and we may be unable to continue our operations |
| WE HAVE INCURRED SIGNIFICANT LOSSES SINCE INCEPTION AND ANTICIPATE THAT WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE As of December 31, 2005 and 2004, we had an accumulated deficit of dlra45cmam140cmam654 and dlra33cmam361cmam197, respectively |
| We incurred a net loss of dlra11cmam779cmam457, dlra7cmam543cmam467 and dlra13cmam106cmam247 for the twelve months ended December 31, 2005, 2004 and 2003, respectively |
| These losses, among other things, have had and will continue to have an adverse effect on our stockholders &apos equity and working capital |
| We expect to incur significant and increasing operating losses for the next several years as we expand our research and development, continue our clinical trials of Atiprimod for the treatment of multiple myeloma and advanced carcinoid cancer, continue and initiate our clinical trials of L-Annamycin for the treatment of acute leukemias, acquire or license technologies, advance our other product candidates into clinical development, seek regulatory approval and, if we receive FDA approval, commercialize our products |
| Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict the extent of any future losses or when we will become profitable, if at all |
| If we are unable to achieve and then maintain profitability, the market value of our common stock will likely decline |
| OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING Our consolidated financial statements as of December 31, 2005 have been prepared under the assumption that we will continue as a going concern for the year ending December 31, 2006 |
| Our independent registered public accounting firm has issued a report dated March 29, 2006 that included an explanatory paragraph referring to our recurring losses from operations and net capital deficiency and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available |
| Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue |
| The financial statements do not include any adjustments that might result from the outcome of this uncertainty |
| WE WILL NEED TO RAISE SUBSTANTIAL ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, AND OUR FAILURE TO OBTAIN FUNDING WHEN NEEDED MAY FORCE US TO DELAY, REDUCE OR ELIMINATE OUR PRODUCT DEVELOPMENT PROGRAMS OR COLLABORATION EFFORTS Our operations have consumed substantial amounts of cash since inception |
| We expect to continue to spend substantial amounts to: · complete the clinical development of our two lead product candidates, Atiprimod for the treatment of multiple myeloma and advanced carcinoid cancer and L-Annamycin for the treatment of acute leukemia; · continue the development of our other product candidates; · finance our general and administrative expenses; · prepare regulatory approval applications and seek approvals for Atiprimod and L-Annamycin and our other product candidates; · license or acquire additional technologies; · launch and commercialize our product candidates, if any such product candidates receive regulatory approval; and · develop and implement sales, marketing and distribution capabilities |
| In 2005, our cash used in operating activities increased significantly over 2004 and we expect that our cash used in operating activities will increase significantly for the next several years |
| For the year ended December 31, 2005, we used approximately dlra8cmam700cmam000, or approximately dlra725cmam000 per month in operating activities, as compared to approximately dlra4cmam700cmam000 and dlra2cmam000cmam000 for the twelve months ended December 31, 2004 and 2003, respectively |
| 11 _________________________________________________________________ We will be required to raise additional capital within the next year to complete the development and commercialization of our current product candidates and to continue to fund operations at the current cash expenditure levels |
| Our future funding requirements will depend on many factors, including, but not limited to: · the rate of progress and cost of our clinical trials and other development activities; · any future decisions we may make about the scope and prioritization of the programs we pursue; · the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; · the costs and timing of regulatory approval; · the costs of establishing sales, marketing and distribution capabilities; · the effect of competing technological and market developments; · the terms and timing of any collaborative, licensing and other arrangements that we may establish; and · general market conditions for offerings from biopharmaceutical companies |
| To date, our sources of cash have been primarily limited to the sale of our equity securities |
| Net cash provided by financing activities for the twelve months ended December 31, 2005, 2004 and 2003 was approximately dlra4cmam800cmam000, dlra6cmam100cmam000 and dlra3cmam800cmam000 respectively |
| We cannot be certain that additional funding will be available on acceptable terms, or at all |
| To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution |
| Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business |
| If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates |
| We also may be required to: · seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; and · relinquish license or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms |
| IF OUR AGREEMENTS WITH ANORMED INC OR THE UNIVERSITY OF TEXAS MD ANDERSON CANCER CENTER TERMINATE, OUR BUSINESS WOULD BE ADVERSELY AFFECTED Our business is dependent on rights we have licensed from AnorMED Inc |
| and The University of Texas MD Anderson Cancer Center |
| Under the terms of the AnorMED license agreement, we are obligated to make a maintenance fee payment of dlra200cmam000 on January 1 of each year for the term of the license agreement |
| Pursuant to the license agreement, failure to pay the maintenance fee is a material breach of the agreement |
| We do not anticipate failing to pay the maintenance fee, however in the event we cannot pay the maintenance fee, AnorMED may terminate the license agreement and we would not be able to further develop and commercialize Atiprimod which would have an adverse effect on our business |
| Under the terms of The University of Texas MD Anderson Cancer Center license agreement for L-Annamycin, we are required to make certain good faith expenditures towards the clinical development of at least one licensed product within the two year period after March 2005 |
| In addition, at any time after 5 years from August 12, 2004, The University of Texas MD Anderson Cancer Center has the right to terminate the license if we fail to provide evidence within 90 days of written notice that we have commercialized or we are actively and effectively attempting to commercialize L-Annamycin |
| If we fail to fulfill these obligations or other material obligations, The University of Texas MD Anderson Cancer Center license agreement may be terminated and our business would be adversely affected |
| CLINICAL TRIALS INVOLVE A LENGTHY AND EXPENSIVE PROCESS WITH AN UNCERTAIN OUTCOME, AND RESULTS OF EARLIER STUDIES AND TRIALS MAY NOT BE PREDICTIVE OF FUTURE TRIAL RESULTS In order to receive regulatory approval for the commercialization of our product candidates, we must conduct, at our own expense, extensive clinical trials to demonstrate safety and efficacy of these product candidates |
| Failure can occur at any time during the clinical trial process |
| The results of preclinical studies and early clinical trials of our product candidates do not necessarily predict the results of later-stage clinical trials |
| Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through initial clinical testing |
| The data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application or to obtain regulatory approval in the United States or elsewhere |
| Because of the uncertainties associated with drug development and regulatory approval, we cannot determine if or when we will have an approved product for commercialization or achieve sales or profits |
| 12 _________________________________________________________________ DELAYS IN CLINICAL TESTING COULD RESULT IN INCREASED COSTS TO US AND DELAY OUR ABILITY TO GENERATE REVENUE While to date there has been no delays in our clinical trials, enrollment in our Atiprimod Phase I/IIa trial in multiple myeloma was slower than anticipated due to limited availability of relapsed multiple myeloma patients |
| In the future, we may experience delays in clinical testing of our product candidates |
| We do not know whether planned clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at all |
| Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, in reaching agreement on acceptable clinical trial terms with prospective sites, in obtaining institutional review board approval to conduct a trial at a prospective site, in recruiting patients to participate in a trial or in obtaining sufficient supplies of clinical trial materials |
| Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs approved for the conditions we are investigating |
| Prescribing physicians will also have to decide to use our product candidates over existing drugs that have established safety and efficacy profiles |
| Any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and delay our ability to generate revenue |
| WE MAY BE REQUIRED TO SUSPEND OR DISCONTINUE CLINICAL TRIALS DUE TO UNEXPECTED SIDE EFFECTS OR OTHER SAFETY RISKS THAT COULD PRECLUDE APPROVAL OF OUR PRODUCT CANDIDATES Our clinical trials may be suspended at any time for a number of reasons |
| For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the clinical trial patients |
| In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical trial patients |
| Administering any product candidates to humans may produce undesirable side effects |
| These side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying further development or approval of our product candidates for any or all targeted indications |
| Ultimately, some or all of our product candidates may prove to be unsafe for human use |
| Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in our clinical trials |
| IF WE ARE UNABLE TO SATISFY REGULATORY REQUIREMENTS, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCT CANDIDATES We need FDA approval prior to marketing our product candidates in the United States of America |
| If we fail to obtain FDA approval to market our product candidates, we will be unable to sell our product candidates in the United States of America and we will not generate any revenue |
| This regulatory review and approval process, which includes evaluation of preclinical studies and clinical trials of a product candidate as well as the evaluation of our manufacturing process and our contract manufacturers &apos facilities, is lengthy, expensive and uncertain |
| To receive approval, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that the product candidate is both safe and effective for each indication where approval is sought |
| Satisfaction of these requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product |
| We cannot predict if or when we might submit for regulatory review any of our product candidates currently under development |
| Any approvals we may obtain may not cover all of the clinical indications for which we are seeking approval |
| Also, an approval might contain significant limitations in the form of narrow indications, warnings, precautions, or contra-indications with respect to conditions of use |
| The FDA has substantial discretion in the approval process and may either refuse to file our application for substantive review or may form the opinion after review of our data that our application is insufficient to allow approval of our product candidates |
| If the FDA does not file or approve our application, it may require that we conduct additional clinical, preclinical or manufacturing validation studies and submit that data before it will reconsider our application |
| Depending on the extent of these or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available |
| It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to make our applications approvable |
| If any of these outcomes occur, we may be forced to abandon our applications for approval, which might cause us to cease operations |
| We will also be subject to a wide variety of foreign regulations governing the development, manufacture and marketing of our products |
| Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to manufacturing or marketing the product in those countries |
| The approval process varies from country to country and the time needed to secure approval may be longer or shorter than that required for FDA approval |
| We cannot assure you that clinical trials conducted in one country will be accepted by other countries or that approval in one country will result in approval in any other country |
| 13 _________________________________________________________________ IF OUR PRODUCT CANDIDATES ARE UNABLE TO COMPETE EFFECTIVELY WITH MARKETED CANCER DRUGS TARGETING SIMILAR INDICATIONS AS OUR PRODUCT CANDIDATES, OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR ELIMINATED We face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions |
| Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do |
| Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies |
| Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize cancer drugs that are safer, more effective, have fewer side effects or are less expensive than our product candidates |
| These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business |
| We expect that our ability to compete effectively will depend upon our ability to: · successfully and rapidly complete clinical trials and submit for and obtain all requisite regulatory approvals in a cost-effective manner; · maintain a proprietary position for our products and manufacturing processes and other related product technology; · attract and retain key personnel; · develop relationships with physicians prescribing these products; and · build an adequate sales and marketing infrastructure for our product candidates |
| Because we will be competing against significantly larger companies with established track records, we will have to demonstrate to physicians that, based on experience, clinical data, side-effect profiles and other factors, our products are preferable to existing cancer drugs |
| If we are unable to compete effectively in the cancer drug market and differentiate our products from currently marketed cancer drugs, we may never generate meaningful revenue |
| Numerous pharmaceutical and biotechnology companies have developed anthracycline drugs used to treat acute leukemias similar to our compound, L-Annamycin |
| These compounds include Adriamycin® and Ellence® which are marketed by Pfizer and Cerubidine® which is marketed by Boehringer Ingelheim |
| These drugs have been approved by the FDA and are currently being marketed as opposed to L-Annamycin which is in clinical development |
| Atiprimod, our drug candidate for relapsed multiple myeloma, works through a different mechanism of action than Velcade which is currently marketed by Millenium Pharmaceuticals and other drugs in development, such as Celgene Corporation’s Revlimid |
| WE CURRENTLY HAVE NO SALES AND MARKETING ORGANIZATION IF WE ARE UNABLE TO ESTABLISH A DIRECT SALES FORCE IN THE UNITED STATES TO PROMOTE OUR PRODUCTS, THE COMMERCIAL OPPORTUNITY FOR OUR PRODUCTS MAY BE DIMINISHED We currently have no sales and marketing organization |
| If any of our product candidates are approved by the FDA, we intend to market that product directly to hospitals in the United States of America through our own sales force |
| We will incur significant additional expenses and commit significant additional management resources to establish this sales force |
| We may not be able to establish these capabilities despite these additional expenditures |
| We will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire and train sales and marketing personnel |
| If we elect to rely on third parties to sell our product candidates in the United States, we may receive less revenue than if we sold our products directly |
| In addition, we may have little or no control over the sales efforts of those third parties |
| In the event we are unable to develop our own sales force or collaborate with a third party to sell our product candidates, we may not be able to commercialize our product candidates which would negatively impact our ability to generate revenue |
| WE MAY NEED OTHERS TO MARKET AND COMMERCIALIZE OUR PRODUCT CANDIDATES IN INTERNATIONAL MARKETS In the future, if appropriate regulatory approvals are obtained, we intend to commercialize our product candidates in international markets |
| However, we have not decided how to commercialize our product candidates in those markets |
| We may decide to build our own sales force or sell our products through third parties |
| Currently, we do not have any plans to enter international markets |
| If we decide to sell our product candidates in international markets through a third party, we may not be able to enter into any marketing arrangements on favorable terms or at all |
| In addition, these arrangements could result in lower levels of income to us than if we marketed our product candidates entirely on our own |
| If we are unable to enter into a marketing arrangement for our product candidates in international markets, we may not be able to develop an effective international sales force to successfully commercialize those products in international markets |
| If we fail to enter into marketing arrangements for our products and are unable to develop an effective international sales force, our ability to generate revenue would be limited |
| A is our sole supplier of Annamycin (drug substance that is the active component of the final formulated L-Annamycin drug product) |
| If our relationship with this contract manufacturer, or any other contract manufacturer we might use, terminates or if any of their facilities are damaged for any reason, including fire, flood, earthquake or other similar event, we may be unable to obtain supply of Annamycin |
| If any of these events were to occur, we may need to find alternative manufacturers or manufacturing facilities |
| The number of contract manufacturers with the expertise, required regulatory approvals and facilities to manufacture Annamycin on a commercial scale is extremely limited, and it would take a significant amount of time to arrange for alternative manufacturers |
| If we need to change to other commercial manufacturers, the FDA and comparable foreign regulators must approve these manufacturers’ facilities and processes prior to our use, which would require new testing and compliance inspections |
| In addition, we may not have the intellectual property rights, or may have to share intellectual property rights, to any improvements in the current manufacturing processes or any new manufacturing processes for Annamycin |
| Any of these factors could cause us to delay or suspend clinical trials, regulatory submissions, required approvals or commercialization of L-Annamycin, entail higher costs, and could result in our being unable to commercialize L-Annamycin successfully |
| Furthermore, if our contract manufacturers fail to deliver the required commercial quantities of bulk drug substance or finished product on a timely basis and at commercially reasonable prices, and we were unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, we would likely be unable to meet demand for L-Annamycin and we would lose potential revenue |
| IF THE FDA DOES NOT APPROVE OUR CONTRACT MANUFACTURERS &apos FACILITIES, WE MAY BE UNABLE TO DEVELOP OR COMMERCIALIZE OUR PRODUCT CANDIDATES We rely on third-party contract manufacturers to manufacture our product candidates, and currently have no plans to develop our own manufacturing facility |
| The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA If the FDA does not approve these facilities for the manufacture of our product, we may need to fund additional modifications to our manufacturing process, conduct additional validation studies, or find alternative manufacturing facilities, any of which would result in significant cost to us as well as a delay of up to several years in obtaining approval for and manufacturing of our product candidates |
| In addition, our contract manufacturers will be subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies for compliance with good manufacturing practices regulations, or cGMPs, and similar foreign standards |
| These regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to our product candidates |
| We do not have control over our contract manufacturers &apos compliance with these regulations and standards |
| Failure by our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of the government to grant market approval of drugs, delays, suspension or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business |
| In addition, we have no control over our contract manufacturers &apos ability to maintain adequate quality control, quality assurance and qualified personnel |
| Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect the development of our product candidates and our business |
| IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT COMMERCIALIZATION OF OUR PRODUCT CANDIDATES We face an inherent risk of product liability lawsuits related to the testing of our product candidates, and will face an even greater risk if we sell our product candidates commercially |
| Currently, we are not aware of any anticipated product liability claims with respect to our product candidates |
| In the future, an individual may bring a liability claim against us if one of our product candidates causes, or merely appears to have caused, an injury |
| If we cannot successfully defend ourselves against the product liability claim, we may incur substantial liabilities |
| Regardless of merit or eventual outcome, liability claims may result in: · decreased demand for our product candidates; · injury to our reputation; · withdrawal of clinical trial participants; · costs of related litigation; · substantial monetary awards to patients; · product recalls; · loss of revenue; and · the inability to commercialize our product candidates |
| We have clinical trial liability insurance with a dlra3cmam000cmam000 annual aggregate limit for up to 40 patients participating at the same time in our Atiprimod and L-Annamycin clinical trials |
| We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for our product candidates |
| Our current insurance coverage may prove insufficient to cover any liability claims brought against us |
| In addition, because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise |
| 15 _________________________________________________________________ EVEN IF WE RECEIVE REGULATORY APPROVAL FOR OUR PRODUCT CANDIDATES, WE WILL BE SUBJECT TO ONGOING SIGNIFICANT REGULATORY OBLIGATIONS AND OVERSIGHT If we receive regulatory approval to sell our product candidates, the FDA and foreign regulatory authorities may, nevertheless, impose significant restrictions on the indicated uses or marketing of such products, or impose ongoing requirements for post-approval studies |
| Following any regulatory approval of our product candidates, we will be subject to continuing regulatory obligations, such as safety reporting requirements, and additional post-marketing obligations, including regulatory oversight of the promotion and marketing of our products |
| If we become aware of previously unknown problems with any of our product candidates here or overseas or our contract manufacturers &apos facilities, a regulatory agency may impose restrictions on our products, our contract manufacturers or on us, including requiring us to reformulate our products, conduct additional clinical trials, make changes in the labeling of our products, implement changes to or obtain re-approvals of our contract manufacturers &apos facilities or withdraw the product from the market |
| In addition, we may experience a significant drop in the sales of the affected products, our reputation in the marketplace may suffer and we may become the target of lawsuits, including class action suits |
| Moreover, if we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution |
| Any of these events could harm or prevent sales of the affected products or could substantially increase the costs and expenses of commercializing and marketing these products |
| WE RELY ON THIRD PARTIES TO CONDUCT OUR CLINICAL TRIALS IF THESE THIRD PARTIES DO NOT SUCCESSFULLY CARRY OUT THEIR CONTRACTUAL DUTIES OR MEET EXPECTED DEADLINES, WE MAY NOT BE ABLE TO SEEK OR OBTAIN REGULATORY APPROVAL FOR OR COMMERCIALIZE OUR PRODUCT CANDIDATES We have agreements with third-party contract research organizations, or CROs, to provide monitors and to manage data for our clinical programs |
| We and our CROs are required to comply with current Good Clinical Practices, or GCPs, regulations and guidelines enforced by the FDA for all of our products in clinical development |
| The FDA enforces GCPs through periodic inspections of trial sponsors, principal investigators and trial sites |
| In the future, if we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications |
| We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials for products in clinical development comply with GCPs |
| In addition, our clinical trials must be conducted with product produced under cGMP regulations, and will require a large number of test subjects |
| Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process |
| If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs |
| If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates |
| As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed |
| IF WE FAIL TO ATTRACT AND KEEP SENIOR MANAGEMENT AND KEY SCIENTIFIC PERSONNEL, WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP OUR PRODUCT CANDIDATES, CONDUCT OUR CLINICAL TRIALS AND COMMERCIALIZE OUR PRODUCT CANDIDATES Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists |
| We are highly dependent upon our senior management and scientific staff, particularly Gary S Jacob, our Chief Executive Officer and Donald Picker, our Executive Vice President, R&D The loss of services of Drs |
| Jacob, Picker or one or more of our other members of senior management could delay or prevent the successful completion of our planned clinical trials or the commercialization of our product candidates |
| The competition for qualified personnel in the biotechnology and pharmaceuticals field is intense |
| We will need to hire additional personnel as we expand our clinical development and commercial activities |
| We may not be able to attract and retain quality personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and other companies |
| We do not carry "e key person "e insurance covering any members of our senior management |
| IF WE FAIL TO ACQUIRE AND DEVELOP OTHER PRODUCTS OR PRODUCT CANDIDATES, WE MAY BE UNABLE TO GROW OUR BUSINESS To date, we have in-licensed or acquired the rights to each of our product candidates |
| As part of our growth strategy, in addition to developing our current product candidates, we intend to license or acquire additional products and product candidates for development and commercialization |
| Because we have limited internal research capabilities, we are dependent upon pharmaceutical and biotechnology companies and other researchers to sell or license products to us |
| The success of this strategy depends upon our ability to identify, select and acquire the right pharmaceutical product candidates and products |
| We currently do not have any intentions to acquire another company |
| Any product candidate we license or acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities |
| All product candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities |
| In addition, we cannot assure you that any products that we license or acquire that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace |
| 16 _________________________________________________________________ Proposing, negotiating and implementing an economically viable product acquisition or license is a lengthy and complex process |
| Other companies, including those with substantially greater financial, marketing and sales resources, may compete with us for the acquisition or license of product candidates and approved products |
| We may not be able to acquire or license the rights to additional product candidates and approved products on terms that we find acceptable, or at all |
| WE MAY UNDERTAKE ACQUISITIONS IN THE FUTURE, AND ANY DIFFICULTIES FROM INTEGRATING THESE ACQUISITIONS COULD DAMAGE OUR ABILITY TO ATTAIN OR MAINTAIN PROFITABILITY We may acquire additional businesses, products or product candidates that complement or augment our existing business |
| Integrating any newly acquired business or product could be expensive and time-consuming |
| We may not be able to integrate any acquired business or product successfully or operate any acquired business profitably |
| Moreover, we many need to raise additional funds through public or private debt or equity financing to make acquisitions, which may result in dilution to stockholders and the incurrence of indebtedness that may include restrictive covenants |
| To continue our clinical trials and commercialize our product candidates, we will need to expand our employee base for managerial, operational, financial and other resources |
| Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees |
| Over the next 12 months depending on the progress of our planned clinical trials, we plan to add additional employees to assist us with our clinical programs |
| Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively |
| To that end, we must be able to: · manage our development efforts effectively; · manage our clinical trials effectively; · integrate additional management, administrative, manufacturing and sales and marketing personnel; · maintain sufficient administrative, accounting and management information systems and controls; and · hire and train additional qualified personnel |
| We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results |
| REIMBURSEMENT MAY NOT BE AVAILABLE FOR OUR PRODUCT CANDIDATES, WHICH COULD DIMINISH OUR SALES Market acceptance and sales of our product candidates may depend on reimbursement policies and health care reform measures |
| The levels at which government authorities and third-party payors, such as private health insurers and health maintenance organizations, reimburse patients for the price they pay for our products could affect whether we are able to commercialize these products |
| We cannot be sure that reimbursement will be available for any of these products |
| Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our products |
| We have not commenced efforts to have our product candidates reimbursed by government or third party payors |
| If reimbursement is not available or is available only to limited levels, we may not be able to commercialize our products |
| In recent years, officials have made numerous proposals to change the health care system in the United States |
| These proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government control |
| In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control |
| If our products are or become subject to government regulation that limits or prohibits payment for our products, or that subject the price of our products to governmental control, we may not be able to generate revenue, attain profitability or commercialize our products |
| As a result of legislative proposals and the trend towards managed health care in the United States, third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs |
| They may also refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals |
| As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse patients for their use of newly-approved drugs, which in turn will put pressure on the pricing of drugs |
| LEGISLATIVE OR REGULATORY REFORM OF THE HEALTHCARE SYSTEM MAY AFFECT OUR ABILITY TO SELL OUR PRODUCTS PROFITABLY In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could impact upon our ability to sell our products profitably |
| In recent years, new legislation has been proposed in the United States at the federal and state levels that would effect major changes in the healthcare system, either nationally or at the state level |
| These proposals have included prescription drug benefit proposals for Medicare beneficiaries introduced in Congress |
| Legislation creating a prescription drug benefit and making certain changes in Medicaid reimbursement has recently been enacted by Congress and signed by the President |
| Given this legislationapstas recent enactment, it is still too early to determine its impact on the pharmaceutical industry and our business |
| The potential for adoption of these proposals affects or will affect our ability to raise capital, obtain additional collaborators and market our products |
| We expect to experience pricing pressures in connection with the sale of our products due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative proposals |
| Our results of operations could be adversely affected by future healthcare reforms |
| 17 _________________________________________________________________ RISKS RELATED TO OUR INTELLECTUAL PROPERTY IT IS DIFFICULT AND COSTLY TO PROTECT OUR PROPRIETARY RIGHTS, AND WE MAY NOT BE ABLE TO ENSURE THEIR PROTECTION Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our product candidates, and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges |
| We will only be able to protect our product candidates from unauthorized making, using, selling, offering to sell or importation by third parties to the extent that we have rights under valid and enforceable patents or trade secrets that cover these activities |
| As of March 20, 2006, we own and/or have licensed rights to 15 issued United States patents and 7 United States patent applications |
| We may file additional patent applications and extensions |
| Our issued United States patents we own and license primarily are composition of matter and formulation patents related to Atiprimod and L-Annamycin |
| Our composition of matter patents for L-Annamycin and Atiprimod expire in 2017 and 2016, respectively |
| Our formulation patents for L-Annamycin and Atiprimod dimaleate (preferred salt form) both expire in 2016 |
| The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved |
| No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in the United States |
| The biotechnology patent situation outside the United States is even more uncertain |
| Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property |
| Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our licensed patents or in third-party patents |
| The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage |
| For example: · others may be able to make compounds that are competitive with our product candidates but that are not covered by the claims of our licensed patents, or for which we are not licensed under our license agreements; · we or our licensors might not have been the first to make the inventions covered by our pending patent application or the pending patent applications and issued patents of our licensors; · we or our licensors might not have been the first to file patent applications for these inventions; · others may independently develop similar or alternative technologies or duplicate any of our technologies; · it is possible that our pending patent application or one or more of the pending patent applications of our licensors will not result in issued patents; · the issued patents of our licensors may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties; · we may not develop additional proprietary technologies that are patentable; or · the patents of others may have an adverse effect on our business |
| We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable |
| However, trade secrets are difficult to protect |
| While we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors |
| Enforcing a claim that a third party illegally obtained and is using our trade secrets 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 |
| Moreover, our competitors may independently develop equivalent knowledge, methods and know-how |
| WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE UNABLE TO PROTECT OUR RIGHTS TO, OR USE, OUR TECHNOLOGY If we choose to go to court to stop someone else from using the inventions claimed in our licensed patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party |
| These lawsuits are expensive and would consume time and other resources even if we were successful in stopping the infringement of these patents |
| In addition, there is a risk that the court will decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions |
| There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other partyapstas activities do not infringe our rights to these patents |
| Furthermore, a third party may claim that we are using inventions covered by the third partyapstas patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates |
| These lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical personnel |
| There is a risk that a court would decide that we are infringing the third partyapstas patents and would order us to stop the activities covered by the patents |
| In addition, there is a risk that a court will order us to pay the other party damages for having violated the other partyapstas patents |
| The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use |
| The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform |
| If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this |
| Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents |
| 18 _________________________________________________________________ Because some patent applications in the United States of America may be maintained in secrecy until the patents are issued, because patent applications in the United States of America and many foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our licensors &apos issued patents or our pending applications or our licensors &apos pending applications or that we or our licensors were the first to invent the technology |
| Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours |
| Any such patent application may have priority over our or our licensors &apos patent applications and could further require us to obtain rights to issued patents covering such technologies |
| If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the United States Patent and Trademark Office to determine priority of invention in the United States |
| The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions |
| Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources |
| In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations |
| RISKS RELATED TO OUR COMMON STOCK MARKET VOLATILITY MAY AFFECT OUR STOCK PRICE AND THE VALUE OF YOUR INVESTMENT The market prices for securities of biopharmaceutical companies in general have been highly volatile and may continue to be highly volatile in the future |
| The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock: · announcements of technological innovations or new products by us or our competitors; · announcement of FDA approval or non-approval of our product candidates or delays in the FDA review process; · actions taken by regulatory agencies with respect to our product candidates, clinical trials, manufacturing process or sales and marketing activities; · regulatory developments in the United States of America and foreign countries; · the success of our development efforts and clinical trials; · the success of our efforts to acquire or in-license additional products or product candidates; · any intellectual property infringement action, or any other litigation, involving us; · announcements concerning our competitors, or the biotechnology or biopharmaceutical industries in general; · actual or anticipated fluctuations in our operating results; · changes in financial estimates or recommendations by securities analysts; · our ability to maintain listing requirements on the American Stock Exchange; · sales of large blocks of our common stock; · sales of our common stock by our executive officers, directors and significant stockholders; and · the loss of any of our key scientific or management personnel |
| The occurrence of one or more of these factors may cause our stock price to decline, and investors may not be able to resell their shares at or above the price that they paid for the shares |
| In addition, the stock markets in general, and the markets for biotechnology and biopharmaceutical stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies |
| These broad market fluctuations may adversely affect the trading price of our common stock |
| WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities |
| This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years |
| If we faced such litigation, it could result in substantial costs and a diversion of managementapstas attention and resources, which could harm our business |
| WE HAVE NOT PAID CASH DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY CASH DIVIDENDS IN THE FUTURE ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR STOCK We have never paid cash dividends on our stock and do not anticipate paying cash dividends on our stock in the foreseeable future |
| The payment of cash dividends on our stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant |
| If we do not pay cash dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates |