| COLLAGENEX PHARMACEUTICALS INC Item 1A Risk Factors |
| Statements contained or incorporated by reference in this Annual Report on Form 10-K that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act |
| These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management including, without limitation, our expectations regarding results of operations, selling, general and administrative expenses, research and development expenses, the sufficiency of our cash for future operations, and the success of our preclinical, clinical and development programs and our dermatology franchise |
| Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “could,” “will,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms, variations of such terms or the negative of those terms |
| We cannot assure investors that our assumptions and expectations will prove to have been correct |
| Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements |
| Such factors that could cause or contribute to such differences include those factors discussed below |
| We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise |
| If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer |
| We are depending heavily on the success of our most advanced product candidate, Oracea, for the treatment of rosacea, which is still under regulatory review |
| If we are unable to obtain approval for and commercialize Oracea, or experience significant delays in doing so, our business will be materially harmed |
| We have invested a significant portion of our recent efforts and financial resources in the development of our most advanced product candidate, Oracea, for the treatment of rosacea |
| Our ability to 16 ______________________________________________________________________ generate substantial product revenues from Oracea, if ever, will depend heavily on the successful development and commercialization of Oracea |
| The success of Oracea will depend on several factors, including the following: · receipt of marketing approvals from the FDA and similar foreign regulatory authorities; and · acceptance of the product by patients, the medical community and third party payors |
| If we are unable to obtain FDA approval for and successfully commercialize Oracea, we may never realize revenue from this product candidate and we may have to curtail our other product development programs |
| As a result, our business would be materially harmed |
| We cannot rely on regulatory protections to prevent the approval of generic equivalents of our products |
| In connection with the regulatory approval process, some approved new drug products can obtain exclusivity that will prevent generic versions of the products from entering the marketplace for a period of time |
| In the United States, market exclusivity is available for new chemical entities and for significant changes in already approved drug products, such as a new use |
| Market exclusivity is, however, not available to drugs that contain an active ingredient that has already been approved as an antibiotic |
| On January 19, 2005, the United States District Court for the District of Columbia upheld the FDA’s application of this principle to Periostat and determined that Periostat was not entitled to market exclusivity because its active ingredient, doxycycline, had previously been approved as an antibiotic |
| Because Oracea also contains doxycycline as its active ingredient, it will also not be entitled to market exclusivity |
| In the European Community regulatory market exclusivity is a function of how long the competent authorities may determine that data submitted in marketing approval applications may not be referenced by others |
| The period of so-called data exclusivity to which a new product may be entitled can vary from eleven years to none at all |
| This depends on how a product is classified and can turn on the application of regulatory standards of which there has been no authoritative interpretation to date |
| We cannot predict what period of data exclusivity, if any, may be enjoyed by Oracea in the European Community |
| With limited or no market exclusivity it can be more difficult for us to prevent competitors from seeking approval for copies of our proprietary products, and in such a case the value of such products would be materially adversely affected |
| Without market exclusivity, generic versions of our products could quickly gain market entry if they meet regulatory approval criteria |
| Thus, even if we gain approval of Oracea, because it will not be entitled to patent or non-patent market exclusivity, third parties may enter the market which would materially harm our business |
| If we are not able to obtain and enforce patent protection for Oracea or our other discoveries, our ability to commercialize our product candidates successfully will be harmed and we may not be able to operate our business profitably |
| Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop under the patent and other intellectual property laws of the United States and other countries, so that we can prevent others from using our inventions and proprietary information |
| However, we may not hold proprietary rights to some patents related to our current or future products and technologies |
| Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patent applications |
| There are, for instance, patent applicants that claim to have invented elements of the SansRosa technology prior to SansRosa’s patent application filing date |
| As a result, we 17 ______________________________________________________________________ may be required to obtain licenses under third-party patents to market our proposed products |
| If licenses are not available to us on acceptable terms, or at all, we will not be able to market the affected products |
| Our strategy depends on our ability to identify our discoveries rapidly and to seek patent protection for them |
| This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner |
| Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary |
| The issuance of a patent does not guarantee that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties |
| In addition, the issuance of a patent does not guarantee that we have the right to practice the patented invention |
| Third parties may have blocking patents that could be used to prevent us from marketing our own patented product and practicing our own patented technology |
| Our pending patent applications may not result in issued patents |
| The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations |
| The standards which the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change |
| There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents |
| The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries |
| Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims allowed in any patents issued to us or to others |
| The allowance of broader claims may increase the incidence and cost of patent interference proceedings and/or opposition proceedings, and the risk of infringement litigation |
| On the other hand, the allowance of narrower claims may limit the value of our proprietary rights |
| If issued, our patent for Oracea may not contain claims sufficiently broad to protect us against third parties with similar products, or provide us with any competitive advantage |
| Moreover, once issued, any of our patents may be challenged, narrowed, invalidated or circumvented |
| In addition, the patent rights in our products that derive from claims under method of use patents may be hard to assert or enforce if medical professionals prescribe similar (including generic), though non-approved, doxycycline products for indications covered by our patents |
| If our patents are invalidated or otherwise limited, other companies will be better able to develop products and technologies that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition |
| We cannot assure you that our pursuit of business in the dermatology market will be successful |
| We continue to implement our plans to expand into the dermatology market |
| We recently submitted an NDA with the FDA for Oracea to treat rosacea, and we continue to seek additional product licensing opportunities to enhance our near-term offerings to the dermatology market |
| We have also been allowed by the USPTO a patent for the use of sub-anti-microbial tetracyclines for the treatment of acne and acne rosacea, including Oracea |
| While we have experience in the sales and marketing of dental products, we have limited experience in the dermatology market |
| This market is very competitive and some of our competitors have substantially greater resources than we have |
| Our future success will depend on, among other things, our ability to: (i) achieve market acceptance for any current or future dermatological offerings; (ii) hire and retain personnel with experience in the dermatology market; (iii) execute our business plan with respect to this market segment; and (iv) adapt to technical or regulatory changes once operational |
| At the same time, new product development is a lengthy, complex and uncertain process that will require significant attention and resources from management |
| A product candidate can fail at any stage of the development process due to, among other things, efficacy or safety concerns, the inability to obtain necessary regulatory approvals, the difficulty or excessive cost to manufacture and/or the infringement of 18 ______________________________________________________________________ patents or intellectual property rights of others |
| Furthermore, the sales of new products may prove to be disappointing and fail to reach anticipated levels |
| We therefore cannot assure you that we will be successful in our pursuit of business in the dermatology market, or that we can sustain any business in which we achieve initial success |
| The success of our current technology platforms, and that of any other future technology platforms we may purchase or in-license, will depend on the quality and integrity of the technologies licensed or sold to us |
| Despite our due diligence and the safeguards we have in place, we cannot guarantee the effectiveness or integrity of such technologies, nor can we be certain that others do not have intervening rights in such technologies |
| If any of our in-licensed technologies proved ineffective, or if a third party successfully asserted any right to such technologies, our ability to develop new products and implement our strategies would be materially adversely affected |
| If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired |
| Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate |
| Other than Periostat, we have not received regulatory approval to market any of our product candidates in any jurisdiction |
| We have only limited experience in filing and prosecuting the applications necessary to gain regulatory approvals |
| Securing FDA approval requires the submission of extensive preclinical and clinical data, information about product manufacturing processes and inspection of facilities and supporting information to the FDA for each therapeutic indication to establish the product candidate’s safety and efficacy |
| Our future products may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use |
| The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the product candidates involved |
| Changes in the regulatory approval policy during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application |
| The FDA, and comparable authorities in other countries, have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies |
| In addition, varying interpretations of the data obtained from preclinical and clinical testing could influence how a product candidate is classified and delay, limit or prevent regulatory approval of a product candidate |
| Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the product not commercially viable |
| Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product |
| If we lose our sole supplier of doxycycline or our manufacturer of Oracea, our sales of Oracea, if any, will be interrupted, halted or less profitable |
| We do not have the resources, facilities or capabilities to manufacture any of our products or product candidates |
| We have no current plans to establish a manufacturing facility |
| We expect that we will be dependent, to a significant extent, on contract manufacturers for commercial scale manufacturing of our products or product candidates in accordance with regulatory standards |
| 19 ______________________________________________________________________ We rely on a single supplier, Hovione International Limited, or Hovione, for doxycycline, the active ingredient in Oracea |
| There are relatively few alternative suppliers of doxycycline and Hovione produces the majority of the doxycycline used in the United States |
| Our current supply agreement with Hovione expires on May 14, 2006 and thereafter automatically renews for successive two-year periods unless, 90 days prior to the expiration of any such periods, either party gives the other party written notice of termination |
| In addition, in the event of a default, uncured for 90 days, the non-defaulting party can terminate the supply agreement effective immediately at the end of such ninety-day period |
| We rely on Hovione as our sole supplier of doxycycline and have no back-up supplier at this time |
| Although Hovione maintains two manufacturing locations, if we achieve FDA approval for Oracea and are unable to procure a commercial quantity of doxycycline from Hovione on an ongoing basis at a competitive price, if Hovione fails to comply with cGMP, or if we cannot find a replacement supplier in a timely manner or with favorable pricing terms, our costs may increase significantly and we may experience delays in the supply of Oracea |
| We entered into an agreement effective December 31, 2005 with PTS, pursuant to which PTS has agreed to manufacture Oracea for us |
| Pursuant to the terms of the agreement, we agree to (i) furnish to PTS on a monthly basis a rolling forecast of product quantities for the subsequent twelve-month period, the first three months of which shall become binding, and (ii) pay PTS a fee for the product, subject to an annual adjustment |
| The agreement has an initial term of four years unless terminated earlier pursuant to its terms |
| We intend to contract with additional manufacturers for the commercial manufacture of an Oracea capsule |
| We believe, however, that it could take up to one year to validate successfully a secondary manufacturer |
| We cannot be certain that we will be able to enter into additional agreements on acceptable terms, if at all |
| In the event that Oracea is approved by the FDA and we are unable to obtain sufficient quantities of doxycycline or Oracea on commercially reasonable terms, or in a timely manner, our business, financial condition and results of operations would be materially adversely affected |
| If the federal regulatory status of Alcortin or Novacort changes, we may be unable to continue to market one or both of these products |
| We market two products, Alcortin and Novacort, under a Promotion and Cooperation Agreement with Primus |
| The majority of sample product costs and all sales force compensation related to our promotion of Alcortin and Novacort are funded by us |
| Primus is responsible for the manufacture of Alcortin and Novacort and it has not sought FDA approval for these products because it believes that no approval is required |
| If the FDA were to assert that these products required approval, it could at any time seek to take administrative or judicial actions which could prevent us from marketing these products |
| Our inability to market these products could result in a temporary or permanent loss of revenue, which may be partially offset by a reduction in our promotional expenses related to these products |
| Our products could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements |
| Both before and after approval or clearance, we, our vendors and suppliers, and our products and product candidates are subject to extensive regulatory requirements |
| Failure to comply with these requirements could subject us to administrative and judicial sanctions |
| Both before and after approval or clearance of our products, we, our products, and our manufacturers are subject to extensive regulatory requirements covering, among other things, manufacturing, advertising and promotion, labeling, adverse event reporting, post-approval commitments, registration, record-keeping, export, and distribution of samples |
| Failure to comply with regulatory requirements may result in: · restrictions on such products, manufacturers or manufacturing processes; · warning letters; 20 ______________________________________________________________________ · withdrawal of the products from the market; · refusal to approve pending applications or supplements to approved applications that we submit; · recall; · fines; · suspension or withdrawal of regulatory approvals; · refusal to permit the import or export of our products; · product seizure; and · injunctions or the imposition of civil or criminal penalties |
| We cannot predict with certainty the effect on our business of the decline in revenues generated by the dental business following the commercial launch of generic versions of Periostat and the termination of our dental sales force |
| We have historically relied on sales of Periostat and Mutual’s branded version of Periostat, together with revenues generated by the other products that made up our dental business, for most of our revenue |
| During the years ended December 31, 2005, 2004 and 2003, Periostat and Mutual’s branded version of Periostat supplied by us (with respect to the years ended December 31, 2005 and 2004), accounted for approximately 76prca, 88prca and 82prca of our total net revenues, respectively |
| On May 13, 2005, the FDA approved a third party generic version of Periostat and a generic product was launched soon thereafter in late May 2005 |
| Upon this generic launch, Mutual was no longer obligated to purchase and is not expected to purchase their branded product from us |
| We do not anticipate future shipments of Mutual’s branded version of Periostat supplied by us |
| In addition, we have had to disband our dental sales force and delay or discontinue certain research and development activities in the dental business |
| Consequently, while we continue to generate cash flow from our dental business, our revenues and margins from Periostat and the other dental products we sell have decreased significantly and will likely continue to decrease as a result of the third party introduction of a generic version of Periostat |
| If this decrease is more significant than we expect, and is combined with slow growth in, or a lack of revenues, if any, from new products, we may experience difficulty in managing our cash, which could have a material adverse effect on our ability execute our strategies and develop our dermatology business |
| We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs and commercialization efforts |
| We expect that our research and development expenses will increase in connection with our ongoing activities and that we will incur significant commercialization expenses as we expand our marketing and sales efforts |
| We will need substantial additional funding and may be unable to raise capital when needed or on attractive terms, which would force us to delay, reduce or eliminate our research and development programs and commercialization activities |
| We anticipate that our current cash, cash equivalents and short-term investments at December 31, 2005, together with the additional dlra11dtta7 million in net proceeds from the 1cmam350cmam000 additional shares of common stock sold in January 2006, will be sufficient to fund our operations through at least mid-2007 |
| However, our forecast of the period of time through which our financial resources will be adequate to support our operations involves risks and uncertainties, and actual results could vary materially |
| Our future funding requirements will depend on many factors, including: · the cost of commercialization activities, including product marketing and sales; · the success of our dermatology franchise; 21 ______________________________________________________________________ · the success of our preclinical, clinical and development programs; · revenues and profits from sales of Periostat, Pandel and our other product candidates, as well as the products we co-promote; · the terms and conditions of our outstanding Series D-1 Stock; · our ability to continue to meet the covenant requirements under our revolving credit facility with Silicon Valley Bank; · the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, including potential litigation costs and the results of such litigation; · the extent to which we acquire or invest in businesses, products and technologies; · the costs involved in obtaining regulatory approvals and clearances required to market and sell our products; · our ability to establish and maintain additional collaborations; and · the receptivity of the capital markets to our future financings |
| Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity offerings, debt financings and corporate collaboration and licensing arrangements |
| If we raise additional funds by issuing equity securities, our stockholders may experience dilution |
| Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends |
| Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, that are not favorable to us or our stockholders |
| If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, research programs or products or grant licenses on terms that may not be favorable to us |
| We cannot assure you that our clinical trials will be completed in a timely manner or will meet agreed upon end-points |
| As part of our plans to expand into the dermatology market, we will need to conduct extensive testing of our products, pursuant to protocols that measure end points agreed with the FDA or other regulatory agencies |
| We cannot guarantee that Phase I, Phase II, or Phase III testing for our products in development will be completed successfully within any specified period of time, if at all |
| Many products that initially appear promising are found, after clinical evaluation, not to be safe and effective |
| Also, we, or the FDA, may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk |
| Delays in patient enrollment in clinical trials may result in increased costs and delays, which could have a harmful effect on our ability to develop products |
| It may take several years to complete the testing of a product, and failure can occur at any stage of testing |
| For example: · interim results of preclinical or clinical studies do not necessarily predict their final results, and results in early studies might not be seen in later studies; · potential products that appear promising at early stages of development may ultimately fail for a number of reasons, including the possibility that the products may be ineffective, less effective than products of our competitors or cause harmful side effects; 22 ______________________________________________________________________ · any preclinical or clinical test may fail to produce results satisfactory to the FDA or foreign regulatory authorities; · preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval; · we may not be able to manufacture the investigational or commercial product in sufficient quantity or quality or at acceptable cost; · negative or inconclusive results from a preclinical study or clinical trial or adverse medical events during a clinical trial could cause a preclinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful; · the FDA can place a hold on a clinical trial if, among other reasons, it finds that patients enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury; · we may encounter delays or rejections based on changes in regulatory agency policies during the period in which we develop a drug or the period required for review of any application for regulatory agency approval; and · our clinical trials may not demonstrate the safety and efficacy needed for our products to receive regulatory approval |
| If we are required to conduct additional clinical trials or other studies beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other studies or if the results of these trials or studies are not positive or are only modestly positive, we may be delayed in obtaining marketing approval, we may not be able to obtain marketing approval or we may obtain approval for indications that are not as broad as intended |
| Our product development costs will also increase if we experience delays in testing or approvals |
| Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or potential products |
| If any of this occurs, our business will be materially harmed |
| If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business |
| Our research, development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be claimed to infringe patents or patent applications under which we do not hold licenses or other rights |
| Third parties may own or control these patents and patent applications in the United States and abroad |
| These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages |
| Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit |
| As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from the third party and be required to pay license fees or royalties or both |
| These licenses may not be available on acceptable terms, or at all |
| Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property |
| Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms |
| This could harm our business significantly |
| 23 ______________________________________________________________________ There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries |
| In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the USPTO and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology |
| The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial |
| Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources |
| Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace |
| Patent litigation and other proceedings may also absorb significant management time |
| We depend upon third party researchers and providers of clinical services to perform as contractually required if we are to be successful in bringing new products to market |
| We do not have the ability independently to conduct the clinical trials required to obtain regulatory approval for our products |
| We rely on independent clinical investigators, contract research organizations and other third party service providers for successful execution of our clinical trials, but do not control many aspects of their activities |
| We are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan, protocols for the trial and applicable regulatory requirements |
| Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting and recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected |
| Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements |
| Third parties may not, however, complete activities on schedule, or may not conduct our clinical trials in accordance with regulatory requirements or our stated protocols |
| Furthermore the data that they generate may not be accurate or may, in extreme cases, be fraudulent |
| Our ability to bring our future products to market depends on the quality and integrity of the data we present to regulatory authorities in order to obtain marketing authorizations |
| We cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently generated |
| The failure of these third parties to carry out their obligations would materially adversely affect our ability to develop and market new products and implement our strategies |
| We depend upon certain key relationships to generate much of the technology required to maintain our competitive position in the marketplace |
| Our IMPACS technology is licensed from SUNY, or the SUNY License, and other academic and research institutions collaborating with SUNY Under the SUNY License, we have an exclusive worldwide license to SUNY’s rights in certain patents and patent applications to make and sell products employing tetracyclines to treat certain disease conditions |
| The SUNY License imposes various payment and reporting obligations on us, and our failure to comply with these requirements permits SUNY to terminate the SUNY License |
| If the SUNY License is terminated, we would lose our right to exclude competitors from commercializing similar products, and we could be excluded from marketing the same products if SUNY licensed the underlying technology to a competitor after terminating the SUNY License |
| The SUNY License is terminable by SUNY on 90 days prior notice only upon our failure to make timely payments, reimbursements or reports, if the failure is not cured by us within 90 days |
| The termination of the SUNY License, or the failure to obtain and maintain patent protection for our technologies, would have a material adverse effect on our business, financial condition, liquidity and results of operations |
| 24 ______________________________________________________________________ If our products cause injuries, we may incur significant expense and liability |
| Our business may be adversely affected by potential product liability claims arising out of the testing, manufacturing and marketing of Periostat and other products developed by or for us or for which we have licensing or promotion and cooperation rights |
| We have an aggregate of dlra10 million in product liability insurance covering Periostat and Mutual’s branded version of Periostat, our product candidates and products for which we have licensing or promotion and cooperation rights |
| Our insurer has also notified us that our general product liability policy will not cover claims arising from our past sales of Vioxx, to the extent such claims are made after December 31, 2004 |
| This does not affect our rights under the Co-Promotion Agreement with Merck, which provides for indemnification of us by Merck against any claims arising from manufacturing or design defects in the Vioxx product or for which we, as the seller of the product, may be strictly liable as a seller of an inherently dangerous product |
| Our insurance may not adequately protect us against product liability claims |
| Insufficient insurance coverage or the failure to obtain indemnification from third parties for their respective liabilities may expose us to product liability claims and/or recalls and could cause our business, financial condition and results of operations to decline |
| Changes in stock option accounting rules may have a significant adverse affect on our operating results |
| We have a history of using broad based employee stock option programs to hire, incentive and retain our workforce in a competitive marketplace |
| Statement of Financial Accounting Standards Nodtta 123, “Accounting for Stock-Based Compensation,” allows companies the choice of either using a fair value method of accounting for options that would result in expense recognition for all options granted, or using an intrinsic value method, as prescribed by Accounting Principles Board Opinion Nodtta 25, “Accounting for Stock Issued to Employees,” or APB 25, with a pro forma disclosure of the impact on net income (loss) allocable to common stockholders of using the fair value option expense recognition method |
| We have elected to apply APB 25 and, accordingly, we generally have not recognized any expense with respect to employee stock options as long as such options are granted at exercise prices equal to the fair value of our common stock on the date of grant |
| In December 2004, the Financial Accounting Standards Board issued SFAS Nodtta 123 (revised), “Share-Based Payment” (Statement 123R) |
| Statement 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements |
| That cost will be measured based on the grant-date fair value of the equity instruments issued, which may be determined with references to various valuation models |
| These models may involve extensive and complex analysis |
| Statement 123R is effective for us beginning on January 1, 2006, which is the first day of our 2006 fiscal year |
| We are in the process of reviewing Statement 123R to determine which fair value determination model is most appropriate for us |
| While we continue to evaluate the effect that the adoption of Statement 123R will have on our financial position and results of operations, we currently expect that our adoption of Statement 123R will adversely affect our operating results to some extent in future periods |
| Our stock price is highly volatile and, therefore, the value of your investment may fluctuate significantly |
| The market price of our common stock has fluctuated and may continue to fluctuate as a result of variations in our quarterly operating results |
| These fluctuations may be exaggerated if the trading volume of our common stock is low |
| In addition, the stock market in general has experienced dramatic price and volume fluctuations from time to time |
| These fluctuations may or may not be based upon any business or operating results |
| Our common stock may experience similar or even more dramatic price and volume fluctuations that may continue indefinitely |
| 25 ______________________________________________________________________ The following table sets forth the high and low last sale prices per share for our common stock for each of the quarters in the period beginning January 1, 2003 through December 31, 2005, as reported on the Nasdaq National Market: Quarter Ended High Low March 31, 2003 $ 11dtta03 $ 6dtta66 June 30, 2003 $ 13dtta27 $ 8dtta62 September 30, 2003 $ 15dtta84 $ 10dtta50 December 31, 2003 $ 11dtta82 $ 8dtta90 March 31, 2004 $ 14dtta16 $ 10dtta07 June 30, 2004 $ 13dtta21 $ 8dtta70 September 30, 2004 $ 9dtta49 $ 6dtta09 December 31, 2004 $ 7dtta49 $ 5dtta37 March 31, 2005 $ 7dtta52 $ 4dtta50 June 30, 2005 $ 7dtta61 $ 3dtta99 September 30, 2005 $ 9dtta95 $ 7dtta15 December 31, 2005 $ 12dtta07 $ 8dtta50 |