| DIVERSA CORP ITEM 1A RISK FACTORS Except for the historical information contained herein, this Form 10-K contains forward-looking statements that involve risks and uncertainties |
| Our actual results may differ materially from those discussed here |
| Factors that could cause or contribute to differences in our actual results include those discussed in the following section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Form 10-K You should consider carefully the following risk factors, together with all of the other information included in this Form 10-K Each of these risk factors could adversely affect our business, operating results, and financial condition, as well as adversely affect the value of an investment in our common stock |
| We have a history of net losses, we expect to continue to incur net losses, and we may not achieve or maintain profitability |
| We have incurred net losses since our inception, including a net loss of approximately dlra90 million for the year ended December 31, 2005 |
| As of December 31, 2005, we had an accumulated deficit of approximately dlra290 million |
| We expect to incur additional losses in 2006 and 2007 as we continue to develop independent products and as a result of our continued investment in our sales and marketing infrastructure to support anticipated growth in product sales |
| The extent of our future losses will depend, in part, on the rate of growth, if any, in our contract revenue, future product sales at profitable margins, and on the level of our expenses |
| To date, most of our revenue has been derived from collaborations and grants, and we expect that a significant portion of our revenue for 2006 will result from the same sources |
| Future revenue from collaborations is uncertain because our ability to generate revenue will depend upon our ability to maintain our current collaborations, enter into new collaborations and to meet research, development, and commercialization objectives under new and existing agreements |
| We anticipate that our sales and marketing expenses will remain at comparable levels, or increase, in future periods as we introduce new products and invest in the necessary infrastructure to support an anticipated increased level of product revenues |
| We will need to generate significant additional revenue to achieve profitability |
| In order for us to generate revenue, we must not only retain our existing collaborations and/or attract new ones and achieve milestones under them, but we must also develop products or technologies that we or our partners choose to commercialize and that are commercially successful and from which we can derive revenue through sales or royalties |
| Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis |
| Because we are an early stage company developing and deploying new technologies, we may not be able to commercialize our technologies or products, which could cause us to be unprofitable or cease operations |
| You must evaluate our business in light of the uncertainties and complexities affecting an early stage biotechnology company |
| Our existing proprietary technologies are new and in the early stage of development |
| We may not be successful in the commercial development of these or any further technologies or products |
| Successful products require significant development and investment, including testing, to demonstrate their cost- effectiveness prior to regulatory approval and commercialization |
| To date, we have commercialized only eight of our own products, Ultra-Thin^™ enzyme, Pyrolase^™ 160 enzyme, Pyrolase^™ 200 enzyme, Cottonase^™ enzyme, Luminase^™ PB-100 enzyme, Bayovac^® SRS, and blue and green fluorescent proteins |
| In addition, four of our collaborative partners, Invitrogen Corporation, Danisco Animal Nutrition, Givaudan Flavors Corporation, and Syngenta Animal Nutrition (formerly known as Zymetrics, Inc |
| ), have incorporated our technologies or inventions into their own commercial products from which we have generated and/or can generate royalties |
| Our products and technologies have generated only modest revenues to date |
| Because of these uncertainties, our discovery process may not result in the identification of product candidates that we or our collaborative partners will successfully commercialize |
| If we are not able to use our technologies to discover new materials or products with significant commercial potential, we will not be able to achieve our objectives or build a sustainable or profitable business |
| 25 ______________________________________________________________________ We are dependent on our collaborative partners, and our failure to successfully manage our existing and future collaboration relationships could prevent us from developing and commercializing many of our products and achieving or sustaining profitability |
| We currently have license agreements, strategic alliance agreements, collaboration agreements, supply agreements, and/or distribution agreements with BASF, Bayer Animal Health, Cargill Health and Food Technologies, DSM Pharma Chemicals, DuPont Bio-Based Materials, Givaudan Flavors Corporation, Medarex, Merck, Valley Research, inc, and Xoma |
| We have also formed a broad strategic relationship with Syngenta AG, a world-leading agribusiness company |
| For the year ended December 31, 2005, approximately 45prca of our revenue was from affiliates of Syngenta AG, and a major portion of our future committed funding is also to be received from affiliates of Syngenta AG We expect that a significant portion of any future revenue will be derived from our collaboration agreements |
| Since we do not currently possess the resources necessary to independently develop and commercialize all of the potential products that may result from our technologies, we expect to continue to enter into, and in the near-term derive additional revenue from, strategic alliance and collaboration agreements to develop and commercialize products |
| We will have limited or no control over the resources that any strategic partner or collaborator may devote to our partnered products |
| Any of our present or future strategic partners or collaborators may fail to perform their obligations as expected |
| These strategic partners or collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner |
| Further, our strategic partners or collaborators may not develop products arising out of our collaborative arrangements or devote sufficient resources to the development, manufacture, marketing, or sale of these products |
| If any of these events occur, or we fail to enter into or maintain strategic alliance or collaboration agreements, we may not be able to commercialize our products, grow our business, or generate sufficient revenue to support our operations |
| Our present or future strategic alliance and collaboration opportunities could be harmed if: • We do not achieve our research and development objectives under our strategic alliance and collaboration agreements; • We develop products and processes or enter into additional strategic alliances or collaborations that conflict with the business objectives of our strategic partners or collaborators; • We disagree with our strategic partners or collaborators as to rights to intellectual property we develop, or their research programs or commercialization activities; • We are unable to manage multiple simultaneous strategic alliances or collaborations; • Our strategic partners or collaborators become competitors of ours or enter into agreements with our competitors; • Our strategic partners or collaborators become less willing to expend their resources on research and development due to general market conditions or other circumstances beyond our control; • Consolidation in our target markets limits the number of potential strategic partners or collaborators; or • We are unable to negotiate additional agreements having terms satisfactory to us |
| We may not be able to realize any future benefits from the products and programs that we are discontinuing and/or de-emphasizing in connection with the strategic reorganization that we announced in January 2006 |
| In January 2006, we announced a strategic reorganization designed to focus our resources on programs and products that have the greatest opportunity for success |
| Accordingly, we elected to discontinue or to exit certain products and programs, many of which we have spent significant amounts of research funds on to date |
| We will attempt to sell and/or out-license to third parties some of these products and programs, including, but not limited to, our sordarins anti-fungal program, our recombinant natural products program, and our animal health programs |
| It is possible that we could be unsuccessful in our attempts to sell or out-license these products and/or 26 ______________________________________________________________________ programs |
| In the event that we are successful in selling or out-licensing any of these products and/or programs, the structure of such transactions may provide for only future compensation in the event that the third party is ultimately successful in development of the products and/or programs |
| Accordingly, it is possible that we may not receive any financial benefit from any sale or out license of these products and/or programs |
| We do not own equipment with the capacity to manufacture products on a commercial scale |
| If we are unable to access the capacity to manufacture products in sufficient quantity, we may not be able to commercialize our products or generate significant sales |
| We have only limited experience in enzyme manufacturing, and we do not have our own capacity to manufacture products on a commercial scale |
| We expect to be dependent to a significant extent on third parties for commercial scale manufacturing of our products |
| We have arrangements with third parties that have the required manufacturing equipment and available capacity to manufacture Ultra-Thin^™ enzyme, Phyzyme^™ XP, Bayovac^® SRS, Quantum^™ phytase, Luminase^™ PB-100 enzyme, Pyrolase 160 enzyme, Pyrolase 200 enzyme, and Cottonase^™ enzyme |
| While we have our own pilot development facility, we continue to depend on third parties for large-scale commercial manufacturing |
| Additionally, one of our third party manufacturers is located in a foreign country |
| Any difficulties or interruptions of service with our third party manufacturers or our own pilot manufacturing facility could disrupt our research and development efforts, delay our commercialization of products, and harm our relationships with our strategic partners, collaborators, or customers |
| We have only limited experience in independently developing, manufacturing, marketing, selling, and distributing commercial products |
| We intend to pursue some product opportunities independently |
| We currently have only limited resources and capability to develop, manufacture, market, sell, or distribute products on a commercial scale |
| We will determine which products to pursue independently based on various criteria, including: investment required, estimated time to market, regulatory hurdles, infrastructure requirements, and industry-specific expertise necessary for successful commercialization |
| At any time, we may modify our strategy and pursue collaborations for the development and commercialization of some products that we had intended to pursue independently |
| We may pursue products that ultimately require more resources than we anticipate or which may be technically unsuccessful |
| In order for us to commercialize more products directly, we would need to establish or obtain through outsourcing arrangements additional capability to develop, manufacture, market, sell, and distribute products |
| If we are unable to successfully commercialize products resulting from our internal product development efforts, we will continue to incur losses |
| Even if we successfully develop a commercial product, we may not generate significant sales and achieve profitability |
| Ethical, legal, and social concerns about genetically engineered products could limit or prevent the use of our products and technologies and limit our revenue |
| Some of our anticipated products are genetically engineered |
| If we and/or our collaborators are not able to overcome the ethical, legal, and social concerns relating to genetic engineering, our products may not be accepted |
| Any of the risks discussed below could result in expenses, delays, or other impediments to our programs or the public acceptance and commercialization of products dependent on our technologies or inventions |
| Our ability to develop and commercialize one or more of our technologies and products could be limited by the following factors: • Public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and genetically engineered products, which could influence public acceptance of our technologies and products; • Public attitudes regarding, and potential changes to laws governing, ownership of genetic material which could harm our intellectual property rights with respect to our genetic material and discourage collaborative partners from supporting, developing, or commercializing our products and technologies; and 27 ______________________________________________________________________ • Governmental reaction to negative publicity concerning genetically modified organisms, which could result in greater government regulation of genetic research and derivative products, including labeling requirements |
| The subject of genetically modified organisms has received negative publicity, which has aroused public debate |
| The adverse publicity could lead to greater regulation and trade restrictions on imports of genetically altered products |
| If we are unable to continue to collect genetic material from diverse natural environments, our research and development efforts and our product development programs could be harmed |
| We collect genetic material from organisms found in diverse environments |
| We collect material from government-owned land in foreign countries and in areas of the United States under formal resource access agreements and from private lands under individual agreements with private landowners |
| If our access to materials under biodiversity access agreements or other arrangements is reduced or terminates, it could harm our internal and our collaborative research and development efforts |
| We also collect samples from other environments where agreements are currently not required, such as the deep sea |
| All of our agreements with foreign countries expire in 2008 or earlier, are renewable, and are all subject to earlier termination |
| We have voluntarily ceased collections of further samples in Yellowstone National Park pending the park’s resolution of collection guidelines |
| Our ability to compete may decline if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights due to becoming involved in expensive lawsuits or administrative proceedings |
| Our success depends in part on our ability to obtain patents and maintain adequate protection of our other intellectual property for our technologies and products in the United States and other countries |
| The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting their proprietary rights in these foreign countries |
| These problems can be caused by, for example, a lack of rules and methods for defending intellectual property rights |
| Our commercial success depends in part on not infringing patents and proprietary rights of third parties, and not breaching any licenses or other agreements that we have entered into with regard to our technologies, products, and business |
| The patent positions of biotechnology companies, including our patent position, involve complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty |
| We will apply for patents covering both our technologies and products as we deem appropriate |
| Patents, if issued, may be challenged, invalidated, or circumvented |
| We cannot be sure that relevant patents have not been issued that could block our ability to obtain patents or to operate as we would like |
| Others may develop similar technologies or duplicate technologies developed by us |
| There may be patents in some countries that, if valid, may block our ability to commercialize products in these countries if we are unsuccessful in circumventing or acquiring the rights to these patents |
| There also may be claims in published patent applications in some countries that, if granted and valid, may also block our ability to commercialize products in these countries if we are unable to circumvent or license them |
| In 2003, an interference proceeding was declared in the US Patent and Trademark Office in 2004 between a US patent assigned to us and a pending US patent owned by another company with allowable claims directed to optimization of immunomodulatory genetic vaccines |
| Other than this interference proceeding, we are not currently a party to any litigation with regard to our patent position |
| However, the biotechnology industry is characterized by extensive litigation regarding patents and other intellectual property rights |
| Many biotechnology companies have employed intellectual property litigation as a way to gain a competitive advantage |
| If we became involved in litigation or interference proceedings declared by the United States Patent and Trademark Office, or 28 ______________________________________________________________________ oppositions or other intellectual property proceedings outside of the United States, to defend our intellectual property rights or as a result of alleged infringement of the rights of others, we might have to spend significant amounts of money |
| We are aware of a significant number of patents and patent applications relating to aspects of our technologies filed by, and issued to, third parties |
| Should any of our competitors have filed patent applications or obtained patents that claim inventions also claimed by us, we may have to participate in an interference proceeding declared by the relevant patent regulatory agency to determine priority of invention and, thus, the right to a patent for these inventions in the United States |
| Such a proceeding, like the one described above, could result in substantial cost to us even if the outcome is favorable |
| Even if successful on priority grounds, an interference may result in loss of claims based on patentability grounds raised in the interference |
| The litigation or proceedings could divert our management’s time and efforts |
| Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management time, and disruption in our business |
| Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete |
| An adverse ruling arising out of any intellectual property dispute, including an adverse decision as to the priority of our inventions, would undercut or invalidate our intellectual property position |
| An adverse ruling could also subject us to significant liability for damages, prevent us from using processes or products, or require us to negotiate licenses to disputed rights from third parties |
| Although patent and intellectual property disputes in the biotechnology area are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties |
| Furthermore, necessary licenses may not be available to us on satisfactory terms, if at all |
| We may encounter difficulties managing our growth, which could adversely affect our results of operations |
| Our strategy includes entering into and working on simultaneous projects across multiple industries |
| While we do not expect to significantly increase our headcount in the near future, if we add more projects, it may place increased demands on our limited human resources |
| Our ability to effectively manage our operations, growth, and various projects requires us to continue to improve our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented employees |
| We may not be able to successfully implement improvements to our management information and control systems in an efficient or timely manner |
| In addition, we may discover deficiencies in existing systems and controls |
| Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information |
| In order to protect our proprietary technology and processes, we also rely in part on trade secret protection for our confidential and proprietary information |
| We have taken security measures to protect our trade secrets and proprietary information |
| These measures may not provide adequate protection for our trade secrets or other proprietary information |
| Our policy is to execute confidentiality agreements with our employees and consultants upon the commencement of an employment or consulting arrangement with us |
| These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties |
| These agreements also generally provide that inventions conceived by the individual in the course of rendering services to us shall be our exclusive property |
| There can be no assurance that proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can meaningfully protect our trade secrets |
| Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position |
| 29 ______________________________________________________________________ Many potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete |
| The biotechnology industry is characterized by rapid technological change, and the area of biomolecule discovery and optimization from biodiversity is a rapidly evolving field |
| Our future success will depend on our ability to maintain a competitive position with respect to technological advances |
| Rapid technological development by others may result in our products and technologies becoming obsolete |
| We face, and will continue to face, intense competition |
| We are not aware of another company that has the scope and integration of technologies and processes that we have |
| There are, however, a number of companies who compete with us in various steps throughout our technology process |
| For example, Codexis, Maxygen, Inc, Evotec, and Xencor have alternative evolution technologies |
| Integrated Genomics Inc, Myriad Genetics, Inc, and ArQule, Inc |
| perform screening, sequencing, and/or bioinformatics services |
| Novozymes A/S and Genencor International Inc |
| are involved in development, overexpression, fermentation, and purification of enzymes |
| Abgenix, Inc, Cambridge Antibody Technology, Medarex, Inc, and Morphosys AG are involved in the development of human monoclonal antibodies |
| There are also a number of academic institutions involved in various phases of our technology process |
| Many of these competitors have significantly greater financial and human resources than we do |
| These organizations may develop technologies that are superior alternatives to our technologies |
| Further, our competitors may be more effective at implementing their technologies for modifying DNA to develop commercial products |
| Any products that we develop through our technologies will compete in multiple, highly competitive markets |
| Many of our potential competitors in these markets have substantially greater financial, technical, and marketing resources than we do and may succeed in developing products that would render our products or those of our collaborators obsolete or noncompetitive |
| In addition, many of these competitors have significantly greater experience than we do in their respective fields |
| Our ability to compete successfully will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market |
| Current competitors or other companies may develop technologies and products that are more effective than ours |
| Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors |
| The existing approaches of our competitors or new approaches or technology developed by our competitors may be more effective than those developed by us |
| Stringent laws and required government approvals could delay our introduction of products |
| All phases, especially the field testing, production, and marketing, of our potential products are subject to significant federal, state, local, and/or foreign governmental regulation |
| Regulatory agencies may not allow us to produce and/or market our products in a timely manner or under technically or commercially feasible conditions, or at all, which could harm our business |
| In the United States, products for our target markets are regulated based on their application, by either the Food and Drug Administration, or FDA, the Environmental Protection Agency, or EPA, or, in the case of plants and animals, the United States Department of Agriculture, or USDA The FDA regulates drugs, food, and feed, as well as food additives, feed additives, and substances generally recognized as safe that are used in the processing of food or feed |
| While substantially all of our projects to date have focused on non-human applications of our technologies and products outside of the FDA’s review, in the future we may pursue collaborations for further research and development of drug products for humans that would require FDA approval before they could be marketed in the United States |
| In addition, any drug product candidates must also be approved by the regulatory agencies of foreign governments before any product can be sold in those countries |
| Under current FDA policy, our products, or products of our collaborative partners incorporating our technologies or inventions, to the extent that they come within the FDA’s jurisdiction, may be subject to lengthy FDA reviews and unfavorable FDA determinations if they raise safety questions which cannot be satisfactorily answered, if 30 ______________________________________________________________________ results from pre-clinical or clinical trials do not meet regulatory requirements or if they are deemed to be food additives whose safety cannot be demonstrated |
| An unfavorable FDA ruling could be difficult to resolve and could prevent a product from being commercialized |
| Even after investing significant time and expenditures, our collaborators may not obtain regulatory approval for any drug products that incorporate our technologies or inventions |
| Our collaborators have not submitted an investigational new drug application for any product candidate that incorporates our technologies or inventions, and no drug product candidate developed with our technologies has been approved for commercialization in the United States or elsewhere |
| The EPA regulates biologically derived chemical substances not within the FDA’s jurisdiction |
| An unfavorable EPA ruling could delay commercialization or require modification of the production process resulting in higher manufacturing costs, thereby making the product uneconomical |
| In addition, the USDA may prohibit genetically engineered plants from being grown and transported except under an exemption, or under controls so burdensome that commercialization becomes impracticable |
| Our future products may not be exempted by the USDA The European regulatory process for these classes of biologically derived products has been in a state of flux in the recent past, as the EU attempts to replace country by country regulatory procedures with a consistent EU regulatory standard in each case |
| Other than Japan, most other regions of the world generally find adequate either a United States or a European clearance together with associated data and information for a new biologically derived product |
| If we require additional capital to fund our operations, we may need to enter into financing arrangements with unfavorable terms or which could adversely affect the ownership interest and rights of our common stockholders as compared to our other stockholders |
| If such financing is not available, we may need to cease operations |
| We currently anticipate that our available cash resources, short-term investments, receivables, and committed funding from collaborative partners and government grants will be sufficient to meet our capital requirements for the near-term |
| However, market acceptance of our products could be slower than anticipated, or we may use a significant amount of our cash to successfully develop and market our products |
| Our capital requirements depend on several factors, including: • The level of research and development investment required to maintain our technology leadership position; • Our ability to enter into new agreements with collaborative partners or to extend the terms of our existing collaborative agreements, and the terms of any agreement of this type; • The success rate of our discovery efforts associated with milestones and royalties; • Our ability to successfully commercialize products developed independently and the demand for such products; • The timing and willingness of strategic partners and collaborators to commercialize our products that would result in royalties; • Costs of recruiting and retaining qualified personnel; and • Our need to acquire or license complementary technologies or acquire complementary businesses |
| If additional capital is required to operate our business, we cannot assure you that additional financing will be available on terms favorable to us, or at all |
| If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited |
| In addition, if financing is not available, we may need to cease operations |
| 31 ______________________________________________________________________ If we raise additional funds through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution or such equity securities may provide for rights, preferences or privileges senior to those of the holders of our common stock |
| If we raise additional funds through the issuance of debt securities, such debt securities would have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations |
| We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline, causing investor losses |
| These fluctuations could cause our stock price to fluctuate significantly or decline |
| Revenue in future periods may be greater or less than revenue in the immediately preceding period or in the comparable period of the prior year |
| Some of the factors that could cause our operating results to fluctuate include: • Termination of strategic alliances and collaborations; • The success rate of our discovery efforts associated with milestones and royalties; • The ability and willingness of strategic partners and collaborators to commercialize, market, and sell royalty-bearing products on expected timelines; • Our ability to enter into new agreements with strategic partners and collaborators or to extend the terms of our existing strategic alliance agreements and collaborations, and the terms of any agreement of this type; • Our ability to successfully satisfy all pertinent regulatory requirements; • Our ability to successfully commercialize products developed independently and the demand for such products; and • General and industry specific economic conditions, which may affect our collaborative partners’ research and development expenditures |
| If revenue declines or does not grow as anticipated due to the expiration of strategic alliance or collaboration agreements, failure to obtain new agreements or grants, lower than expected royalty payments, slow market acceptance of our products, or other factors, we may not be able to correspondingly reduce our operating expenses |
| A large portion of our expenses, including expenses for facilities, equipment and personnel, are relatively fixed |
| Failure to achieve anticipated levels of revenue could therefore significantly harm our operating results for a particular fiscal period |
| Due to the possibility of fluctuations in our revenue and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance |
| Our operating results in some quarters may not meet the expectations of stock market analysts and investors |
| In that case, our stock price would probably decline |
| If we lose our key personnel or are unable to attract and retain qualified personnel as necessary, it could delay our product development programs and harm our research and development efforts |
| Our success depends to a significant degree upon the continued contributions of our executive officers, management, and scientific staff |
| If we lose the services of one or more of these people, we may be unable to achieve our business objectives or our stock price could decline |
| We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology and other technology-based businesses, particularly in the San Diego area |
| If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will adversely 32 ______________________________________________________________________ affect our ability to meet the demands of our collaborative partners in a timely fashion or to support our internal research and development programs |
| In particular, our product development programs depend on our ability to attract and retain highly skilled scientists, including molecular biologists, biochemists, and engineers |
| Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other technical personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms |
| All of our employees are at-will employees, which means that either the employee or we may terminate their employment at any time |
| Our planned activities will require additional expertise in specific industries and areas applicable to the products developed through our technologies |
| These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel |
| The inability to acquire these services or to develop this expertise could impair the growth, if any, of our business |
| If we engage in any acquisitions, we will incur a variety of costs and may potentially face numerous other risks that could adversely affect our business operations |
| If appropriate opportunities become available, we may consider acquiring businesses, assets, technologies, or products that we believe are a strategic fit with our business |
| We currently have no commitments or agreements with respect to any material acquisitions |
| If we do pursue such a strategy, we could • Issue equity securities which would dilute current stockholders’ percentage ownership; • Incur substantial debt; or • Assume liabilities |
| We may not be able to successfully integrate any businesses, assets, products, technologies, or personnel that we might acquire in the future without a significant expenditure of operating, financial, and management resources, if at all |
| In addition, future acquisitions might negatively impact our business relations with our collaborative partners |
| Further, recent accounting changes could result in a negative impact on our results of operations as well as the resulting cost of the acquisition |
| Any of these adverse consequences could harm our business |
| We may be sued for product liability |
| We may be held liable if any product we develop, or any product which is made with the use of any of our technologies, causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing, or sale |
| We currently have limited product liability insurance that may not fully cover our potential liabilities |
| In addition, if we attempt to obtain additional product liability insurance coverage, this additional insurance may be prohibitively expensive, or may not fully cover our potential liabilities |
| Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of products developed by us or our collaborative partners |
| If we are sued for any injury caused by our products, our liability could exceed our total assets |
| We are subject to anti-takeover provisions in our certificate of incorporation, bylaws, and Delaware law and have adopted a shareholder rights plan that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders |
| Provisions of our certificate of incorporation, our bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders |
| In addition, we adopted a share purchase rights plan that has anti-takeover effects |
| The rights under the plan will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors |
| The rights should not interfere with any merger or other business combination approved by our board, since the rights may 33 ______________________________________________________________________ be amended to permit such an acquisition or may be redeemed by us |
| These provisions in our charter documents, under Delaware law, and in our rights plan could discourage potential takeover attempts and could adversely affect the market price of our common stock |
| Because of these provisions, our common stockholders might not be able to receive a premium on their investment |
| Our stock price has been and may continue to be particularly volatile because of the industry we are in |
| The stock market, from time to time, has experienced significant price and volume fluctuations that are unrelated to the operating performance of companies |
| The market prices of technology companies, particularly life science companies, have been highly volatile |
| Our stock has been and may continue to be affected by this type of market volatility, as well as by our own performance |
| The following factors, among other risk factors, may have a significant effect on the market price of our common stock: • Developments in our relationships with current or future strategic partners and collaborators; • Announcements of technological innovations or new products by us or our competitors; • Developments in patent or other proprietary rights; • Our ability to access genetic material from diverse ecological environments and practice our technologies; • Future royalties from product sales, if any, by our collaborative partners; • Fluctuations in our operating results; • Litigation; • Developments in domestic and international governmental policy or regulation; and • Economic and other external factors or other disaster or crisis |
| Concentration of ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions and depress our stock price |
| Our officers, directors, and stockholders with at least 5prca of our stock together controlled approximately 56dtta9prca of our outstanding common stock as of February 28, 2006 |
| If these officers, directors, and principal stockholders act together, they will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of mergers or other business combination transactions |
| In addition, as of February 28, 2006, Syngenta and its affiliates controlled approximately 17prca of our outstanding common stock, and by themselves will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval |
| The interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders |
| For instance, officers, directors, and principal stockholders, acting together, could cause us to enter into transactions or agreements that we would not otherwise consider |
| Similarly, this concentration of ownership may have the effect of delaying or preventing a change in control of our company otherwise favored by our other stockholders |
| This concentration of ownership could depress our stock price |
| Future sales of our stock by large stockholders could cause the price of our stock to decline |
| A number of our stockholders hold significant amounts of our stock |
| For example, as of February 28, 2006, Syngenta, our largest stockholder, owned 7cmam963cmam593 shares of our common stock, or approximately 17prca of our outstanding shares |
| All of our shares owned by Syngenta are eligible for sale in the public market subject to compliance with the applicable securities laws |
| We have agreed that, upon Syngenta’s request, we will file one or more registration statements under the Securities Act in order to permit Syngenta to offer and sell shares of our common stock |
| Sales of a substantial number of shares of our stock by our large stockholders, including Syngenta, in the public market could adversely affect the market price of our stock |
| 34 ______________________________________________________________________ We use hazardous materials in our business |
| Any claims relating to improper handling, storage, or disposal of these materials could be time consuming and costly |
| Our research and development processes involve the controlled use of hazardous materials, including chemical, radioactive, and biological materials |
| Our operations also produce hazardous waste products |
| We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials |
| Federal, state, and local laws and regulations govern the use, manufacture, storage, handling, and disposal of these materials |
| We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets |
| In addition, compliance with applicable environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development, or production efforts |