| DYNAVAX TECHNOLOGIES CORP ITEM 1A RISK FACTORS Risk Factors Various statements in this Annual Report on Form 10-K are forward-looking statements concerning our future products, expenses, revenues, liquidity and cash needs, as well as our plans and strategies |
| These forward-looking statements are based on current expectations and we assume no obligation to update this information |
| Numerous factors could cause our actual results to differ significantly from the results described in these forward-looking statements, including the following risk factors |
| We have incurred substantial losses since inception and do not have any commercial products that generate revenue |
| We have experienced significant operating losses in each year since our inception in August 1996 |
| To date, our revenue has resulted from a collaboration agreement with UCB Farchim, SA (UCB) and government and private agency grants |
| The UCB collaboration agreement ended in March 2005 |
| The grants are subject to annual review based on the achievement of milestones and other factors and will terminate in January 2007 at the latest |
| Our accumulated deficit was dlra115dtta9 million as of December 31, 2005, and we anticipate that we will incur substantial additional operating losses for the foreseeable future |
| These losses have been, and will continue to be, principally the result of the various costs associated with our research and development activities |
| We expect our losses to increase primarily as a consequence of our continuing product development efforts |
| We do not have any products that generate revenue |
| In early 2006, we announced results from a two-year Phase II/ III clinical trial for TOLAMBA, an immunotherapy for ragweed allergy, and in 2005 we initiated a trial of TOLAMBA in ragweed allergic children |
| In 2005, we also completed a Phase II/ III trial for HEPLISAV in Singapore and initiated a pivotal Phase III trial for HEPLISAV in Asia |
| These and our other product candidates may never be commercialized, and we may never generate product-related revenue |
| Our ability to generate product revenue depends upon: • demonstrating in clinical trials that our product candidates are safe and effective, in particular, in the current and planned trials for TOLAMBA and HEPLISAV; • obtaining regulatory approvals for our product candidates in the United States and international markets; 21 _________________________________________________________________ [71]Table of Contents • entering into collaborative relationships on commercially reasonable terms for the development, manufacturing, sales and marketing of our product candidates, and then successfully managing these relationships; and • obtaining commercial acceptance of our products, in particular TOLAMBA and HEPLISAV If we are unable to generate revenues or achieve profitability, we may be required to significantly reduce or discontinue our operations or raise additional capital under adverse circumstances |
| If we are unable to secure additional funding, we will have to reduce or discontinue operations |
| We believe our existing capital resources will be adequate to satisfy our capital needs for at least the next twelve months |
| Because of the significant time and resources it will take to develop our product candidates, potentially commercialize them and generate revenues, we may require substantial additional capital resources in order to continue our operations, and any such funding may not cover our costs of operations |
| In the event we change our development plans or clinical programs, we may need additional capital sooner than we currently anticipate |
| We expect capital outlays and operating expenditures to increase over the next several years as we expand our operations |
| We may be unable to obtain additional capital from financing sources or from agreements with collaborators on acceptable terms, or at all |
| If at any time sufficient capital is not available, we may be required to delay, reduce the scope of, or eliminate some or all of our research, preclinical or clinical programs or discontinue our operations |
| All of our product candidates are unproven, and our success depends on our product candidates being approved through uncertain and time-consuming regulatory processes |
| Failure to prove our products safe and effective in clinical trials and obtain regulatory approvals could require us to discontinue operations |
| None of our product candidates has been approved for sale in the United States or any foreign market |
| Any product candidate we develop is subject to extensive regulation by federal, state and local governmental authorities in the United States, including the FDA, and by foreign regulatory agencies |
| Our success is primarily dependent on our ability to obtain regulatory approval for TOLAMBA, our ragweed allergy product candidate, and HEPLISAV, our hepatitis B vaccine product candidate |
| Approval processes in the United States and in other countries are uncertain, take many years and require the expenditure of substantial resources |
| Product development failure can occur at any stage of clinical trials and as a result of many factors, many of which are not under our control |
| We will need to demonstrate in clinical trials that each product candidate is safe and effective before we can obtain the necessary approvals from the FDA and foreign regulatory agencies |
| In early 2006, we announced results from a two-year Phase II/ III clinical trial of TOLAMBA The safety profile of TOLAMBA was favorable |
| The Company has recently discussed the TOLAMBA program with the FDA and plans to conduct an additional major safety and efficacy trial in the second quarter of 2006 designed to complement data derived from the recently completed Phase II/ III clinical trial and the ongoing trial in ragweed allergic children initiated in 2005 |
| If we identify any safety issues associated with TOLAMBA, we may be forced to terminate or suspend our ongoing pediatric trial, and we may be delayed or prevented from initiating a pivotal Phase III trial for TOLAMBA We have initiated a pivotal Phase III trial for HEPLISAV in Asia |
| We are in the process of planning additional trials designed to support registration activities |
| The FDA or foreign regulatory agencies may require us to conduct additional clinical trials prior to approval in their jurisdictions |
| Many new drug candidates, including many drug candidates that have completed Phase III clinical trials, have shown promising results in early clinical trials and subsequently failed to establish sufficient safety and efficacy to obtain regulatory approval |
| Despite the time and money expended, regulatory approvals are never guaranteed |
| Failure to complete clinical trials and prove that our products are safe and 22 _________________________________________________________________ [72]Table of Contents effective would have a material adverse effect on our ability to eventually generate revenues and could require us to reduce the scope of or discontinue our operations |
| Our clinical trials may be suspended, delayed or terminated at any time |
| Even short delays in the commencement and progress of our trials may lead to substantial delays in the regulatory approval process for our product candidates, which will impair our ability to generate revenues |
| We may suspend or terminate clinical trials at any time for various reasons, including regulatory actions by the FDA or foreign regulatory agencies, actions by institutional review boards, failure to comply with good clinical practice requirements, concerns regarding health risks to test subjects, or inadequate supply of the product candidate |
| In addition, our ability to conduct clinical trials for some of our product candidates, notably TOLAMBA, is limited due to the seasonal nature of ragweed allergy |
| Even a small delay in a trial for any product candidate could require us to delay commencement of the trial until the next appropriate season, which could result in a delay of an entire year |
| Our registration and commercial timelines will be dependent on results of the current and planned clinical trials and further discussions with the FDA Consequently, we may experience additional delays in obtaining regulatory approval for these product candidates |
| Suspension, termination or unanticipated delays of our clinical trials for TOLAMBA or HEPLISAV may: • adversely affect our ability to commercialize or market any product candidates we may develop; • impose significant additional costs on us; • potentially diminish any competitive advantages that we may attain; • adversely affect our ability to enter into collaborations, receive milestone payments or royalties • from potential collaborators; • cause us to abandon the development of the affected product candidate; or • limit our ability to obtain additional financing on acceptable terms, if at all |
| If third parties successfully assert that we have infringed their patents and proprietary rights or challenge the validity of our patents and proprietary rights, we may become involved in intellectual property disputes and litigation that would be costly, time consuming, and delay or prevent development or commercialization of our product candidates |
| We may be exposed to future litigation by third parties based on claims that our product candidates, proprietary technologies or the licenses on which we rely, infringe their intellectual property rights, or we may be required to enter into litigation to enforce patents issued or licensed to us or to determine the scope or validity of another party’s proprietary rights |
| If we become involved in any litigation, interference or other administrative proceedings related to our intellectual property or the intellectual property of others, we will incur substantial expenses and it will divert the efforts of our technical and management personnel |
| Others may succeed in challenging the validity of our issued and pending claims |
| Two of our potential competitors relative to HEPLISAV, Merck & Co, Inc |
| and GlaxoSmithKline Plc, are exclusive licensees of broad patents covering hepatitis B surface antigen |
| In addition, the Institute Pasteur also owns or has exclusive licenses to patents covering hepatitis B surface antigen |
| While some of these patents have expired or will soon expire outside of the United States, they remain in force in the United States and are likely to be in force when we commercialize HEPLISAV or a similar product in the United States |
| To the extent we were to commercialize HEPLISAV in the United States, Merck and/or GlaxoSmithKline or the Institute Pasteur may bring claims against us |
| If we are unsuccessful in defending or prosecuting our issued and pending claims or in defending potential claims against us, for example, as may arise to the extent we were to commercialize HEPLISAV or any similar product candidate in the United States, we could be required to pay substantial damages 23 _________________________________________________________________ [73]Table of Contents and we may be unable to commercialize our product candidates or use our proprietary technologies unless we obtain a license from these or other third parties |
| A license may require us to pay substantial royalties, require us to grant a cross-license to our technology or may not be available to us on acceptable terms or on any terms |
| In addition, we may be required to redesign our technology so it does not infringe a third party’s patents, which may not be possible or could require substantial funds and time |
| Another of our potential competitors, Coley Pharmaceutical Group (Coley), has issued US patent claims, as well as patent claims pending with the US Patent and Trademark Office, that, if held to be valid, could require us to obtain a license in order to commercialize one or more of our formulations of ISS in the United States, including TOLAMBA and HEPLISAV In December 2003 the US Patent and Trademark Office declared an interference to resolve first-to-invent disputes between a patent application filed by the Regents of the University of California, which is exclusively licensed to us, and an issued US patent owned by Coley relating to immunostimulatory DNA sequences |
| The declaration of interference named the Regents of the University of California as senior party, indicating that a patent application filed by the Regents of the University of California and licensed to us was filed prior to a patent application owned by Coley that led to an issued US patent |
| The interference provides the first forum to challenge the validity and priority of certain of Coley’s patents |
| On March 10, 2005, the US Patent and Trademark Office issued a decision in the interference which did not address the merits of the case, but dismissed it on a legal technicality related to the timing of Dynavax’s filing of its claims and request for interference |
| If we prevail in the appeal, we will be able to continue the interference to address the merits of the case |
| If we prevail in the interference proceeding, it would establish our founders as the inventors of the inventions in dispute |
| However, even a favorable outcome in the interference would not prevent Coley from asserting its other patents or patent claims, that were not the subject of the interference, against our ISS products, which could harm our ability to commercialize those products |
| If we do not prevail in the interference proceeding, we may not be able to obtain patent protection on the subject matter of the interference, which would have a material adverse impact on our business |
| In addition, if Coley prevails in the interference, it may seek to enforce its rights under issued claims, including, for example, by suing us for patent infringement |
| Consequently, we may need to obtain a license to issued and/or pending claims held by Coley by paying cash, granting royalties on sales of our products or offering rights to our own proprietary technologies |
| If we receive regulatory approval for our product candidates, we will be subject to ongoing FDA and foreign regulatory obligations and continued regulatory review, which may be costly and subject us to various enforcement actions |
| Any regulatory approvals that we receive for our product candidates are likely to contain requirements for post-marketing follow-up studies, which may be costly |
| Product approvals, once granted, may be modified, resulting in limitations on our labeling indications or marketing claims, or withdrawn completely if problems occur after commercialization |
| Thus, even if we receive FDA and other regulatory approvals, our product candidates may later exhibit qualities that limit or prevent their widespread use or that force us to withdraw those products from the market |
| In addition, we or our contract manufacturers will be required to adhere to federal regulations setting forth current good manufacturing practice |
| The regulations require that our product candidates be manufactured and our records maintained in a prescribed manner with respect to manufacturing, testing and quality control activities |
| Furthermore, we or our contract manufacturers must pass a pre-approval inspection of manufacturing facilities by the FDA and foreign regulatory agencies before obtaining marketing approval and will be subject to periodic inspection by the FDA and corresponding foreign regulatory agencies under reciprocal agreements with the FDA Further, to the extent that we contract with third parties for the manufacture of our products, our ability to control third-party compliance with FDA requirements will be limited to contractual remedies and rights of inspection |
| 24 _________________________________________________________________ [74]Table of Contents Failure to comply with regulatory requirements could prevent or delay marketing approval or require the expenditure of money or other resources to correct |
| Failure to comply with applicable requirements may also result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution, any of which could be harmful to our ability to generate revenues and our stock price |
| Our product candidates in clinical trials rely on a single lead ISS compound, 1018 ISS, and most of our earlier stage programs rely on ISS-based technology |
| Serious adverse safety data relating to either 1018 ISS or other ISS-based technology may require us to reduce the scope of or discontinue our operations |
| Our product candidates in clinical trials are based on 1018 ISS, and substantially all of our research and development programs use ISS-based technology |
| If any of our product candidates in clinical trials produce serious adverse safety data, we may be required to delay or discontinue all of our clinical trials |
| In addition, as all of our clinical product candidates contain 1018 ISS, potential collaborators may also be reluctant to establish collaborations for our products in distinct therapeutic areas due to the common safety risk across therapeutic areas |
| If adverse safety data are found to apply to our ISS-based technology as a whole, we may be required to discontinue our operations |
| A key part of our business strategy is to establish collaborative relationships to commercialize and fund development of our product candidates |
| We may be unsuccessful in establishing and managing collaborative relationships, which may significantly limit our ability to develop and commercialize our products successfully, if at all |
| We will need to establish collaborative relationships to obtain domestic and international sales, marketing and distribution capabilities for our product candidates |
| We also intend to enter into collaborative relationships to provide funding to support our research and development programs |
| We have established a collaborative relationship with Berna Biotech (acquired by Crucell NV) for HEPLISAV, a prophylactic vaccine, and for hepatitis B therapeutic product candidates |
| Our collaboration agreement with UCB for TOLAMBA and for grass allergy immunotherapy ended in March 2005 |
| Future collaboration revenue will depend on our ability to enter into new collaborative relationships |
| The process of establishing collaborative relationships is difficult, time-consuming and involves significant uncertainty |
| Moreover, even if we do establish collaborative relationships, our collaborators may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, a change in business strategy, a change of control or other reasons |
| If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, our research, clinical development or commercialization efforts related to that collaboration could be delayed or terminated, or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have been the responsibility of our collaborator |
| If we are unable to establish and maintain collaborative relationships on acceptable terms, we may have to delay or discontinue further development of one or more of our product candidates, undertake development and commercialization activities at our own expense or find alternative sources of capital |
| We rely on third parties to supply component materials necessary for our clinical product candidates and manufacture product candidates for our clinical trials |
| Loss of these suppliers or manufacturers, or failure to replace them may delay our clinical trials and research and development efforts and may result in additional costs, which would preclude us from producing our product candidates on commercially reasonable terms |
| We rely on a number of third parties for the multiple steps involved in the manufacturing process of our product candidates, including, for example, the manufacture of the antigens and ISS, the component materials that are necessary for our product candidates, the combination of the antigens and ISS, and the fill and finish |
| Termination or interruption of these relationships may occur due to circumstances that are outside our control, resulting in higher cost or delays in our product development efforts |
| 25 _________________________________________________________________ [75]Table of Contents We and these third parties are required to comply with applicable current FDA good manufacturing practice regulations and similar requirements in Canada and other foreign countries |
| If one of these parties fails to maintain compliance with these regulations, the production of our product candidates could be interrupted, resulting in delays and additional costs |
| Additionally, these third parties must pass a pre-approval inspection before we can obtain regulatory approval for any of our product candidates |
| In particular, we have relied on a single supplier to produce our ISS for clinical trials |
| ISS is a critical component of both of TOLAMBA and HEPLISAV To date, we have manufactured only small quantities of ISS ourselves for research purposes |
| If we were unable to maintain or replace our existing source for ISS, we would have to establish an in-house ISS manufacturing capability, incurring increased capital and operating costs and delays in developing and commercializing our product candidates |
| We or other third parties may not be able to produce ISS at a cost, quantity and quality that are available from our current third-party supplier |
| In addition, we do not currently have a contract manufacturer for TOLAMBA or sufficient TOLAMBA to supply our potential commercial needs |
| We are currently manufacturing supplies of TOLAMBA for the second year of our current clinical trial in ragweed allergic children |
| We intend to enter into manufacturing agreements with one or more commercial-scale contract manufacturers to produce additional supplies of TOLAMBA as required for new clinical trials and commercialization |
| If we are unable to complete such agreements, we may be unable to commence and complete our clinical trials in a timely fashion, and we would have to establish an internal commercial scale manufacturing capability for TOLAMBA, incurring increased capital and operating costs, delays in the commercial development of TOLAMBA and higher manufacturing costs than we have experienced to date |
| We have or intend to contract with one or more third parties to conduct our clinical trials for TOLAMBA and HEPLISAV If these third parties do not carry out their contractual obligations or meet expected deadlines, our planned clinical trials may be delayed and we may fail to obtain the regulatory approvals necessary to commercialize TOLAMBA or HEPLISAV We are unable to independently conduct our planned clinical trials for TOLAMBA or HEPLISAV, and we have or intend to contract with third party contract research organizations to manage and conduct these trials |
| If these third parties do not carry out their contractual duties or obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to failure to adhere to our clinical protocols or for other reasons, our planned clinical trials may be extended, delayed or terminated |
| Any extension, delay or termination of our trials would delay our ability to commercialize TOLAMBA or HEPLISAV and generate revenues |
| If any products we develop are not accepted by the market or if regulatory agencies limit our labeling indications or marketing claims, we may be unable to generate significant revenues, if any |
| If we obtain regulatory approval for our product candidates and are able to successfully commercialize them, our product candidates may not gain market acceptance among physicians, patients, health care payors and the medical community |
| The FDA or other regulatory agencies could limit the labeling indication for which our product candidates may be marketed or could otherwise constrain our marketing claims, reducing our or our collaborators’ ability to market the benefits of our products to particular patient populations |
| If we are unable to successfully market any approved product candidates, or are limited in our marketing efforts by regulatory limits on labeling indications or marketing claims, our ability to generate revenues could be significantly impaired |
| In particular, treatment with TOLAMBA, if approved, will require a series of injections, and we expect that some of the patients that currently take oral or inhaled pharmaceutical products to treat their allergies would not consider using our product |
| We believe that market acceptance of TOLAMBA will also depend on our ability to offer competitive pricing, increased efficacy and improved ease of use as compared to existing or potential new allergy treatments |
| 26 _________________________________________________________________ [76]Table of Contents We may seek partners for purposes of commercialization of HEPLISAV in selected markets worldwide in addition to or as a replacement for our current collaborative partner, Berna Biotech (acquired by Crucell NV) |
| Berna Biotech has an exclusive option to commercialize HEPLISAV and therapeutic product candidates |
| Marketing challenges vary by market and could limit or delay acceptance in any particular country |
| We believe that market acceptance of HEPLISAV will depend on our ability to offer increased efficacy and improved ease of use as compared to existing or potential new hepatitis B vaccine products |
| We face uncertainty related to coverage, pricing and reimbursement and the practices of third party payors, which may make it difficult or impossible to sell our product candidates on commercially reasonable terms |
| In both domestic and foreign markets, our ability to generate revenues from the sales of any approved product candidates in excess of the costs of producing the product candidates will depend in part on the availability of reimbursement from third party payors |
| Existing laws affecting the pricing and coverage of pharmaceuticals and other medical products by government programs and other third party payors may change before any of our product candidates are approved for marketing |
| In addition, third party payors are increasingly challenging the price and cost-effectiveness of medical products and services |
| Significant uncertainty therefore exists as to coverage and reimbursement levels for newly approved health care products, including pharmaceuticals |
| Because we intend to offer products, if approved, that involve new technologies and new approaches to treating disease, the willingness of third party payors to reimburse for our products is particularly uncertain |
| We will have to charge a price for our products that is sufficiently high to enable us to recover the considerable capital resources we have spent and will continue to spend on product development |
| Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize a return on our investment in product development |
| If it becomes apparent, due to changes in coverage or pricing of pharmaceuticals in our market or a lack of reimbursement, that it will be difficult, if not impossible, for us to generate revenues in excess of costs, we will need to alter our business strategy significantly |
| This could result in significant unanticipated costs, harm our future prospects and reduce our stock price |
| Many of our competitors have greater financial resources and expertise than we do |
| If we are unable to successfully compete with existing or potential competitors despite these disadvantages we may be unable to generate revenues and our business will be harmed |
| We compete with many companies and institutions, including pharmaceutical companies, biotechnology companies, academic institutions and research organizations, in developing alternative therapies to treat or prevent allergy, infectious diseases, asthma and cancer, as well as those focusing more generally on the immune system |
| Competitors may develop more effective, more affordable or more convenient products or may achieve earlier patent protection or commercialization of their products |
| These competitive products may render our product candidates obsolete or limit our ability to generate revenues from our product candidates |
| Many of the companies developing competing technologies and products have significantly greater financial resources and expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing than we do |
| TOLAMBA, if approved, will compete directly with conventional allergy shots and indirectly with antihistamines, corticosteroids and anti-leukotriene agents, used to treat seasonal allergy symptoms, including those produced by GlaxoSmithKline Plc, Merck & Co, Inc |
| Since our TOLAMBA ragweed allergy treatment would require a series of injections, we expect that some patients that currently take oral or inhaled pharmaceutical products to treat their allergies would not consider our product |
| HEPLISAV, if approved, will compete with existing vaccines produced by GlaxoSmithKline Plc and Merck & Co, Inc, among others |
| 27 _________________________________________________________________ [77]Table of Contents Existing and potential competitors may also compete with us for qualified scientific and management personnel, as well as for technology that would be advantageous to our business |
| If we are unable to compete with existing and potential competitors we may not be able to obtain financing, sell our product candidates or generate revenues |
| We depend on key employees in a competitive market for skilled personnel, and the loss of the services of any of our key employees would affect our ability to develop and commercialize our product candidates and achieve our objectives |
| We are highly dependent on the principal members of our management, operations and scientific staff, including our Chief Executive Officer, Dr |
| We experience intense competition for qualified personnel |
| Our future success also depends in part on the continued service of our executive management team, key scientific and management personnel and our ability to recruit, train and retain essential scientific personnel for our drug discovery and development programs, including those who will be responsible for overseeing our preclinical testing and clinical trials as well as for the establishment of collaborations with other companies |
| If we lose the services of any of these people, our research and product development goals, including the identification and establishment of key collaborations, operations and marketing efforts could be delayed or curtailed |
| We intend to develop, seek regulatory approval for and market our product candidates outside the United States, requiring a significant commitment of resources |
| Failure to successfully manage our international operations could result in significant unanticipated costs and delays in regulatory approval or commercialization of HEPLISAV and therapeutic product candidates |
| We plan to introduce HEPLISAV initially in various markets outside the United States |
| Developing, seeking regulatory approval for and marketing our product candidates outside the United States could impose substantial burdens on our resources and divert management’s attention from domestic operations |
| We may also conduct operations in other foreign jurisdictions |
| International operations are subject to risk, including: • the difficulty of managing geographically distant operations, including recruiting and retaining qualified employees, locating adequate facilities and establishing useful business support relationships in the local community; • compliance with varying international regulatory requirements; • securing international distribution, marketing and sales capabilities; • adequate protection of our intellectual property rights; • difficulties and costs associated with complying with a wide variety of complex international laws and treaties; • legal uncertainties and potential timing delays associated with tariffs, export licenses and other trade barriers; • adverse tax consequences; • the fluctuation of conversion rates between foreign currencies and the US dollar; and • geopolitical risks |
| If we are unable to successfully manage our international operations, we may incur significant unanticipated costs and delays in regulatory approval or commercialization of HEPLISAV and therapeutic product candidates, as well as other product candidates that we may choose to commercialize internationally, which would impair our ability to generate revenues |
| 28 _________________________________________________________________ [78]Table of Contents We use hazardous materials in our business |
| Any claims or liabilities relating to improper handling, storage or disposal of these materials could be time consuming and costly to resolve |
| Our research and product development activities involve the controlled storage, use and disposal of hazardous and radioactive materials and biological waste |
| We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and certain waste products |
| We are currently in compliance with all government permits that are required for the storage, use and disposal of these materials |
| However, we cannot eliminate the risk of accidental contamination or injury to persons or property from these materials |
| In the event of an accident related to hazardous materials, we could be held liable for damages, cleanup costs or penalized with fines, and this liability could exceed the limits of our insurance policies and exhaust our internal resources |
| We may have to incur significant costs to comply with future environmental laws and regulations |
| We face product liability exposure, which, if not covered by insurance, could result in significant financial liability |
| While we have not experienced any product liability claims to date, the use of any of our product candidates in clinical trials and the sale of any approved products will subject us to potential product liability claims and may raise questions about a product’s safety and efficacy |
| As a result, we could experience a delay in our ability to commercialize one or more of our product candidates or reduced sales of any approved product candidates |
| In addition, a product liability claim may exceed the limits of our insurance policies and exhaust our internal resources |
| We have obtained limited product liability insurance coverage in the amount of dlra1 million for each occurrence for clinical trials with umbrella coverage of an additional dlra4 million |
| This coverage may not be adequate or may not continue to be available in sufficient amounts, at an acceptable cost or at all |
| We also may not be able to obtain commercially reasonable product liability insurance for any product approved for marketing in the future |
| A product liability claim, product recalls or other claims, as well as any claims for uninsured liabilities or in excess of insured liabilities, would divert our management’s attention from our business and could result in significant financial liability |
| If the combination of patents, trade secrets and contractual provisions that we rely on to protect our intellectual property is inadequate, the value of our product candidates will decrease |
| Our success depends on our ability to: • obtain and protect commercially valuable patents or the rights to patents both domestically and abroad; • operate without infringing upon the proprietary rights of others; and • prevent others from successfully challenging or infringing our proprietary rights |
| We will be able to protect our proprietary rights from unauthorized use only to the extent that these rights are covered by valid and enforceable patents or are effectively maintained as trade secrets |
| We try to protect our proprietary rights by filing and prosecuting United States and foreign patent applications |
| However, in certain cases such protection may be limited, depending in part on existing patents held by third parties, which may only allow us to obtain relatively narrow patent protection |
| In the United States, legal standards relating to the validity and scope of patent claims in the biopharmaceutical field can be highly uncertain, are still evolving and involve complex legal and factual questions for which important legal principles remain unresolved |
| The biopharmaceutical patent environment outside the United States is even more uncertain |
| We may be particularly affected by this uncertainty, given that several of our product candidates may initially address market opportunities outside the United States |
| For example, we expect to market HEPLISAV, if approved, in various foreign countries with high incidences of hepatitis B, including Canada, Europe and selected markets in Asia, where we may only be able to obtain limited patent protection |
| 29 _________________________________________________________________ [79]Table of Contents The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following: • we might not have been the first to make the inventions covered by each of our pending patent applications and issued patents; • we might not have been the first to file patent applications for these inventions; • the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents; • the claims of any patents that are issued may not provide meaningful protection; • our issued patents may not provide a basis for commercially viable products or may not be valid or enforceable; • we might not be able to develop additional proprietary technologies that are patentable; • the patents licensed or issued to us or our collaborators may not provide a competitive advantage; • patents issued to other companies, universities or research institutions may harm our ability to do business; • other companies, universities or research institutions may independently develop similar or alternative technologies or duplicate our technologies and commercialize discoveries that we attempt to patent; and • other companies, universities or research institutions may design around technologies we have licensed, patented or developed |
| We also rely on trade secret protection and confidentiality agreements to protect our interests in proprietary know-how that is not patentable and for processes for which patents are difficult to enforce |
| We cannot be certain that we will be able to protect our trade secrets adequately |
| Any leak of confidential data into the public domain or to third parties could allow our competitors to learn our trade secrets |
| If we are unable to adequately obtain or enforce proprietary rights we may be unable to commercialize our products, enter into collaborations, generate revenues or maintain any advantage we may have with respect to existing or potential competitors |
| We rely on our licenses from the Regents of the University of California |
| Impairment of these licenses or our inability to maintain them would severely harm our business |
| Our success depends upon our license arrangements with the Regents of the University of California |
| These licenses are critical to our research and product development efforts |
| Our dependence on these licenses subjects us to numerous risks, such as disputes regarding the invention and corresponding ownership rights in inventions and know-how resulting from the joint creation or use of intellectual property by us and the Regents of the University of California, or scientific collaborators |
| Additionally, our agreements with the Regents of the University of California generally contain diligence or milestone-based termination provisions |
| Our failure to meet any obligations pursuant to these provisions could allow the Regents of the University of California to terminate any of these licensing agreements or convert them to non-exclusive licenses |
| In addition, our license agreements with the Regents of the University of California may be terminated or may expire by their terms, and we may not be able to maintain the exclusivity of these licenses |
| If we cannot maintain licenses that are advantageous or necessary to the development or the commercialization of our product candidates, we may be required to expend significant time and resources to develop or license similar technology |
| 30 _________________________________________________________________ [80]Table of Contents Our stock price is subject to volatility, and your investment may suffer a decline in value |
| The market prices for securities of biopharmaceutical companies have in the past been, and are likely to continue in the future to be, very volatile |
| The market price of our common stock is subject to substantial volatility depending upon many factors, many of which are beyond our control, including: • progress or results of any of our clinical trials, in particular any announcements regarding the progress or results of our planned Phase III trials for TOLAMBA and HEPLISAV; • progress of regulatory approval of our product candidates, in particular TOLAMBA and HEPLISAV, and compliance with ongoing regulatory requirements; • our ability to establish collaborations for the development and commercialization of our product candidates; • market acceptance of our product candidates; • our ability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt; • technological innovations, new commercial products or drug discovery efforts and preclinical and clinical activities by us or our competitors; • changes in our intellectual property portfolio or developments or disputes concerning the proprietary rights of our products or product candidates; • our ability to obtain component materials and successfully enter into manufacturing relationships for our product candidates or establish manufacturing capacity on our own; • our ability to form strategic partnerships or joint ventures; • maintenance of our existing licensing agreements with the Regents of the University of California; • changes in government regulations; • issuance of new or changed securities analysts’ reports or recommendations; • general economic conditions and other external factors; • actual or anticipated fluctuations in our quarterly financial and operating results; and • degree of trading liquidity in our common stock One or more of these factors could cause a decline in the price of our common stock |
| In addition, 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 we have experienced greater than average stock price volatility, as have other biotechnology companies in recent years |
| We may in the future be the target of similar litigation |
| Securities litigation could result in substantial costs, and divert management’s attention and resources, which could harm our business, operating results and financial conditions |
| Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may prevent or frustrate a change in control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management |
| Provisions of our certificate of incorporation and bylaws may delay or prevent a change in control, discourage bids at a premium over the market price of our common stock and adversely affect the market 31 _________________________________________________________________ [81]Table of Contents price of our common stock and the voting or other rights of the holders of our common stock |
| These provisions include: • authorizing our Board of Directors to issue additional preferred stock with voting rights to be determined by the Board of Directors; • limiting the persons who can call special meetings of stockholders; • prohibiting stockholder actions by written consent; • creating a classified board of directors pursuant to which our directors are elected for staggered three year terms; • providing that a supermajority vote of our stockholders is required for amendment to certain provisions of our certificate of incorporation and bylaws; and • establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings |
| In addition, we are subject to the provisions of the Delaware corporation law that, in general, prohibit any business combination with a beneficial owner of 15prca or more of our common stock for five years unless the holder’s acquisition of our stock was approved in advance by our Board of Directors |
| We will continue to implement additional finance and accounting systems, procedures or controls as we grow our business and organization and to satisfy new reporting requirements |
| As a public company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, including expanded disclosures and accelerated reporting requirements and more complex accounting rules |
| Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and other requirements may increase our costs and require additional management resources |
| We may need to continue to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to comply with new reporting requirements |
| There can be no assurance that we will be able to maintain a favorable assessment as to the adequacy of our internal control reporting |
| If we are unable to maintain an unqualified report as to the effectiveness of our internal controls over financial reporting, investors could lose confidence in the reliability of our internal controls over financial reporting and the reliability of our financial statements, which could harm our business and could impact the market price of our common stock |
| The adoption of Statement of Financial Accounting Standard Nodtta 123R and changes to existing accounting pronouncements, rules or practices may affect how we conduct our business and affect our reported financial results |
| On December 16, 2004, the Financial Accounting Standards Board issued Financial Accounting Standard (SFAS) Nodtta 123R (revised 2004), “Share-Based Payment” which will require us to measure compensation costs for all stock-based compensation at fair value |
| Adoption of SFAS 123R will have a material impact on our financial statements, as we will be required to record compensation expense in our statement of operations for stock option grants and stock purchases under our employee stock purchase plan, rather than disclose the impact on our net loss within our footnotes, as is our current practice |
| The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future |
| Changes to existing rules, current practices, or future changes, if any, may adversely affect our reported financial results or the way we conduct our business |