| ENTREMED INC ITEM 1A RISK FACTORS We Have a History of Losses and Anticipate Future Losses To date, we have been engaged primarily in research and development activities |
| Although we have received license fees and research and development funding from a former collaborator, limited revenues on royalties from sales of Thalomid^® and certain research grants, we have not derived significant revenues from operations |
| At December 31, 2005, we had an accumulated deficit of approximately dlra261cmam747cmam800 |
| Losses have continued since December 31, 2005 |
| We will also be required to conduct substantial research and development and clinical testing activities for our proposed products |
| We expect that these activities will result in operating losses for the foreseeable future before we commercialize any products, if ever |
| In addition, to the extent we rely on others to develop and commercialize our products, our ability to achieve profitability will depend upon the success of these other parties |
| To support our research and development of certain product candidates, we also may rely on cooperative agreements from governmental and other organizations as a source of support |
| If our cooperative agreements were to be reduced to any substantial extent, it may impair our ability to continue our research and development efforts |
| Even if we do achieve profitability, we may be unable to sustain or increase it |
| Development of Our Products is at an Early Stage and is Uncertain Our proposed products and research programs are in the early stage of clinical development and require significant, time-consuming and costly research and development, testing and regulatory clearances |
| In developing our products, we are subject to risks of failure that are inherent in the development of products and therapeutic procedures |
| For example, it is possible that any or all of our proposed products will be ineffective or toxic, or otherwise will fail to receive necessary FDA clearances |
| There is a risk that the proposed products will be uneconomical to manufacture or market or will not achieve market acceptance |
| There is also a risk that third parties may hold proprietary rights that preclude us from marketing our proposed products or that others will market a superior or equivalent product |
| Further, our research and development activities might never result in commercially viable products |
| 12 _________________________________________________________________ Our product candidates are at the clinical and preclinical stages of development |
| Although several of our product candidates have demonstrated some promising results in early clinical (human) trials and preclinical (animal) studies, they may not prove to be effective in humans |
| For example, testing on animals may occur under different conditions than testing in people and therefore the results of animal studies may not accurately predict human experience |
| Likewise, early clinical studies may not be predictive of eventual safety or effectiveness results in larger-scale pivotal clinical trials |
| There are many regulatory steps that must be taken before any of these product candidates will be eligible for FDA approval and subsequent sale, including the completion of preclinical and clinical trials |
| We do not expect that these product candidates will be commercially available for several years, if ever |
| We Are Uncertain Whether Additional Funding Will Be Available For Our Future Capital Needs and Commitments We will require substantial funds in addition to our existing working capital to develop our product candidates and otherwise to meet our business objectives |
| We have never generated sufficient revenue during any period since our inception to cover our expenses and have spent, and expect to continue to spend, substantial funds to continue our research and development and clinical programs |
| Any one of the following factors, among others, could cause us to require additional funds or otherwise cause our cash requirements in the future to increase materially: • results of research and development activities; • progress of our preclinical studies or clinical trials; • results of clinical trials; • changes in or terminations of our relationships with strategic partners; • changes in the focus, direction, or costs of our research and development programs; • competitive and technological advances; • establishment of marketing and sales capabilities; • manufacturing; • the regulatory approval process; or • product launch |
| We Must Show the Safety and Efficacy of Our Product Candidates Through Clinical Trials, the Results of Which Are Uncertain Before obtaining regulatory approvals for the commercial sale of our products, we must demonstrate, through preclinical studies (animal testing) and clinical trials (human testing), that our proposed products are safe and effective for use in each target indication |
| Clinical trials may not demonstrate sufficient safety and efficacy to obtain the required regulatory approvals or result in marketable products |
| The failure to adequately demonstrate the safety and efficacy of a product under development could delay or prevent regulatory approval of the potential product |
| Clinical trials for the product candidates we are developing may be delayed by many factors, including that potential patients for testing are limited in number |
| The failure of any clinical trials to meet applicable regulatory standards could cause such trials to be delayed or terminated, which could further delay the commercialization of 13 _________________________________________________________________ any of our product candidates |
| Newly emerging safety risks observed in animal or human studies also can result in delays of ongoing or proposed clinical trials |
| Any such delays will increase our product development costs |
| If such delays are significant, they could negatively affect our financial results and the commercial prospects for our products |
| Panzem^Ò NCD May Not be Successful We have reformulated our lead product candidate, Panzem^Ò, in order to increase its concentration in the blood stream |
| Through the use of NanoCrystal^® Colloidal Dispersion (NCD), a proprietary technology of Elan Drug Delivery, Inc |
| (“Elan”), we have reformulated Panzem^Ò as an orally-administered liquid suspension |
| In February 2006, we commenced a Phase 2 study using Panzem^Ò NCD in patients with glioblastoma multiforme (GBM) |
| Although Panzem^Ò NCD showed increased levels in the blood in Phase 1b clinical trials, it may not work as well in upcoming trials as it has in earlier testing |
| We May Need New Collaborative Partners to Further Develop and Commercialize Products, and if We Enter Into Such Arrangements, We May Give Up Control Over the Development and Approval Process and Decrease Our Potential Revenue We plan to develop and commercialize our product candidates with or without corporate alliances and partners |
| Nonetheless, we intend to explore opportunities for new corporate alliances and partners to help us develop, commercialize and market our product candidates |
| We expect to grant to our partners certain rights to commercialize any products developed under these agreements, and we may rely on our partners to conduct research and development efforts and clinical trials on, obtain regulatory approvals for, and manufacture and market any products licensed to them |
| Each individual partner will seek to control the amount and timing of resources devoted to these activities generally |
| We anticipate obtaining revenues from our strategic partners under such relationships in the form of research and development payments and payments upon achievement of certain milestones |
| Since we generally expect to obtain a royalty for sales or a percentage of profits of products licensed to third parties, our revenues may be less than if we retained all commercialization rights and marketed products directly |
| In addition, there is a risk that our corporate partners will pursue alternative technologies or develop competitive products as a means for developing treatments for the diseases targeted by our programs |
| We may not be successful in establishing any collaborative arrangements |
| Even if we do establish such collaborations, we may not successfully commercialize any products under or derive any revenues from these arrangements |
| Our strategy also involves entering into multiple, concurrent strategic alliances to pursue commercialization of our core technologies |
| There is a risk that we will be unable to manage simultaneous programs successfully |
| With respect to existing and potential future strategic alliances and collaborative arrangements, we will depend on the expertise and dedication of sufficient resources by these outside parties to develop, manufacture, or market products |
| If a strategic alliance or collaborative partner fails to develop or commercialize a product to which it has rights, we may not recognize any revenues on that particular product |
| We Have No Current Manufacturing or Marketing Capacity and Rely on Only One Supplier For Some of Our Products We do not expect to manufacture or market products in the near term, but we may try to do so in certain cases |
| We do not currently have the capacity to manufacture or market products and we have limited experience in these activities |
| If we elect to perform these functions, we will be required to either develop these capacities, or contract with others to perform some or all of these tasks |
| We may be dependent to a significant extent on corporate partners, licensees, or other entities for manufacturing and marketing of products |
| If we engage directly in manufacturing or marketing, we will require substantial additional funds and personnel and will be required to comply with extensive regulations |
| We may be unable to develop or contract for these capacities when required to do so in connection with our business |
| We are currently manufacturing products for clinical trials on a contract basis |
| Panzem^Ò NCD, our lead small molecule clinical drug candidate, is currently manufactured by Elan |
| We do not have arrangements in place with alternative suppliers if our current supplier Elan was unable to deliver the product in necessary quantities |
| 14 _________________________________________________________________ We depend on our third-party manufacturers to perform their obligations effectively and on a timely basis |
| These third parties may not meet their obligations and any such non-performance may delay clinical development or submission of products for regulatory approval, or otherwise impair our competitive position |
| Any significant problem experienced by one of our suppliers could result in a delay or interruption in the supply of materials to us until such supplier resolves the problem or an alternative source of supply is located |
| Any delay or interruption would likely lead to a delay or interruption of manufacturing operations, which could negatively affect our operations |
| Although we have identified alternative suppliers for our product candidates, we have not entered into contractual or other arrangements with them |
| If we needed to use an alternate supplier for any product, we would experience delays while we negotiated an agreement with them for the manufacture of such product |
| In addition, we may be unable to negotiate manufacturing terms with a new supplier that are as favorable as the terms we have with our current suppliers |
| Problems with any manufacturing processes could result in product defects, which could require us to delay shipment of products or recall products previously shipped |
| In addition, any prolonged interruption in the operations of the manufacturing facilities of one of our sole-source suppliers could result in the cancellation of shipments |
| A number of factors could cause interruptions, including equipment malfunctions or failures, or damage to a facility due to natural disasters or otherwise |
| Because our manufacturing processes are or are expected to be highly complex and subject to a lengthy FDA approval process, alternative qualified production capacity may not be available on a timely basis or at all |
| Difficulties or delays in our manufacturing could increase our costs and damage our reputation |
| The manufacture of pharmaceutical products can be an expensive, time consuming, and complex process |
| Manufacturers often encounter difficulties in scaling-up production of new products, including quality control and assurance and shortages of personnel |
| Delays in formulation and scale-up to commercial quantities could result in additional expense and delays in our clinical trials, regulatory submissions, and commercialization |
| Failure of Manufacturing Facilities Producing Our Product Candidates to Maintain Regulatory Approval Could Delay or Otherwise Hinder Our Ability to Market Our Product Candidates Any manufacturer of our product candidates will be subject to applicable Good Manufacturing Practices (GMP) prescribed by the FDA or other rules and regulations prescribed by foreign regulatory authorities |
| We and any of our collaborators may be unable to enter into or maintain relationships either domestically or abroad with manufacturers whose facilities and procedures comply or will continue to comply with GMP and who are able to produce our small molecules in accordance with applicable regulatory standards |
| Failure by a manufacturer of our products to comply with GMP could result in significant time delays or our inability to obtain marketing approval or, should we have market approval, for such approval to continue |
| Changes in our manufacturers could require new product testing and facility compliance inspections |
| In the United States, failure to comply with GMP or other applicable legal requirements can lead to federal seizure of violated products, injunctive actions brought by the federal government, inability to export product, and potential criminal and civil liability on the part of a company and its officers and employees |
| Manufacturing Our Product Candidates May Not Be Commercially Feasible The manufacturing processes for several of the small molecules we are developing have not yet been tested at commercial levels, and it may not be possible to manufacture these materials in a cost-effective manner |
| We Depend on Patents and Other Proprietary Rights, Some of Which are Uncertain Our success will depend in part on our ability to obtain patents for our products, both in the United States and abroad |
| The patent position of biotechnology and pharmaceutical companies in general is highly uncertain and involves complex legal and factual questions |
| Risks that relate to patenting our products include the following: 15 _________________________________________________________________ • our failure to obtain additional patents; • challenge, invalidation, or circumvention of patents already issued to us; • failure of the rights granted under our patents to provide sufficient protection; • independent development of similar products by third parties; or • ability of third parties to design around patents issued to our collaborators or us |
| For several of the products that we are developing, including Panzem^®, composition of matter patents are not available because the compounds are in the public domain |
| In these cases, only patents covering the “use” of the product are available |
| In general, patents covering a new use for a known compound can be more difficult to enforce against infringers of the use claims in the patent |
| Our potential products may conflict with patents that have been or may be granted to competitors, universities or others |
| As the biotechnology industry expands and more patents are issued, the risk increases that our potential products may give rise to claims that may infringe the patents of others |
| Such other persons could bring legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected products |
| Any such litigation could result in substantial cost to us and diversion of effort by our management and technical personnel |
| If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products |
| We may not prevail in any action and any license required under any needed patent might not be made available on acceptable terms, if at all |
| We are a party to sponsored research agreements and license agreements that require us to make milestone payments upon attainment of certain regulatory milestones |
| Failure to meet such milestones could result in the loss of certain rights to compounds covered under such license agreements |
| We also rely on trade secret protection for our confidential and proprietary information |
| However, trade secrets are difficult to protect and others may independently develop substantially equivalent proprietary information and techniques and gain access to our trade secrets and disclose our technology |
| We may be unable to meaningfully protect our rights to unpatented trade secrets |
| We require our employees to complete confidentiality training that specifically addresses trade secrets |
| All employees, consultants, and advisors are required to execute a confidentiality agreement when beginning an employment or a consulting relationship with us |
| The agreements generally provide that all trade secrets and inventions conceived by the individual and all confidential information developed or made known to the individual during the term of the relationship automatically become our exclusive property |
| Employees and consultants must keep such information confidential and may not disclose such information to third parties except in specified circumstances |
| However, these agreements may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure of such information |
| To the extent that consultants, key employees, or other third parties apply technological information independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary rights to such information |
| Any such disputes may not be resolved in our favor |
| Certain of our consultants are employed by or have consulting agreements with other companies and any inventions discovered by them generally will not become our property |
| Our Potential Products Are Subject to Government Regulatory Requirements and an Extensive Approval Process Our research, development, preclinical and clinical trials, manufacturing, and marketing of most of our product candidates are subject to an extensive regulatory approval process by the FDA and other regulatory agencies in the United States and abroad |
| The process of obtaining FDA and other required regulatory approvals for drug and biologic products, including required preclinical and clinical testing, is time consuming and expensive |
| Even after 16 _________________________________________________________________ spending time and money, we may not receive regulatory approvals for clinical testing or for the manufacturing or marketing of any products |
| Our collaborators or we may encounter significant delays or costs in the effort to secure necessary approvals or licenses |
| Even if we obtain regulatory clearance for a product, that product will be subject to continuing review |
| Later discovery of previously unknown defects or failure to comply with the applicable regulatory requirements may result in restrictions on a product’s marketing or withdrawal of the product from the market, as well as possible civil or criminal penalties |
| Potential Products May Subject Us to Product Liability for Which Insurance May Not Be Available The use of our potential products in clinical trials and the marketing of any pharmaceutical products may expose us to product liability claims |
| We have obtained a level of liability insurance coverage that we believe is adequate in scope and coverage for our current stage of development |
| However, our present insurance coverage may not be adequate to protect us from liabilities we might incur |
| In addition, our existing coverage will not be adequate as we further develop products and, in the future, adequate insurance coverage and indemnification by collaborative partners may not be available in sufficient amounts or at a reasonable cost |
| If a product liability claim or series of claims are brought against us for uninsured liabilities, or in excess of our insurance coverage, the payment of such liabilities could have a negative effect on our business and financial condition |