| GENVEC INC ITEM 1A RISK FACTORS This Form 10-K contains forward-looking information based on our current expectations |
| Because our actual results may differ materially from any forward-looking statements made by GenVec, this section includes a discussion of important factors that could affect our actual future results, including, but not limited to, our product development programs, contract revenues, expenses, net loss and earnings per share |
| RISKS RELATED TO OUR BUSINESS We have a history of losses and anticipate future losses |
| We have incurred net losses in each year since our inception in December 1992, including a net loss of dlra14dtta0 million for the year ended December 31, 2005 |
| As of December 31, 2005, we had an accumulated deficit of approximately dlra150dtta0 million |
| The size of our net losses will depend, in part, on the growth rate of our revenues and the level of our expenses |
| We derive substantially all of our revenues from payments from collaborations with corporations and government entities, and will continue to do so for the foreseeable future |
| We expect that it will be several years, if ever, before we will recognize revenue from product candidate sales or royalties |
| A large portion of our expenses is fixed, including expenses related to facilities, equipment and personnel |
| In addition, we expect to spend significant amounts to fund research and development and to enhance our core technologies |
| We also expect to incur substantial costs to manufacture our product candidates |
| As a result, we expect that our operating expenses will increase significantly over the next several years and, consequently, we will need to generate significant additional revenue to achieve profitability |
| Even if we do achieve profitability, we may not be able to sustain or increase profitability on a consistent basis |
| 14 _________________________________________________________________ We will have no product revenues in the near term and may need to raise additional capital to operate our business |
| We are focused on clinical product development |
| Until, and unless, we receive approval from the FDA and other regulatory authorities for our product candidates, we cannot sell these products and will not have product revenues |
| We will require substantial funds to conduct research and development activities, preclinical studies, clinical trials and other activities prior to the commercialization of any potential products |
| We anticipate that such funds will be obtained from external sources and intend to seek additional equity, debt or lease financing or collaborative agreements with corporate, governmental or academic collaborators to fund future operations |
| Our actual capital requirements will depend on many factors |
| If we experience unanticipated cash requirements, we may need to seek additional sources of funding, which may not be available on favorable terms, if at all |
| Such additional funding may only be available on terms that may cause dilution to common stockholders, have liquidation preferences and/or pre-emptive rights |
| For example, pursuant to an Investor Rights Agreement between GenVec and HealthCare Ventures V, LP dated December 21, 2001, HealthCare Ventures V and VI have the right to purchase shares of GenVec common that we may propose to sell in the future to prevent dilution of their interest in the company |
| If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete planned preclinical studies and clinical trials or obtain approval of our product candidates from the FDA and other regulatory authorities |
| In addition, we could be forced to discontinue product development, reduce or forego sales and marketing efforts and attractive business opportunities or discontinue operations |
| Our ability to develop, obtain regulatory approval of and commercialize our potential products depends, in part, on collaborations with other companies |
| If we are unable to find collaborators, we may not be able to develop, test and commercialize our products |
| To date, we only have entered into collaborative agreements with a limited number of companies, and some of those are no longer in effect |
| The success of our business strategy depends, in part, on our ability to enter into and sustain collaborations with other companies for the development and commercialization of our product candidates |
| Unless we are able to enter into and sustain collaboration agreements, we will need to raise additional funds for the development, testing, and commercialization of our product candidates |
| If collaborations or other funding is not available, we may have to delay or curtail the development and commercialization of certain product candidates |
| We have experienced, and may continue to experience, delays in conducting our clinical trials |
| Clinical trials for the product candidates we are developing may be delayed by many factors, including that potential appropriate patients for studies are limited in number and may be difficult to recruit |
| Following the release of our TNFerade clinical trails from clinical hold in 2005, we have experienced delays in enrolling patients into our TNFerade clinical trials and may have additional delays as we seek to expand enrollment |
| Our ability to enroll appropriate patients for any of our clinical trials also may be adversely affected by trials being conducted by our competitors for similar disease indications |
| The failure of any clinical trials to meet applicable regulatory standards or the standards of the relevant reviewing bodies could cause such trials to be delayed or terminated, which could further delay the development of any of our product candidates |
| Any such delays increase our product development costs, with the possibility that we could run out of funding |
| Delays in one clinical trial also can adversely affect our ability to launch clinical trials for similar or different indications |
| Consequently, if such delays are significant they could negatively affect our financial results and the commercial prospects for our products |
| We cannot be sure that our collaborators will perform as expected, and collaborations might produce conflicts that could delay or prevent the development or commercialization of our potential product candidates and negatively impact our business and financial condition |
| We cannot control the resources that any collaborator may devote to our products |
| Our present or future collaborators may not perform their obligations as expected |
| These collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner |
| In addition, our collaborators may elect not to develop products arising out of our collaborative arrangements or to devote sufficient resources to the development, regulatory approval, manufacture, marketing or sale of these products |
| If any of these events occur, we may not be able to develop our technologies or commercialize our products |
| 15 _________________________________________________________________ An important part of our strategy involves conducting multiple product development programs |
| We may pursue opportunities in fields that conflict with those of our collaborators |
| In addition, disagreements with our collaborators could develop over rights to our intellectual property |
| The resolution of such conflicts and disagreements may require us to relinquish rights to our intellectual property that we believe we are entitled to |
| In addition, any disagreement or conflict with our collaborators could reduce our ability to obtain future collaboration agreements and negatively impact our relationship with existing collaborators |
| Such a conflict or disagreement could also lead to delays in collaborative research, development, regulatory approval or commercialization of various products or could require or result in litigation or arbitration, which would be time consuming and expensive and could have a significant negative impact on our business, financial condition and results of operations |
| Our collaboration agreements may prohibit us from conducting research in areas that may compete with our collaboration products, while our collaborators may not be limited to the same extent |
| This could negatively affect our ability to develop products and, ultimately, prevent us from achieving a continuing source of revenues |
| We anticipate that some of our corporate or academic collaborators will be conducting multiple product development efforts within each disease area that is the subject of its collaboration with us |
| We generally have agreed not to conduct independently, or with any third party, certain research that is competitive with the research conducted under our collaborations |
| Therefore, our collaborations may have the effect of limiting the areas of research that we may pursue, either alone or with others |
| Some of our collaborators, however, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of their collaborations with us |
| In addition, competing products, either developed by the collaborators or to which the collaborators have rights, may result in their withdrawing support for our product candidates |
| Generally under our academic collaborations, we retain the right to exclusively license any technologies developed using funding we provided |
| If we elect to not license a particular technology, the academic collaborator is typically free to use the technology for any purpose, including the development and commercialization of products that might compete with our products |
| We are an early stage company deploying unproven technologies, and we may never be able to develop, get regulatory approval of, or market any of our product candidates |
| Gene-based products are new and rapidly evolving medical approaches, which have not been shown to be effective on a widespread basis |
| Biotechnology and pharmaceutical companies have successfully developed and commercialized only a limited number of gene-based products to date |
| In addition, no gene therapy product has received regulatory approval in the United States |
| To date, none of our product candidates has been approved for sale in the United States or elsewhere |
| We may be unable to develop products or delivery systems that: • prove to be safe and effective; • meet applicable regulatory standards; • are capable of being manufactured at reasonable costs; • do not infringe the intellectual property rights of third parties; • are superior to products offered by third parties; or • can be marketed successfully |
| Gene-based products may be susceptible to various risks, including undesirable and unintended side effects from genes or the delivery systems, unintended immune responses, inadequate therapeutic efficacy or other characteristics that may prevent or limit their approval or commercial use |
| Successful products require significant development and investment, including a lengthy and uncertain period of testing to show their safety and effectiveness before their regulatory approval or commercialization |
| We have not proven our ability to develop, obtain regulatory approval of or commercialize gene-based medicines or cell transplantation products |
| We may be unable to successfully select those genes or cells with the most potential for commercial development |
| 16 _________________________________________________________________ If we fail to adequately show the safety and efficacy of our product candidates, we will not be able to obtain FDA approval of our product candidates |
| We face the risk of failure involved in developing therapies based on new technologies |
| While certain of our product candidates are in clinical trials, there are others for which we have not yet initiated clinical trials |
| For those product candidates not yet in clinical trials, we will need to conduct significant additional research and animal testing, referred to as preclinical testing, before any of these product candidates can advance to clinical trials |
| In addition, we will need to conduct further clinical testing of those product candidates currently in clinical trials |
| It may take us many years to complete preclinical testing or trials, and failure could occur at any stage of testing |
| Acceptable results in early testing or trials might not be repeated later |
| Not all products in preclinical testing or early stage clinical trials will become approved products |
| Before we can file applications with the FDA for product approval, we must show that a particular product candidate is safe and effective |
| Even with respect to those product candidates currently in clinical trials, we must demonstrate the safety and efficacy of those product candidates before we can secure FDA approval |
| Our failure to adequately show the safety and effectiveness of our product candidates would prevent FDA approval of our products |
| Our product development costs will increase if we experience delays in testing or regulatory approvals or if we need to perform more or larger clinical trials than planned |
| If the delays are significant, they could negatively affect our financial results and the commercial prospects for our product candidates |
| Because we or our collaborators must obtain regulatory approval to market our products in the United States and in non-US jurisdictions, we cannot predict whether or when we will be permitted to commercialize our products; failure to comply with applicable regulations can also harm our business and operations |
| • The pharmaceutical industry is subject to stringent regulation by a wide range of authorities |
| We cannot predict whether we or our collaborators will obtain regulatory approval for any product we develop |
| No one can market a pharmaceutical product in the United States until it has completed rigorous preclinical testing and clinical trials of the product and an extensive regulatory approval process implemented by the FDA To date, the FDA has not approved a gene therapy product for sale in the United States |
| Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources |
| Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use |
| Before commencing clinical trials, we must submit to the FDA and receive approval from the FDA of an Investigational New Drug application (“IND”) |
| Clinical trials are subject to oversight by Institutional Review Boards and the FDA Clinical trials are also subject to: • informed consent; • good clinical practices (GCP); • continuing FDA oversight; • potentially large numbers of test subjects; and • potential suspension by us, our collaborators or the FDA at any time if it is believed that the subjects participating in these trials are being exposed to unacceptable health risks or if the FDA finds deficiencies in the Investigational New Drug application or the conduct of these trials |
| We may encounter delays or rejections in the regulatory approval process because of additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review |
| Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our product candidates or us |
| If regulatory approval of a product is granted, this approval will be limited to those disease indications for which the product has shown through clinical trials to be safe and effective |
| The FDA also strictly regulates promotion and labeling after approval |
| Outside the United States, our ability to market a product is contingent upon receiving clearances from the appropriate regulatory authorities |
| This non-US regulatory approval process includes risks similar to those associated with FDA clearance described above |
| 17 _________________________________________________________________ If we or our collaborators are unable to manufacture our products in sufficient quantities or are unable to obtain regulatory approvals for a manufacturing facility for our products, we may experience delays, and be unable to meet demand, and may lose potential revenues |
| Completion of our clinical trials and commercialization of our product candidates require access to, or development of, facilities to manufacture a sufficient supply of our product candidates |
| We have limited experience manufacturing any of our gene-based products in the volumes that will be necessary to support large-scale clinical trials or commercial sales |
| We do not yet know the extent to which we will be able to develop our Gaithersburg manufacturing facilities and processes to the manufacture of gene therapy product candidates |
| Efforts to establish capabilities, if pursued, may not meet initial expectations as to scheduling, reproducibility, yield, purity, cost, potency or quality |
| If we or our collaborators are unable to manufacture our product candidates in clinical quantities or, when necessary, commercial quantities, then we will need to rely on third parties to manufacture compounds for clinical and commercial purposes |
| These third-party manufacturers must receive FDA approval before they can produce clinical material or commercial products |
| Our products may be in competition with other products for access to these facilities and may be subject to delays in manufacture if third parties give other products greater priority |
| In addition, we may not be able to enter into any necessary third-party manufacturing arrangements on acceptable terms, or on a timely basis |
| There are very few contract manufacturers who currently have the capability to produce our proposed products, and the inability of any of these contract manufacturers to deliver our required quantities of product candidates on a timely basis and at commercially reasonable prices would negatively affect our operations |
| Before we or our collaborators can begin commercial manufacturing of any of our product candidates, we or our collaborators must obtain regulatory approval of the manufacturing facility and process |
| Manufacturing of our proposed products must comply with the FDA’s current Good Manufacturing Practices requirements, commonly known as cGMP, and non-US regulatory requirements |
| The cGMP requirements govern quality control and documentation policies and procedures |
| In complying with cGMP and non-US regulatory requirements, we will be obligated to expend time, money and effort in production, record keeping and quality control to assure that the product meets applicable specifications and other requirements |
| We or our collaborators must also pass a pre-approval inspection before FDA approval |
| If we or our collaborators fail to comply with these requirements, our product candidates would not be approved |
| If we or our collaborators fail to comply with these requirements after approval, we would be subject to possible regulatory action and may be limited in the jurisdictions in which we are permitted to sell our products |
| The FDA and non-US regulatory authorities also have the authority to perform unannounced periodic inspections of our manufacturing facility to ensure compliance with cGMP and non-US regulatory requirements |
| If successful large-scale manufacturing of gene-based medicines is not possible, we may be unable to manufacture enough of our product candidates to achieve regulatory approval or market our products |
| Very few companies have shown successful large-scale manufacturing of gene-based medicines, and there are significant uncertainties and risks associated with the scale up of our manufacturing processes to commercial levels |
| There are a limited number of contract manufacturers qualified to perform large-scale manufacturing of gene-based medicines |
| We may be unable to manufacture commercial-scale quantities of gene-base medicines, or receive appropriate government approvals, on a timely basis or at all |
| Failure to successfully manufacture or obtain appropriate government approvals on a timely basis or at all would prevent us from achieving our business objectives |
| We may experience difficulties or delays in product manufacturing, which are beyond our control and could harm our business, because we rely on third-party manufacturers |
| We currently expect to produce our product candidates through third-party manufacturers |
| 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 our or a third party’s manufacturing facilities could result in the cancellation of shipments |
| A number of factors could cause interruptions, including equipment malfunctions or process 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 problems involving the transfer of manufacturing technology, production yields, quality control and assurance, and shortages of personnel |
| Delays in scale-up to commercial quantities could result in additional expense and delays in our clinical trials, regulatory submissions and commercialization |
| 18 _________________________________________________________________ We rely on a limited number of suppliers for some of our manufacturing materials |
| Any problems experienced by any of these suppliers could negatively affect our operations |
| We rely on third-party suppliers and vendors for some of the materials used in the manufacture of our product candidates |
| For supply of early clinical trial materials, we rely on one supplier, Invitrogen Corporation, for its cell culture medium and Cambrex for custom buffers |
| The cell culture medium is used to grow the cells within which our product candidates are produced |
| For supply of late-stage clinical trial materials, we currently are planning to use purification resins from the Applied Biosystems Group of Applera Corporation and the BioSepra SA Process Division of Pall Corporation |
| We do not currently have supply agreements with any of these suppliers |
| 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 |
| We have limited experience with alternative sources of raw materials |
| Any delay or interruption would likely lead to a delay or interruption of manufacturing operations, which could negatively affect our operations |
| We have limited marketing capabilities, and if we are unable to enter into collaborations with marketing partners or develop our own sales and marketing capability, we may not be successful in commercializing our products |
| We currently have limited sales, marketing and distribution capabilities |
| As a result, we will depend on collaborations with third parties that have established distribution systems and direct sales forces |
| To the extent that we enter into co-promotion or other licensing arrangements, our revenues will depend upon the efforts of third parties, over which we may have little or no control |
| If we are unable to reach and maintain agreements with one or more pharmaceutical companies or collaborators, we may be required to market our products directly |
| In any case we may elect to establish our own specialized sales force and marketing organization to market our products to physicians |
| In order to do this, we would have to develop a marketing and sales force with technical expertise and with supporting distribution capability |
| Developing a marketing and sales force is expensive and time consuming and could delay a product launch |
| We cannot be certain that we will be able to attract and retain qualified sales personnel or otherwise develop this capability |
| We face substantial competition from other companies and research institutions that are developing products to treat the same diseases that our product candidate’s target, and we may not be able to compete successfully |
| We compete with pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the diseases that our product candidates target |
| We may also face competition from companies that may develop competing technology internally or acquire it from universities and other research institutions |
| As these companies develop their technologies, they may develop proprietary positions, which may prevent or limit our product commercialization efforts |
| Some of our competitors are established companies with greater financial and other resources than we have |
| We expect that competition in our business will intensify |
| Our competitors may succeed in: • identifying important genes or delivery mechanisms before us; • developing products or product candidates earlier than we do; • forming collaborations before we do, or precluding us from forming collaborations with others; • obtaining approvals from the FDA or other regulatory agencies for such products more rapidly than we do; • developing and validating manufacturing processes more rapidly than we do; • obtaining patent protection to other intellectual property rights that would limit or preclude our ability to use our technologies or develop products; or • developing products that are safer or more effective than those we develop or propose to develop |
| 19 _________________________________________________________________ While we seek to expand our technological capabilities to remain competitive, research and development by others may render our technology or product candidates obsolete or noncompetitive or result in treatments or cures superior to any therapy developed by us |
| RISKS RELATED TO OUR INDUSTRY If we are unable to adequately protect our intellectual property rights, our competitors may be able to take advantage of our research and development efforts to compete with us |
| Our commercial success will depend in part on obtaining patent protection for our products and other technologies and successfully defending these patents against third party challenges |
| Our patent position, like that of other biotechnology firms, is highly uncertain and involves complex legal and factual questions |
| The biotechnology patent situation in the United States and other countries is uncertain and is currently undergoing review and revision |
| Changes in, or different interpretations of, patent laws in the United States and other countries might allow others to use our discoveries or to develop and commercialize our products without any compensation to us |
| Our ability to develop and protect a proprietary position based on biotechnological innovations and technologies involving genes and gene therapy, delivery systems, production, formulations and the like, is particularly uncertain |
| The US Patent and Trademark Office, as well as the patent offices in other countries, have often required that patent applications concerning biotechnology-related inventions be limited or narrowed substantially |
| Our disclosures in our patent applications may not be sufficient to meet the statutory requirements for patentability in all cases |
| In addition, other companies or institutions possess issued patents and have filed and will file patent applications that cover or attempt to cover genes, vectors, cell lines, and methods of making and using gene therapy products that are the same as or similar to the subject matter of our patent applications |
| For example, while we have pending patent applications pertaining to particular adenovectors that cannot reproduce themselves, and adenovectors modified to alter cell binding characteristics, we are aware of issued patents and pending patent applications of other companies and institutions relating to the same subject matter |
| Patents and patent applications of third parties may have priority over our issued patents and our pending or yet to be filed patent applications |
| Proceedings before the US Patent and Trademark Office and other patent offices to determine who properly lays claim to inventions are costly and time consuming, and we may not win in any such proceedings |
| The issued patents we already have or may obtain in the future may not provide commercially meaningful protection against competitors |
| Other companies or institutions may challenge our or our collaborators’ patents in the United States and other countries |
| In the event a company, institution or researcher infringes upon our or our collaborators’ patent rights, enforcing these rights may be difficult and can be expensive and time consuming, with no guarantee that our or our collaborators’ patent rights will be upheld |
| Others may be able to design around these patents or develop unique products providing effects similar to our products |
| In addition, our competitors may legally challenge our patents and they may be held to be invalid |
| In addition, various components used in developing gene therapy products, such as particular genes, vectors, promoters, cell lines and construction methods, used by others and us, are available to the public |
| As a result, we are unable to obtain patent protection with respect to such components, and third parties can freely use such components |
| Third parties may develop products using such components that compete with our potential products |
| Also, with respect to some of our patentable inventions, we or our collaborators have decided not to pursue patent protection outside the United States |
| Accordingly, our competitors could develop, and receive non-US patent protection for, gene therapies or technologies for which we or our collaborators have or are seeking US patent protection |
| Our competitors may be free to use these gene therapies or technologies outside the United States in the absence of patent protection |
| Where we believe patent protection is not appropriate we rely to a limited extent on trade secrets to protect our technology |
| However, trade secrets are difficult to protect |
| While we have entered into confidentiality agreements with employees and collaborators, we may not be able to prevent the disclosure or use of our trade secrets |
| In addition, other companies or institutions may independently develop substantially equivalent information and techniques |
| 20 _________________________________________________________________ If our potential products conflict with intellectual property rights of competitors, universities or others, then we may be prevented from developing those product candidates |
| Other companies and institutions have issued patents and have filed and will file patent applications that may issue into patents that cover or attempt to cover genes, vectors, cell lines and methods of making and using gene and gene-based therapy products used in or similar to our product candidates and technologies |
| For example, we are aware of issued patents and pending patent applications relating to the delivery, including through the use of adenovectors, of medically beneficial substances to the heart and other tissues |
| We also are aware of other issued patents and pending patent applications that relate to various aspects of our other product candidates and systems, including TNFerade, and it could be alleged that our product candidates conflict with these patents |
| We have not conducted freedom to use patent searches on all aspects of our product candidates or potential product candidates, and we may be unaware of relevant patents and patent applications of third parties |
| In addition, those freedom to use patent searches that have been conducted may not have identified all relevant issued patents or all relevant pending patent applications that could issue into patents, particularly in view of the characterizations of the subject matter of issued patents and pending patent applications, as well as the fact that pending patent applications can be maintained in secrecy for a period of time and, in some circumstances, until issuance as patents |
| An issued patent gives rise to a rebuttable presumption of validity under US law and the laws of some other countries |
| The holder of a patent to which we or our collaborators do not hold a license could bring legal actions against our collaborators or us for damages or to stop us or our collaborators from using the affected technology, which could limit or preclude our ability to develop and commercialize our product candidates |
| If any of our potential products are found to infringe a patent of a competitor or third party, we or our collaborators may be required to pay damages and to either obtain a license in order to continue to develop and commercialize the potential products or, at the discretion of the competitor or third party, to stop development and commercialization of the potential products |
| Since we have concentrated our resources on developing only a limited number of products, the inability to market one of our products would disproportionately affect us as opposed to a competing company with many products in development |
| We believe that there will be significant litigation in our industry regarding intellectual property rights |
| Many of our competitors have expended and are continuing to expend significant amounts of time, money and management resources on intellectual property litigation |
| If we become involved in litigation, it could consume a substantial portion of our resources and could adversely affect our business, financial condition and results of operations, even if we ultimately are successful in such litigation, in view of our limited resources |
| If our right to use intellectual property we license from others is affected, our ability to develop and commercialize our product candidates may be harmed |
| We rely, in part, on licenses to use some technologies that are material to our business |
| For example, to create our product candidates, we combine our vectors with genes intended to produce proteins |
| For our current product candidates, we have secured licenses to use the VEGF[121], TNF — alpha, and PEDF genes |
| We do not own the patents or patent applications that underlie these licenses |
| For these genes, we do not control the enforcement of the patents |
| We rely upon our licensors to properly prosecute and file those patent applications and to prevent infringement of those patents |
| While many of the licenses under which we have rights provide us with exclusive rights in specified fields, the scope of our rights under these and other licenses may be subject to dispute by our licensors or third parties |
| In addition, our rights to use these technologies and practice the inventions claimed in the licensed patents and patent applications are subject to our licensors abiding by the terms of those licenses and not terminating them |
| Any of our licenses may be terminated by the licensor if we are in breach of a term or condition of the license agreement, or in certain other circumstances |
| In addition, some of our licenses require us to achieve specific milestones |
| Our product candidates and potential product candidates will require several components that may each be the subject of a license agreement |
| The cumulative license fees and royalties for these components may make the commercialization of these product candidates uneconomical |
| 21 _________________________________________________________________ Adverse events in the field of gene therapy may negatively affect regulatory approval or public perception of our products or product candidates |
| In September 1999, a patient undergoing gene therapy using an adenoviral vector to deliver a therapeutic gene died as a result of an adverse reaction to the treatment |
| This death was widely publicized |
| Other patient deaths have occurred in other gene-based clinical trials |
| These deaths and the resulting publicity surrounding them, as well as any other serious adverse events in the field of gene therapy that may occur in the future, may result in greater governmental regulation of our product candidates and potential regulatory delays relating to the testing or approval of our product candidates |
| As a result of the incident in September 1999, the United States Senate held a series of hearings to determine whether additional legislation was required to protect patients who participate in clinical trials |
| Furthermore, extended patient follow-up for gene therapy product candidates has been recommended |
| Additionally, the National Institutes of Health and its advisory bodies routinely review the field of gene therapy and issue reports on the adverse events reported by investigators |
| The NIH has approved a proposal to establish a Gene Transfer Safety Assessment Board to review serious adverse event reports, annual reports and other safety information in order to assess toxicity and safety and report these findings at NIH Recombinant DNA Advisory Committee (RAC) meetings |
| Additional scrutiny cannot be ruled out |
| Any increased scrutiny could delay or increase the costs of our product development efforts or clinical trials |
| The commercial success of our product candidates will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human disease |
| Public attitudes may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community |
| Negative public reaction to gene therapy could result in greater government regulation and stricter clinical trial oversight and commercial product labeling requirements of gene therapy products and could cause a decrease in the demand for any products we may develop |
| Our product candidates involve new technologies and therapeutic approaches in the field of gene therapy, which is a new and evolving field |
| As discussed above, no gene therapy product has received regulatory approval in the United States, and adverse events in this field may negatively affect public perception of our product candidates |
| Even if our product candidates attain regulatory approval, our success will depend upon the medical community, patients and third party payors accepting gene therapy products in general, and our product candidates in particular, as medically useful, cost-effective and safe |
| In particular, our success will depend upon physicians specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments that they are already familiar with and for which greater clinical data may be available |
| Even if the clinical safety and efficacy of our product candidates is established, physicians may elect not to recommend our products for a variety of reasons, including the reimbursement policies of government and third-party payors |
| Further, third-party payors, such as health insurance plans, may be reluctant to authorize and pay for new forms of treatment that they may deem expensive and less-proven that existing treatments |
| Even if gene therapy products, and our product candidates in particular, are accepted by the medical community and third-party payors, the public in general, or patients in particular, may be uncomfortable with new therapies, including our product candidates, and it could take substantial time for them to accept gene therapy products as a viable treatment alternative, if ever |
| If gene therapy and our product candidates do not gain widespread acceptance, we may be unable to generate significant revenues, if any, which would adversely affect our results of operations |
| In addition, even if our product candidates achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our product candidates or render them obsolete |
| We may be sued for product liability, which could damage our reputation and expose us to unanticipated costs |
| We, alone or with our collaborators, may be held liable if any product we or our collaborators develop, or any product, which is made with the use or incorporation of any of our technologies, causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale |
| Regardless of the merit or eventual outcome, product liability claims may result in: • withdrawal of product candidates from our clinical trials; • withdrawal of our products from the market; if they have been approved; • damage to our reputation; • costs of litigation; • substantial monetary awards to plaintiffs; and • decreased demand for our products or product candidates |
| 22 _________________________________________________________________ Although we currently have and intend to maintain product liability insurance, this insurance may become 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 in collaboration with others |
| Currently, we have a total of dlra5 million liability coverage under a clinical trials and professional liability insurance policy |
| If we are sued for any injury caused by our products, our liability could exceed our total resources |
| We use hazardous chemicals and radioactive and biological materials in our business; any liability or disputes relating to improper handling, storage or disposal of these materials could be time consuming and costly |
| Our research and development processes involve the use of hazardous materials, including chemicals and radioactive and biological materials, and also produce hazardous waste products |
| Hazardous chemicals used in our processes include, but are not limited to, flammable solvents such as methanol and ethanol, toxic chemicals such as ethidium bromide and formaldehyde, and corrosive chemicals such as acetic acid and sodium hydroxide |
| We also use several radioactive compounds, including phosphorous-32, carbon-14, sulfur-35, phosphorous-33, iodine-125, hydrogen-3, and chromium-51 |
| The hazardous biological material used in our research and development activities include human and animal cell lines and viruses, such as adenoviruses, and animals infected with human viruses |
| Some of the biological material may be novel, including viruses with novel properties |
| We cannot eliminate the risk of accidental contamination or discharge or injury from these materials |
| Federal, state, and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials |
| We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, these hazardous materials |
| In addition, claimants may sue us for 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 |
| Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development or production efforts |
| Although we have general liability insurance, these polices contain exclusions from insurance against claims arising from pollution from chemical or radioactive materials |
| Our collaborators are working with these types of hazardous materials in connection with our collaborations |
| In the event of a lawsuit or investigation, we could be held responsible for any injury we or our collaborators cause to persons or property by exposure to, or release of, any hazardous materials |
| However, we believe that we are currently in compliance with all applicable environmental and occupational health and safety regulations |
| If reforms in the health care industry make reimbursement for our potential products less likely, the market for our potential products will be reduced, and we will lose potential sources of revenue |
| Our success may depend, in part, on the extent to which reimbursement for the costs of therapeutic products and related treatments will be available from third-party payors such as government health administration authorities, private health insurers, managed care programs, and other organizations |
| Over the past decade, the cost of health care has risen significantly, and there have been numerous proposals by legislators, regulators, and third-party health care payors to curb these costs |
| Some of these proposals have involved limitations on the amount of reimbursement for certain products |
| Similar federal or state health care legislation may be adopted in the future and any products that we or our collaborators seek to commercialize may not be considered cost-effective |
| Adequate third-party insurance coverage may not be available for us to establish and maintain price levels that are sufficient for realization of an appropriate return on our investment in product development |
| Moreover, the existence or threat of cost control measures could cause our corporate collaborators to be less willing or able to pursue research and development programs related to our product candidates |