| HUMAN GENOME SCIENCES INC ITEM 1A RISK FACTORS There are a number of risk factors that could cause our actual results to differ materially from those that are indicated by forward-looking statements |
| Those factors include, without limitation, those listed below and elsewhere herein |
| If we are unable to commercialize products, we may not be able to recover our investment in our product development and manufacturing efforts |
| We have invested significant time and resources to isolate and study genes and determine their functions |
| We now devote most of our resources to developing proteins and antibodies for the treatment of human disease |
| We are also devoting substantial resources to the establishment of our own manufacturing capabilities, both to support clinical testing and eventual commercialization |
| We have made and are continuing to make substantial expenditures |
| Before we can commercialize a product, we must rigorously test the product in the laboratory and complete extensive human studies |
| We cannot assure you that the costs of testing and study will yield products approved for marketing by the FDA or that any such products will be profitable |
| We will incur substantial additional costs to continue these activities |
| If we are not successful in commercializing products, we may be unable to recover the large investment we have made in research, development and manufacturing facilities |
| Because our product development efforts depend on new and rapidly evolving technologies, we cannot be certain that our efforts will be successful |
| Our work depends on new, rapidly evolving technologies and on the marketability and profitability of innovative products |
| Commercialization involves risks of failure inherent in the development of products based 17 _________________________________________________________________ on innovative technologies and the risks associated with drug development generally |
| These risks include the possibility that: • these technologies or any or all of the products based on these technologies will be ineffective or toxic, or otherwise fail to receive necessary regulatory clearances; • the products, if safe and effective, will be difficult to manufacture on a large scale or uneconomical to market; • proprietary rights of third parties will prevent us or our collaborators from exploiting technologies or marketing products; and • third parties will market superior or equivalent products |
| Because we are currently a mid-stage development company, we cannot be certain that we can develop our business or achieve profitability |
| We expect to continue to incur losses and we cannot assure you that we will ever become profitable |
| We are in the mid-stage of development, and it will be a number of years, if ever, before we are likely to receive revenue from product sales or royalty payments |
| We will continue to incur substantial expenses relating to research and development efforts and human studies |
| The development of our products requires significant further research, development, testing and regulatory approvals |
| We may not be able to develop products that will be commercially successful or that will generate revenue in excess of the cost of development |
| We are continually evaluating our business strategy, and may modify this strategy in light of developments in our business and other factors |
| In the past, we have redirected the focus of our business from the discovery of genes to the development of medically useful products based on those genes |
| In this regard, we may, from time to time, focus our product development efforts on different products or may delay or halt the development of various products |
| In addition, as a result of changes in our strategy, we may also change or refocus our existing drug discovery, development, commercialization and manufacturing activities |
| This could require changes in our facilities and personnel and the restructuring of various financial arrangements |
| We cannot assure you that changes will occur or that any changes that we implement will be successful |
| During the past two years, we have sharpened our focus on our most promising drug candidates |
| We have reduced the number of drugs in early development and are focusing our resources on the drugs that address the greatest unmet medical needs with substantial growth potential |
| In order to reduce significantly our expenses, and thus enable us to dedicate more resources to the most promising drugs, we have reduced staff, streamlined operations and consolidated facilities |
| In December 2005, we entered into an agreement to spin off our CoGenesys division as an independent company, in a transaction that will be treated as a sale for accounting purposes |
| CoGenesys will focus on the development of assets that were unlikely to be developed by us |
| Our ability to discover and develop new early stage preclinical products will depend on our internal research capability |
| We substantially reduced our internal research capability as part of our restructuring in the first quarter of 2004 |
| Our internal research capability will be further reduced following the spin-off of CoGenesys |
| Although we continue to conduct discovery and development efforts on early stage products, our limited resources for discovering and developing early stage preclinical products may not be sufficient to discover new preclinical drug candidates |
| 18 _________________________________________________________________ PRODUCT DEVELOPMENT RISKS Because we have limited experience in developing and commercializing products, we may be unsuccessful in our efforts to do so |
| Our ability to develop and commercialize products based on proteins, antibodies and other compounds will depend on our ability to: • develop products internally; • complete laboratory testing and human studies; • obtain and maintain necessary intellectual property rights to our products; • obtain and maintain necessary regulatory approvals related to the efficacy and safety of our products; • develop and expand production facilities meeting all regulatory requirements or enter into arrangements with third parties to manufacture our products on our behalf; and • deploy sales and marketing resources effectively or enter into arrangements with third parties to provide these functions |
| Although we are conducting human studies with respect to a number of products, we have limited experience with these activities and may not be successful in developing or commercializing these or other products |
| Because clinical trials for our products are expensive and protracted and their outcome is uncertain, we must invest substantial amounts of time and money that may not yield viable products |
| Conducting clinical trials is a lengthy, time-consuming and expensive process |
| Before obtaining regulatory approvals for the commercial sale of any product, we must demonstrate through laboratory, animal and human studies that such product is both effective and safe for use in humans |
| We will incur substantial additional expense for and devote a significant amount of time to these studies |
| Before a drug may be marketed in the US, it must be the subject of rigorous preclinical testing |
| The results of these studies must be submitted to the FDA as part of an investigational new drug application, which is reviewed by the FDA before clinical testing in humans can begin |
| The results of preliminary studies do not predict clinical success |
| A number of potential drugs have shown promising results in early testing but subsequently failed to obtain necessary regulatory approvals |
| Data obtained from tests are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval |
| Regulatory authorities may refuse or delay approval as a result of many other factors, including changes in regulatory policy during the period of product development |
| Completion of clinical trials may take many years |
| The length of time required varies substantially according to the type, complexity, novelty and intended use of the product candidate |
| The FDA monitors the progress of each phase of testing, and may require the modification, suspension or termination of a trial if it is determined to present excessive risks to patients |
| Our rate of commencement and completion of clinical trials may be delayed by many factors, including: • our inability to manufacture sufficient quantities of materials for use in clinical trials; • variability in the number and types of patients available for each study; • difficulty in maintaining contact with patients after treatment, resulting in incomplete data; • unforeseen safety issues or side effects; • poor or unanticipated effectiveness of products during the clinical trials; or • government or regulatory delays |
| To date, data obtained from our clinical trials are not sufficient to support an application for regulatory approval without further studies |
| Studies conducted by us or by third parties on our behalf may not 19 _________________________________________________________________ demonstrate sufficient effectiveness and safety to obtain the requisite regulatory approvals for these or any other potential products |
| Based on the results of a human study for a particular product candidate, regulatory authorities may not permit us to undertake any additional clinical trials for that product candidate |
| The clinical trial process may also be accompanied by substantial delay and expense and there can be no assurance that the data generated in these studies will ultimately be sufficient for marketing approval by the FDA For example, in 2005, we discontinued our clinical development of LymphoRad^131, a product candidate to treat cancer |
| We face risks in connection with our ABthrax product in addition to risks generally associated with drug development |
| Our entry into the biodefense field with the development of ABthrax presents risks beyond those associated with the development of our other products |
| Numerous other companies and governmental agencies, including the US Army, are known to be developing biodefense pharmaceuticals and related products to combat anthrax |
| These competitors may have financial or other resources greater than ours, and may have easier or preferred access to the likely distribution channels for biodefense products |
| In addition, since the primary purchaser of biodefense products is the US Government and its agencies, the success of ABthrax will depend on government spending policies and pricing restrictions |
| The funding of government biodefense programs is dependent, in part, on budgetary constraints, political considerations and military developments |
| In the case of the US Government, executive or legislative action could attempt to impose production and pricing requirements on us |
| We have entered into a two-phase contract to supply ABthrax^tm, a human monoclonal antibody developed for use in the treatment of anthrax disease, to the US Government |
| Under the first phase of the contract, we will supply ten grams of ABthrax to the US Department of Health and Human Services (HHS) for comparative in vitro and in vivo testing |
| Under the second phase of the contract, the US Government has the option to place an order within one year for up to 100cmam000 doses of ABthrax for the Strategic National Stockpile, for use in the treatment of anthrax disease |
| We believe that the HHS comparative testing results, along with Human Genome Sciences’ own preclinical and clinical study results, will form the basis of the US Government’s decision process for exercising its option for additional product for the Strategic National Stockpile |
| We do not know whether the US Government will purchase ABthrax, and if it does, the timing, extent and amount of such purchases |
| If the US Government decides to place an order for ABthrax, we will continue to face risks related to animal and human testing, to the manufacture of ABthrax and to FDA concurrence that ABthrax meets the requirements of the contract |
| If we are unable to meet the product requirements associated with this contract, the US Government will not be required to reimburse us for the costs incurred or to purchase any product pursuant to that order |
| Because neither we nor any of our collaboration partners have received marketing approval for any product candidate resulting from our research and development efforts, and because we may never be able to obtain any such approval, it is possible that we may not be able to generate any product revenue |
| Neither we nor any of our collaboration partners have completed development of any product based on our genomics research |
| It is possible that we will not receive FDA marketing approval for any of our product candidates |
| Although a number of our potential products have entered clinical trials, we cannot assure you that any of these products will receive marketing approval |
| All the products being developed by our collaboration partners will also require additional research and development, extensive preclinical studies and clinical trials and regulatory approval prior to any commercial sales |
| In some cases, the length of time that it takes for our collaboration partners to achieve various regulatory approval milestones may affect the payments that we are eligible to receive under our collaboration agreements |
| We and our collaboration partners may need to successfully address a number of technical challenges in order to complete development of our products |
| Moreover, these products may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use |
| 20 _________________________________________________________________ RISK FROM COLLABORATION RELATIONSHIPS AND STRATEGIC ACQUISITIONS Our plan to use collaborations to leverage our capabilities and to grow in part through the strategic acquisition of other companies and technologies may not be successful if we are unable to integrate our partners’ capabilities or the acquired companies with our operations or if our partners’ capabilities do not meet our expectations |
| As part of our strategy, we intend to continue to evaluate strategic partnership opportunities and consider acquiring complementary technologies and businesses |
| In order for our future collaboration efforts to be successful, we must first identify partners whose capabilities complement and integrate well with ours |
| Technologies to which we gain access may prove ineffective or unsafe |
| Our current agreements that grant us access to such technology may expire and may not be renewable |
| Our partners may prove difficult to work with or less skilled than we originally expected |
| In addition, any past collaborative successes are no indication of potential future success |
| In order to achieve the anticipated benefits of an acquisition, we must integrate the acquired company’s business, technology and employees in an efficient and effective manner |
| The successful combination of companies in a rapidly changing biotechnology and genomics industry may be more difficult to accomplish than in other industries |
| The combination of two companies requires, among other things, integration of the companies’ respective technologies and research and development efforts |
| We cannot assure you that this integration will be accomplished smoothly or successfully |
| The difficulties of integration are increased by the necessity of coordinating geographically separated organizations and addressing possible differences in corporate cultures and management philosophies |
| The integration of certain operations will require the dedication of management resources that may temporarily distract attention from the day-to-day operations of the combined companies |
| The business of the combined companies may also be disrupted by employee retention uncertainty and lack of focus during integration |
| The inability of management to integrate successfully the operations of the two companies, in particular, to integrate and retain key scientific personnel, or the inability to integrate successfully two technology platforms, could have a material adverse effect on our business, results of operations and financial condition |
| Although GSK has agreed to be our partner in the development and commercialization of LymphoStat-B and HGS-ETR1, we may be unable to negotiate an appropriate co-development and co-marketing agreement |
| As part of our June 1996 agreement with GSK, we granted a 50/50 co-development and commercialization option to GSK for certain human therapeutic products that successfully complete Phase 2a clinical trials |
| On July 7, 2005, we announced that GSK had exercised its option to develop and commercialize LymphoStat-B (belimumab) jointly with us and on August 18, 2005, we announced that GSK had exercised its option to develop and commercialize HGS-ETR1 (mapatumumab) jointly with us |
| Under the terms of the 1996 agreement, GSK and we will share equally in Phase 34 development costs of these products, and will share equally in sales and marketing expenses and profits of any such product that is commercialized pursuant to co-development and commercialization agreements, the remaining terms of which are subject to negotiation |
| We do not know if we will be successful in negotiating such agreements, and if we are unsuccessful, we do not know if, and how, GSK and we will collaborate on these products |
| If we complete the spin-off of our CoGenesys division, our ability to receive revenues from the assets transferred with CoGenesys will depend on CoGenesys’ ability to develop and commercialize those assets |
| The spin-off of our CoGenesys division is contingent on the receipt by CoGenesys of third party financing |
| As a result, we cannot assure you that the transaction, which will be treated as a sale for accounting purposes, will be completed as currently structured |
| If the transaction is completed, we will depend on CoGenesys to develop and commercialize those assets |
| If CoGenesys is not successful in its efforts, we may not receive any revenue from the development of CoGenesys assets |
| CoGenesys will require significant third party financing, which may be unavailable |
| In addition, our relationship with CoGenesys will be subject to the risks and uncertainties inherent in our other collaborations |
| 21 _________________________________________________________________ Because we depend on our collaboration partners for revenue, we may not become profitable if we cannot increase the revenue from our collaboration partners or other sources |
| We have received all of our revenue from payments made under our collaboration agreements with GSK and, to a lesser extent, other agreements |
| The initial research term of the GSK collaboration agreement and many of our other collaboration agreements expired in 2001 |
| None of these collaboration agreements was renewed |
| We may not be able to enter into additional collaboration agreements |
| We are entitled to certain milestone and royalty payments from the existing collaborators, but may not receive payments if our collaborators fail to: • develop marketable products; • obtain regulatory approvals for products; or • successfully market products based on our research |
| Further, circumstances could arise under which one or more of our collaboration partners may allege that we breached our agreement with them and, accordingly, seek to terminate our relationship with them |
| If successful, this could adversely affect our ability to commercialize our products and harm our business |
| If one of our collaborators pursues a product that competes with our products, there could be a conflict of interest and we may not receive the milestone or royalty payments that we expect |
| Each of our collaborators is developing a variety of products, some with other partners |
| Our collaborators may pursue existing or alternative technologies to develop drugs targeted at the same diseases instead of using our licensed technology to develop products in collaboration with us |
| Our collaborators may also develop products that are similar to or compete with products they are developing in collaboration with us |
| If our collaborators pursue these other products instead of our products, we may not receive milestone or royalty payments |
| FINANCIAL AND MARKET RISKS Because of our substantial indebtedness, we may be unable to adjust our strategy to meet changing conditions in the future |
| As of December 31, 2005, we had long-term obligations of approximately dlra510dtta0 million |
| We also had a future guarantee obligation of dlra200dtta0 million under the current terms of one facility lease |
| Our substantial debt and future guarantee will have several important consequences for our future operations |
| For instance: • payments of interest on, and principal of, our indebtedness will be substantial, and may exceed then current revenues and available cash; • a default under the terms of these existing obligations could result in the termination of certain leases and the acceleration of the maturity of our other financial obligations; • we may be unable to obtain additional future financing for continued clinical trials, capital expenditures, acquisitions or general corporate purposes; • we may be unable to withstand changing competitive pressures, economic conditions and governmental regulations; and • we may be unable to make acquisitions or otherwise take advantage of significant business opportunities that may arise |
| We have entered into an off-balance sheet facility lease arrangement that constitutes a significant financial obligation and possible risks to our financial condition |
| In the second quarter of 2003, we entered into a facility lease for our research and development and administrative facility |
| Under US generally accepted accounting principles, this lease was treated as an operating lease |
| In the event we default on our obligation under the lease, we may be responsible for up to dlra200dtta0 million of the cost of the facility because of a guarantee we made in connection with the lease |
| This 22 _________________________________________________________________ obligation is not required to be reflected as a liability on our balance sheet, but is described in footnotes to our financial statements |
| We are required to pledge marketable securities as security for our obligation under the lease and the related documents |
| As of December 31, 2005, we included approximately dlra220dtta2 million of restricted investments on our balance sheet, of which approximately dlra207dtta2 million was held as restricted investments providing collateral for our obligation with respect to this facility |
| If the value of our pledged investments declines, because of an increase in interest rates or otherwise, we would need to pledge additional investments, which would further reduce our working capital |
| The rent under this lease is based on a floating interest rate, but the lessors at our request can lock in a fixed interest rate at an interest rate premium |
| To the extent the lessors do not lock in a fixed interest rate, if interest rates increase, our rent obligation would also increase |
| The lease has a term of seven years |
| If we desire to remain in the facility upon lease expiration, we would need to refinance or buy the facility at the financed project cost |
| We cannot assure you that refinancing will be available on comparable terms, if at all |
| Further, in the event the facility is sold, we have a guarantee obligation which makes us responsible to the extent that the value of the facility is less than the financed project cost and which will reach a maximum guarantee obligation of approximately dlra175dtta5 million if the value of the facility declined below approximately 12dtta25prca of the financed project cost |
| While we believe that this lease provides a useful financing mechanism for the facility, adverse public perception of such lease arrangements and the associated risks may cause our stock price to decline |
| To pursue our current business strategy and continue developing our products, we are likely to need substantial additional funding in the future |
| If we do not obtain this funding on acceptable terms, we may not be able to continue to grow our business and generate enough revenue to recover our investment in our product development effort |
| Since inception, we have expended, and will continue to expend, substantial funds to continue our research and development programs |
| We are likely to need additional financing to fund our operating expenses and capital requirements |
| In the third quarter of 2005, we issued dlra230dtta0 million in 2^1/4prca convertible subordinated notes due 2012 and in the fourth quarter of 2005, we repurchased all of the remaining outstanding subordinated notes due 2007 |
| We may not be able to obtain additional financing on acceptable terms |
| If we raise additional funds by issuing equity securities, equity-linked securities or debt securities, the new equity securities may dilute the interests of our existing stockholders or the new debt securities may contain restrictive financial covenants |
| Our need for additional funding will depend on many factors, including, without limitation: • the amount of revenue, if any, that we are able to obtain from our collaborations, any approved products, and the time and costs required to achieve those revenues; • the timing, scope and results of preclinical studies and clinical trials; • the size and complexity of our development programs; • the time and costs involved in obtaining regulatory approvals; • the cost of launching our products; • the costs of commercializing our products, including marketing, promotional and sales costs; • our ability to establish and maintain collaboration partnerships; • competing technological and market developments; • the costs involved in filing, prosecuting and enforcing patent claims; and • scientific progress in our research and development programs |
| If we are unable to raise additional funds, we may, among other things: • delay, scale back or eliminate some or all of our research and development programs; • delay, scale back or eliminate some or all of our commercialization activities; 23 _________________________________________________________________ • lose rights under existing licenses; • relinquish more of, or all of, our rights to product candidates on less favorable terms than we would otherwise seek; and • be unable to operate as a going concern |
| Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant, uninsured liabilities |
| We do not carry insurance for all categories of risk that our business may encounter |
| We currently maintain general liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance policies |
| We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage |
| For example, the premiums for our directors’ and officers’ insurance policy have increased over time, and this type of insurance may not be available on acceptable terms or at all in the future |
| Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations |
| INTELLECTUAL PROPERTY RISKS If patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize our discoveries |
| Important legal issues remain to be resolved as to the extent and scope of available patent protection for biotechnology products and processes in the US and other important markets outside the US, such as Europe and Japan |
| Foreign markets may not provide the same level of patent protection as provided under the US patent system |
| We expect that litigation or administrative proceedings will likely be necessary to determine the validity and scope of certain of our and others’ proprietary rights |
| We are currently involved in a number of administrative proceedings relating to the scope of protection of our patents and those of others |
| Any such litigation or proceeding may result in a significant commitment of resources in the future and could force us to do one or more of the following: cease selling or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue; obtain a license from the holder of the intellectual property right alleged to have been infringed, which license may not be available on reasonable terms, if at all; and redesign our products to avoid infringing the intellectual property rights of third parties, which may be time-consuming or impossible to do |
| In addition, changes in, or different interpretations of, patent laws in the US and other countries may result in patent laws that allow others to use our discoveries or develop and commercialize our products |
| We cannot assure you that the patents we obtain or the unpatented technology we hold will afford us significant commercial protection |
| If our patent applications do not result in issued patents, our competitors may obtain rights to and commercialize the discoveries we attempted to patent |
| Our pending patent applications, including those covering full-length genes and their corresponding proteins, may not result in the issuance of any patents |
| Our applications may not be sufficient to meet the statutory requirements for patentability in all cases or may be the subject of interference proceedings by the Patent and Trademark Office |
| These proceedings determine the priority of inventions and, thus, the right to a patent for technology in the US We are involved in interference proceedings, including proceedings related to products based on TRAIL Receptor 2 (such as HGS-ETR2 and HGS-TR2J) and may be involved in other interference proceedings in the future |
| We are also involved in opposition proceedings in connection with foreign patent filings, including oppositions related to products based on BLyS (such as LymphoStat-B), and may be involved in other opposition proceedings in the future |
| We cannot assure you that we will be successful in any of these proceedings |
| If others file patent applications or obtain patents similar to ours, then the Patent and Trademark Office may deny our patent applications, or others may restrict the use of our discoveries |
| We are aware that others, including universities and companies working in the biotechnology and pharmaceutical fields, have filed patent applications and have been granted patents in the US and in other 24 _________________________________________________________________ countries that cover subject matter potentially useful or necessary to our business |
| Some of these patents and patent applications claim only specific products or methods of making products, while others claim more general processes or techniques useful in the discovery and manufacture of a variety of products |
| The risk of third parties obtaining additional patents and filing patent applications will continue to increase as the biotechnology industry expands |
| We cannot predict the ultimate scope and validity of existing patents and patents that may be granted to third parties, nor can we predict the extent to which we may wish or be required to obtain licenses to such patents, or the availability and cost of acquiring such licenses |
| To the extent that licenses are required, the owners of the patents could bring legal actions against us to claim damages or to stop our manufacturing and marketing of the affected products |
| We believe that there will continue to be significant litigation in our industry regarding patent and other intellectual property rights |
| If we become involved in litigation, it could consume a substantial portion of our resources |
| Because issued patents may not fully protect our discoveries, our competitors may be able to commercialize products similar to those covered by our issued patents |
| Issued patents may not provide commercially meaningful protection against competitors and may not provide us with competitive advantages |
| Other parties may challenge our patents or design around our issued patents or develop products providing effects similar to our products |
| In addition, others may discover uses for genes, proteins or antibodies other than those uses covered in our patents, and these other uses may be separately patentable |
| The holder of a patent covering the use of a gene, protein or antibody for which we have a patent claim could exclude us from selling a product for a use covered by its patent |
| We rely on our collaboration partners to seek patent protection for the products they develop based on our research |
| A significant portion of our future revenue may be derived from royalty payments from our collaboration partners |
| These partners face the same patent protection issues that we and other biotechnology firms face |
| As a result, we cannot assure you that any product developed by our collaboration partners will be patentable, and therefore, revenue from any such product may be limited, which would reduce the amount of any royalty payments |
| We also rely on our collaboration partners to effectively prosecute their patent applications |
| Their failure to obtain or protect necessary patents could also result in a loss of royalty revenue to us |
| If we are unable to protect our trade secrets, others may be able to use our secrets to compete more effectively |
| We may not be able to meaningfully protect our trade secrets |
| We rely on trade secret protection to protect our confidential and proprietary information |
| We believe we have acquired or developed proprietary procedures and materials for the production of proteins |
| We have not sought patent protection for these procedures |
| While we have entered into confidentiality agreements with employees and academic collaborators, we may not be able to prevent their disclosure of these data or materials |
| Others may independently develop substantially equivalent information and processes |
| REGULATORY RISKS Because we are subject to extensive changing government regulatory requirements, we may be unable to obtain government approval of our products in a timely manner |
| Regulations in the US and other countries have a significant impact on our research, product development and manufacturing activities and will be a significant factor in the marketing of our products |
| All of our products will require regulatory approval prior to commercialization |
| In particular, our products are subject to rigorous preclinical and clinical testing and other premarket approval requirements by the FDA and similar regulatory authorities in other countries, such as in Europe and Japan |
| Various statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of our products |
| The lengthy process of seeking these approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources |
| Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our ability to commercialize our products in a timely manner, or at all |
| 25 _________________________________________________________________ Marketing Approvals |
| Before a product can be marketed and sold, the results of the preclinical and clinical testing must be submitted to the FDA for approval |
| This submission will be either a new drug application or a biologic license application, depending on the type of drug |
| In responding to a new drug application or a biologic license application, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not provide an adequate basis for approval |
| We cannot assure you that any approval required by the FDA will be obtained on a timely basis, or at all |
| In addition, the FDA may condition marketing approval on the conduct of specific post-marketing studies to further evaluate safety and efficacy |
| Rigorous and extensive FDA regulation of pharmaceutical products continues after approval, particularly with respect to compliance with current good manufacturing practices, or cGMPs, reporting of adverse effects, advertising, promotion and marketing |
| Discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions, any of which could materially adversely affect our business |
| Foreign Regulation |
| We must obtain regulatory approval by governmental agencies in other countries prior to commercialization of our products in those countries |
| Foreign regulatory systems may be just as rigorous, costly and uncertain as in the US Because we are subject to environmental, health and safety laws, we may be unable to conduct our business in the most advantageous manner |
| We are subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, emissions and wastewater discharges, and the use and disposal of hazardous or potentially hazardous substances used in connection with our research, including radioactive compounds and infectious disease agents |
| We also cannot accurately predict the extent of regulations that might result from any future legislative or administrative action |
| Any of these laws or regulations could cause us to incur additional expense or restrict our operations |
| OTHER RISKS RELATED TO OUR BUSINESS Many of our competitors have substantially greater capabilities and resources and may be able to develop and commercialize products before we do |
| We face intense competition from a wide range of pharmaceutical and biotechnology companies, as well as academic and research institutions and government agencies |
| Principal competitive factors in our industry include: • the quality and breadth of an organization’s technology; • the skill of an organization’s employees and its ability to recruit and retain skilled employees; • an organization’s intellectual property portfolio; • the range of capabilities, from target identification and validation to drug discovery and development to manufacturing and marketing; and • the availability of substantial capital resources to fund discovery, development and commercialization activities |
| Many large pharmaceutical and biotechnology companies have significantly larger intellectual property estates than we do, more substantial capital resources than we have, and greater capabilities and experience than we do in preclinical and clinical development, sales, marketing, manufacturing and regulatory affairs |
| We are aware of products in research or development by our competitors that address all of the diseases we are targeting |
| Any of these products may compete with our product candidates |
| Our competitors may succeed in developing their products before we do, obtaining approvals from the FDA or other regulatory agencies for their products more rapidly than we do, or developing products that are more effective than our 26 _________________________________________________________________ products |
| These products or technologies might render our technology or drugs under development obsolete or noncompetitive |
| In addition, our albumin fusion protein products are designed to be longer-acting versions of existing products |
| The existing product in many cases has an established market that may make the introduction of our product more difficult |
| If we lose or are unable to attract key management or other personnel, we may experience delays in product development |
| We depend on our senior executive officers as well as key scientific and other personnel |
| If any key employee decides to terminate his or her employment with us, this termination could delay the commercialization of our products or prevent us from becoming profitable |
| We have not purchased key-man life insurance on any of our executive officers or key personnel, and therefore may not have adequate funds to find acceptable replacements for them |
| Competition for qualified employees is intense among pharmaceutical and biotechnology companies, and the loss of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the expansion of our activities, could hinder our ability to complete human studies successfully and develop marketable products |
| If the health care system or reimbursement policies change, the prices of our potential products may be lower than expected and our potential sales may decline |
| The levels of revenues and profitability of biopharmaceutical companies like ours may be affected by the continuing efforts of government and third party payers to contain or reduce the costs of health care through various means |
| For example, in certain foreign markets, pricing or profitability of therapeutic and other pharmaceutical products is subject to governmental control |
| In the US there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental control |
| While we cannot predict whether any legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability |
| In addition, in the US and elsewhere, sales of therapeutic and other pharmaceutical products depend in part on the availability of reimbursement to the consumer from third party payers, such as government and private insurance plans |
| Third party payers are increasingly challenging the prices charged for medical products and services |
| We cannot assure you that any of our products will be considered cost effective or that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive and profitable basis |
| We may be unable successfully to establish a manufacturing capability and may be unable to obtain required quantities of our products economically |
| We do not manufacture any products for commercial use and do not have any experience in manufacturing materials suitable for commercial use |
| We are nearing the completion of construction and are beginning the validation phase of a large-scale manufacturing facility to increase our capacity for protein and antibody drug production |
| The FDA must inspect and license these facilities to determine compliance with cGMP requirements for commercial production |
| We may not be able successfully to establish sufficient manufacturing capabilities or manufacture our products economically or in compliance with cGMPs and other regulatory requirements |
| While we are expanding our manufacturing capabilities, we have contracted and may in the future contract with third party manufacturers or develop products with collaboration partners and use the collaboration partners’ manufacturing capabilities |
| If we use others to manufacture our products, we will depend on those parties to comply with cGMPs, and other regulatory requirements and to deliver materials on a timely basis |
| These parties may not perform adequately |
| Any failures by these third parties may delay our development of products or the submission of these products for regulatory approval |
| Because we currently have only a limited marketing capability, we may be unable to sell any of our products effectively |
| We do not have any marketed products |
| If we develop products that can be marketed, we intend to market the products either independently or together with collaborators or strategic partners |
| GSK and others 27 _________________________________________________________________ have co-marketing rights with respect to certain of our products |
| If we decide to market any products, either independently or together with partners, we will incur significant additional expenditures and commit significant additional management resources to establish a sales force |
| For any products that we market together with partners, we will rely, in whole or in part, on the marketing capabilities of those parties |
| We may also contract with third parties to market certain of our products |
| Ultimately, we and our partners may not be successful in marketing our products |
| Because we depend on third parties to conduct some of our laboratory testing and human studies, we may encounter delays in or lose some control over our efforts to develop products |
| We are dependent on third-party research organizations to design and conduct some of our laboratory testing and human studies |
| If we are unable to obtain any necessary testing services on acceptable terms, we may not complete our product development efforts in a timely manner |
| If we rely on third parties for laboratory testing and human studies, we may lose some control over these activities and become too dependent upon these parties |
| These third parties may not complete testing activities on schedule or when we request |
| Our certificate of incorporation, bylaws and stockholder rights plan could discourage acquisition proposals, delay a change in control or prevent transactions that are in your best interests |
| Provisions of our certificate of incorporation and bylaws, as well as Section 203 of the Delaware General Corporation Law, may discourage, delay or prevent a change in control of our company that you as a stockholder may consider favorable and may be in your best interest |
| We have also adopted a stockholder rights plan, or “poison pill,” that may discourage, delay or prevent a change in control |
| Our certificate of incorporation and bylaws contain provisions that: • authorize the issuance of up to 20cmam000cmam000 shares of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and discourage a takeover attempt; • classify the directors of our board with staggered, three-year terms, which may lengthen the time required to gain control of our board of directors; • limit who may call special meetings of stockholders; and • establish advance notice requirements for nomination of candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings |
| Because our stock price has been and will likely continue to be volatile, the market price of our common stock may be lower or more volatile than you expected |
| Our stock price, like the stock prices of many other biotechnology companies, has been highly volatile |
| From January 1, 2005 through December 31, 2005, the closing price of our common stock has been as low as dlra7dtta75 per share and as high as dlra15dtta08 per share |
| The market price of our common stock could fluctuate widely because of: • future announcements about our company or our competitors, including the results of testing, technological innovations or new commercial products; • negative regulatory actions with respect to our potential products or regulatory approvals with respect to our competitors’ products; • changes in government regulations; • developments in our relationships with our collaboration partners; • developments affecting our collaboration partners; • announcements relating to health care reform and reimbursement levels for new drugs, particularly oncology drugs; 28 _________________________________________________________________ • our failure to acquire or maintain proprietary rights to the gene sequences we discover or the products we develop; • litigation; and • public concern as to the safety of our products |
| The stock market has experienced extreme price and volume fluctuations that have particularly affected the market price for many emerging and biotechnology companies |
| These fluctuations have often been unrelated to the operating performance of these companies |
| These broad market fluctuations may cause the market price of our common stock to be lower or more volatile than you expected |