| MAXYGEN INC Item 1A RISK FACTORS This report contains forward-looking statements that involve risks and uncertainties |
| Our actual results could differ materially from those anticipated in these forward-looking statements as a result of factors both in and out of our control, including the risks faced by us described below and elsewhere in this report |
| You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects |
| The risks and uncertainties described below are not the only ones facing our company |
| Additional risks and uncertainties not presently known to us or that we currently 14 ______________________________________________________________________ [39]Table of Contents deem immaterial also may impair our business operations |
| If any of the following risks actually occur, our business could be harmed |
| In such case, the trading price of our common stock could decline, and you may lose all or part of your investment |
| We expect to continue to incur net losses and may not achieve or maintain profitability |
| We have incurred losses since our inception, including a loss applicable to common stockholders of dlra35dtta2 million in 2005, before a positive non-recurring adjustment of dlra16dtta6 million resulting from the cumulative effect adjustment recorded as a result of the deconsolidation of Codexis, and dlra33dtta7 million in 2003 |
| During 2004, we recognized income applicable to common stockholders of dlra8dtta3 million, primarily due to the sale of Verdia, but our loss from continuing operations was dlra49dtta1 million |
| Our loss from continuing operations in 2005 was dlra35dtta1 million |
| As of December 31, 2005, we had an accumulated deficit of dlra204dtta2 million |
| We expect to incur net losses and negative cash flow from operating activities for at least the next several years |
| The funded research portion of one of our primary collaborations, with Roche for our MAXY-alpha product candidates, ended in December 2005 |
| To date, we have derived substantially all our revenues from collaborations and grants and expect to derive a substantial majority of our revenue from such sources for at least the next several years |
| Revenues from collaborations and grants are uncertain because our existing agreements generally have fixed terms and may be terminated under certain conditions, and because our ability to secure future agreements will depend upon our ability to address the needs of current and potential future collaborators |
| We expect to spend significant amounts to fund the development of our product candidates |
| As a result, we expect that our operating expenses will exceed revenues in the near term and we do not expect to achieve profitability during the next several years |
| If the time required for us to achieve profitability is longer than we anticipate, we may not be able to continue our business |
| We are an early stage company deploying unproven technologies |
| If we do not develop commercially successful products, we may be forced to cease operations |
| You must evaluate us in light of the uncertainties and complexities affecting an early stage biotechnology company |
| We may not be successful in the commercial development of products |
| Successful products will require significant development and investment, including testing, to demonstrate their safety and effectiveness before their commercialization |
| To date, companies in the biotechnology industry have developed and commercialized only a limited number of products |
| We have not proven our ability to develop or commercialize any products |
| We, either alone or in conjunction with our corporate collaborators, must conduct a substantial amount of additional research and development before any regulatory authority will approve any of our potential products |
| This research and development may not indicate that our products are safe and effective, in which case regulatory authorities may not approve them |
| Problems frequently encountered in connection with the development and utilization of new and unproven technologies and the competitive environment in which we operate could limit our ability to develop commercially successful products |
| Our revenues, expenses and operating results are subject to fluctuations that may cause our stock price to decline |
| Our revenues, expenses and operating results have fluctuated in the past and are likely to do so in the future |
| These fluctuations could cause our stock price to fluctuate significantly or decline |
| Some of the factors that could cause our revenues, expenses and operating results to fluctuate include: · termination of research contracts with collaborators or government research grants, which may not be renewed or replaced; · the success rate of our development or discovery efforts leading to milestones and royalties; · timing of licensing fees or the achievement of milestones under new or existing licensing and collaborative arrangements; 15 ______________________________________________________________________ [40]Table of Contents · timing of expenses, particularly with respect to contract manufacturing, pre-clinical studies and clinical trials; · the timing and willingness of collaborators to commercialize our products, which would result in royalties to us; and · general and industry specific economic conditions, which may affect our collaborators’ research and development expenditures |
| A large portion of our expenses are relatively fixed, including expenses for facilities, equipment and personnel |
| Accordingly, if revenues fluctuate unexpectedly due to unexpected expiration of research contracts or government research grants, failure to obtain anticipated new contracts or other factors, we may not be able to immediately reduce our operating expenses |
| Failure to achieve anticipated levels of revenues could therefore significantly harm our operating results for a particular fiscal period |
| Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance |
| Our operating results in some quarters may not meet the expectations of stock market analysts and investors |
| In that case, our stock price would likely decline |
| Our revenues are substantially dependent on a limited number of collaborative arrangements and government grants, and our inability to maintain existing collaborations or grants or establish future collaborations or grants would adversely impact our revenues, financial position and results of operation |
| We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements and from government grants |
| We currently have one collaboration agreement, with Roche for our MAXY-VII product candidates, and three government grants that are expected to generate revenue in 2006 |
| If this collaboration agreement with Roche is not successful or the agreement or the government grants are terminated and we are unable to enter into new collaboration agreements or secure additional grants, our revenues, financial position and results of operations would be materially adversely affected |
| Drug development is a long, expensive and uncertain process and may not result in the development of any commercially successful products |
| The development of human therapeutic products is long and uncertain |
| Most product candidates fail before entering clinical trials and most clinical trials do not result in a marketed product |
| In addition, due to the nature of human therapeutic research and development, the expected timing of product development and initiation of clinical trials and the results of such development and clinical trials are uncertain and subject to change at any point |
| This uncertainty may result in research delays, product candidate failures and clinical trial delays and failures |
| Such delays and failures could drastically reduce the price of our stock and our ability to raise capital |
| Without sufficient capital, we would need to reduce operations and could be forced to cease operations |
| In addition, we may determine that certain preclinical product candidates or programs do not have sufficient potential to warrant further funding |
| Accordingly, we may elect to terminate our programs for such product candidates or programs at any time |
| If we terminate a preclinical program in which we have invested significant resources, our financial condition and results of operations may be adversely affected, as we will have expended resources on a program that will not provide a return on our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses |
| Termination of such programs could cause the price of our stock to drop significantly |
| Our potential products are subject to a lengthy and uncertain regulatory process |
| If our potential products are not approved, we will not be able to commercialize those products |
| The FDA must approve any therapeutic product or vaccine before it can be marketed in the United States |
| Before we can file a new drug application or biologic license application with the FDA, the product candidate 16 ______________________________________________________________________ [41]Table of Contents must undergo extensive testing, including animal and human clinical trials, which can take many years and require substantial expenditures |
| Data obtained from such testing are susceptible to varying interpretations that could delay, limit or prevent regulatory approval |
| In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application or product license application may cause delays or rejections |
| The regulatory process is expensive and time consuming |
| The regulatory agencies of foreign governments must also approve our therapeutic products before the products can be sold in those other countries |
| Because our potential products involve the application of new technologies and may be based upon new therapeutic approaches, they may be subject to substantial review by government regulatory authorities and these authorities may grant regulatory approvals more slowly for our products than for products using more conventional technologies |
| We have not submitted an application to the FDA or any other regulatory authority for any product candidate, and neither the FDA nor any other regulatory authority has approved any therapeutic product candidate developed with our MolecularBreeding directed evolution platform for commercialization in the United States or elsewhere |
| We may not be able to, or our collaborators may not be able to, conduct clinical testing or obtain the necessary approvals from the FDA or other regulatory authorities for our products |
| Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we can market a product |
| Further, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review, and discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the product from the market |
| In certain countries, regulatory agencies also set or approve prices |
| The manufacturing of our product candidates presents technological, logistical and regulatory risks, each of which may adversely affect our potential revenues |
| The manufacturing and manufacturing development of pharmaceuticals, and, in particular, biologicals, are technologically and logistically complex and heavily regulated by the FDA and other governmental authorities |
| The manufacturing and manufacturing development of our product candidates present many risks, including, but not limited to, the following: · before we can obtain approval of any of our products or product candidates for the treatment of a particular disease or condition, we must demonstrate to the satisfaction of the FDA and other governmental authorities that the drug manufactured for the clinical trials is comparable to the drug manufactured for commercial use and that the manufacturing facility complies with applicable laws and regulations; · it may not be technically feasible to scale up an existing manufacturing process to meet demand or such scale-up may take longer than anticipated; and · failure to comply with strictly enforced GMP regulations and similar foreign standards may result in delays in product approval or withdrawal of an approved product from the market |
| Any of these factors could delay any clinical trials, regulatory submissions or commercialization of our product candidates, entail higher costs and result in our being unable to effectively sell any products |
| Our manufacturing strategy, which relies on third-party manufacturers, exposes us to additional risks |
| We do not currently have the resources, facilities or experience to manufacture any product candidates or potential products ourselves |
| Completion of any clinical trials and any commercialization of our products will require access to, or development of, manufacturing facilities that meet FDA standards or other regulatory requirements to manufacture a sufficient supply of our potential products |
| We currently depend on third parties for the scale up and manufacture of our product candidates for preclinical and clinical purposes |
| If our third party manufacturers are unable to manufacture preclinical or clinical supplies in a timely manner, or are unable or 17 ______________________________________________________________________ [42]Table of Contents unwilling to satisfy our needs or FDA or other regulatory requirements, it could delay clinical trials, regulatory submissions and commercialization of our potential products, entail higher costs and possibly result in our being unable to sell our products |
| In addition, technical problems or other manufacturing delays could delay the advancement of potential products into preclinical or clinical trials or result in the termination of development of particular product candidates, adversely affecting our product development timetable, which in turn could adversely affect our stock price |
| In addition, failure of any third party manufacturers or us to comply with applicable regulations, including pre- or post-approval inspections and the GMP requirements of the FDA or other comparable regulatory agencies, could result in sanctions being imposed on us |
| These sanctions could include fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delay, suspension or withdrawal of approvals, license revocation, product seizures or recalls, operational restrictions and criminal prosecutions, any of which could significantly and adversely affect our business |
| If our collaborations are not successful, we may not be able to effectively develop and market some of our products |
| Since we do not currently possess the resources necessary to develop and commercialize multiple products, or the resources to complete all approval processes that may be required for these potential products, we generally seek to enter into collaborative arrangements to develop and commercialize potential products |
| We have entered into collaborative agreements with other companies to fund the development of new products for specific purposes |
| These contracts generally expire after a fixed period of time |
| If they are not renewed or if we do not enter into new collaborative agreements, our revenues will be reduced and our potential products may not be commercialized |
| We have limited or no control over the resources that any collaborator may devote to the development and commercialization of our potential products |
| Any of our present or future collaborators may not perform their obligations as expected |
| These collaborators may delay such development or commercialization, breach or terminate their agreement with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner |
| Further, our collaborators may elect not to develop potential products arising out of our collaborative arrangements or devote sufficient resources to the development, manufacture, marketing or sale of these products |
| If any of these events occur, we may not be able to develop or commercialize our potential products |
| In particular, we have entered into agreements with Roche for the co-development and commercialization of two of our lead product candidates, MAXY-alpha and MAXY-VII The failure of Roche to perform its obligations under either agreement, our failure to perform our obligations under either agreement or to effectively manage our relationship with Roche, or a material contractual dispute with Roche under either agreement would have a material adverse effect on our prospects and financial results |
| We conduct proprietary research programs, and any conflicts with our collaborators or any inability to commercialize products resulting from this research could harm our business |
| An important part of our strategy involves conducting proprietary research programs |
| As a result, we may pursue opportunities in fields that could conflict with those of our collaborators |
| Moreover, disagreements with our collaborators could develop over rights to our intellectual property |
| Any conflict with our collaborators could reduce our ability to obtain future collaboration agreements and negatively impact our relationship with existing collaborators, which could reduce our revenues |
| Certain of our collaborators could become our competitors in the future |
| Our collaborators could develop competing products, preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely or fail to devote sufficient resources to 18 ______________________________________________________________________ [43]Table of Contents allow the development and commercialization of our products |
| Any of these developments could harm our product development efforts |
| In some cases, our collaborators already market a product that could be competitive with the product(s) that we are collaborating with them on for an improved version, and could conduct their operations in a manner that discriminates against the product that we developed |
| We will either commercialize products resulting from our proprietary programs directly or through licensing to other companies |
| We have no experience in manufacturing or marketing, and we currently do not have the resources or capability to manufacture products on a commercial scale |
| In order for us to commercialize these products directly, we would need to develop, or obtain through outsourcing arrangements, the capability to manufacture, market and sell products, each of which could require significant capital investment |
| We do not have these capabilities, and we may not be able to develop or otherwise obtain the requisite manufacturing, marketing and sales capabilities |
| If we are unable to successfully commercialize products resulting from our proprietary research efforts, we will continue to incur losses |
| Any inability to adequately protect our proprietary technologies could harm our competitive position |
| Our success will depend in part on our ability to obtain patents and maintain adequate protection of our intellectual property for our technologies and products in the United States and other countries |
| If we do not adequately protect our intellectual property, competitors may be able to practice our technologies and erode our competitive advantage |
| The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting their proprietary rights in these foreign countries |
| These problems can be caused by, for example, a lack of rules and processes allowing for meaningfully defending intellectual property rights |
| We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets |
| The patent positions of biopharmaceutical and biotechnology companies, including our patent positions, are often uncertain and involve complex legal and factual questions |
| We apply for patents covering our technologies and potential products as we deem appropriate |
| However, we may not obtain patents on all inventions for which we seek patents, and any patents we obtain may be challenged and may be narrowed in scope or extinguished as a result of such challenges |
| Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products |
| Enforcement of our patents against infringers could require us to expend significant amounts with no assurance that we would be successful in any litigation |
| Others may independently develop similar or alternative technologies or design around our patented technologies or products |
| In addition, others may challenge or invalidate our patents, or our patents may fail to provide us with any competitive advantages |
| We rely upon trade secret protection for our confidential and proprietary information |
| We have taken security measures to protect our proprietary information |
| These measures may not provide adequate protection for our trade secrets or other proprietary information |
| We seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants |
| Nevertheless, employees, collaborators or consultants may still disclose or misuse our proprietary information, and we may not be able to meaningfully protect our trade secrets |
| In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets |
| Litigation or other proceedings or third party claims of intellectual property infringement could require us to spend time and money and could require us to shut down some of our operations |
| Our ability to develop products depends in part on not infringing patents or other proprietary rights of third parties, and not breaching any licenses that we have entered into with regard to our technologies and products |
| 19 ______________________________________________________________________ [44]Table of Contents Others have filed, and in the future are likely to file, patent applications covering genes or gene fragments or corresponding proteins or peptides that we may wish to utilize with our proprietary technologies, or products that are similar to products developed with the use of our technologies or alternative methods of generating gene diversity |
| If these patent applications result in issued patents and we wish to use the patented technology, we would need to obtain a license from the third party, which may not be available on acceptable terms, if at all |
| Third parties may assert that we are employing their proprietary technology without authorization |
| In particular, our efforts to develop improved, next-generation protein pharmaceuticals could lead to allegations of patent infringement by the parties commercializing other versions of such proteins |
| In addition, third parties may obtain patents in the future and claim that our technologies or product candidates infringe these patents |
| We could incur substantial costs and diversion of the time and attention of management and technical personnel in defending ourselves against any of these claims or enforcing our patents or other intellectual property rights against others |
| Furthermore, parties making claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to further develop, commercialize and sell products |
| In addition, in the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties |
| We may not be able to obtain these licenses at a reasonable cost, if at all |
| In that event, we could encounter delays in product introductions while we attempt to develop alternative methods or products, or be required to cease commercializing affected products |
| We monitor the public disclosures of other companies operating in our industry regarding their technological development efforts |
| If we determine that these efforts violate our intellectual property or other rights, we intend to take appropriate action, which could include litigation |
| Any action we take could result in substantial costs and diversion of management and technical personnel |
| Furthermore, the outcome of any action we take to protect our rights may not be resolved in our favor |
| Budget or cash constraints may force us to delay or terminate our efforts to develop certain products and could prevent us from executing our business plan, meeting our stated timetables and commercializing our potential products as quickly as possible |
| Because we are an emerging company with limited resources, and because the research and development of pharmaceuticals is a long and expensive process, we must regularly assess the most efficient allocation of our research and development resources |
| Accordingly, we may choose to delay or terminate our research and development efforts for a promising product candidate to allocate those resources to another program, which could cause us to fall behind our initial timetables for development and prevent us from commercializing product candidates as quickly as possible |
| As a result, we may not be able to fully realize the value of some of our product candidates in a timely manner, since they will be delayed in reaching the market, or may not reach the market at all |
| We are continuing our efforts to contain costs |
| On June 16, 2005, we announced a reduction in force of approximately 16prca of our personnel, across both our research and administrative functions |
| This reduction in force was a part of our efforts to focus our resources on product development |
| As a result of the reduction in force, we recorded termination costs of dlra807cmam000 during 2005, comprised primarily of involuntary termination benefits |
| We continue to believe strict cost containment in the near term is essential if our current funds are to be sufficient to allow us to continue our currently planned operations |
| We assess market conditions on an ongoing basis and plan to take appropriate actions as required |
| However, we may not be able to effectively contain our costs and achieve an expense structure commensurate with our business activities and revenues |
| As a result, we have inadequate levels of cash for future operations or for future capital requirements, which could significantly harm our ability to operate the business |
| We may need additional capital in the future |
| If additional capital is not available, we may have to curtail or cease operations |
| We anticipate that existing cash and cash equivalents and income earned thereon, together with anticipated revenues from collaborations and grants, will enable us to maintain our currently planned operations for at least 20 ______________________________________________________________________ [45]Table of Contents the next twelve months |
| However, our current plans and assumptions may change, and our capital requirements may increase in future periods depending on many factors, including payments received under collaborative agreements and government grants, the progress and scope of our collaborative and independent research and development projects, the extent to which we advance products into clinical trials with our own resources, the effect of any acquisitions, and the filing, prosecution and enforcement of patent claims |
| Changes may also occur that would consume available capital resources significantly sooner than we expect |
| We have no committed sources of capital and do not know whether additional financing will be available when needed, or, if available, that the terms will be favorable to us or our stockholders |
| If additional funds are not available, we may be forced to delay or terminate research or preclinical development programs, clinical trials, if any, or the commercialization of products, if any, resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights or potential markets, or grant licenses on terms that are not favorable to us |
| If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business |
| Many potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete |
| The biotechnology industry is characterized by rapid technological change, and the area of gene research is a rapidly evolving field |
| Our future success will depend on our ability to maintain a competitive position with respect to technological advances |
| Rapid technological development by others may result in our products and technologies becoming obsolete |
| We face, and will continue to face, intense competition from both large and small biotechnology companies, as well as academic and research institutions and government agencies, that are pursuing competing technologies for modifying DNA and proteins |
| These companies and organizations may develop technologies that are alternatives to our technologies |
| Further, our competitors in the protein optimization field may be more effective at implementing their technologies to develop commercial products |
| Some of these competitors have entered into collaborations with leading companies within our target markets to produce commercial products |
| Any products that we develop through our technologies will compete in multiple, highly competitive markets may fail to achieve market acceptance, which would impair our ability to become profitable |
| Most of the companies and organizations competing with us in the markets for such products have greater capital resources, research and development and marketing staff and facilities and capabilities, and greater experience in modifying DNA and proteins, obtaining regulatory approvals, manufacturing products and marketing |
| Our product candidates, even if approved by the FDA or a comparable foreign regulatory agency, may fail to achieve market acceptance, which would impair our ability to become profitable |
| Accordingly, our competitors may be able to develop technologies and products more easily, which would render our technologies and products and those of our collaborators obsolete and noncompetitive |
| Legislative actions, recent and potential new accounting pronouncements and higher compliance costs are likely to adversely impact our future financial position and results of operations |
| Recent changes in financial accounting standards may cause adverse, unexpected earnings fluctuations and will adversely affect our reported results of operations |
| For example, on December 16, 2004, the Financial Accounting Standards Board, or FASB, issued FASB Statement Nodtta 123 (revised 2004), “Share-Based Payment,” or SFAS 123(R), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based at their fair values |
| We adopted SFAS 123(R) as of January 1, 2006 and we expect the implementation of SFAS 123(R)’s fair value method to have a significant impact on our results of operations |
| Such charges will significantly increase our net loss and delay our ability to achieve profitability |
| The magnitude of the impact of expensing stock-based compensation will depend in part 21 ______________________________________________________________________ [46]Table of Contents upon the timing and amount of future equity compensation awards |
| New accounting pronouncements and varying interpretations of such pronouncements have occurred with frequency in the recent past and may occur in the future |
| In addition, we may make changes in our accounting policies in the future |
| Compliance with changing regulations regarding corporate governance and public disclosure will also result in additional expenses |
| Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations and Nasdaq National Market listing requirements, have created uncertainty for companies such as ours and compliance costs are increasing as a result of this uncertainty and other factors |
| We are committed to maintaining high standards of corporate governance and public disclosure |
| As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment will result in increased general and administrative expenses and may cause a diversion of management time and attention from revenue-generating activities to compliance activities |
| If we do not attract and retain key employees, our business could be impaired |
| To be successful and achieve our objectives, we must attract and retain qualified scientific and management personnel |
| If we are unsuccessful in attracting and retaining qualified personnel, particularly at the management level, our business could be impaired |
| We have been successful in hiring and retaining key personnel in the past; however, we face significant competition for experienced, management level personnel |
| Although we believe have been successful in attracting and retaining qualified personnel, competition for experienced management personnel and scientists from numerous companies and academic and other research institutions may limit our ability to do so in the future on acceptable terms |
| Failure to attract and retain personnel could prevent us from pursuing collaborations or developing our products or core technologies |
| The operation of international locations may increase operating expenses and divert management attention |
| We conduct certain of our operations through Maxygen ApS, our Danish subsidiary |
| Operation as an international entity requires additional management attention and resources |
| We have limited experience in operating internationally and in conforming our operations to local cultures, standards and policies |
| The costs of operating internationally are expected to continue to exceed our international revenues, if any, for at least the next several years |
| As we continue to operate internationally, we are subject to risks of doing business internationally, including the following: · regulatory requirements that may limit or prevent the offering of our products in local jurisdictions; · local legal and governmental limitations on company-wide employee benefit practices, such as the operation of our employee stock option plan in local jurisdictions; · government limitations on research and/or research involving genetically engineered products or processes; · difficulties in staffing and managing foreign operations; · currency exchange risks; and · potentially adverse tax consequences |
| Acquisitions could result in dilution, operating difficulties and other harmful consequences |
| If appropriate opportunities present themselves, we may acquire businesses or technologies that complement our capabilities |
| The process of integrating any acquisition may create unforeseen operating difficulties and expenditures and is itself risky |
| The areas where we may face difficulties include: · diversion of management time (both ours and that of the acquired company) from focus on operating the businesses to issues of integration during the period of negotiation through closing and further diversion of such time after closing; 22 ______________________________________________________________________ [47]Table of Contents · decline in employee morale and retention issues resulting from changes in compensation, reporting relationships, future prospects, or the direction of the business; · the need to integrate each company’s accounting, management information, human resource and other administrative systems to permit effective management and the lack of control if such integration is delayed or not implemented; and · the need to implement controls, procedures and policies appropriate for a larger public company in companies that before acquisition had been smaller, private companies |
| We do not have extensive experience in managing this integration process |
| Moreover, the anticipated benefits of any or all of these acquisitions may not be realized |
| Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to intangible assets, any of which could harm our business |
| Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all |
| Even if available, this financing may be dilutive |
| Our stock price has been, and may continue to be, extremely volatile, and an investment in our stock could decline in value |
| The trading prices of life science company stocks in general, and ours in particular, have experienced significant price fluctuations in the last several years |
| During the twelve-month period ended December 31, 2005, the price of our common stock on the Nasdaq National Market ranged from dlra6dtta49 to dlra12dtta64 |
| The valuations of many life science companies without product revenues and earnings, including ours, are based on valuation standards such as price to sales ratios and progress in product development or clinical trials |
| Trading prices based on these valuations may not be sustained |
| Any negative change in the public’s perception of the prospects of biotechnology or life science companies could depress our stock price regardless of our results of operations |
| Other broad market and industry factors may decrease the trading price of our common stock, regardless of our performance |
| In addition, our stock price could be subject to wide fluctuations in response to factors including the following: · our failure to meet our publicly announced revenue and/or expense projections and/or product development timetables; · adverse results or delays in preclinical development or clinical trials; · any decisions to discontinue or delay development programs or clinical trials; · announcements of new technological innovations or new products by us or our competitors; · conditions or trends in the biotechnology and life science industries; · changes in the market valuations of other biotechnology or life science companies; · developments in domestic and international governmental policy or regulations; · announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; · developments in or challenges relating to patent or other proprietary rights; and · sales of our common stock or other securities in the open market |
| In the past, stockholders have often instituted securities class action litigation after periods of volatility in the market price of a company’s securities |
| If a stockholder files a securities class action suit against us, we could incur substantial legal fees and our management’s attention and resources would be diverted from operating our business to respond to the litigation |
| 23 ______________________________________________________________________ [48]Table of Contents Substantial sales of shares may adversely impact the market price of our common stock |
| If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options, the market price of our common stock may decline |
| Our common stock trading volume is low and thus the market price of our common stock is particularly sensitive to trading volume |
| Our low trading volume may also make it more difficult for us to sell equity or equity related securities in the future at a time and price that we deem appropriate |
| Significant sales of our common stock may adversely impact the then-prevailing market price of our common stock |
| Some of our existing stockholders can exert control over us, and may not make decisions that are in the best interests of all stockholders |
| As of December 31, 2005, our executive officers and directors, together with GlaxoSmithKline plc, controlled approximately 28prca of our outstanding common stock |
| As a result, these stockholders, if they act together, and GlaxoSmithKline plc, which owns approximately 18prca of our outstanding common stock, by itself, could exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions |
| In addition, this concentration of ownership may delay or prevent a change in control of our company and might affect the market price of our common stock, even when a change may be in the best interests of all stockholders |
| In addition, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider |
| This concentration of ownership could also depress our stock price |