| MGI PHARMA INC Item 1A Risk Factors Sales of Aloxi injection (“Aloxi”) account for a significant portion of our product revenues |
| Our business is dependent on the commercial success of Aloxi |
| If any factor adversely affects sales of Aloxi, we may be unable to continue our operations as planned |
| The success of our business is dependent on the continued successful commercialization of Aloxi |
| Aloxi sales represented 91 percent and 83 percent of our total product sales and 89 and 81 percent of our total revenue for the years ended December 31, 2005 and December 31, 2004, respectively |
| Any factor adversely affecting sales of Aloxi could cause our product revenues to decrease and our stock price to decline significantly |
| Aloxi is relatively new to the market, when compared to its competitors, and its long-term acceptance by the oncology community will depend largely on our ability to demonstrate the efficacy and safety of Aloxi as an alternative to other therapies |
| We cannot be certain that Aloxi will provide benefits considered adequate by providers of oncology services or that enough providers will use the product to ensure its continued commercial success |
| Patent protection for injectable Zofran (ondansetron), a major competing product, will expire in 2006 |
| This will allow for the generic 5-HT[3] inhibitors, which could negatively affect sales of all branded 5-HT[3] inhibitors including Aloxi |
| The Food and Drug Administration (“FDA”) subjects an approved product and its manufacturer to continual regulatory review |
| After approval and use in an increasing number of patients, the discovery of previously unknown problems with a product, such as unacceptable toxicities or side effects, may result in restrictions or sanctions on the product or manufacturer that could affect the commercial viability of the product or could require withdrawal of the product from the market |
| Further, we must continually submit any labeling, advertising and promotional material to the FDA for review |
| There is risk that the FDA will prohibit use of the marketing material in the form we desire |
| Unfavorable outcomes resulting from factors such as those identified above could limit sales of Aloxi or cause sales of Aloxi to decline |
| In those circumstances, our stock price would decline and we would have to find additional sources of funding or scale back or cease operations |
| If we do not have net income in the future, we may be unable to continue our operations |
| We expect to incur significant expenses over the next several years as we devote substantial resources to 1) support of the development efforts of Aloxi products through milestone payments to Helsinn, such as Aloxi for post-operative nausea and vomiting (“PONV”) and Aloxi oral for CINV (“Aloxi Capsules”), 2) the continued development of other product candidates, including Aquavan Injection (“Aquavan”), amolimogene (HPV E6 E7 plasmid) (formerly known as ZYC101a), Saforis Powder for Oral Suspension (“Saforis”), Dacogen Injection (“Dacogen”) and irofulven, 3) continued commercialization of Aloxi, Gliadel Wafer (“Gliadel”), and our other marketed products and 4) acquire additional product candidates or companies |
| Therefore, we may not generate net income on a consistent basis, or at all, unless we are able to significantly increase sales of Aloxi, Gliadel, or other products compared to our current sales, and/or significantly reduce the funding for our research and development programs or commercial operations |
| In addition to Aloxi, to a more limited extent we will also depend on maintaining or increasing revenues from Gliadel, the failure of which would have an adverse effect on our ability to accomplish our business objectives |
| Prior to February 2003, the FDA had only approved the marketing of Gliadel in the United States for patients who had a brain tumor surgically removed and had recurrent forms of a type of brain cancer called glioblastoma multiforme (“GBM”), affecting approximately 3cmam000 to 4cmam000 patients annually |
| In February 2003, the FDA granted approval to also market Gliadel for patients undergoing initial surgery, also known as first line therapy, in the United States for malignant glioma in conjunction with surgery and radiation |
| Our ability to increase sales of Gliadel will depend upon achieving greater market penetration among GBM patients and successful marketing of Gliadel for first line therapy |
| Even if we increase our sales and marketing efforts, such increases may not result in increased sales of Gliadel |
| If Gliadel fails to gain broader market acceptance for GBM patients or as first line therapy, the revenues we receive from sales of Gliadel would be unlikely to increase |
| Sales of our Salagen Tablets (“Salagen”) in the United States are likely to continue to decline significantly for subsequent periods because generic pilocarpine hydrochloride tablets were introduced into the United States in December 2004 |
| Beginning in December 2004, generic 5 milligram pilocarpine hydrochloride tablets entered the United States markets where Salagen competes |
| Sales of Salagen declined significantly in 2005 to dlra9dtta9 million from our 2004 sales of dlra29dtta3 million in the United States |
| Due to competition from these generics, and as a result of the cessation of our marketing efforts of Salagen, we expect revenues from Salagen to continue to decrease |
| 24 _________________________________________________________________ Our operating results may fluctuate significantly, which may adversely affect our stock price |
| If our operating results do not meet the expectations of investors or securities analysts, our stock price may decline |
| Our operating results may fluctuate significantly from period to period due to a variety of factors including: • the acceptance of, and demand for, Aloxi; • changing demand for our other products, including Gliadel; • approval by the FDA for Dacogen; • third parties introducing competing products; • announcements regarding the results of events relating to or results of the clinical trials for our products or product candidates; • the pace and breadth of our drug discovery and development programs; • expenditures we incur to identify, acquire, license, develop or promote additional products; • expenditures we incur and assume in business acquisitions; • availability of product supply from third-party manufacturers; • changes in sales and marketing expenditures; • the timing of licensing and royalty revenues; • third party payer and government reimbursement for our products; and • the cost of competing products, including the cost of generic products that compete with our proprietary products |
| For the year ended December 31, 2005, we reported net loss of dlra132dtta4 million, including an estimated dlra156dtta9 million of acquired in-process research and development expense related to the Guilford acquisition |
| For the year ended December 31, 2004, we reported a net loss of dlra85dtta7 million inclusive of dlra83dtta1 million of acquired in-process research and development expense related to acquisitions, compared to a net loss of dlra61dtta9 million for the year ended December 31, 2003 |
| Variations in the timing of our future revenues and expenses could cause significant fluctuations in our operating results from period to period and may result in unanticipated earnings shortfalls or losses |
| Because of these fluctuations, it is possible that our operating results for a particular quarter or quarters will not meet the expectations of public market analysts and investors, causing the market price of our common stock to decrease |
| For example, the trading price of our common stock during the period of January 1, 2003 to December 31, 2005 ranged from dlra3dtta43 to dlra34dtta49 |
| Our effective tax rate, if any, may vary significantly from period to period, especially within the first few years of becoming profitable |
| Increases in our effective tax rate would have a negative effect on our results of operations |
| We have had no or minimal provision for income tax expense for a number of years due to a history of incurring significant losses |
| Our ability to achieve profitable operations is dependent upon our continued successful commercialization of Aloxi, and therefore we continue to maintain a valuation allowance against our deferred tax assets |
| These deferred tax assets include the net operating loss carryforwards and research and development credit carryforwards acquired in the Guilford, Aesgen and Zycos transactions all of which are subject to ownership change limitations and may also be subject to various other limitations on the amounts utilized |
| For subsequent periods, our financial statement tax provision will likely approximate normal statutory tax rates |
| A transition to an effective tax rate that approximates statutory tax rates could result in an increase in effective tax rate from less than 5 percent to approximately 35 percent |
| An increase of this magnitude would result in a significant reduction in our net income and net income per share beginning with the quarter we are required to expense approximate statutory tax rates |
| Even if we begin reporting an effective tax rate that approximates statutory tax rates, various factors may continue to have favorable or unfavorable effects on our effective tax rate |
| These factors include, but are not limited to, changes in overall levels of income before taxes, interpretations of existing tax laws, changes in tax laws and rates, future levels of research and development spending, future 25 _________________________________________________________________ levels of capital expenditures, and changes in the mix of activity in the various tax jurisdictions in which we operate |
| An increase in our effective tax rate would reduce our net income and net income per share |
| Clinical trials are complex and unpredictable and may be difficult to complete or produce unexpected results that could delay or prevent our ability to commercialize our product candidates |
| Before obtaining regulatory approvals for the commercial sale of any product under development, including Aloxi PONV, Aloxi Capsules, Dacogen, Saforis, Aquavan, amolimogene (HPV E6 E7 plasmid), irofulven and ZYC300, we, or our strategic collaborators, must demonstrate through preclinical studies and clinical trials that the product is safe and effective for use in each target indication |
| We depend on collaboration with Helsinn Healthcare SA for Aloxi, and for our other products other collaborators, medical institutions, and laboratories to conduct our clinical and preclinical testing in compliance with good clinical and laboratory practices as required by the FDA We, or our strategic collaborators, may depend on contract research organizations to manage a substantial portion of the medical institutions utilized to conduct clinical testing |
| The results from preclinical animal studies and human clinical trials are often not predictive of the results that will be obtained in large-scale testing |
| Some of the results reported from clinical trials are interim results and may not be predictive of future results, including final results from such trials, because, among other factors, patient enrollment and the time period for evaluating patient results are not complete |
| If we, or our strategic collaborators, fail to adequately demonstrate the safety and efficacy of a product candidate, the FDA would not provide regulatory approval of the product |
| The appearance of unacceptable toxicities, side effects or other adverse results during clinical trials could interrupt, limit, delay or stop the development of a product candidate |
| A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in previous animal and human studies |
| The time required to complete clinical trials is dependent upon, among other factors, the rate of patient enrollment |
| Patient enrollment is a function of many factors, including: • the size of the patient population; • the nature of clinical protocol requirements; • the diversion of patients to other trials or marketed therapies; • our ability to recruit and manage clinical centers and associated trials; • the proximity of patients to clinical sites; and • the patient eligibility criteria for the trial |
| Other factors, such as lack of efficacy, unacceptable toxicities, or other adverse events, may result in increased costs and delays or termination of clinical trials prior to completion |
| In addition, delays in manufacturing of product for our clinical trials could impact our ability to complete our clinical trials as planned |
| Any failure to meet expectations related to our product candidates could adversely affect our stock price |
| Because our product candidates such as Dacogen, Aquavan, Saforis, amolimogene (HPV E6 E7 plasmid), ZYC300 and irofulven may have alternative development paths and we have limited resources, our focus on a particular development path for these product candidates may result in our failure to capitalize on more profitable areas and may not result in viable products |
| We have limited financial and product development resources |
| This requires us to focus on product candidates in specific areas and forego opportunities with regard to other product candidates or development paths |
| For example, one of our product candidates, irofulven, is in clinical and preclinical trials for a number of indications |
| We expect that a portion of our product development efforts over the next several years will be devoted to further development of irofulven, including its application to the treatment of cancers or sub-populations of certain types of cancers with limited therapeutic options such as refractory cancers, for which we believe irofulven could most quickly be developed and approved for marketing |
| We are also investigating the efficacy of irofulven in combination with other cancer therapies |
| While some of these trials have indicated some effectiveness in relation to the target medical conditions, additional clinical trials must be conducted before product registration may be requested |
| Similar examples of resource trade offs also exist for our other product candidates |
| In addition, the uncertainty of the development path for a particular product candidate makes it difficult to ascertain the capital resources that will be required |
| 26 _________________________________________________________________ Our ability to achieve strong revenue growth for Gliadel, Aquavan, Dacogen, and Saforis may depend to a large extent on the results of additional clinical trials |
| We may conduct additional clinical trials with Gliadel to provide physicians with added clinical data and/or to expand Gliadel’s labeled indications |
| There is no assurance that such clinical trials, if any, will be successful, or if successful, will convince the FDA that an additional indication is warranted |
| Also, if one or more additional clinical trials are not successful, sales of the product in its current markets could be adversely affected and could significantly adversely affect our ability to increase sales of Gliadel |
| Additionally, our ability to increase the size of the potential market for Aquavan will depend upon our success in obtaining approval for the product in a variety of procedural sedation settings |
| We will likely need to conduct additional clinical trials beyond those we already have announced to do so, and such trials may not be successful or may not, in the determination of the FDA, warrant an indication for Aquavan larger than the one we are currently attempting to obtain |
| In such cases, sales of Aquavan may not meet our expectations |
| We have initiated enrollment in a 480 patient acute myeloid leukemia (“AML”) trial to expand on Dacogen’s expected labeled indications |
| There is no assurance that such clinical trials, if any, will be successful, or if successful, will convince the FDA that an additional indication is warranted |
| Additionally, Dacogen has other clinical trials that seek to optimize the schedule in which the product is delivered to patients, which may or may not be enough data to assure an additional label change to the dosing section |
| Our ability to achieve strong revenue growth for Saforis may depend to a large extent on the results of additional clinical trials that will adequately characterize the efficacy of Saforis in patients receiving different types of cancer therapies |
| Additional trials may be undertaken with Saforis to expand the market size in oral mucositis |
| The outcome of these potential additional trials may or not warrant expansion of the label in the view of the FDA In such a case where the FDA views that these additional trials do not warrant an expanded label, Saforis may under perform in meeting our expectations |
| European regulatory agencies have imposed restrictions on our ability to import Gliadel to the European Union |
| We have been informed by the European regulatory agency responsible for overseeing the testing and release of Gliadel in the European Union that we must test each sublot of Gliadel that we ship to the European Union |
| Each time a lot is tested it results in the destruction of a portion of the lot and the testing is costly |
| This requirement may make it commercially unfeasible to ship small sublots of Gliadel labeled for smaller European markets |
| If we are not able to agree with the regulatory agency to an alternative method of testing and releasing sublots of Gliadel, we may not be able to continue to ship Gliadel to our distributors for smaller European markets |
| As a result, growth in our Gliadel revenue would be negatively affected |
| We depend on a single supplier to provide us with the finished drug product for Aloxi and Dacogen and single suppliers to provide us with the active ingredients for other product candidates |
| If the suppliers terminate their relationships with us, or are unable to fill our demand for the ingredients or products, we may be unable to sell Aloxi, and the development of our product candidates could be delayed or if a product candidate is approved, the commercial launch could be delayed |
| We rely on Helsinn Birex Pharmaceuticals Ltd |
| as our sole and exclusive supplier of Aloxi finished drug product |
| Helsinn Birex Pharmaceuticals Ltd |
| may make regulatory provision for alternate sites for the manufacture of Aloxi |
| However, if our relationship with Helsinn Birex Pharmaceuticals Ltd |
| We rely on Pharmachemie BV as our sole supplier of the Dacogen finished drug product |
| In addition, we rely on other sole or exclusive suppliers for other product candidates’ finished drug products |
| If our relationship with Pharmachemie BV or another sole or exclusive supplier terminates or if the supplier is unable to meet our needs for any reason, we will need to find an alternative source of the products supplied by those companies |
| If we are unable to identify an alternative source, we may have to suspend development of our product candidates or delay commercial launch of an approved product candidate |
| Even if we were able to procure drug product from an alternative source, any disruption in supply could have a material adverse effect on our ability to meet our development goals or our ability to provide the commercial supply of an approved product candidate, which would cause our future product revenues to decrease and our stock price to decline |
| Our customer base is highly concentrated |
| Bankruptcy or financial distress of any of our customers would adversely affect our financial condition and fluctuations in their purchases of our products would cause volatility in our results of operations |
| Our principal customers, specialty pharmaceutical distributors and wholesalers, comprise a significant part of the distribution network for oncology injectables and pharmaceutical products in the United States |
| If any of these customers become insolvent or dispute payment of the amount it owes us, this would adversely affect our results of operations and financial condition |
| Further, fluctuations in customer buying patterns and their amount of inventory of our products could cause volatility in our results of operations and materially, adversely impact our results of operations |
| 27 _________________________________________________________________ The timing of customer purchases and the resulting product shipments have a significant impact on the amount of revenue from product sales that the Company recognizes in a particular period |
| The majority of our sales are made to independent pharmaceutical wholesalers, including specialty oncology distributors, which, in turn, resell the product to an end user (normally a clinic, hospital, alternative healthcare facility or an independent pharmacy) |
| Inventory in the distribution channel consists of inventory held by independent pharmaceutical wholesalers, who are our principal customers |
| Our revenue from product sales in a particular period is impacted by increases or decreases in the distribution channel inventory levels |
| If distribution channel inventory levels increase materially, we could experience reduced sales revenue in subsequent periods due to low patient demand |
| We cannot significantly control or influence the purchasing patterns of independent pharmaceutical wholesalers or end users |
| These are highly sophisticated customers that purchase our products in a manner consistent with their industry practices and, presumably based upon their projected demand levels |
| These incentives may impact the level of inventory held by wholesalers |
| Additionally, the buying practices of the wholesalers include occasional speculative purchases of product in excess of the current market demand, at their discretion, in anticipation of future price increases |
| Purchases by any given customer, during any given period, may be above or below actual patient demand of any of our products during the same period, resulting in fluctuations in product inventory in the distribution channel |
| If distribution channel inventory levels substantially exceed end user demand, we could experience reduced revenue from sales in subsequent periods due to a reduction in end-user demand |
| If the third-party manufacturer of Aloxi, Salagen, or Aggrastat or any of our other products ceases operations or fails to comply with applicable manufacturing regulations, we may not be able to meet customer demand in a timely manner, if at all |
| for the production of Salagen, Baxter Pharmaceuticals for the production of Aggrastat, and other third-party manufacturers for our other products, other than Gliadel, which we manufacture ourselves |
| We expect to continue to rely on others to manufacture future products, including products currently in development |
| Our dependence on third parties for the manufacture of our products may adversely affect our ability to develop and deliver such products |
| The manufacture of our products is, and will be, subject to current “good manufacturing practices” regulations enforced by the FDA or other standards prescribed by the appropriate regulatory agency in the country of use |
| There is a risk that the manufacturers of our products, including the current manufacturers of Aloxi, Salagen, and Aggrastat, will not comply with all applicable regulatory standards, and may not be able to manufacture Aloxi, Salagen, Aggrastat, or any other product for commercial sale |
| If this occurs, we might not be able to identify another third-party manufacturer on terms acceptable to us, or any other terms |
| Material changes to an approved product, such as manufacturing changes or additional labeling claims, require further FDA review and approval |
| Even after approval is obtained, the FDA may withdraw approval if previously unknown problems are discovered |
| Further, if we, our corporate collaborators or our contract manufacturers fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory or manufacturing process, the FDA may impose sanctions, including: • marketing or manufacturing delays; • warning letters; • fines; • product recalls or seizures; • injunctions; • refusal of the FDA to review pending market approval applications or supplements to approval applications; • total or partial suspension of production; • civil penalties; • withdrawals of previously approved marketing applications; or • criminal prosecutions |
| 28 _________________________________________________________________ Our business strategy depends on our ability to discover, acquire, license and develop product candidates and discover, acquire or license approved products |
| If we are not able to undertake these activities successfully, we will not be able to achieve our corporate goals |
| As part of our business strategy we plan to discover, acquire, license and develop product candidates and discover, acquire and license approved products for markets that we can reach through our marketing and distribution channels |
| If we are unsuccessful in our drug discovery and acquisition strategy, our stock price could decline |
| If we fail to discover, obtain, develop and successfully commercialize additional products, we may not meet expectations for our future performance and our stock price could decline |
| Other companies, including some with substantially greater financial, marketing and sales resources, are competing with us to acquire or license products or product candidates |
| We may not be able to acquire or license rights to additional products or product candidates on acceptable terms, if at all |
| Furthermore, we may not be able to successfully develop any product candidates we acquire or license |
| In addition, we may acquire or license new products with different marketing strategies, distribution channels and bases of competition than those of our current products |
| Therefore, we may not be able to compete favorably in those product categories |
| We may not realize all of the anticipated benefits of our recent and future acquisitions |
| Any acquisition strategy is subject to inherent risk and we cannot guarantee that we will be able to complete any acquisition, including the ability to identify potential partners, successfully negotiate economically beneficial terms, successfully integrate such business, retain its key employees and achieve the anticipated revenue, cost benefits or synergies |
| We review the records of companies we plan to acquire, however, even an in-depth review of records may not reveal existing or potential problems or permit us to become familiar enough with a business to assess fully its capabilities and deficiencies |
| As a result, we may assume unanticipated liabilities, or an acquisition may not perform as well as expected |
| We also face the risk that the returns on acquisitions will not support the expenditures or indebtedness incurred to acquire such businesses, or the capital expenditures needed to develop such businesses |
| On October 3, 2005, we closed the acquisition of Guilford Pharmaceuticals Inc |
| The integration of independent companies is a complex, costly and time-consuming process |
| The difficulties of combining the operations of the companies include, among others: • Retaining key employees and collaborators; • Coordinating research and development activities; • Consolidating corporate and administrative functions; • Minimizing the diversion of management’s attention from ongoing business concerns; and • Coordinating geographically separate organizations |
| In addition, even if we are able to successfully integrate the companies we acquire, the integrations may not result in the realization of the full benefits of development and growth opportunities that we currently expect or that these benefits will be achieved within the anticipated time frame |
| In an acquisition, some customers may seek alternative sources of product after the announcement of the merger or after the merger due to, among other reasons, a desire not to do business with the combined company or perceived concerns that the combined company may not continue to support and develop certain products |
| After an acquisition, a combined company could also experience some customer attrition or disputes by reason of the acquisition |
| Our failure to achieve expected benefits from an acquisition or to minimize the impact of any negative effect could have a material adverse effect on our results of operations |
| We may need to obtain additional capital to grow our business and complete our product portfolio development and expansion plans |
| Issuance of new securities may dilute the interests of our stockholders and constrain our operating flexibility |
| We may need to raise additional funds for various reasons including the following: • to expand our portfolio of marketed products, product candidates, and research programs; • to develop products we have discovered, acquired, or licensed; • to commercialize our product candidates, including research and clinical trial expenses; • to obtain necessary working capital; and • to fund operating losses |
| 29 _________________________________________________________________ Adequate funds for these purposes may not be available when needed or on terms acceptable to us |
| Insufficient funds may cause us to delay, scale back, or abandon some or all of our product acquisition and licensing programs and product development programs |
| We may seek additional funding through public and private financing, including equity and debt financing or enter into collaborative arrangements |
| Any sale of additional convertible debt securities or equity securities may result in additional dilution to our stockholders and any debt financing may require us to pledge our assets and enter into restrictive covenants |
| Entry into collaborative arrangements may require us to give up rights to some of our products or to some potential markets or to enter into licensing arrangements on unfavorable terms |
| If we are unable to maintain relationships with strategic collaborators or enter into new relationships, we may not be able to develop any of our product candidates or commercialize our products in a timely manner, if at all |
| Our continued success will depend in large part upon the efforts of third parties |
| For the research, development, manufacture and commercialization of our products, we currently have, and will likely continue to enter into, various arrangements with other corporations, licensors, licensees, outside researchers, consultants and others |
| However, we cannot be certain of the actions these parties will take, and there is a risk that: • we will be unable to negotiate acceptable collaborative arrangements to develop or commercialize our products; • any arrangements with third-parties will not be successful; • strategic collaborators will not fulfill their obligations to us under any arrangements entered into with them; • strategic collaborators, including Helsinn Healthcare SA, will terminate their relationship with us; or • current or potential collaborators will pursue treatments for other diseases or seek alternative means of developing treatments for the diseases targeted by our programs or products |
| Our strategic collaborators include public research institutions, research organizations, teaching and research hospitals, community-based clinics, testing laboratories, contract product formulation organizations, contract packaging and distribution companies, manufacturers, suppliers and license collaborators |
| We consider our arrangements with Helsinn Healthcare SA, Patheon Inc, Merck KGaA, and SuperGen, Inc |
| to be significant |
| If any of our collaborators breaches or terminates its agreement with us, or otherwise fails to conduct its collaborative activities in a timely manner, we may experience significant delays in the development or commercialization of the products or product candidates or the research program covered by the agreement and we may need to devote additional funds or other resources to these activities |
| If we are unable to enter into new or alternative arrangements to continue research and development activities, or are unable to continue these activities on our own, we may have to terminate the development program |
| We have licensed the right to promote, sell and distribute Aloxi products in the United States and Canada from Helsinn Healthcare SA We are particularly dependent on Helsinn for our ability to commercialize Aloxi products |
| We have entered a license agreement with Helsinn Healthcare SA under which we have acquired a license to sell and distribute Aloxi products in the United States and Canada through December 31, 2015 |
| Furthermore, under the terms of our license, we are required to purchase all of our Aloxi products from Helsinn Birex Pharmaceutical, Ltd |
| The license agreement may be terminated for specified reasons, including if the other party is in substantial or persistent breach of the agreement, if we have experienced a change of control and the acquiring entity has competing products or our marketing and sales related commitments to the licensor are not maintained by the acquiring entity, or if either party has declared bankruptcy |
| Although we are not currently in breach of the license, and we believe that Helsinn Healthcare SA is not currently in breach of the license, there is a risk that either party could breach the license in the future |
| In addition, if we were to breach the supply agreement with Helsinn Birex Pharmaceutical Ltd |
| contemplated by the license, Helsinn Healthcare SA would be permitted to terminate the license |
| If the license agreement were terminated, we would lose all of our rights to sell and distribute Aloxi products, as well as all of the related intellectual property and all regulatory approvals |
| In addition, Helsinn Healthcare SA holds the rights to palonosetron (the active ingredient in Aloxi products) through an agreement with Syntex (USA) Inc |
| and F Hoffmann-La Roche AG We cannot be certain of the actions that these parties will take, and there is a risk that these third parties will end their relationship with us, which would leave us without rights to the pharmaceutical preparations, products and know-how required to produce Aloxi products |
| As a consequence of such a termination, we would lose all of our rights to sell and distribute Aloxi products, which would harm our business and could cause our stock price to decline significantly |
| 30 _________________________________________________________________ We rely on multinational and foreign pharmaceutical companies to develop and commercialize our products and product candidates in markets outside the United States |
| With respect to products in which we own rights outside the United States, we have entered into alliances with various multinational and foreign pharmaceutical companies related to the development and commercialization of our products and product candidates in markets outside the United States |
| Our continued relationships with strategic collaborators are dependent in part on the successful achievement of development milestones |
| If we or our collaborators do not achieve these milestones, or we are unable to enter into agreements with our collaborators to modify their terms, these agreements could terminate, which could cause a loss of licensing revenue, a loss of future commercial product potential and a decline in our stock price |
| We recognize licensing revenue from our strategic collaborators as a portion of our total revenue |
| Future licensing revenues from these collaborators will likely fluctuate from quarter-to-quarter and year-to-year depending on: • the achievement of milestones by us or our collaborators; • the amount of product sales and royalty-generating activities; • the timing of initiating additional licensing relationships; and • our continuing obligation related to license payments |
| If we fail to compete successfully with our competitors, our product revenues could decrease and our stock price could decline |
| Competition in the pharmaceutical industry is intense |
| Most of our competitors are large, multinational pharmaceutical companies that have considerably greater financial, sales, marketing and technical resources than we do |
| Most of our present and potential competitors also have dedicated research and development capabilities that may allow them to develop new or improved products that compete with our products |
| Currently, Aloxi competes with three other products from the 5-HT[3] receptor antagonist class of compounds, as well as products from other chemical classes that are also used for the prevention of chemotherapy-induced nausea and vomiting |
| These products are marketed by GlaxoSmithKline, Roche, Sanofi-Aventis, Merck and other large multinational competitors |
| If Aloxi does not compete successfully with existing products on the market, our stock price could decline significantly |
| Gliadel currently competes as a treatment of malignant glioma with traditional systemic chemotherapy, radioactive seeds, radiation catheters, TEMODAR Capsules, a chemotherapy product manufactured by Schering Corporation, and other experimental protocols |
| Additionally, MedImmune, Inc, Daichi Pharmaceutical, and three US generic manufacturers have drugs that are approved for sale and compete in the same markets as Salagen |
| Other pharmaceutical companies are developing products, which, if approved by the FDA, will compete directly with our products |
| Our competitors could also develop and introduce generic drugs comparable to our products, or drugs or combination of drugs or other therapies that address the underlying causes of the symptoms that our products treat |
| If a product developed by a competitor is more effective than our product, or priced lower than our product, our product revenue could decrease and our stock price could decline |
| We are dependent on our key personnel |
| If we are not able to attract and retain key employees and consultants, our product development, marketing and commercialization plans could be harmed |
| We are highly dependent on the members of our scientific, commercial and management staff |
| If we are not able to retain any of these persons, our product development, marketing and commercialization plans may suffer and our stock price could decline |
| None of our executive officers has an employment agreement with us |
| If we are unable to retain our scientific, commercial and management staff, we will need to hire additional qualified personnel for us to pursue our product acquisition, development, marketing and commercialization plans |
| We may not be able to attract and retain personnel on acceptable terms, given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions |
| If we are not able to attract and retain qualified personnel, our product acquisition, development, marketing and commercialization plans will suffer and our stock price could decline |
| If we are unable to keep up with rapid technological changes in the pharmaceutical or biotechnology industries, we may be unable to continue our operations |
| The pharmaceutical and biotechnology industries have experienced rapid and significant technological change |
| We expect that pharmaceutical technology and biotechnology will continue to develop rapidly |
| Our future success will depend, in large part, on our ability to develop and maintain technology that is competitive |
| If other companies achieve technological advances with their products or obtain FDA approval before we are able to obtain such approval, our products may become obsolete before they are marketed or before we recover any of our development and commercialization expenses incurred with respect to such products |
| In addition, alternative therapies or new medical treatments could alter existing treatment regimens, and thereby reduce the need for one or more of our products, which could result in the termination of the development in one or more of our product candidates, or in the decline in sales of one of our approved products, which could cause our stock price to decline |
| 31 _________________________________________________________________ If we do not receive regulatory approvals for our product candidates, or if regulatory approval is delayed for any reason, we will be unable to commercialize and sell our products as we expect |
| Prior to marketing, each of our product candidates must undergo an extensive regulatory approval process conducted by the FDA in the United States and by comparable agencies in other countries |
| The product development and approval process can take many years and require the expenditure of substantial resources |
| There is risk that the FDA or a foreign regulatory authority will not approve in a timely manner, if at all, any product we develop |
| Generally, the FDA approves for sale only a very small percentage of newly discovered pharmaceutical compounds that enter preclinical development |
| We may encounter delays or denials in regulatory approvals due to changes in FDA policy during the period of development, or changes in the requirements for regulatory review of each submitted new drug application (“NDA”) |
| There is also risk that regulatory authorities in the United States and elsewhere may not allow us to conduct planned additional clinical testing of any of our product candidates, including irofulven, Dacogen, Saforis, amolimogene (HPV E6 E7 plasmid), ZYC300, Aquavan or Aloxi products, or that, if permitted, this additional clinical testing will not prove that these product candidates are safe and effective to the extent necessary to permit us to obtain marketing approvals from regulatory authorities |
| Once we receive regulatory approval to market a product, our promotional activities are subject to extensive regulation from the FDA, the Federal Trade Commission (“FTC”), the Office of the Inspector General of the US Department of Health and Human Services (“OIG”), or State Attorney General |
| If we violate any such regulations it could be damaging to our reputation and restrict our ability to sell or market our products, and our business condition could be adversely affected |
| In their regulation of advertising, the FDA from time to time issues correspondence alleging that some advertising or promotional practices are false, misleading or deceptive |
| The FDA has the power to impose a wide array of sanctions on companies for such advertising or promotional practices, and the receipt of correspondence from the FDA alleging these practices could result in any or all of the following: • incurring substantial expenses, including fines, penalties, legal fees and costs to comply with the FDA’s requirements; • changes in the methods of marketing and selling products; • taking FDA-mandated corrective action, which may include placing advertisements or sending letters to physicians, rescinding previous advertisements or promotions; and • disruption in the distribution of products and loss of revenue until compliance with the FDA’s position is obtained |
| If we were to become subject to any of the above requirements, it could be damaging to our reputation, and our business condition could be adversely affected |
| Physicians may prescribe pharmaceutical products for uses that are not described in a product’s labeling or differ from those tested by us and approved by the FDA While such “off-label” uses are common and the FDA does not regulate physicians’ choice of treatments, the FDA does restrict a manufacturer’s communications on the subject of off-label use |
| Companies cannot actively promote FDA-approved pharmaceutical products for off-label uses, but under certain limited circumstances they may disseminate articles to physicians published in peer-reviewed journals |
| If our promotional activities of this type fail to comply with the FDA’s regulations or guidelines, we may be subject to warnings from, or enforcement action by, the FDA Additionally, if we fail to comply with the FDA regulations prohibiting promotion of off-label uses and the promotion of our products, the FDA, FTC, Department of Justice, OIG or State Attorney General could bring enforcement actions against us that would inhibit our marketing capabilities as well as result in significant penalties |
| If we are unable to obtain intellectual property protection, or protect our proprietary technology, we may be unable to compete effectively |
| We hold an exclusive license in the United States and Canada on patents covering Aloxi |
| In addition, we hold an exclusive, worldwide license on patents and patent applications covering acylfulvene proprietary rights, including irofulven |
| The license applicable to these technologies is subject to certain statutory rights held by the US government |
| Even though we have licensed these patents, we may not have exclusive rights to all possible acylfulvene analogs, all possible methods of using acylfulvene analogs to treat tumors or all possible synthetic methods for preparing acylfulvenes |
| In addition, we licensed rights to patents and patent applications covering MG98 |
| Protection of these rights and creation of additional rights involve joint responsibilities between us and the respective license party |
| We have recently acquired rights to patents and patent applications covering technologies that were owned by or licensed to Zycos, Inc, and Aesgen, Inc, and those rights that were licensed from third parties were assigned to us in those transactions |
| We have 32 _________________________________________________________________ also recently obtained a worldwide, exclusive license of certain rights to patents and patent applications covering technologies that are owned by SuperGen, Inc, or licensed to SuperGen, Inc, from third parties |
| In our acquisition of Guilford, we obtained an exclusive license to intellectual property, including patents, patent applications and know-how, related to Gliadel, which requires us to pay a royalty to the Massachusetts Institute of Technology on revenue from Gliadel |
| Our US patent protection for Gliadel expires in August 2006 |
| In addition, in February 2003, the FDA awarded orphan drug status for Gliadel for seven years for the treatment of patients with malignant glioma undergoing primary surgical resection |
| Accordingly, following the expiration of US patent protection, we now have approximately four additional years of market exclusivity for Gliadel for initial surgical resection |
| However, there can be no assurance that others will not enter the market with a generic copy of Gliadel for recurrent surgical resection |
| The availability of such a generic copy could negatively impact our revenues from Gliadel for initial surgical resection after August 2006 |
| Our pending patent applications, those we may file in the future, or those we license from third parties, may not result in patents being issued |
| Patents, if issued, may be challenged, invalidated or circumvented |
| In addition, other entities may develop similar technologies that fall outside the scope of our patents |
| Thus, any patent rights that we own or license from third parties may not provide sufficient protection against potential competitors |
| In the event that our technologies or methods used in the course of developing or selling our products infringe the patents or violate other proprietary rights of third parties, we and our strategic collaborators may be prevented from pursuing product development or commercialization |
| In addition to patents, we rely on trade secrets and proprietary know-how |
| We protect our proprietary technology and processes in part by confidentiality agreements with our collaborators, employees and consultants |
| There is a risk that: • these confidentiality agreements will be breached; • we will not have adequate remedies for any breach of these agreements; • our trade secrets will otherwise become known; or • our trade secrets will be independently discovered and used by competitors |
| The biotechnology and pharmaceutical industries have been characterized by litigation regarding patents and other intellectual property rights |
| If we become involved in any litigation, interference or other administrative proceedings, we will incur substantial expense and the efforts of our technical and management personnel will be diverted |
| An adverse determination may subject us to significant liabilities or require us to cease using the technology or to seek licenses that may not be available from third parties on commercially favorable terms, if at all, or to cease manufacturing and selling our products |
| This could cause us to terminate the development of one or more of our product candidates, to discontinue marketing an existing product, or to pay royalties to a third party |
| If the use of one of our products is alleged to be harmful, we may be subject to costly and damaging product liability claims |
| We face exposure to product liability claims in the event that the use of any of our products is alleged to have harmed someone |
| Although we have taken, and continue to take, what we believe are appropriate precautions, there is a risk that we will not be able to avoid significant product liability exposure |
| We currently have product liability insurance in the amount of dlra30 million per occurrence and in the aggregate for the year for products, product candidates and clinical trials |
| There is a risk that our insurance will not be sufficient to cover claims |
| There is also a risk that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all |
| The successful assertion of an uninsured product liability or other claim against us could cause us to incur a significant expense to pay such a claim, could adversely affect our product development and could cause a decline in our product revenue and the price of our stock |
| In addition to product liability risks associated with sales of our products, we may be liable to the claims of individuals who participate in clinical trials of our products |
| A number of patients who participate in trials are already critically ill when they enter a trial |
| The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product liability litigation |
| Our product liability insurance may not provide adequate protection against potential liabilities |
| Moreover, we may not be able to maintain our insurance on acceptable terms |
| As a result of these factors, a product liability claim, even if successfully defended, could cause us to incur a significant expense to defend such a claim, could adversely affect our product development and could cause a decline in our product revenue and the price of our stock |
| 33 _________________________________________________________________ We could become the subject of legal proceedings or investigations that could result in substantial fines, penalties, injunctive or administrative penalties and criminal charges, which would increase our expenses and redirect management’s attention away from business operations |
| Our business operations are subject to a wide range of laws and regulations |
| Other pharmaceutical companies have been the subjects of legal proceedings or investigations related to pricing, marketing, promotional and clinical trial practices |
| If we become the subject of legal proceedings or investigations, our expenses would increase and commercialization of our products could be adversely affected |
| Further, management’s attention would be diverted from our business operations |
| If we issue a product recall, we may not sell as much of our products in the future and we may incur significant expenses |
| The FDA or other government agencies having regulatory authority over product sales may request product recalls or we may independently issue product recalls |
| These product recalls may occur due to manufacturing issues, safety concerns or other reasons |
| We do not carry any insurance to cover the risk of a product recall |
| Any product recall could have a material adverse effect on our product revenue and could cause the price of our stock to decline |
| If we or patients using our products are unable to obtain adequate reimbursement from government health administration authorities, private health insurers and other organizations, our product sales, net income, cash balances and price of our stock could decline |
| Our ability to commercialize our products successfully will depend in part on the extent to which private health insurers, organizations such as HMOs and governmental authorities reimburse the cost of our products and related treatments |
| Third-party payors are increasingly challenging the prices charged for medical products and services |
| Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our products |
| The cost containment measures that health care payors and providers are instituting and the effect of any health care reform could materially and adversely affect our ability to operate profitably |
| There is uncertainty about the reimbursement status of healthcare products |
| Our profitability will depend in part on: (1) the price we are able to charge for our products, and (2) the availability of adequate reimbursement for our products to providers from third-party payors, such as government entities, private health insurers and managed care organizations |
| Federal and state regulations govern or influence the reimbursement status of healthcare products in many situations and third-party payors are increasingly challenging the pricing of medical products and services |
| The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 together with rulemaking by the Centers for Medicare and Medicaid Services (“CMS”) require a number of changes in Medicare practices, including reimbursement |
| The changes made to date are not expected to have an adverse affect on our operations, sales or the price of our stock, but we cannot predict the impact, if any, of future provider reimbursement changes |
| Aloxi, Salagen, and Gliadel generally have been eligible for reimbursement to providers from third-party payors and we have applied for, or in certain cases already received confirmation of, reimbursement eligibility for providers for Aloxi |
| Third-party reimbursement is important to the commercialization of our products |
| If government entities and other third-party payors do not provide adequate reimbursement levels to providers for our products, our product and license revenues would be materially and adversely affected and our stock price could decline |
| In recent years, various parties have proposed a number of legislative and regulatory proposals aimed at changing national healthcare systems |
| In the United States, we expect that there will continue to be a number of federal and state proposals to implement government control of pricing and profitability of prescription pharmaceuticals |
| Cost controls, if mandated by a government agency, could decrease the price that we receive for our current or future products |
| These proposals, if enacted, could have a material adverse effect on our product and license revenues and could cause our stock price to decline |
| In certain countries, regulatory authorities must also approve the sales price of a product after they grant marketing approval |
| There is a risk that we will not be able to obtain satisfactory prices in foreign markets even if we obtain marketing approval from foreign regulatory authorities |
| Our operations, and the operations of our third-party contractors, involve hazardous materials that could expose us to liability if environmental damage occurs |
| Our research, development and manufacturing operations and the operations of our third-party contractors involve the controlled use of hazardous materials |
| We cannot eliminate the risk of accidental contamination or injury from these materials |
| If we do not comply with environmental regulations, we may face significant fines or penalties |
| In the event of an accident or environmental discharge, third parties or governmental entities may hold us liable for any resulting damages, which, along with fines and penalties, may exceed our financial resources and may have a material adverse effect on our ability to fund our operations |
| 34 _________________________________________________________________ Our stock price is volatile, which may result in significant losses to stockholders and holders of our convertible notes |
| The market price for our convertible notes is significantly impacted by the price of our common stock, which has historically been volatile |
| There has been significant volatility in the market prices of pharmaceutical and biotechnology companies’ securities |
| Various factors and events may have a significant impact on the market price of our common stock, and some of these factors are beyond our control |
| These factors include: • fluctuations in our operating results; • announcements of technological innovations or acquisitions or licensing of therapeutic products or product candidates by us or our competitors; • published reports by securities analysts; • positive or negative progress with our clinical trials; • governmental regulation, including healthcare reimbursement policies; • developments in patent or other proprietary rights; • developments in our relationship with collaborators and suppliers, and announcements of new strategic collaborations; • public concern as to the safety and efficacy of our products; and • general market conditions |
| The trading price of our common stock has been, and could continue to be, subject to wide fluctuations in response to these factors, including the sale or attempted sale of a large amount of our common stock into the market |
| Our stock price ranged from dlra3dtta43 to dlra34dtta49 per share during the three-year period ended December 31, 2005 |
| Broad market fluctuations may also adversely affect the market price of our common stock |
| In the past, following large falls in the price of a company’s shares, securities class action litigation has often been initiated against that company |
| Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could harm our business |
| Any adverse determination in litigation could subject us to significant liabilities |
| We have outstanding options, convertible notes and warrants that have the potential to dilute stockholder value and cause our stock value to decline |
| We routinely grant stock options to our employees and other individuals |
| At December 31, 2005, we had options outstanding at option prices ranging from dlra1dtta81 to dlra33dtta22 for 10dtta4 million shares of our common stock that have been registered for resale |
| Additionally, in our acquisition of Guilford, we assumed warrants to purchase 319cmam206 of our shares at a weighted average exercise price (net of cash we would be required to pay on exercise) of dlra61dtta21 |
| We have also issued convertible debt that is convertible into 8dtta3 million shares of common stock at an initial conversion price of dlra31dtta46 per share of common stock |
| Conversion of our convertible debt is contingent on a number of factors that have not yet been satisfied |
| Consequently, we are not able to estimate when, if ever, our convertible debt will be converted into common stock, but any such conversion would almost certainly dilute stockholder value |
| The Guilford Merger resulted in an obligation for us to make an offer to repurchase all the Guilford convertible subordinatd notes (“Guilford Notes”) due July 1, 2008 in accordance with the terms of the related indenture at a repurchase price in cash equal to 100prca of the principal amount of the Notes, plus accrued and unpaid interest and liquidated damages, if any, up to but excluding the payment date |
| Each dlra1cmam000 principal amount of the Guilford Notes was convertible, at the option of the holder, into (i) 17dtta6772 shares of MGI PHARMA common stock, and (ii) dlra180dtta28 in cash through November 28, 2005 |
| At the expiration of the offer to repurchase, dlra1dtta5 million of the Guilford Notes were outstanding |
| If some or all of such shares are sold into the public market over a short time period, the value of our stock is likely to decline, as the market may not be able to absorb those shares at the prevailing market prices |
| Such sales may also make it more difficult for us to sell equity securities in the future on terms that we deem acceptable |
| 35 _________________________________________________________________ Our charter documents, our stockholder rights plan and Minnesota law contain provisions that could delay or prevent an acquisition of our company |
| Our charter documents contain provisions that may discourage third parties from seeking to acquire our company |
| These provisions include: • advance notice requirements for stockholder proposals and nominations; and • the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine |
| In addition, our board of directors has adopted a stockholder rights plan, or poison pill, which enables our board of directors to issue preferred stock purchase rights that would be triggered by an acquisition of 15 percent or more of the outstanding shares of our common stock |
| These provisions and specific provisions of Minnesota law relating to business combinations with interested stockholders may have the effect of delaying, deterring or preventing a merger or change in control |
| Some of these provisions may discourage a future acquisition of our company even if stockholders would receive an attractive value for their shares or if a significant number of our stockholders believed such a proposed transaction to be in their best interests |
| As a result, stockholders who desire to participate in such a transaction may not have the opportunity to do so |