| MILLENNIUM PHARMACEUTICALS INC Item 1A RISK FACTORS THAT MAY AFFECT RESULTS This Annual Report on Form 10-K and certain other communications made by us contain forward-looking statements, including statements about our growth and future operating results, discovery and development of products, strategic alliances and intellectual property |
| We often use the words “believe,” “anticipate,” “plan,” “expect,” “intend,” “may,” “will” and similar expressions to help identify forward-looking statements |
| We cannot assure investors that our assumptions and expectations will prove to have been correct |
| Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements |
| Such factors that could cause or contribute to such differences include those factors discussed below |
| We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise |
| Regulatory Risks Our business may be harmed if we do not obtain approval to market VELCADE for additional therapeutic uses |
| An important part of our strategy to grow our business is to market VELCADE for additional indications |
| To do so, we will need to successfully conduct clinical trials and then apply for and obtain the appropriate regulatory approvals |
| If we are unsuccessful in our clinical trials, or we experience a delay in obtaining or are unable to obtain authorizations for expanded uses of VELCADE, our revenues may not grow as expected and our business and operating results will be harmed |
| We may not be able to obtain approval in additional countries to market VELCADE VELCADE is currently approved for marketing in the United States and more than 60 other countries including the countries of the European Union |
| If we are not able to obtain approval to market VELCADE in additional countries, we will lose the opportunity to sell in those countries and will not be able to earn potential milestone payments under our agreement with Ortho Biotech or collect potential distribution fees on sales of VELCADE by Ortho Biotech in those countries |
| 16 ______________________________________________________________________ We may not be able to obtain marketing approval for products resulting from our development efforts |
| The products that we are developing require research and development, extensive preclinical studies and clinical trials and regulatory approval prior to any commercial sales |
| In some cases, the length of time that it takes for us to achieve various regulatory approval milestones affects the payments that we are eligible to receive under our strategic alliance agreements |
| We may need to successfully address a number of technological challenges in order to complete development of our products |
| Moreover, these products may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use |
| For example, in January 2006, as part of our portfolio review process, based on the evaluation of recent clinical data in the context of additional opportunities in the pipeline, we decided to discontinue development at this time of MLN2704 in its current form as well as MLN1202 in rheumatoid arthritis |
| Failure to gain approval for the products we are developing could have an adverse material impact on our business |
| If we fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, our products could be subject to restrictions or withdrawal from the market |
| Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, is subject to continual review and periodic inspections by the FDA, and other regulatory bodies |
| Later discovery of previously unknown problems or safety issues with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, the imposition of civil or criminal penalties or a refusal by the FDA and other regulatory bodies to approve pending applications for marketing approval of new drugs or supplements to approved applications |
| As with any recently approved therapeutic product, we expect that our knowledge of the safety profile for VELCADE will expand after wider usage, and the possibility exists of patients receiving VELCADE treatment experiencing unexpected or more frequently than expected serious adverse events, which could have a material adverse effect on our business |
| We are a party to collaborations that transfer responsibility for specified regulatory requirements, such as filing and maintenance of marketing authorizations and safety reporting, to our collaborators |
| If our collaborators do not fulfill these regulatory obligations, products, including VELCADE or INTEGRILIN, could be withdrawn from the market, which would have a material adverse effect on our business |
| Some of our products may be based on new technologies which may affect our ability or the time we require to obtain necessary regulatory approvals |
| Products that result from our research and development programs may be based on new technologies, such as proteasome inhibition, and new therapeutic approaches that have not been extensively tested in humans |
| The regulatory requirements governing these types of products may be more rigorous than for conventional products |
| As a result, we may experience a longer regulatory process in connection with any products that we develop based on these new technologies or new therapeutic approaches |
| 17 ______________________________________________________________________ Risks Relating to Our Business, Strategy and Industry Our revenues over the next several years will be materially dependent on the commercial success of VELCADE and INTEGRILIN Our revenues over the next several years will be materially dependent on the commercial success of our two currently marketed products: VELCADE and INTEGRILIN VELCADE was approved by the FDA in May 2003 and commercially launched in the United States shortly after that date |
| Marketing of VELCADE outside the United States commenced in April 2004 |
| INTEGRILIN has been on the market in the United States since June 1998 |
| Marketing of INTEGRILIN outside the United States commenced in mid-1999 |
| Our business plan contemplates obtaining marketing authorization to sell VELCADE in many countries for the treatment of all patients with multiple myeloma and both in the United States and abroad for other indications |
| We will be adversely affected if VELCADE does not receive such approvals |
| We will not achieve our business plan, and we may be forced to scale back our operations and research and development programs, if we do not obtain regulatory approval to sell VELCADE in additional countries or for additional therapeutic uses or the sales of VELCADE or INTEGRILIN do not meet our expectations |
| We face substantial competition, and others may discover, develop or commercialize products before or more successfully than we do |
| The fields of biotechnology and pharmaceuticals are highly competitive |
| Many of our competitors are substantially larger than we are, and these competitors have substantially greater capital resources, research and development staffs and facilities than we have |
| Furthermore, many of our competitors are more experienced than we are in drug research, discovery, development and commercialization, obtaining regulatory approvals and product manufacturing and marketing |
| As a result, our competitors may discover, develop and commercialize pharmaceutical products before or in a shorter timeframe than we do |
| In addition, our competitors may discover, develop and commercialize products that make the products that we or our collaborators have developed or are seeking to develop and commercialize non-competitive or obsolete |
| With respect to VELCADE, we face competition from Celgene’s Thalomid and its derivatives, a treatment approved for complications associated with leprosy which is used broadly for multiple myeloma based on data published in peer-reviewed publications |
| Celgene has filed a sNDA for Thalomid for the treatment of multiple myeloma that was accepted by the FDA for review in 2005 |
| We also face competition for VELCADE from Celgene’s Revlimid which was approved by the FDA in December 2005 for the treatment of a subset of patients with transfusion-dependent anemia |
| Celgene is also developing Revlimid for the treatment of patients with multiple myeloma and in early 2006 filed a sNDA with the FDA in this indication which could be approved in 2006 |
| We expect to see increased competition from Revlimid prior to approval of this sNDA as Celgene accelerates its prelaunch activities |
| We also face competition for VELCADE from traditional chemotherapy treatments, and there are other potentially competitive therapies for VELCADE, including other proteasome inhibitors, that are in late-stage clinical development for the treatment of multiple myeloma |
| In addition, multiple myeloma therapies in development may reduce the number of patients available for VELCADE treatment through enrollment of these patients in clinical trials of these potentially competing products |
| Due to the incidence and severity of cardiovascular diseases, the market for therapeutic products that address these diseases is large, and we expect the already intense competition in this field to increase |
| The most significant competitors for SGP in marketing INTEGRILIN are major pharmaceutical companies and biotechnology companies |
| The two products that compete directly with INTEGRILIN in the GP IIb-IIIa inhibitor market segment are ReoPro® (abciximab), which is produced by Johnson & Johnson 18 ______________________________________________________________________ and sold by Johnson & Johnson and Eli Lilly and Company, and Aggrastat® (tirofiban HCl), which is produced and sold by Merck & Co, Inc |
| outside of the United States and by Guilford Pharmaceuticals, Inc |
| in the United States |
| Other competitive factors that could negatively affect INTEGRILIN include: · expanded use of heparin replacement therapies, such as Angiomax® (bivalirudin), which is produced and sold by The Medicines Company; · changing treatment practices for PCI and ACS based on new technologies, including the use of drug-coated stents; · increased use of another class of anti-platelet drugs known as ADP inhibitors in patients whose symptoms make them potential candidates for treatment with INTEGRILIN; and · SGP’s inability to complete clinical trials and develop data to promote increased use of INTEGRILIN in its current indications as well as in new indications |
| Sales of INTEGRILIN and possibly VELCADE in particular reporting periods may be affected by fluctuations in inventory, allowances and buying patterns |
| A significant portion of INTEGRILIN domestic pharmaceutical sales is made by SGP to major drug wholesalers |
| These sales are affected by fluctuations in the buying patterns of these wholesalers and the corresponding changes in inventory levels maintained by them |
| Inventory levels held by these wholesalers may fluctuate significantly from quarter to quarter |
| If these wholesalers build inventory levels excessively in any quarter, sales to the wholesalers in future quarters may unexpectedly decrease notwithstanding steady prescriber demand |
| Because SGP commercializes INTEGRILIN and manages product distribution, we have limited insight into or control over forces affecting changes in distributor inventory levels |
| If SGP does not appropriately manage this distribution, SGP may not realize sales goals for the product and could reduce the royalty revenue we recognize and thus adversely affect our business |
| We distribute VELCADE in the US through a sole-source distribution model, where we sell directly to a third party who in turn distributes to the wholesaler base |
| Our VELCADE product inventory levels may fluctuate from time to time depending on the consistency of the distribution logistics of this arrangement and the buying patterns of these wholesalers |
| Additionally, we make provisions at the time of sale of VELCADE for discounts, rebates, product returns and other allowances based on historical experience updated for changes in facts and circumstances, as appropriate |
| To the extent these allowances are incorrect, we may need to adjust our estimates, which could have a material impact on the timing and actual amount of revenue we are able to recognize from these sales |
| Because our research and development projects are based on new technologies and new therapeutic approaches that have not been extensively tested in humans, it is possible that our discovery process will not result in commercial products |
| The process of discovering drugs based upon genomics and other new technologies is new and evolving rapidly |
| We focus a portion of our research on diseases that may be linked to a number of genes working in combination or to novel targets |
| Both we and the general scientific and medical communities have only a limited understanding of the role that genes play in these diseases |
| To date, we have not commercialized any products discovered through our genomics research, and we may not be successful in doing so in the future |
| In addition, relatively few products based on gene discoveries have been developed and commercialized by others |
| Rapid technological development by us or others may result in compounds, products or processes becoming obsolete before we recover our development expenses |
| Further, 19 ______________________________________________________________________ manufacturing costs or products based on these new technologies may make products uneconomical to commercialize |
| If our clinical trials are unsuccessful, or if they experience significant delays, our ability to commercialize products will be impaired |
| We must provide the FDA and foreign regulatory authorities with preclinical and clinical data demonstrating that our products are safe and effective before they can be approved for commercial sale |
| Clinical development, including preclinical testing, is a long, expensive and uncertain process |
| It may take us several years to complete our testing, and failure can occur at any stage of testing |
| Interim results of preclinical or clinical studies do not necessarily predict their final results, and acceptable results in early studies might not be seen in later studies |
| Any preclinical or clinical test may fail to produce results satisfactory to the FDA Preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval |
| Negative or inconclusive results from a preclinical study or clinical trial, adverse medical events during a clinical trial or safety issues resulting from products of the same class of drug could cause a preclinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful |
| For example, in December 2003 we decided to stop further accrual to a phase II trial examining VELCADE in colorectal cancer because interim findings produced results that did not meet the pre-specified efficacy criteria for continuation of study accrual |
| We may not complete our planned preclinical or clinical trials on schedule or at all |
| We may not be able to confirm the safety and efficacy of our potential drugs in long-term clinical trials, which may result in a delay or failure to commercialize our products |
| We may have difficulty obtaining a sufficient number of appropriate patients or clinical support to conduct our clinical trials as planned |
| A number of additional events could delay the completion of our clinical trials, including conditions imposed on us by the FDA or foreign regulatory authorities regarding the scope or design of our clinical trials, lower than anticipated retention rates for patients in our clinical trials, insufficient supply or deficient quality of our product candidates or other materials necessary to conduct our clinical trials or the failure of our third party contractors to comply with regulatory requirements or otherwise meet their contractual obligations to us in a timely manner |
| As a result, we may have to expend substantial additional funds to obtain access to resources or delay or modify our plans significantly |
| Our product development costs will increase if we experience delays in testing or approvals |
| Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or potential products |
| If third parties on which we rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates |
| We depend on independent clinical investigators and, in some cases, contract research organizations and other third party service providers to conduct the clinical trials of our product candidates and expect to continue to do so |
| We rely heavily on these parties for successful execution of our clinical trials, but we do not control many aspects of their activities |
| Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with the general investigational plan and protocol |
| Our reliance on these third parties that we do not control does not relieve us of our responsibility to comply with the regulations and standards of the FDA relating to good clinical practices |
| Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the applicable trials plans and protocols |
| The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our product candidates or result in enforcement action against us |
| 20 ______________________________________________________________________ Because many of the products that we are developing are based on new technologies and therapeutic approaches, the market may not be receptive to these products upon their introduction |
| The commercial success of any of our products for which we may obtain marketing approval from the FDA or other regulatory authorities will depend upon their acceptance by the medical community and third party payors as clinically useful, cost-effective and safe |
| Many of the products that we are developing are based upon new technologies or therapeutic approaches |
| As a result, it may be more difficult for us to achieve market acceptance of our products, particularly the first products that we introduce to the market based on new technologies and therapeutic approaches |
| Our efforts to educate the medical community on these potentially unique approaches may require greater resources than would be typically required for products based on conventional technologies or therapeutic approaches |
| The safety, efficacy, convenience and cost-effectiveness of our products as compared to competitive products will also affect market acceptance |
| Because of the high demand for talented personnel within our industry, we could experience difficulties in recruiting employees necessary for our success and growth |
| Because competition for talented employees within our industry is fierce, we may not be successful in hiring, retaining or promptly replacing key management, sales, marketing and technical personnel |
| Any failure to expeditiously fill our needs for key personnel could have a material adverse effect on our business |
| Risks Relating to Our Financial Results and Need for Financing We have incurred substantial losses and expect to continue to incur losses |
| We will not be successful unless we reverse this trend |
| We have incurred net losses of dlra198dtta2 million for the year ended December 31, 2005, dlra252dtta3 million for the year ended December 31, 2004 and dlra483dtta7 million for the year ended December 31, 2003 |
| We expect to continue to incur substantial operating losses in future periods |
| Prior to our acquisition of COR, substantially all of our revenues resulted from payments from collaborators, and not from the sale of products |
| We expect to continue to incur significant expenses in connection with our research and development programs and commercialization activities |
| As a result, we will need to generate significant revenues to help fund these costs and achieve positive net income |
| Our ability to achieve positive net income would be adversely impacted if our acquired intangible assets and goodwill, primarily resulting from our acquisition of COR, became impaired as a result of reduced market capitalization or product failures or withdrawals |
| We cannot be certain whether or when we will become profitable because of the significant uncertainties with respect to our ability to successfully develop products and generate revenues from the sale of approved products and from existing and potential future strategic alliances |
| We may need additional financing, which may be difficult to obtain |
| Our failure to obtain necessary financing or doing so on unattractive terms could adversely affect our business and operations |
| We will require substantial funds to conduct research and development, including preclinical testing and clinical trials of our potential products |
| We will also require substantial funds to meet our obligations to our collaborators, manufacture and market products that are approved for commercial sale, including VELCADE, and meet our debt service obligations |
| We may also require additional financing to execute on product in-licensing or acquisition opportunities |
| Additional financing may not be available when we need it or may not be available on favorable terms |
| If we are unable to obtain adequate funding on a timely basis, we may have to delay or curtail our research and development programs, our product commercialization activities or our in-licensing or acquisition activities |
| We could be required to seek funds through arrangements with collaborators or 21 ______________________________________________________________________ others that may require us to relinquish rights to specified technologies, product candidates or products which we would otherwise pursue on our own |
| Our indebtedness and debt service obligations may adversely affect our cash flow and otherwise negatively affect our operations |
| At December 31, 2005, we had approximately dlra105dtta5 million of outstanding convertible debt, of which dlra5dtta9 million matures in 2006 and dlra99dtta6 million matures in 2007 and dlra80dtta4 million of capital lease obligations |
| During each of the last five years, our earnings were insufficient to cover our fixed charges |
| We will be required to make interest payments on our outstanding convertible notes totaling approximately dlra8dtta2 million over the next two years |
| We will be required to make interest payments totaling approximately dlra7dtta5 million over the next three years on our capital leases |
| We may in the future incur additional indebtedness, including long-term debt, credit lines and property and equipment financings to finance capital expenditures |
| We intend to satisfy our current and future debt service obligations from cash generated by our operations, our existing cash and investments and, in the case of principal payments at maturity, funds from external sources |
| We may not have sufficient funds and we may be unable to arrange for additional financing to satisfy our principal or interest payment obligations when those obligations become due |
| Funds from external sources may not be available on acceptable terms, or at all |
| Our indebtedness could have significant additional negative consequences, including: · increasing our vulnerability to general adverse economic and industry conditions; · limiting our ability to obtain additional financing; · requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital expenditures and research and development; · limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and · placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources |
| If we do not achieve the anticipated benefits of our restructuring efforts, or if the costs of our restructuring efforts exceed anticipated levels, our business could be harmed |
| We recorded restructuring charges of dlra77dtta1 million for the year ended December 31, 2005, dlra38dtta0 million for the year ended December 31, 2004 and dlra191dtta0 million for the year ended December 31, 2003 |
| In December 2002 and June 2003, we took steps as part of our 2003 restructuring plan to focus our resources on development and commercialization of product opportunities and achieving our goal of becoming profitable in the future |
| We may not achieve the cost savings anticipated from the restructurings because such savings are difficult to predict and speculative in nature |
| On September 1, 2005, we transferred exclusive US commercialization and development rights of INTEGRILIN to SGP and on October 26, 2005, we announced additional efforts to refine our strategy including a substantial reduction of our inflammation discovery programs |
| As a result of these efforts, we expect to reduce total research and development and selling, general and administration expenses by approximately 19 percent in 2006 from 2005 and 30 percent in 2006 from 2004 |
| We expect to record additional restructuring charges of between dlra25dtta0 million to dlra30dtta0 million in 2006 |
| We may not achieve our estimated expense reductions because such savings are difficult to predict and speculative in nature |
| While we believe our restructuring estimates to be reasonable, it is possible that the actual charges will exceed the ranges discussed above |
| For example, we may not be able to lease facilities that we have closed or plan to close in connection with the restructuring as quickly or on as favorable terms as we anticipated |
| 22 ______________________________________________________________________ Risks Relating to Collaborators We depend significantly on our collaborators to work with us to commercialize and develop products including VELCADE and INTEGRILIN Outside of the United States, we commercialize VELCADE through an alliance with Ortho Biotech |
| On September 1, 2005, we transferred exclusive US commercialization and development rights of INTEGRILIN to SGP and SGP is solely responsible for the commercialization and development of INTEGRILIN outside of Europe |
| We conduct substantial discovery and development activities through strategic alliances, including with Ortho Biotech for the ongoing development of VELCADE We expect to enter into additional alliances in the future, especially in connection with product commercialization |
| The success of our alliances depends heavily on the efforts and activities of our collaborators |
| Each of our collaborators has significant discretion in determining the efforts and resources that it will apply to the alliance and the degree to which it shares financial and product sales and inventory information |
| Our existing and any future alliances may not be scientifically or commercially successful |
| The risks that we face in connection with these existing and any future alliances include the following: · All of our strategic alliance agreements are for fixed terms and are subject to termination under various circumstances, including, in many cases, such as in our collaboration with Ortho Biotech, without cause |
| · Our collaborators may change the focus of their development and commercialization efforts |
| Pharmaceutical and biotechnology companies historically have re-evaluated their development and commercialization priorities following mergers and consolidations, which have been common in recent years in these industries |
| The ability of some of our products, including VELCADE and INTEGRILIN, to reach their potential could be limited if our collaborators decrease or fail to increase marketing or spending efforts related to such products |
| · We expect to rely on our collaborators to manufacture many products covered by our alliances |
| · In our strategic alliance agreements, we generally agree not to conduct specified types of research and development in the field that is the subject of the alliance |
| These agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or in collaboration with third parties |
| · Our collaborators may develop and commercialize, either alone or with others, products that are similar to or competitive with the products that are the subject of the alliance with us |
| · Our collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to expose us to potential litigation |
| We are substantially dependent on SGP for future revenues related to INTEGRILIN Under the terms of our revised agreement with SGP effective as of September 1, 2005, SGP will pay us royalties based on net product sales of INTEGRILIN In 2006 and 2007, minimum royalty payments for each year are set at dlra85dtta4 million, with some conditions that could reduce these minimums |
| If SGP’s INTEGRILIN sales after 2007 are less than expected, we will receive less royalty revenue than we expect, which would have a material adverse effect on our ability to fund other parts of our business |
| We may not be successful in establishing additional strategic alliances, which could adversely affect our ability to develop and commercialize products |
| An important element of our business strategy is entering into strategic alliances for the development and commercialization of selected products |
| In some instances, if we are unsuccessful in reaching an agreement with a suitable collaborator, we may fail to meet all of our business objectives for the applicable 23 ______________________________________________________________________ product or program |
| We face significant competition in seeking appropriate collaborators |
| Moreover, these alliance arrangements are complex to negotiate and time-consuming to document |
| We may not be successful in our efforts to establish additional strategic alliances or other alternative arrangements |
| The terms of any additional strategic alliances or other arrangements that we establish may not be favorable to us |
| Moreover, such strategic alliances or other arrangements may not be successful |
| Risks Relating to Intellectual Property If we are unable to obtain patent protection for our discoveries, the value of our technology and products will be adversely affected |
| If we infringe patent or other intellectual property rights of third parties, we may not be able to develop and commercialize our products or the cost of doing so may increase |
| Our patent positions, and those of other pharmaceutical and biotechnology companies, are generally uncertain and involve complex legal, scientific and factual questions |
| Our ability to develop and commercialize products depends in significant part on our ability to: · obtain and maintain patents; · obtain licenses to the proprietary rights of others on commercially reasonable terms; · operate without infringing upon the proprietary rights of others; · prevent others from infringing on our proprietary rights; and · protect trade secrets |
| There is significant uncertainty about the validity and permissible scope of patents in our industry, which may make it difficult for us to obtain patent protection for our discoveries |
| The validity and permissible scope of patent claims in the pharmaceutical and biotechnology fields, including the genomics field, involve important unresolved legal principles and are the subject of public policy debate in the United States and abroad |
| For example, there is significant uncertainty both in the United States and abroad regarding the patentability of gene sequences in the absence of functional data and the scope of patent protection available for full-length genes and partial gene sequences |
| Moreover, some groups have made particular gene sequences available in publicly accessible databases |
| These and other disclosures may adversely affect our ability to obtain patent protection for gene sequences claimed by us in patent applications that we file subsequent to such disclosures |
| There is also some uncertainty as to whether human clinical data will be required for issuance of patents for human therapeutics |
| If such data are required, our ability to obtain patent protection could be delayed or otherwise adversely affected |
| Third parties may own or control patents or patent applications and require us to seek licenses, which could increase our development and commercialization costs, or prevent us from developing or marketing our products |
| We may not have rights under some patents or patent applications related to some of our existing and proposed products or processes |
| Third parties may own or control these patents and patent applications in the United States and abroad |
| Therefore, in some cases, such as those described below, in order to develop, manufacture, sell or import some of our existing and proposed products or processes, we or our collaborators may choose to seek, or be required to seek, licenses under third party patents issued in the United States and abroad, or those that might issue from United States and foreign patent applications |
| In such event, we would be required to pay license fees or royalties or both to the licensor |
| If licenses are not available to us on acceptable terms, we or our collaborators may not be able to develop, manufacture, sell or import these products or processes |
| Our MLN02 and MLN1202 product candidates are humanized monoclonal antibodies |
| We are aware of third party patents and patent applications that relate to humanized or modified antibodies, products 24 ______________________________________________________________________ useful for making humanized or modified antibodies and processes for making and using recombinant antibodies |
| With respect to VELCADE, on June 26, 2002, Ariad Pharmaceuticals, Inc |
| sent to us and approximately 50 other parties a letter offering a sublicense for the use of United States Patent Nodtta 6cmam410cmam516, which is exclusively licensed to Ariad |
| If this patent is valid and Ariad successfully sues us for infringement, we would require a license from Ariad in order to manufacture and market VELCADE We may become involved in expensive patent litigation or other proceedings, which could result in our incurring substantial costs and expenses or substantial liability for damages or require us to stop our development and commercialization efforts |
| There has been substantial litigation and other proceedings regarding the patent and other intellectual property rights in the pharmaceutical and biotechnology industries |
| We may become a party to patent litigation or other proceedings regarding intellectual property rights |
| For example, we believe that we hold patent applications that cover genes that are also claimed in patent applications filed by others |
| Interference proceedings before the United States Patent and Trademark Office may be necessary to establish which party was the first to invent these genes |
| The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial |
| Some of our competitors may be able to sustain the cost of such litigation or proceedings more effectively than we can because of their substantially greater financial resources |
| If a patent litigation or other proceeding is resolved against us, we or our collaborators may be enjoined from developing, manufacturing, selling or importing our products or processes without a license from the other party and we may be held liable for significant damages |
| We may not be able to obtain any required license on commercially acceptable terms or at all |
| Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace |
| Patent litigation and other proceedings may also absorb significant management time |
| Our patent protection for any compounds that we seek to develop may be limited to a particular method of use or indication such that, if a third party were to obtain approval of the compound for use in another indication, we could be subject to competition arising from off-label use |
| Although we generally seek the broadest patent protection available for our proprietary compounds, we may not be able to obtain patent protection for the actual composition of any particular compound and may be limited to protecting a new method of use for the compound or otherwise restricted in our ability to prevent others from exploiting the compound |
| If we are unable to obtain patent protection for the actual composition of any compound that we seek to develop and commercialize and must rely on method of use patent coverage, we would likely be unable to prevent others from manufacturing or marketing that compound for any use that is not protected by our patent rights |
| If a third party were to receive marketing approval for the compound for another use, physicians could nevertheless prescribe it for indications that are not described in the product’s labeling or approved by the FDA or other regulatory authorities |
| Even if we have patent protection of the prescribed indication, as a practical matter, we would have little recourse as a result of this off-label use |
| In that event, our revenues from the commercialization of the compound would likely be adversely affected |
| If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business |
| We are a party to various license agreements |
| In particular, we license rights to patents for the formulation of VELCADE and issued patents relating to MLN518 and MLN1202 |
| We may enter into additional licenses in the future |
| Our existing licenses impose, and we expect future licenses will impose, 25 ______________________________________________________________________ various diligence, milestone payment, royalty, insurance and other obligations on us |
| If we fail to comply with these obligations, the licensor may have the right to terminate the license, in which event we might not be able to market any product that is covered by the licensed patents |
| Risks Relating to Product Manufacturing, Marketing and Sales Because we have limited sales, marketing and distribution experience and capabilities, in some instances we are dependent on third parties to successfully perform these functions on our behalf, or we may be required to incur significant costs and devote significant efforts to augment our existing capabilities |
| We are marketing and selling VELCADE in the United States solely through our cancer-specific sales force and without a collaborator |
| Our success in selling VELCADE will depend heavily on the performance of this sales force |
| In areas outside the United States where VELCADE has received approval, Ortho Biotech or its affiliates market VELCADE As a result, our ability to earn revenue related to VELCADE outside of the United States will depend heavily on Ortho Biotech |
| SGP exclusively markets INTEGRILIN in areas outside of Europe, including the United States, and GSK exclusively markets INTEGRILIN in Europe |
| As a result, except for our minimum royalty payments from SGP in 2006 and 2007, our success in receiving royalties and milestone payments from sales of INTEGRILIN depends entirely on the marketing efforts of these third parties |
| Depending on the nature of the products for which we obtain marketing approval, we may need to rely significantly on sales, marketing and distribution arrangements with our collaborators and other third parties |
| For example, some types of pharmaceutical products require a large sales force and extensive marketing capabilities for effective commercialization |
| If in the future we elect to perform sales, marketing and distribution functions for these types of products ourselves, we would face a number of additional risks, including the need to recruit a large number of additional experienced marketing and sales personnel |
| Because we have no commercial manufacturing capabilities, we will continue to be dependent on third party manufacturers to manufacture products for us, or we will be required to incur significant costs and devote significant efforts to establish our own manufacturing facilities and capabilities |
| In order to continue to develop products, apply for regulatory approvals and commercialize products, we will need to develop, contract for or otherwise arrange for the necessary manufacturing capabilities |
| We currently rely substantially upon third parties to produce material for preclinical testing purposes and expect to continue to do so in the future |
| We also currently rely and expect to continue to rely, upon other third parties, potentially including our collaborators, to produce materials required for clinical trials and for the commercial production of our products |
| There are a limited number of contract manufacturers that operate under the FDA’s good manufacturing practices regulations capable of manufacturing our products |
| If we are unable to arrange for third party manufacturing of our products, or to do so on commercially reasonable terms, we may not be able to complete development of our products or commercialize them, or we may experience delays in doing so |
| Reliance on third party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third party for regulatory compliance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control and the possibility of termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us |
| We may in the future elect to manufacture some of our products in our own manufacturing facilities |
| We would need to invest substantial additional funds and recruit qualified personnel in order to build or lease and operate any manufacturing facilities |
| 26 ______________________________________________________________________ Because we have no commercial manufacturing capability for VELCADE and INTEGRILIN, we are dependent on third parties to produce product sufficient to meet market demand |
| We are responsible for managing the supply of material for all clinical and commercial production of VELCADE, including VELCADE that Ortho Biotech sells or uses in clinical trials, and INTEGRILIN, including INTEGRILIN that SGP and GSK sell or use in clinical trials |
| We rely on third party contract manufacturers to manufacture, fill/finish and package VELCADE for both commercial purposes and for all clinical trials |
| We have established long-term supply relationships for the production of commercial supplies of VELCADE We work with one manufacturer, with whom we have a long-term supply agreement, to complete fill/finish for VELCADE If any of our current third party manufacturers performing production and fill/finish for VELCADE are unable or unwilling to continue performing these services for us and we are unable to find a replacement manufacturer or in the future we are otherwise unable to contract with manufacturers to produce commercial supplies of VELCADE in a cost-effective manner, we could run out of VELCADE for commercial sale and clinical trials and our business could be substantially harmed |
| We have no manufacturing facilities for INTEGRILIN and, accordingly, rely on third party contract manufacturers for the clinical and commercial production of INTEGRILIN We have two manufacturers that currently provide us with eptifibatide, the active ingredient necessary to make INTEGRILIN Solvay, one of the current manufacturers, owns the process technology used by it and the other manufacturer for the production of bulk product |
| As a result, unless we have an approved alternative process technology, we will be reliant on these manufacturers |
| We have two manufacturers that currently perform fill/finish services for INTEGRILIN and a new packaging supplier for the United States |
| If our current manufacturers are unable to continue or decide to discontinue their fill/finish services and we are unable to secure alternative manufacturers, the supply of INTEGRILIN could be adversely affected which could harm our business |
| We have filed with the FDA for approval of an alternate process technology for INTEGRILIN We cannot quantify the time or expense that may ultimately be required to obtain approval for an alternate process technology, but it is possible that such time or expense could be substantial |
| Moreover, we may not be able to implement any new process technology successfully |
| In order to mitigate the risk of INTEGRILIN supply interruption, we have entered into a new third party fill/finish and bulk product manufacturing arrangement on commercially reasonable terms and are currently engaged in completing a new third party arrangement which will manufacture eptifibatide utilizing the new process |
| We may not be able complete this third party arrangement |
| Even if we do, if demand for INTEGRILIN does not meet our forecasts, the manufacturing cost under this new arrangement could be more expensive on a per unit basis than the cost under our existing arrangements, which would decrease royalty payments due from SGP and would adversely affect our business |
| Furthermore, because these are new manufacturing arrangements, these manufacturers may encounter difficulties that could adversely affect the supply of INTEGRILIN and, thereby, harm our business |
| If we fail to obtain an adequate level of reimbursement for our products by third party payors, there may be no commercially viable markets for our products |
| The availability and levels of reimbursement by governmental and other third party payors affect the market for any pharmaceutical product or health care service |
| These third party payors continually attempt to contain or reduce the costs of health care by challenging the prices charged for medical products and services |
| In some foreign countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control |
| We may not be able to sell our products as profitably as we expect if we are required to sell our products at lower than anticipated prices or reimbursement is unavailable or limited in scope or amount |
| 27 ______________________________________________________________________ In particular, third party payors could lower the amount that they will reimburse hospitals or doctors to treat the conditions for which the FDA has approved VELCADE or INTEGRILIN If they do, pricing levels or sales volumes of VELCADE or INTEGRILIN may decrease |
| In addition, if we fail to comply with the rules applicable to the Medicaid and Medicare programs, we could be subject to the imposition of civil or criminal penalties or exclusion from these programs |
| In foreign markets, a number of different governmental and private entities determine the level at which hospitals will be reimbursed for administering VELCADE and INTEGRILIN to insured patients |
| If these levels are set, or reset, too low, it may not be possible to sell VELCADE or INTEGRILIN at a profit in these markets |
| In both the United States and foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system |
| For example, the Medicare Prescription Drug and Modernization Act of 2003 and its implementing regulations impose new requirements for the distribution and pricing of prescription drugs which may affect the marketing of our products |
| These new requirements have created uncertainty among oncologists and could impact sales levels of VELCADE as oncologists adapt to the new reimbursement model |
| Further proposals are also likely |
| The current uncertainty and the potential for adoption of additional proposals could affect the timing of product revenue, our ability to raise capital, obtain additional collaborators and market our products |
| In addition, we believe that the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of our present and future products, which may adversely affect product sales |
| Further, when a new therapeutic product is approved, the availability of governmental or private reimbursement for that product is uncertain, as is the amount for which that product will be reimbursed |
| We cannot predict the availability or amount of reimbursement for our product candidates, and current reimbursement policies for VELCADE or INTEGRILIN could change at any time |
| We face a risk of product liability claims and may not be able to obtain insurance |
| Our business exposes us to the risk of product liability claims that is inherent in the manufacturing, testing and marketing of human therapeutic products |
| In particular, VELCADE and INTEGRILIN are administered to patients with serious diseases who have a high incidence of mortality |
| Although we have product liability insurance that we believe is appropriate, this insurance is subject to deductibles, co-insurance requirements and coverage limitations and the market for such insurance is becoming more restrictive |
| We may not be able to obtain or maintain adequate protection against potential liabilities |
| If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position |
| These liabilities could prevent or interfere with our product commercialization efforts |
| Guidelines and recommendations can affect the use of our products |
| Government agencies promulgate regulations and guidelines directly applicable to us and to our products |
| In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the health care and patient communities |
| Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies |
| Recommendations or guidelines suggesting the reduced use of our products or the use of competitive or alternative products that are followed by patients and health care providers could result in decreased use of our products |
| 28 ______________________________________________________________________ Risks Relating to an Investment in Our Common Stock The trading price of our securities could be subject to significant fluctuations |
| The trading price of our common stock has been quite volatile, and may be volatile in the future |
| During 2005, our common stock traded as high as dlra12dtta34 per share and as low as dlra7dtta63 per share |
| Factors such as announcements of our or our competitors’ operating results, data from our or our competitors’ clinical trial results, changes in our prospects, market conditions for biopharmaceutical stocks in general and analyst recommendations or commentary concerning our or our competitors’ products or business could have a significant impact on the future trading prices of our common stock |
| In particular, the trading price of the common stock of many biopharmaceutical companies, including ours, has experienced extreme price and volume fluctuations, which have at times been unrelated to the operating performance of such companies whose stocks were affected |
| Some of the factors that may cause volatility in the price of our securities include: · product revenues and the rate of revenue growth; · introduction or success of competitive products; · clinical trial results and regulatory developments; · quarterly variations in financial results and guidance to the investment community with respect to future financial results; · business and product market cycles; · fluctuations in customer requirements; · availability and utilization of manufacturing capacity; · timing of new product introductions; and · our ability to develop and implement new technologies |
| The price of our securities may also be affected by the estimates and projections of the investment community and our ability to meet or exceed the financial projections we provide to the public |
| The price may also be affected by general economic and market conditions, and the cost of operations in our product markets |
| While we cannot predict the individual effect that these factors may have on the price of our securities, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time |
| We can not assure you that these factors will not have an adverse effect on the trading price of our common stock |
| We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our common stock |
| Provisions of our certificate of incorporation and bylaws and of Delaware law could have the effect of delaying, deferring or preventing an acquisition of our company |
| For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may issue shares of our authorized “blank check” preferred stock and our stockholders are limited in their ability to call special stockholder meetings |
| In addition, we have issued preferred stock purchase rights that would adversely affect the economic and voting interests of a person or group that seeks to acquire us or a 15prca or greater interest in our common stock without negotiations with our board of directors |