| NEOSE TECHNOLOGIES INC ITEM 1A RISK FACTORS Financial Risks If we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our technology position and we will be unable to develop and commercialize our therapeutic proteins |
| To date, we have funded our operations primarily through proceeds from the public and private placements of equity securities |
| We have also funded our operations to a lesser extent from proceeds from property and equipment financing, interest earned on investments, revenues from corporate collaborations and gains from the sale of investments |
| We believe that our existing cash and cash equivalents, expected revenue from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through 2006, although changes in our collaborative relationships or our business, whether or not initiated by us, may affect the rate at which we deplete our cash and cash equivalents |
| Our present and future capital requirements depend on many factors, including: • level of research and development investment required to develop our therapeutic proteins, and maintain and improve our technology position; • the costs of procuring proteins and reagents for research and development and at commercial scale; • the results of preclinical and clinical testing, which can be unpredictable in drug development; • changes in product candidate development plans needed to address any difficulties that may arise in manufacturing, preclinical activities, clinical studies or commercialization; • our ability and willingness to enter into new agreements with collaborators and to extend or maintain our existing collaborations, and the terms of these agreements; • our success rate and that of our collaborators in preclinical and clinical efforts associated with milestones and royalties; • the costs of investigating patents that might block us from developing potential drug candidates; • the costs of recruiting and retaining qualified personnel; • the time and costs involved in obtaining regulatory approvals; • the timing, willingness, and ability of our collaborators to commercialize products incorporating our technologies; • the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights; • our need or decision to acquire or license complementary technologies or new drug targets; and • the evolution of the competitive landscape |
| -11- _________________________________________________________________ We will require significant amounts of additional capital in the future, and we do not have any assurance that funding will be available when we need it on terms that we find favorable, if at all |
| We may seek to raise these funds through public or private equity offerings, debt financings, credit facilities, or corporate collaborations and licensing arrangements |
| If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced and they may experience substantial dilution |
| We may also issue equity securities that provide for rights, preference and privileges senior to those of our common stock |
| If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations |
| If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or drug candidates, or to grant licenses on terms that are not favorable to us |
| If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products and technologies, and otherwise respond to competitive pressures could be significantly delayed or limited, and we may need to downsize or halt our operations |
| Our debt obligations include restrictive covenants which may restrict our operations or otherwise adversely affect us |
| We have a credit facility, which was amended in February 2006, with a bank consisting of a credit agreement and a financing agreement |
| As of December 31, 2005, the outstanding balance under the credit facility was dlra8dtta1 million |
| Pursuant to the agreements comprising the credit facility, we agreed to limit our total outstanding debt to dlra22dtta0 million; therefore, we cannot exceed this limit without the bank’s consent |
| As of December 31, 2005, our total outstanding debt was dlra14dtta5 million |
| The limit on our total debt under the credit agreement could adversely affect us by reducing our flexibility in planning for, or reacting to, changes in our business and our industry |
| If the bank determines a material adverse change has occurred in our business, financial condition, results of operations, or business prospects, the bank, in its sole discretion, may declare at any time an event of default, of which one potential outcome could be the accelerated repayment of the then outstanding loan balance under the facility |
| If we fail at any time to maintain a minimum required cash and short-term investments balance of at least dlra12dtta0 million, the bank has the option to require us to make a payment to reduce the outstanding balance under the credit facility to dlra6dtta0 million |
| If we fail at any time to maintain a minimum required cash and short-term investments balance of at least dlra10dtta0 million, the bank has the option to require us to make a payment to reduce the outstanding balance under the credit facility to dlra5dtta0 million |
| Finally, if we fail at any time to maintain a minimum required cash and short-term investments balance of at least dlra5dtta0 million we will be considered to be in default of the credit facility and the bank may take certain actions in relation to that default, including, but not limited to, requiring us to repay the entire outstanding balance under the credit facility |
| As of December 31, 2005, we maintained a cash and cash equivalents balance of dlra37dtta7 million |
| During 2006, we anticipate average quarterly spending of approximately dlra8dtta0 million to dlra8dtta5 million to fund our operating activities, capital expenditures, and debt repayments, without giving effect to the impact of entering into any new collaborative agreements or disposing of our current headquarters and manufacturing facility |
| We believe that our existing cash and cash equivalents, expected revenue from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through 2006 |
| Accordingly, we will need to raise substantial additional funds to avoid violating the debt covenant described above (See “Overview” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-K) and fund our operations until we are generating sufficient cash flow from operations |
| The agreements comprising the credit facility also contain covenants that, among other things, require us to obtain consent from the bank prior to paying dividends, making certain investments, changing the nature of our business, assuming or guaranteeing the indebtedness of another entity or individual, selling or otherwise disposing of a substantial portion of our assets, or merging or consolidating with another entity |
| A breach of any of the financial tests or other covenants in the agreements comprising the credit facility could result in a default under those agreements |
| Upon the occurrence of an event of default, the bank could elect to declare all amounts outstanding under the credit facility to be immediately due and payable, and terminate all commitments to extend further credit |
| -12- _________________________________________________________________ We have a history of losses, and we may incur continued losses for some time |
| We have incurred losses each year of our existence, including net losses of dlra51dtta8 million for the year ended December 31, 2005, dlra41dtta6 million for the year ended December 31, 2004, and dlra37dtta7 million for the year ended December 31, 2003 |
| Given our planned level of operating expenses, we expect to continue incurring losses for some time |
| As of December 31, 2005, we had an accumulated deficit of dlra239dtta2 million |
| To date, we have derived substantially all of our revenue from corporate collaborations, license agreements, and investments |
| We expect that substantially all of our revenue for the foreseeable future will result from these sources and from the licensing of our technologies |
| We also expect to spend significant amounts to expand our research and development on our proprietary drug candidates and technologies, maintain and expand our intellectual property position, and expand our business development and commercialization efforts |
| Our level of operating expenditures will vary depending upon the stage of development of our proprietary proteins and the number and nature of our collaborations |
| We may continue to incur substantial losses even if our revenues increase |
| We have not yet commercialized any products or technologies, and we may never become profitable |
| We have not yet commercialized any products or technologies, and we may never be able to do so |
| Since we began operations in 1990, we have not generated any revenues, except from corporate collaborations, license agreements, and investments |
| We do not know when or if we will complete any of our product development efforts, obtain regulatory approval for any product candidates incorporating our technologies, or successfully commercialize any approved products |
| Even if we are successful in developing products that are approved for marketing, we will not be successful unless these products gain market acceptance |
| The degree of market acceptance of these products will depend on a number of factors, including: • the timing of regulatory approvals in the countries, and for the uses, we seek; • the competitive environment; • the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products; • the adequacy and success of distribution, sales and marketing efforts; and • the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators |
| Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products or products incorporating our technologies |
| As a result, we are unable to predict the extent of future losses or the time required to achieve profitability, if at all |
| Even if we or our collaborators successfully develop one or more products that incorporate our technologies, we may not become profitable |
| Risks Related to Development of Products and Technologies We may be unable to develop next-generation therapeutic proteins |
| We are seeking to use our enzymatic technologies to develop proprietary next-generation proteins, generally in collaboration with a partner |
| The development of protein drugs involves a range of special challenges at various stages of the process |
| In the preclinical phase of product development, we and our partners will face several potential problems, including producing or obtaining supplies of the protein on commercially reasonable terms, successfully modifying the protein using our enzymatic technologies, and achieving adequate yields of the next-generation protein |
| Even if a protein development program appears to be proceeding well in the early phases, a product candidate may fail in clinical trials for several reasons, such as results indicating that the product candidate is less effective than desired (eg, the trial failed to meet its primary objectives) or that it has harmful or problematic side effects |
| If clinical trials are successful, it is possible that problems may arise later during commercialization |
| For example, we are aware that -13- _________________________________________________________________ certain marketed EPO products were associated with pure red cell aplasia that arose after marketing authorization |
| This highlights the fact that even after a product is approved for marketing, problems may arise that can negatively affect sales and increase costs |
| Our failure to solve any of these problems could delay or prevent the commercialization of products incorporating our technologies and could negatively impact our business |
| Preclinical and clinical trial results for our products may not be favorable |
| In order to obtain regulatory approval for the commercial sale of any of our product candidates, we must conduct both preclinical studies and human clinical trials that demonstrate the product is safe and effective for the use for which we are seeking approval |
| Adverse results from studies, including clinical trials, could have a negative effect on our ability to obtain the approval of the FDA or other regulatory agencies |
| We also may not be permitted to undertake or continue clinical trials for any of our product candidates in the future or may otherwise be unable to do so because acceptable candidates to participate in such trials are unavailable |
| Even if we are able to conduct such trials, we may not be able to demonstrate satisfactorily that the products are safe and effective and thus qualify for the regulatory approvals necessary to commercialize them |
| Safety and efficacy results from preclinical studies involving animals and other models and from early clinical trials are often not accurate indicators of results of later-stage clinical trials that involve larger human populations, and, moreover, may not always be representative of results obtained while marketing an approved drug, particularly with regard to safety |
| Proteins are uniquely susceptible to neutralizing antibodies that could result in diminished efficacy of our products |
| Proteins that are foreign to a living body often provoke an immune response |
| Protein drugs produced by recombinant technology, even though they have the same primary amino acid sequence as a native human protein, sometimes provoke formation of antibodies that bind to the protein drug |
| Some such antibodies bind so as to prevent the protein drug from engaging its receptor, and thus neutralize the drug activity of the protein |
| Furthermore, neutralizing antibodies provoked by administration of a protein drug may react with endogenous proteins whose natural activity the drug was intended to supplement, thereby inducing a total lack of both therapeutic and natural activities in the patient |
| We will not know if the proteins we develop as product candidates will provoke neutralizing antibody responses in humans until they are evaluated in clinical trials |
| It is possible that our product candidates may be rendered ineffective for the therapeutic purpose for which they are intended or could induce harm to patients because of the neutralizing effect of antibodies to endogenous proteins in humans in response to our proteins |
| Additionally, all protein drugs expressed by recombinant technology retain some trace of contaminating proteins from the host cells used to express the protein drug |
| These host cell proteins may increase the chances of an immunogenic response that could diminish the therapeutic efficacy of the protein |
| Our GlycoAdvance technology enables the use of protein drugs produced in insect cells, an expression system which has certain technical advantages in enabling the application of our technology to this protein, but for which no product to date has received marketing authorization in the US or Europe |
| It is possible that our product candidates may be rendered ineffective for the therapeutic purpose for which they are intended because of the neutralizing effects of antibodies provoked by the presence of trace amounts of insect cell proteins in our drug preparations |
| We have limited product development and commercial manufacturing experience, and face challenges unique to proteins |
| To date, we have not manufactured, at commercial scale, any pharmaceutically active proteins nor the enzymes, sugar nucleotides or other reagents we use to modify proteins |
| We and the third parties with whom we contract to manufacture our proteins face the significant, normal scale-up risks associated with protein manufacturing: proteins are difficult to produce; it is difficult to scale up protein manufacturing processes; and it is expensive to produce proteins |
| We also face special risks in connection -14- _________________________________________________________________ with our first product, NE-180, an EPO protein |
| Our success with this program will depend on our ability to have this protein manufactured, at commercial scale, in the insect cell expression system (the production source of NE-180), by a collaborator or supplier |
| We do not know if we will be able to locate a contract manufacturer outside of the US that will be able to manufacture this protein at commercial scale and on economically feasible terms |
| To our knowledge, no therapeutic protein produced in this expression system has yet received marketing authorization in the US or Europe, which means that we may face previously unidentified problems resulting from the use of this expression system and related regulatory challenges |
| We will be relying on third parties to manufacture the proteins, enzymes, sugar nucleotides and other reagents we need to apply and commercialize our technologies |
| We may not be able to find parties willing and able to manufacture these compounds at acceptable prices, and we may become dependent on suppliers that could discontinue our supply arrangements or change supply terms to our disadvantage |
| Our success depends on our ability to have these compounds manufactured on a commercial scale or to obtain commercial quantities, in either case, at reasonable cost |
| We may not be able to procure sufficient quantities of the products we develop to meet our needs for preclinical or clinical development |
| Any manufacturing facility and manufacturing process must adhere to the FDA‘s and/or other regulatory agencies’ evolving regulations on cGMP, which are enforced by the FDA and others through facilities inspection programs |
| The manufacture of products and key reagents at any facility will be subject to strict quality control, testing, and record keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information |
| Ultimately, we, our contract manufacturers, or other suppliers may not meet these requirements |
| If we encounter delays or difficulties in connection with manufacturing, commercialization of our products and technologies could be delayed, we could breach our obligations under our collaborative agreements and we could have difficulty obtaining necessary financing |
| Our success depends on the success of our collaborative relationships and the success of our collaborators |
| We plan to rely to a large extent on collaborative partners to co-develop our products and to commercialize products made using our technologies |
| We currently have collaborative agreements with Novo Nordisk, BioGeneriX and MacroGenics |
| We anticipate that substantially all of our revenues during the next several years will continue to be generated from collaboration or license agreements |
| Our partnering strategy entails many risks, including: • we may be unsuccessful in entering into or maintaining collaborative agreements for the co-development of our products or the commercialization of products incorporating our technologies; • we may not be successful in applying our technologies to the needs of our collaborative partners; • our collaborators may not be successful in, or may not remain committed to, co-developing our products or commercializing products incorporating our technologies; • our collaborators may seek to develop other proprietary alternatives to our products or technologies; • our collaborators may not commit sufficient resources to incorporating our technologies into their products; • our collaborators are not obligated to market or commercialize our products or products incorporating our technologies, and they are not required to achieve any specific commercialization schedule; • our collaborative agreements may be terminated by our partners on short notice; and • continued consolidation in our target markets may limit our ability to enter into collaboration agreements, or may result in terminations of existing collaborations |
| -15- _________________________________________________________________ Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts |
| We may be exposed to product liability and related risks |
| The use in humans of compounds developed by us or incorporating our technologies may result in product liability claims |
| Product liability claims can be expensive to defend, and may result in large settlements of claims or judgments against us |
| Even if a product liability claim is not successful, the adverse publicity, time, and expense involved in defending such a claim may interfere with our business |
| We may not be able to obtain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses |
| Risks Related to Intellectual Property Blocking patents or claims of infringement may stop or delay the development of our proprietary products |
| Our commercial success depends in part on avoiding claims of infringement of the patents or proprietary rights of third parties |
| We have devoted significant resources to investigating the patent protection surrounding the proteins that are the subject of our development programs |
| The numerous patents, each with multiple claims, may be difficult to uncover and interpret, leading to uncertainty about our freedom to operate |
| It is possible that we will not be aware of issued patents or pending patent applications that are relevant to our product candidates because our searches do not find them, or pending patent applications because they are not yet publicly available |
| Our interpretation of patents could be challenged, leading to litigation, and we could face claims of infringement of rights of which we are unaware |
| There have been significant litigation and interference proceedings regarding patent rights, and the patent situation regarding particular products is often complex and uncertain |
| For example, with respect to EPO, the target of our first development program, the status of issued patents is currently being litigated by others and these patents could delay our ability to market a long-acting EPO in the US As we proceed with this program and other targets, we may face uncertainty and litigation could result, which could lead to liability for damages, prevent our development and commercialization efforts, and divert resources from our business strategy |
| The cost of any litigation challenging our right to pursue our target proteins or technologies could be substantial |
| Others seeking to develop next-generation versions of proteins, or the holders of patents on our target proteins, may have greater financial resources, making them better able to bear the cost of litigation |
| In particular, one company that produces products that will likely be in direct competition with our current product candidates has aggressively defended the patents related to its products and this could increase the likelihood of litigation or the cost of litigation |
| Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to develop, manufacture, and market products, form strategic alliances, and compete in the marketplace |
| Third parties from time to time may assert that we are infringing their patents, trade secrets or know-how, although we believe our product candidates do not infringe the products, trade secrets or know-how of third parties |
| In addition, patents may issue in the future to third parties that our technology may infringe |
| We could incur substantial costs in defending ourselves and our partners against any such claims |
| Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability or our partners’ ability to further develop or commercialize some or all of our products or technologies in the US and abroad, and could result in the award of substantial damages |
| If we are found to infringe, we may be required to obtain one or more licenses from third parties or be unable to proceed |
| There can be no assurance that we will be able to obtain such licenses at a reasonable cost, if at all |
| Defense of any lawsuit or failure to obtain any such required license could have a material adverse effect on us |
| The failure to obtain, maintain or protect patents and other intellectual property could impact our ability to compete effectively |
| To compete effectively, we need to develop and maintain a proprietary position with regard to our own technologies, products and business |
| We are seeking to develop patent protection for therapeutic proteins that -16- _________________________________________________________________ include numerous claims for composition of matter, methods of use, and methods of making |
| Legal standards relating to the validity and scope of claims in our technology field are still evolving |
| Therefore, the degree of future protection in the US and other countries for our proprietary rights in our core technologies and products made using these technologies is also uncertain |
| The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following: • the pending patent applications we have filed, or to which we have exclusive rights, may not result in issued patents, or may take longer than we expect to result in issued patents; • we may be subject to interference proceedings; • we may be subject to opposition proceedings in foreign countries; • the claims of any patents that are issued may not provide meaningful protection; • we may not be able to develop additional proprietary technologies that are patentable; • the patents licensed or issued to us or our customers may not provide a competitive advantage; • other companies may challenge patents licensed or issued to us or our customers; • other companies may independently develop similar or alternative technologies, or duplicate our technologies; • other companies may design around technologies we have licensed or developed; and • enforcement of patents is complex, uncertain and expensive |
| We cannot be certain that patents will be issued as a result of any of our pending applications, and we cannot be certain that any of our issued patents will give us adequate protection from competing products |
| For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope |
| In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications covering those inventions |
| In the event that another party has also filed a patent application relating to an invention claimed by us, we may be required to participate in an interference proceeding declared by the US Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome were favorable to us |
| It is also possible that others may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business |
| As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so |
| Furthermore, patent protection available to us may vary in different jurisdictions |
| In particular, the laws in some countries provide little patent protection |
| The cost to us of any patent litigation or other proceeding relating to our patents or applications, even if resolved in our favor, could be substantial |
| Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays |
| If we are unable to effectively enforce our proprietary rights, or if we are found to infringe the rights of others, we may be in breach of our license agreements with our partners |
| In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology |
| We require our employees, consultants, advisors, and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties |
| We require our employees and consultants to disclose and assign to us their ideas, developments, discoveries, and inventions |
| These agreements may not, however, provide adequate protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use or disclosure |
| -17- _________________________________________________________________ We may have to develop or license alternative technologies if we are unable to maintain or obtain key technology from third parties |
| We have licensed patents and patent applications from a number of institutions |
| Some of our proprietary rights have been licensed to us under agreements that have performance requirements or other contingencies |
| The failure to comply with these provisions could lead to termination or modifications of our rights to these licenses |
| Additionally, we may need to obtain additional licenses to patents or other proprietary rights from other parties to facilitate development of our proprietary technology base |
| The ownership of patents exclusively licensed to us may be subject to challenge if inventorship was not adequately investigated and represented |
| If our existing licenses are terminated or if we are unable to obtain such additional licenses on acceptable terms, our ability to perform our own research and development and to comply with our obligations under our collaborative agreements may be delayed while we seek to develop or license alternative technologies |
| Risks Related to Competition Our competitors may develop better or more successful products |
| Our business is characterized by extensive research efforts and rapid technological progress |
| New developments in molecular biology, medicinal chemistry and other fields of biology and chemistry are expected to continue at a rapid pace in both industry and academia |
| Our potential competitors include both public and private pharmaceutical and biotechnology companies, as well as academic institutions, governmental agencies and other public and private research organizations that are also conducting research activities and seeking patent protection |
| A number of these competitors are working on the development of next-generation protein therapeutics |
| Some of these competitors include Maxygen, Nektar Therapeutics, BioRexis, Human Genome Sciences and Alkermes |
| Other companies have programs focused on developing next-generation or improved versions of EPO and G-CSF, and some are already marketing improved versions of these products |
| Other companies are active in this area, and we expect that competition will increase |
| We are also aware that there are several companies engaged in glycobiology research |
| In addition, we may compete with companies commercializing first-generation protein therapeutics, as a result of pricing practices or reimbursement limitations |
| Even if we succeed in developing and marketing products that have significant advantages over first-generation products, if first-generation products are available at a lower out-of-pocket cost to the consumer, health-care providers and consumers may choose first-generation products instead of next-generation versions |
| Compared to us, many of our likely and potential competitors have more: • financial, scientific and technical resources; • product development, manufacturing and marketing capabilities; • experience conducting preclinical studies and clinical trials of new products; and • experience in obtaining regulatory approvals for products |
| Competitors may succeed in developing products and technologies that are more effective or less costly than ours and that would render our products or technologies, or both, obsolete or noncompetitive |
| We know that other companies with substantial resources are working on the development of next-generation proteins, and they may achieve better results in enzymatically modifying our target proteins or the target proteins of our potential collaborators |
| Competitors also may prove to be more successful in designing, manufacturing and marketing products |
| If we are successful in developing our own drug candidates or versions of drugs that are no longer patented, we will compete with other drug manufacturers for market share |
| If we are unable to compete successfully, our commercial opportunities will be diminished |
| -18- _________________________________________________________________ In addition, while there is no proven abbreviated regulatory pathway for follow-on biologics, this possibility is under discussion in the US and other jurisdictions and has been adopted in part in Europe |
| If an abbreviated regulatory process is adopted for the approval of follow-on biologics in any major market, competition could increase in related segments of the therapeutic protein market |
| We may be unable to retain key employees or recruit additional qualified personnel |
| Because of the specialized scientific nature of our business, we are highly dependent upon qualified scientific, technical and managerial personnel, including our research and development team |
| The advancement of our business is dependent upon our management team‘s ability to evaluate collaboration opportunities and on their ability to focus our company’s efforts |
| Our anticipated research and development efforts will require additional expertise and the addition of new qualified personnel |
| There is intense competition for qualified management and research and development personnel in the pharmaceutical field |
| Therefore, we may not be able to attract and retain the qualified personnel necessary for our business |
| The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, could harm our research and development programs and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees, and generate revenues |
| We do not maintain “key person” life insurance on any of our employees |
| Risks Related to Government Regulation We are subject to extensive government regulation, and we or our collaborators may not obtain necessary regulatory approvals or may encounter long delays and large expenditures in obtaining such approvals |
| The research, development, manufacture and control, marketing, and sale of our reagents and product candidates manufactured using our technologies are subject to significant, but varying, degrees of regulation by a number of government authorities in the US and other countries |
| Pharmaceutical product candidates manufactured using our technologies must undergo an extensive regulatory approval process before commercialization |
| This process is regulated by the FDA and by comparable agencies in Europe and in other countries |
| The US and foreign regulatory agencies have substantial discretion to terminate clinical trials, require additional testing, delay or withhold registration and marketing approval, and mandate product withdrawals |
| In addition, the US or other regulatory agencies could, at any time in the regulatory approval process, place the regulatory submission for a product candidate on “hold” pending the receipt, review and approval of additional information |
| The IND for our first product candidate, NE-180, is currently on hold in the US There is the risk that we will not be taken off hold and will therefore be unable to proceed with clinical trials of NE-180 in the US We and our collaborators intend to base our submissions for regulatory approval and the information contained in such submissions on our understanding of the requirements of the FDA and its foreign counterparts |
| If additional information is required, we may face delays and additional costs |
| The specific risks of protein drugs may result in the application of more stringent regulatory requirements prior to approval of our product candidates |
| We face special challenges in connection with the development of proteins produced in the insect cell expression system |
| To our knowledge, no therapeutic protein for human use produced in this expression system has been submitted for marketing authorization in the US or Europe, and we may encounter long delays and large expenditures or other regulatory hurdles in connection with the approval process for a product produced in this expression system |
| Neither we nor our collaborators have submitted any product candidates incorporating our technologies for approval to the FDA or any other regulatory authority |
| If any product candidate manufactured using our technology is submitted for regulatory approval, it may not receive the approvals necessary for commercialization, the desired labeling claims, or adequate levels of reimbursement |
| Any delay in receiving, or failure to receive, these approvals -19- _________________________________________________________________ would adversely affect our ability to generate product revenues or royalties, and we will have already spent significant sums in pursuing approval |
| We anticipate that the development of our next-generation proprietary proteins will involve a traditional development program, including clinical trials |
| Any new governmental regulations may delay or alter regulatory approval of any product candidate manufactured using our technology |
| If an abbreviated regulatory process is adopted for the approval of follow-on biologics in any major market, competition could increase in related segments of the therapeutic protein market |
| We cannot predict the impact of adverse governmental action that might arise from future legislative and administrative action |
| Even if we or our collaborators are successful in obtaining regulatory approvals for any of our products, our or their manufacturing processes will be subject to continued review by the FDA and other regulatory authorities |
| Any later discovery of unknown problems with our products, products incorporating our technologies, or manufacturing processes could result in restrictions on such products or manufacturing processes, including potential withdrawal of the products from the market |
| In addition, if regulatory authorities determine that we or our collaborators have not complied with regulations in the research and development of a product candidate or the manufacture and control of our reagents, then we or our collaborators may not obtain necessary approvals to market and sell the product candidate |
| Third-party reimbursement for our collaborators’ or our future product candidates may not be adequate |
| Even if regulatory approval is obtained to sell any product candidates incorporating our technologies, our future revenues, profitability, and access to capital will be determined in part by the price at which we or our collaborators can sell such products |
| There are continuing efforts by governmental and private third-party payors to contain or reduce the costs of health care through various means |
| We expect a number of federal, state, and foreign proposals to control the cost of drugs through governmental regulation |
| We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign, and private payors may take in response to the proposed reforms |
| Therefore, we cannot predict the effect of any implemented reform on our business |
| Our and our collaborators’ ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the US, private health insurers, and other organizations |
| Significant uncertainty exists as to the reimbursement status of newly approved healthcare products |
| Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product research and development |
| Inadequate coverage and reimbursement levels provided by government and third-party payors for use of our or our collaborators’ products may cause these products to fail to achieve market acceptance and would cause us to lose anticipated revenues and delay achievement of profitability |
| It is possible that reimbursement may be limited to that which is available for first-generation versions of one or more of our or our collaborator’s products, making it harder for us and our collaborators to realize an appropriate return |
| Risks Related to Facilities, Business Interruption, and the Environment The use of hazardous materials in our operations may subject us to environmental claims or liability |
| Our research and development processes involve the controlled use of hazardous materials, chemicals, and radioactive compounds |
| We conduct experiments that are quite common in the biotechnology industry, in which we use small quantities of corrosive, toxic and flammable chemicals, and trace amounts of radioactive materials |
| The risk of accidental injury or contamination from these materials cannot be entirely eliminated |
| We do not maintain a separate insurance policy for these types of risks |
| In the event of an accident or environmental discharge, we may be held liable for any resulting damages, and any liability could exceed our resources |
| We are subject to federal, state, and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products |
| The cost of compliance with these laws and regulations could be significant |
| -20- _________________________________________________________________ Destructive actions by activists or terrorists could damage our facilities, interfere with our research activities, and cause ecological harm |
| Activists and terrorists have shown a willingness to injure people and damage physical facilities, equipment and biological materials to publicize or otherwise further their ideological causes |
| Our or our collaborators’ operations and research activities, and services conducted for us by third parties, could be adversely affected by such acts |
| Any such damage could delay our research projects and decrease our ability to conduct future research and development |
| Damage caused by activist or terrorist incidents could also cause the release of hazardous materials, including chemicals, radioactive and biological materials |
| Any significant interruption to our ability to conduct our business operations, research and development activities, or manufacturing operations could reduce our revenue and increase our expenses |
| Risk Related to Stock Market Our stock price may continue to experience fluctuations |
| The market prices of securities of thinly-traded biotechnology companies such as ours generally are highly volatile |
| For example, since March 1, 2005, the price of our common stock reached a high of dlra4dtta49 per share in July 2005 and a low of dlra1dtta70 per share in November 2005 |
| In this market environment, the sale of a substantial number of shares of our common stock in the public market or the perception that such a sale might occur would likely have an adverse effect on the market price of our common stock, at least for the short term |
| We have a number of investors who hold relatively large positions in our securities |
| A decision by any of these investors to sell all or a block of their holdings of our common stock could cause our stock price to drop significantly |
| The market also continues to experience significant price and volume fluctuations, some of which are unrelated to the operating performance of particular companies |
| In recent years, the price of our common stock has fluctuated significantly and may continue to do so in the future |
| Many factors could have a significant effect on the market price for our common stock, including: • preclinical and clinical trial results; • product development delays; • regulatory delays; • an announcement or termination of a collaborative relationship by us or any of our partners or competitors; • developments relating to our patent position or other proprietary rights; • announcements of technological innovations or new therapeutic products; • government regulations; • public concern as to the safety of products developed by us or others; and • general market conditions |
| Any litigation brought against us as a result of this volatility could result in substantial costs and a diversion of our management’s attention and resources, which could negatively impact our financial condition, revenues, results of operations, and the price of our common stock |
| If we raise additional capital by issuing equity securities in a fluctuating market, many or all of our existing stockholders may experience substantial dilution, and if we need to raise capital by issuing equity securities at a time -21- _________________________________________________________________ when our stock price is down, we may have difficulty raising sufficient capital to meet our requirements |
| If any of the risks described in these “RISK FACTORS” occurred, of if any unforeseen risk affected our performance, it could have a dramatic and adverse impact on the market price of our common stock |
| We have entered into some agreements denominated, wholly or partly, in Euros or other foreign currencies, and, in the future, we may enter into additional, significant agreements denominated in foreign currencies |
| To date, we have not entered into any contracts to reduce the risk of fluctuations in currency exchange rates |
| In the future, depending upon the amounts payable under any such agreements, we may enter into forward foreign exchange contracts to reduce the risk of unpredictable changes in these costs |
| However, due to the variability of timing and amount of payments under any such agreements, foreign exchange contracts may not mitigate the potential adverse impact on our financial results |