| PHARMACYCLICS INC Item 1A Risk Factors RISK FACTORS You should carefully consider these risk factors as each of these risks could adversely affect our business, operating results and financial condition |
| Risks Related to Pharmacyclics All of our product candidates are in development, and we cannot be certain that any of our products under development will be commercialized |
| To be profitable, we must successfully research, develop, obtain regulatory approval for, manufacture, introduce, market and distribute our products under development |
| The time frame necessary to achieve these goals for any individual product is long and uncertain |
| Before we can sell any of our products under development, we must demonstrate to the satisfaction of the FDA and regulatory authorities in foreign markets through the submission of preclinical (animal) studies and clinical (human) trials that each product is safe and effective for human use for each targeted disease |
| We have conducted and plan to continue to conduct extensive and costly clinical trials to assess the safety and effectiveness of our potential products |
| We cannot be certain that we will be permitted to begin or continue our planned clinical trials for our potential products, or if permitted, that our potential products will prove to be safe and produce their intended effects |
| The completion rate of our clinical trials depends upon, among other factors, the rate of patient enrollment, the adequacy of patient follow-up and the completion of required clinical evaluations |
| Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs or procedures used for the conditions we are investigating |
| Other companies are conducting clinical trials and have announced plans for future trials that are seeking or are likely to seek patients with the same diseases that we are studying |
| We may fail to obtain adequate levels of patient enrollment in our clinical trials |
| Delays in planned patient enrollment may result in increased costs, delays or termination of clinical trials, which could have a material adverse effect on us |
| Many factors can affect the adequacy of patient follow-up and completion of required clinical evaluations, including failure of patients to return for scheduled visits or failure of clinical sites to complete necessary documentation |
| Delays in or failure to obtain required clinical follow-up and completion of clinical evaluations could also have a material adverse effect on the timing and outcome of our clinical trials and product approvals |
| Additionally, clinical trials require substantial administration and monitoring |
| We may fail to effectively oversee and monitor the various trials we have underway at any particular time which would result in increased costs or delays of our clinical trials |
| Data already obtained from preclinical studies and clinical trials of our products under development do not necessarily predict the results that will be obtained from later preclinical studies and clinical trials |
| Moreover, data from clinical trials we are conducting are susceptible to varying interpretations that could delay, limit or prevent regulatory approval |
| A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials |
| The failure to adequately demonstrate the safety and effectiveness of a product under development could limit or prevent regulatory approval of the potential product and would materially harm our business |
| Our clinical trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approval or may not result in marketable products |
| The outcome of the Phase 3 SMART trial did not reach statistical significance for the primary endpoint, which may limit or prevent the regulatory approval of Xcytrin as a treatment for brain metastases in patients with lung cancer and may result in material harm to our business |
| The outcomes of our other ongoing Phase 1 and Phase 2 trials with Xcytrin for additional cancer indications may not provide sufficient data supporting advancement of the development of Xcytrin for these additional cancer indications and also may result in material harm to our business |
| To generate revenue, we will depend on FDA approval of our lead product candidate, Xcytrin for the potential treatment of non-small cell lung cancer patients with brain metastases |
| If we are unable to prepare and timely file the planned NDA for this product candidate and obtain FDA approval, our ability to generate revenue will be significantly delayed |
| Our ability to generate revenue will depend on the successful development, regulatory approval and commercialization of Xcytrin |
| In December 2005, we announced the top line results of our pivotal Phase 3 clinical study of Xcytrin for the potential treatment of non-small cell lung cancer (NSCLC) patients with brain metastases |
| Although patients receiving Xcytrin had a longer time to neurologic progression (TNP), the studyapstas primary endpoint, the difference compared to patients in the control arm did not reach statistical significance |
| Although we have received a Special Protocol Assessment (SPA) from the FDA for our Phase 3 SMART trial, the study did not meet its primary endpoint with statistical significance |
| Based on our ongoing review of the data from the SMART trial, we plan to submit a New Drug Application (NDA) to the FDA for the potential treatment of NSCLC patients with brain metastases |
| In meetings with FDA in early 2006, FDA noted that the applicable review Division has not approved drugs based on the results of non-pre-specified subgroup analyses when the trial has failed to meet its primary endpoint |
| FDA discouraged the submission of an NDA based on subset analyses from the SMART trial |
| However, in subsequent meetings with FDA and further review of the data, the Agency indicated a willingness to review an NDA based on analyses which include all of the data |
| We have limited experience in preparing, filing, and pursuing applications necessary to gain regulatory approvals |
| The preparation of an NDA requires a great deal of effort and expertise, and if we do not secure the necessary resources and hire and retain personnel having the requisite expertise to prepare and submit the NDA, the filing of the NDA would be delayed |
| Further, if an NDA is submitted by the company, there can be no assurance that it will be accepted for filing by the FDA If the FDA determines after an initial review of the NDA that the data included in the application is insufficient and not ready for formal consideration, we could receive a "e refuse to file "e notice |
| The FDA has substantial discretion in the approval process and may disagree with our interpretation of the data from the Phase 3 SMART trial |
| The FDA could also require that we conduct additional studies and submit that data before it will reconsider our application, which would require us to expend more resources than we planned or that are available to us, and could substantially delay any approval of our application |
| If the FDA is not satisfied with data included in our NDA, we may need to expend additional resources or conduct additional studies, including clinical trials, to obtain data that the FDA believes is sufficient |
| It is also possible that additional studies may not suffice to make our application approvable |
| Even if the NDA is accepted for filing by the FDA, there can be no assurance that it would be approved in a timely manner or at all |
| We have incurred significant operating losses since our inception in 1991 and, as of June 30, 2006, had an accumulated deficit of approximately dlra288dtta9 million |
| We expect to continue to incur substantial additional operating losses until such time, if ever, as the commercialization of our products generates sufficient revenues to cover our expenses |
| Our achieving profitability depends upon our ability, alone or with others, to successfully complete the development of our products, and to obtain required regulatory approvals and to successfully manufacture and market our proposed products |
| If our lead product, Xcytrin, fails to receive regulatory approval on a timely basis, or at all, our ability to become profitable would be materially impacted |
| To date, we have not generated revenue from the commercial sale of our products |
| Failure to obtain product approvals or comply with ongoing governmental regulations could adversely affect our business |
| The manufacture and marketing of our products and our research and development activities are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the United States and abroad |
| Before receiving FDA approval to market a product, we will have to demonstrate to the satisfaction of the FDA that the product is safe and effective for the patient population and for the diseases that will be treated |
| Clinical trials, and the manufacturing and marketing of products, are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities |
| The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices |
| As a result, clinical trials and regulatory approval can take a number of years to accomplish and require the expenditure of substantial resources |
| Data obtained from clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory approvals |
| Data from our completed Phase 3 SMART trial may not be sufficient to obtain regulatory approval of our planned NDA for the potential treatment of NSCLC patients with brain metastases |
| Conducting additional trials will cause significant delays in approval and consume additional resources and may not be sufficient to obtain regulatory approval |
| In addition, we may encounter delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review |
| The fast-track designation that we have received for our Phase 3 SMART trial of Xcytrin may not actually lead to a faster development, regulatory review, or approval process |
| We may encounter similar delays in foreign countries |
| We may be unable to obtain requisite approvals from the FDA and foreign regulatory authorities and even if obtained, such approvals may not be received on a timely basis, or they may not cover the clinical uses that we specify |
| Furthermore, regulatory approval may entail ongoing requirements for post- marketing studies |
| The manufacture and marketing of drugs are subject to continuing FDA and foreign regulatory review and later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market |
| Any of the following events, if they were to occur, could delay or preclude us from further developing, marketing or realizing full commercial use of our products, which in turn would have a material adverse effect on our business, financial condition and results of operations: * failure to obtain and thereafter maintain requisite governmental approvals; * failure to obtain approvals for specific indications of our products under development; or * identification of serious and unanticipated adverse side effects in our products under development |
| Any regulatory approval that we receive for a product candidate may be subject to limitations on the indicated uses for which the product may be marketed |
| In addition, if the FDA and/or foreign regulatory agencies approve any of our product candidates, the labeling, packaging, adverse event reporting, storage, advertising and promotion of the product will be subject to extensive regulatory requirements |
| We and the manufacturers of our product candidates must also comply with the applicable FDA Good Manufacturing Practice ( "e GMP "e ) regulations, which include quality control and quality assurance requirements as well as the corresponding maintenance of records and documentation |
| Manufacturing facilities are subject to ongoing periodic inspection by the FDA and corresponding state agencies, including unannounced inspections, and must be licensed before they can be used in commercial manufacturing of our products |
| We or our present or future suppliers may be unable to comply with the applicable GMP regulations and other FDA regulatory requirements |
| Failure of our suppliers to follow current Good Manufacturing Practice or other regulatory requirements may lead to significant delays in the availability of products for commercial or clinical use and could subject us to fines, injunctions and civil penalties |
| We will need substantial additional financing and we may have difficulty raising needed capital in the future |
| We have expended and will continue to expend substantial funds to complete the research, development and clinical testing of our products |
| We will expend additional funds for these purposes, to establish additional clinical and commercial-scale manufacturing arrangements and to provide for the marketing and distribution of our products |
| Specifically, we will require additional funds to commercialize our product |
| Even if we are able to develop Xcytrin successfully in light of the recent results from our Phase 3 clinical study, we expect additional development efforts and clinical trials will extend the timeline for development and will result in substantial additional expenses |
| We may be unable to fund these efforts with our current financial resources |
| Additional funds may not be available on acceptable terms, if at all |
| If adequate funds are unavailable on a timely basis from operations or additional sources of financing, we may have to delay, reduce the scope of or eliminate one or more of our research or development programs which would materially and adversely affect our business, financial condition and operations |
| We believe that our cash, cash equivalents and marketable securities will be adequate to satisfy our capital needs through at least the next twelve months |
| We may, however, choose to raise additional funds before then |
| Our actual capital requirements will depend on many factors, including: * continued progress of our research and development programs; * our ability to establish collaborative arrangements and maintain existing ones; * progress with preclinical studies and clinical trials; * the time and costs involved in obtaining regulatory approval; * the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; * the amount and timing of capital equipment purchases; * competing technological and market developments; and * our ability to market and distribute our products and establish new licensing arrangements |
| In August 2006, we entered into a common stock purchase agreement with Azimuth Opportunity Ltd, which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to dlra20 million of our common stock, or 4cmam189cmam337 shares, whichever occurs first, at a discount of 5prca to 7prca, to be determined based on our market capitalization at the start of each sale period |
| The term of the purchase agreement is 18 months |
| Upon each sale of our common stock to Azimuth under the purchase agreement, we have also agreed to pay Reedland Capital Partners a placement fee equal to one percent of the aggregate dollar amount of common stock purchased by Azimuth |
| Even though we have entered into this purchase agreement with Azimuth, Azimuth would not be required to purchase our common stock if the price of our common stock falls below dlra3dtta00 per share |
| Furthermore, we may decide not to sell any shares of our common stock pursuant to this agreement |
| We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources that may be dilutive to existing stockholders or subject us to restrictive covenants |
| In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other sources, such arrangements may require us to relinquish rights to some of our technologies, product candidates or products under development that we would otherwise seek to develop or commercialize ourselves |
| Acceptance of our products in the marketplace is uncertain, and failure to achieve market acceptance will harm our business |
| Even if approved for marketing, our products may not achieve market acceptance |
| The degree of market acceptance will depend upon a number of factors, including: * the receipt of regulatory approvals for the indications that we are studying, and the acceptance by physicians and patients of the clinical benefits that our products may offer; * the establishment and demonstration in the medical community of the safety, clinical efficacy and cost-effectiveness of our products and their potential advantages over existing therapeutic products; * marketing and distribution support; * the introduction, market penetration and pricing strategies of competing and future products; and * coverage and reimbursement policies of governmental and other 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, purchase, utilize or recommend any of our products |
| We may fail to adequately protect or enforce our intellectual property rights or secure rights to third-party patents |
| We face risks and uncertainties related to our intellectual property rights |
| For example: * we may be unable to obtain or maintain patent or other intellectual property protection for any products or processes that we may develop; * third parties may obtain patents covering the manufacture, use or sale of these products, which may prevent us from commercializing any of our products under development globally or in certain regions; and * any future patents that we may obtain may not prevent other companies from competing with us by designing their products or conducting their activities so as to avoid the coverage of our patents |
| A number of third-party patent applications have been published, and some have issued, relating to expanded porphyrin chemistries |
| It is likely that competitors and other third parties have and will continue to file applications for and receive patents relating to similar or even the same compositions, methods or designs as those of our products |
| If any third-party patent claims are asserted against our products and are upheld as valid and infringed by our products, we could be prevented from practicing the subject matter claimed in such patents and therefore from developing or commercializing our products, require license(s) or have to redesign our products or processes to avoid infringement |
| Such licenses may not be available or, if available, may not be on terms acceptable to us |
| Alternatively, we may be unsuccessful in any attempt to redesign our products or processes to avoid infringement |
| Litigation or other legal proceedings may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could result in substantial cost to the company and diversion of our efforts |
| We are aware of several US patents owned or licensed by Schering AG that relate to pharmaceutical formulations and methods for enhancing magnetic resonance imaging |
| Even though we have obtained the opinion of outside patent counsel that our cancer treatment compounds do not infringe any valid, unexpired claims of such patents, Schering AG may still choose to assert one or more of those patents |
| If any of our products were legally determined to be infringing a valid and enforceable claim of any of Schering AGapstas patents, our business could be materially adversely affected |
| Further, any allegation by Schering AG that we infringed their patents would likely result in significant legal costs and require the diversion of substantial management resources |
| We are aware that Schering AG has asserted patent rights against at least one other company in the contrast agent imaging market and that a number of companies have entered into licensing arrangements with Schering AG with respect to one or more of such patents |
| We cannot be certain that we would be successful in defending a lawsuit or able to obtain a license on commercially reasonable terms from Schering AG, if required |
| We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position |
| Although we take steps to protect our proprietary rights and information, including the use of confidentiality and other agreements with our employees and consultants, and in our academic and commercial relationships, these steps may be inadequate, these agreements may be violated, or there may be no adequate remedy available for a violation |
| Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer our information and techniques, or otherwise gain access to our proprietary technology |
| We may be unable to meaningfully protect our rights in unpatented proprietary technology |
| We rely heavily on third parties for product and clinical development of our products |
| We currently depend heavily and will depend heavily in the future on third parties for support in product development and clinical development of our products |
| The termination of a significant number of our existing collaborative arrangements, or our inability to establish and maintain collaborative arrangements could have a material adverse effect on our ability to complete clinical development of our products |
| We rely on contract clinical research organizations, or CROs, for various aspects of our clinical development activities including clinical trial monitoring, data collection and data management |
| As a result, we have had and continue to have less control over the conduct of clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trial than would be the case if we were relying entirely upon our own staff |
| Although we rely on CROs to conduct some of our clinical trials, we are responsible for confirming that each of our clinical trials is conducted in accordance with the investigational plan and protocol |
| Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the trial participants are adequately protected |
| Our reliance on third parties does not relieve us of these responsibilities and requirements |
| Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials |
| We may experience unexpected cost increases that are beyond our control |
| Any failure of such CROs to successfully accomplish clinical trial monitoring, data collection and data management and the other services they provide for us in a timely manner and in compliance with regulatory requirements could have a material adverse effect on our ability to complete clinical development of our products and obtain regulatory approval |
| Problems with the timeliness or quality of the work of a CRO may lead us to seek to terminate the relationship and use an alternate service provider |
| However, making such changes may be costly and may delay our trials, and contractual restrictions may make such a change difficult or impossible |
| Additionally, it may be difficult to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost |
| We lack the resources, capability and experience necessary to manufacture pharmaceuticals and thus rely heavily upon contract manufacturers |
| We have no manufacturing facilities and we currently rely on third parties for manufacturing and storage activities related to all of our products in development |
| Our manufacturing strategy presents the following risks: * delays in scale-up to quantities needed for multiple clinical trials, or failure to manufacture such quantities to our specifications, or deliver such quantities on the dates we require, could cause delay or suspension of clinical trials, regulatory submissions and commercialization of our products in development; * there is no guarantee that the supply of clinical materials can be maintained during the clinical development of our product candidates; * our current and future manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding regulatory agencies for compliance with strictly enforced current Good Manufacturing Practice and similar foreign standards |
| Failure to pass these inspections could have a material adverse effect on our ability to produce our products to support our operations; * if we need to change to other commercial manufacturing contractors, there is no guarantee that we will be able to locate a suitable replacement contractor |
| The FDA and comparable foreign regulators must approve material manufactured by these contractors prior to our use |
| This would require new testing and compliance inspections |
| The new manufacturers would have to practice substantially equivalent processes for the production of our products; * our current manufacturers might not be able to fulfill our commercial needs, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market demand; and * any disruption of the ability of our manufacturing contractors to supply necessary quantities of our products could have a material adverse effect on our ability to support our operations |
| Any of these factors could delay clinical trials or commercialization of our products under development and entail higher costs |
| We lack marketing, distribution and sales experience |
| We have no experience marketing, selling or distributing products and currently lack the internal capability to do so |
| If any of our product candidates are approved by the FDA, we will need a sales force with technical expertise prior to the commercialization of any of our product candidates |
| We have no experience in developing, training or managing a sales force |
| We will incur substantial additional expenses in developing, training and managing such an organization |
| We may be unable to build such a sales force, the cost of establishing such a sales force may exceed any product revenues, or our direct marketing and sales efforts may be unsuccessful |
| In addition, we compete with many other companies that currently have extensive and well-funded marketing and sales operations |
| Our marketing and sales efforts may be unable to compete successfully against those of such other companies |
| For some market opportunities, including those outside the United States, we will need to enter into co-promotion or other licensing arrangements with larger pharmaceutical or biotechnology firms in order to increase the commercial success of our products |
| To the extent we enter into co-promotion or other licensing agreements, our product revenues are likely to be lower than if we directly marketed and sold our products, and some or all of the revenues we receive will depend upon the efforts of third parties, which may not be successful and may not be within our control |
| If we are unable to enter into co-promotion or other licensing agreements on acceptable terms or at all, we may not be able to successfully commercialize our existing and future product candidates |
| If we are not successful in commercializing our existing and future product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant losses |
| If we lose or are unable to hire and retain qualified personnel, then we may not be able to develop our products or processes and obtain the required regulatory approvals |
| We are highly dependent on qualified scientific and management personnel |
| We will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully pursue our research, development and commercialization efforts for our existing and future product candidates |
| The preparation of our planned NDA requires highly specialized skills |
| Our success depends on our continued ability to attract, retain and motivate highly qualified management and pre-clinical and clinical personnel |
| We will need to hire additional personnel as we continue to expand our research and development activities, prepare our planed NDA for filing, and build a sales and marketing function in the United States |
| We face intense competition from other companies and research and academic institutions for qualified personnel |
| We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Francisco, California area |
| If we lose an executive officer, a manager of one of our programs, or a significant number of any of our staff or are unable to hire and retain qualified personnel, then our ability to develop and commercialize our products and processes, raise additional capital or implement our business strategy may be adversely affected or prevented |
| In particular, if we lose any members of our senior management team, we may not be able to find suitable replacements in a timely fashion or at all and our business may be harmed as a result |
| Our business is subject to risks associated with international operations and collaborations |
| The laws of foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States |
| In countries where we do not have and/or have not applied for patents on our products, we will be unable to prevent others from developing or selling similar products |
| In addition, in jurisdictions outside the United States where we acquire patent rights, we may be unable to prevent unlicensed parties from selling or importing products or technologies derived elsewhere using our patented technology |
| Until we or our licensees obtain the required regulatory approvals for pharmaceuticals in any specific foreign country, we or our licensees will be unable to sell these products in that country |
| International regulatory authorities have imposed numerous and varying regulatory requirements and the approval procedures can involve additional testing |
| Approval by one regulatory authority does not ensure approval by any other regulatory authority |
| We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their former employers |
| Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors |
| Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers |
| Litigation may be necessary to defend against these claims |
| If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel |
| A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain potential drugs, which could severely harm our business |
| Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management |
| We may need to implement additional finance and accounting systems, procedures and controls to satisfy new reporting requirements |
| As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002, including Section 404, and the related rules and regulations of the Securities and Exchange Commission, including expanded disclosures and accelerated reporting requirements and more complex accounting rules |
| Compliance with Section 404 and other requirements will increase our costs and require additional management resources |
| We may need to continue to implement additional finance and accounting systems, procedures and controls to satisfy new reporting requirements |
| While we have been able to complete a favorable assessment as to the adequacy of our internal control over financial reporting for our fiscal year ending June 30, 2006, there is no assurance that future assessments of the adequacy of our internal control over financial reporting will be favorable |
| If we are unable to obtain future unqualified reports as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our internal controls over financial reporting, which could adversely affect our stock price |
| Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable regulations |
| The development, manufacturing, pricing, sales, coverage and reimbursement of our products, together with our general operations, are subject to extensive regulation by federal, state and other authorities within the United States and numerous entities outside of the United States |
| While we have developed and instituted a corporate compliance program based on what we believe are the current best practices, we cannot provide any assurance that governmental authorities will find that our business practices comply with current or future administrative or judicial interpretations of potentially applicable laws and regulations |
| If we fail to comply with any of these laws and regulations, we could be subject to a range of regulatory actions, including suspension or termination of clinical trials, the failure to approve a product candidate, restrictions on our products or manufacturing processes, withdrawal of products from the market, significant fines, or other sanctions or litigation |
| Our facility in California is located near an earthquake fault, and an earthquake or other types of natural disasters or resource shortages could disrupt our operations and adversely affect results |
| Important documents and records, such as hard copies of our laboratory books and records for our drug candidates and compounds, are located in our corporate headquarters at a single location in Sunnyvale, California, which is near active earthquake zones |
| We do not have a formal business continuity or disaster recovery plan, and could therefore experience a significant business interruption in the event of a natural disaster, such as an earthquake, drought or flood, or localized extended outages of critical utilities or transportation systems |
| In addition, California from time to time has experienced shortages of water, electric power and natural gas |
| Future shortages and conservation measures could disrupt our operations and cause expense, thus adversely affecting our business and financial results |
| If we sell shares of our common stock under our equity line of credit arrangement or in other future financings, existing common stockholders will experience immediate dilution and, as a result, our stock price may go down |
| We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock |
| As a result, our existing common stockholders will experience immediate dilution upon the purchase of any shares of our common stock sold at such discount |
| For example, in August 2006, we entered into a common stock purchase agreement with Azimuth Opportunity Ltd, which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to dlra20 million of our common stock, or 4cmam189cmam337 shares, whichever occurs first, at a discount of 5prca to 7prca, to be determined based on our market capitalization at the start of each sale period |
| The term of the purchase agreement is 18 months |
| Upon each sale of our common stock to Azimuth under the purchase agreement, we have also agreed to pay Reedland Capital Partners a placement fee equal to one percent of the aggregate dollar amount of common stock purchased by Azimuth |
| Our existing common stockholders will experience immediate dilution upon the purchase of any shares of our common stock by Azimuth |
| In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock |
| If we issue common stock or securities convertible into common stock, our common stockholders will experience dilution |
| Anti-takeover provisions in our charter documents and Delaware law could prevent or delay a change in control |
| Our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable |
| In addition, provisions of the Delaware General Corporation Law also restrict certain business combinations with interested stockholders |
| These provisions are intended to encourage potential acquirers to negotiate with us and allow our board of directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value |
| However, these prohibitions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price |
| Risks Related to Our Industry We face rapid technological change and intense competition |
| The pharmaceutical industry is subject to rapid and substantial technological change |
| Therapies designed by other companies to treat the conditions that are the focus of our products are currently in clinical trials |
| Developments by others may render our products under development or technologies noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors |
| Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase |
| Many of these entities have significantly greater research and development capabilities than we do, as well as substantially more marketing, sales, manufacturing, financial and managerial resources |
| These entities represent significant competition for us |
| Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors &apos financial, marketing, manufacturing and other resources |
| In addition, we may experience competition from companies that have acquired or may acquire technology from universities and other research institutions |
| As these companies develop their technologies, they may develop proprietary positions that compete with our products |
| We are engaged in the development of novel therapeutic technologies |
| As a result, our resources are limited and we may experience technical challenges inherent in such novel technologies |
| Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products |
| Some of these products may have an entirely different approach or means of accomplishing similar therapeutic effects than our products |
| Our competitors may develop products that are safer, more effective or less costly than our products and, therefore, present a serious competitive threat to our product offerings |
| Our competitors may price their products below ours, may receive better coverage and/or reimbursement or may have products that are more cost effective than ours |
| The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our products even if commercialized |
| The diseases for which we are developing our therapeutic products can also be treated, in the case of cancer, by surgery, radiation, biologics and chemotherapy |
| These treatments are widely accepted in the medical community and have a long history of use |
| The established use of these competitive products may limit the potential for our products to receive widespread acceptance if commercialized |
| The price of our common stock may be volatile |
| The market prices for securities of biotechnology companies, including ours, have historically been highly volatile |
| Our stock, like that of many other companies, has from time to time experienced significant price and volume fluctuations unrelated to operating performance |
| The market price of our common stock may fluctuate significantly due to a variety of factors, including: * the progress and results of our preclinical testing and clinical trials; * quarterly fluctuations in our financial results; * the development of technological innovations or new therapeutic products by us, our competitors or others; * changes in governmental regulation; * developments in patent or other proprietary rights by us, our competitors or others; * developments and/or announcements by us, our competitors or others; * litigation; * public concern as to the safety of products developed by us, our competitors or others; * departure of key personnel; * ability to manufacture our products to commercial standards; * changes in the structure of healthcare payment systems and the coverage and reimbursement policies of governmental and other third-party payors; * our ability to successfully commercialize our products if they are approved; * comments by securities analysts; and * general market conditions in our industry |
| In addition, if any of the risks described in this section entitled "e Risk Factors "e actually occur, there could be a dramatic and material adverse impact on the market price of our common stock |
| If our products are not accepted by the market or if users of our products are unable to obtain adequate coverage of and reimbursement for our products from government and other third-party payors, our revenues and profitability will suffer |
| Our ability to commercialize our products successfully will depend in significant part on the extent to which appropriate coverage of and reimbursement for our products and related treatments are obtained from governmental authorities, private health insurers and other organizations, such as HMOs |
| Third-party payors are increasingly challenging the prices charged for medical products and services |
| We cannot provide any assurances that third- party payors will consider our products cost-effective or provide coverage of and reimbursement for our products, in whole or in part |
| Uncertainty exists as to the coverage and reimbursement status of newly approved medical products and services and newly approved indications for existing products |
| Third-party payors may conclude that our products are less safe, less clinically effective, or less cost-effective than existing products, and third-party payors may not approve our products for coverage and reimbursement |
| If we are unable to obtain adequate coverage of and reimbursement for our products from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer them |
| Such reduction or limitation in use of our products could cause our sales to suffer |
| Even if third-party payors make reimbursement available, payment levels may not be sufficient to make the sale of our products profitable |
| Also, the trend towards managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of medical services and products, may result in inadequate coverage of and reimbursement for our products |
| Many third- party payors, including in particular HMOs, are pursuing various ways to reduce pharmaceutical costs, including, for instance, the use of formularies |
| The market for our products depends on access to such formularies, which are lists of medications for which third-party payors provide reimbursement |
| These formularies are increasingly restricted, and pharmaceutical companies face significant competition in their efforts to place their products on formularies of HMOs and other third-party payors |
| This increased competition has led to a downward pricing pressure in the industry |
| The cost containment measures that third-party payors are instituting could have a material adverse effect on our ability to operate profitably |
| Current health care laws and regulations and future legislative or regulatory changes to the healthcare system may affect our ability to sell our products profitably |
| In the United States, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners, and the availability of capital |
| Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system and, in particular, that are intended to contain or reduce the costs of medical products and services |
| For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, could significantly influence the manner in which pharmaceutical products are prescribed and purchased and will impact reimbursement for our products, which could result in a reduction in demand for our products |
| The MMA established a new reimbursement methodology for certain drugs furnished in hospital outpatient departments and physicians &apos offices which is based on the average sales price, or ASP, of the product |
| Application of the ASP reimbursement methodology has resulted in a decrease in the reimbursement levels for certain oncology drugs furnished in hospital outpatient departments and physicians &apos offices |
| As implemented in a recent rule establishing an MMA- mandated competitive bidding program, or CAP, physicians who administer drugs in their offices are offered an option to acquire injectable and infused drugs currently covered under the Medicare Part B benefit from vendors who are selected in a competitive bidding process |
| Winning vendors are selected based on criteria that include their bid price |
| These new reimbursement measures, effective beginning July 1, 2006, could negatively impact our ability to sell our products |
| The MMA also established a new Part D prescription drug benefit, which became effective January 1, 2006 |
| Under the prescription drug benefit, Medicare beneficiaries are able to obtain prescription drug coverage from private sector providers |
| These private sector providers are permitted to limit the number of prescription drugs that are covered in each therapeutic category and class on their formularies |
| We cannot predict whether our products will be placed on the formularies of the private sector providers participating in the Part D program in the future, and if our products are not placed on such formularies, this could negatively impact our ability to sell our products |
| It remains difficult to predict the full impact that the prescription drug program, and the MMA generally, will have on us and our industry |
| The expanded access to prescription medications afforded by Medicare coverage of prescription drugs may increase the volume of pharmaceutical sales |
| However, this potential sales volume increase may be offset by increased downward pricing pressures resulting from the enhanced purchasing power of private sector providers who will negotiate drug pricing on behalf of Medicare beneficiaries under Part D There also have been and likely will continue to be legislative and regulatory proposals at the state and federal levels that could bring about significant changes to the Medicaid drug rebate program and other federal pharmaceutical pricing programs in which we plan to participate for our products |
| Given these and other recent federal and state government initiatives directed at lowering the total cost of health care, federal and state lawmakers will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid programs |
| We cannot predict the impact on our business of any legislation or regulations that may be adopted in the future |
| Any cost containment measures and other healthcare system reforms that are adopted could have a material adverse effect on our ability to operate profitably |
| We may need to change our business practices to comply with health care fraud and abuse regulations, and our failure to comply with such laws could adversely affect our business, financial condition and results of operations |
| Our operations will be directly, or indirectly through our customers, subject to various state and federal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and False Claims Act |
| These laws may impact, among other things, our proposed sales, marketing and education programs |
| The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs |
| Several courts have interpreted the statuteapstas intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated |
| The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry |
| Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, Congress authorized the Department of Health and Human Services, Office of Inspector General ( "e OIG "e ) to issue a series of regulations, known as the "e safe harbors "e |
| These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute |
| The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued |
| However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG Penalties for violations of the federal Anti-Kickback Statute include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs |
| Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs |
| The federal False Claims Act prohibits persons from knowingly filing or causing to be filed a false claim to, or the knowing use of false statements to obtain payment from, the federal government |
| Suits filed under the False Claims Act, known as "e qui tam "e actions, can be brought by any individual on behalf of the government and such individuals, sometimes known as "e relators "e or, more commonly, as "e whistleblowers "e , may share in any amounts paid by the entity to the government in fines or settlement |
| The frequency of filing of qui tam actions has increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a False Claim action |
| When an entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of between dlra5cmam500 to dlra11cmam000 for each separate false claim |
| Various states have also enacted laws modeled after the federal False Claims Act |
| In addition to the laws described above, the Health Insurance Portability and Accountability Act of 1996 created two new federal crimes: healthcare fraud and false statements relating to healthcare matters |
| The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors |
| A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs |
| The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services |
| A violation of this statute is a felony and may result in fines or imprisonment |
| If our operations are found to be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from government healthcare programs, and the curtailment or restructuring of our operations |
| Our business exposes us to product liability claims |
| The testing, manufacture, marketing and sale of our products involve an inherent risk that product liability claims will be asserted against us |
| We face the risk that the use of our products in human clinical trials will result in adverse effects |
| If we complete clinical testing for our products and receive regulatory approval to market our products, we will mark our products with warnings that identify the known potential adverse effects and the patients who should not receive our product |
| We cannot ensure that physicians and patients will comply with these warnings |
| In addition, unexpected adverse effects may occur even with use of our products that receive approval for commercial sale |
| Although we are insured against such risks in connection with clinical trials, our present product liability insurance may be inadequate |
| A successful product liability claim in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations |
| Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable or reasonable terms |
| In addition, product liability coverage may cease to be available in sufficient amounts or at an acceptable cost |
| An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our pharmaceutical products |
| A product liability claim or recall would have a material adverse effect on our reputation, business, financial condition and results of operations |
| Our business involves environmental risks |
| In connection with our research and development activities and our manufacture of materials and products, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes |
| Although we believe that we have complied with the applicable laws, regulations and policies in all material respects and have not been required to correct any material noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future |
| Our research and development involves the controlled use of hazardous materials, including but not limited to certain hazardous chemicals and radioactive materials |
| Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of contamination or injury from these materials |
| In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources |