| POZEN INC /NC Item 1A Risk Factors Our business is subject to certain risks and uncertainties, each of which could materially adversely affect our business, financial condition, cash flows and results of operations |
| Risks Related to Our Business We depend heavily on the success of our product candidates, which may never be approved for commercial use |
| If we are unable to develop, gain approval of or commercialize those product candidates, we will never receive revenues from the sale of our product candidates |
| We anticipate that for the foreseeable future our ability to achieve profitability will be dependent on the successful development, approval and commercialization of our current product candidates |
| In addition to the inability to obtain regulatory approval, many other factors could negatively affect the success of our efforts to develop and commercialize our product candidates, including those discussed in the risk factors that follow as well as negative, inconclusive or otherwise unfavorable results from any studies or clinical trials, such as those that we obtained with respect to MT 500, which led to our decision to discontinue development of that product candidate in 2002 |
| We have also decided to discontinue development of MT 100 in the US and to explore the possibility of selling or otherwise disposing of the MT 100 asset, based upon the determination of an FDA Advisory Committee in August 2005 |
| The FDA Advisory Committee determined, following our receipt of a not approvable letter from the FDA in 2004 for our NDA for MT 100, that the potential, but unquantified, risk of tardive dyskinesia, an involuntary movement disorder associated with the use of metoclopramide, one of the components of MT 100, outweighed the benefits, as defined by the FDA, of metoclopramide hydrochloride in combination with naproxen sodium |
| Further, based upon our understandings from our recent communications with the FDA, in which the FDA restated its concerns that approval of MT 300 was problematic due to the higher incidence of nausea at two hours following dosing in patients treated with MT 300 compared with placebo, we do not believe it is possible to reverse the not approvable status of MT 300 stated in the not approvable letter we received from the FDA in 2003 |
| We have incurred losses since inception and we may continue to incur losses for the foreseeable future |
| We do not have a current source of product revenue |
| We have incurred losses in each year since our inception |
| As of December 31, 2005, we had an accumulated deficit of approximately dlra112dtta5 million |
| Our ability to receive product revenue from the sale of products is dependent on a number of factors, principally the development, regulatory approval and successful commercialization of our product candidates |
| We expect that the amount of our operating losses will fluctuate significantly from quarter to quarter principally as a result of increases and decreases in our development efforts and the timing of payments that we may receive from others |
| We expect to continue to incur significant operating losses and do not know when, if and to what extent we will generate product revenue |
| Our only current potential sources of revenue are the payments that we may receive pursuant to our collaboration agreement with GSK for Trexima |
| Further, we may have to pay Valeant NA a dlra1dtta0 million withdrawal fee if we do not prevail in our current dispute with them as to whether the withdrawal fee is payable |
| This amount is currently reflected in our financial statements as deferred revenue and will never be recognized as revenue if repaid |
| 15 ______________________________________________________________________ [45]Table of Contents Changes in regulatory approval policy or statutory or regulatory requirements, or in the regulatory environment, during the development period of any of our product candidates may result in delays in the approval, or rejection, of the application for approval of one or more of our product candidates |
| If we fail to obtain approval, or are delayed in obtaining approval, of our product candidates, our ability to generate revenue will be severely impaired |
| The process of drug development and regulatory approval for product candidates takes many years, during which time the FDA’s interpretations of the standards against which drugs are judged for approval may evolve or change |
| The FDA can also change its approval policies based upon changes in laws and regulations |
| In addition, it can decide, based on its then current approval policies, any changes in those policies and its broad discretion in the approval process, to weigh the benefits and the risks of every drug candidate |
| As a result of any of the foregoing, the FDA may decide that the data we submit in support of an application for approval of a drug candidate are insufficient for approval |
| Further, changes in policy or interpretation may not be the subject of published guidelines and may therefore be difficult to evaluate |
| For example, the FDA has not recently published guidelines for the approval of new migraine therapies, and we have had to rely on periodic guidance from the FDA obtained in conversations and other meetings, the content of which may be subject to significant modification over the period of a drug’s development program |
| There is also the risk that we and the FDA may interpret such guidance differently |
| Further, additional information about the potential risks of marketed drugs may affect the regulatory approval environment, or the FDA’s approval policies, for new product candidates |
| For example, in February 2005 an advisory committee convened by the FDA met to address the potential cardiovascular risks of COX-2 selective NSAIDs and related drugs in response to disclosures made about possible adverse effects from the use of some of these drugs |
| On April 7, 2005 the FDA issued a Public Health Advisory (Advisory) based, in part, upon the recommendations of the advisory committee |
| The Advisory stated that it would require that manufacturers of all prescription products containing NSAIDs provide warnings regarding the potential for adverse cardiovascular events as well as life-threatening gastrointestinal events associated with the use of NSAIDs |
| Moreover, subsequent to the FDA advisory committee meeting in February 2005, the FDA has indicated that long-term studies evaluating cardiovascular risk will be required for approval of new NSAID products that may be used on an intermittent or chronic basis |
| For example, we believe that long-term cardiovascular safety studies will be required for NDA approval of our oral lornoxicam product candidate |
| We do not know to what extent the FDA’s actions may otherwise adversely affect or delay the approvability of our product candidates which contain NSAIDs |
| If we, or our current or future collaborators, do not obtain and maintain required regulatory approvals for one or more of our product candidates, we will be unable to commercialize those product candidates |
| Further, if we are delayed in obtaining or unable to obtain, any required approvals, our collaborators may be entitled to terminate their agreements with us or reduce or eliminate their payments to us under these agreements or we may be required to pay termination payments under these agreements |
| Our product candidates under development are subject to extensive domestic and foreign regulation |
| The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertisement, promotion, sale and distribution of pharmaceutical products in the United States |
| In order to market our products abroad, we must comply with extensive regulation by foreign governments |
| If we are unable to obtain and maintain FDA and foreign government approvals for our product candidates, we, alone or through our collaborators, will not be permitted to sell them |
| Failure to obtain regulatory approval for a product candidate will prevent us from commercializing that product candidate |
| None of our product candidates have been approved for sale in the US or any foreign market and they may never be approved |
| In the US, a separate NDA or supplement must be filed with respect to each indication for which marketing approval of a product is sought |
| Each NDA, in turn, requires the successful completion of preclinical, toxicology, genotoxicity and carcinogenicity studies, as well as clinical trials demonstrating the safety and efficacy of the product for that particular indication |
| We may not receive regulatory approval of any of the NDAs that we file with the FDA or of any approval applications we may seek outside the US Further, our current or future collaboration agreements may terminate, or require us to make certain payments to our collaborators, or our collaborators may have the right to terminate their agreements with us or reduce or eliminate their payments to us under these agreements, based on our inability to obtain, or delays in obtaining, regulatory approval for our product candidates |
| For example, under our current collaboration agreement with Valeant NA, we may elect to withdraw the NDA, if we determine that additional studies or data that are required by the FDA for approval of the NDA would jeopardize the commercial viability of MT 300 or exceed our financial resources available for MT 300 |
| If we notify Valeant NA of this situation and Valeant NA elects not to assume control of efforts to seek approval of the NDA, then upon notice from Valeant, the agreement would terminate and we would be required to pay to Valeant NA a withdrawal fee of dlra1dtta0 million |
| We have begun discussions regarding termination of our commercialization agreement with Valeant NA On July 21, 2005, we received a letter from Valeant NA seeking payment of the dlra1 million withdrawal fee required under certain conditions under the agreement |
| We do not believe that the withdrawal fee is payable based on our receipt of a not-approvable letter from the FDA 16 ______________________________________________________________________ [46]Table of Contents with respect to our NDA for MT 300 |
| The agreement requires that unresolved disputes by the parties be referred to the respective chief executive officers for resolution |
| If still unresolved, the agreement provides for binding arbitration |
| Valeant NA has disputed our conclusion that the withdrawal fee is not payable and has indicated its intention to pursue the dispute resolution provisions provided for in the agreement |
| We can give no assurance that Valeant NA will agree to termination terms acceptable to us or that we will not be required to pay Valeant NA the dlra1dtta0 million withdrawal fee |
| If we or our contract manufacturers do not maintain required regulatory approvals, we may not be able to commercialize our products |
| Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and is subject to continuous review |
| The FDA may also require us to conduct additional post-approval studies |
| These post-approval studies may include carcinogenicity studies in animals or further human clinical trials |
| The later discovery of previously unknown problems with the product, manufacturer or manufacturing facility may result in criminal prosecution, civil penalties, recall or seizure of products, or total or partial suspension of production, as well as other regulatory action against our product candidates or us |
| If approvals are withdrawn for a product, or if a product is seized or recalled, we would be unable to sell that product and therefore would not receive any revenues from that product |
| We and our contract manufacturers are required to comply with the applicable FDA current Good Manufacturing Practices (“cGMP”) regulations, which include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation |
| Further, manufacturing facilities must be approved by the FDA before they can be used to manufacture our product candidates, and are subject to additional FDA inspection |
| We, or our third-party manufacturers, may not be able to comply with cGMP regulations or other FDA regulatory requirements, which could result in a delay or an inability to manufacture the products |
| Labeling and promotional activities are subject to scrutiny by the FDA and state regulatory agencies and, in some circumstances, the Federal Trade Commission |
| FDA enforcement policy prohibits the marketing of unapproved products as well as the marketing of approved products for unapproved, or off-label, uses |
| These regulations and the FDA’s interpretation of them may impair our ability to effectively market products for which we gain approval |
| Failure to comply with these requirements can result in federal and state regulatory enforcement action |
| Further, we may not obtain the labeling claims we believe are necessary or desirable for the promotion of our product candidates |
| Because we do not believe it is possible to convince the FDA to reverse its conclusion as stated in its not-approvable letter for MT 300, we do not expect to receive any revenue from sales of MT 300 in the United States |
| In October 2003, we received a not-approvable letter from the FDA related to our NDA for MT 300 |
| The letter was issued based on the FDA’s conclusion that we had not submitted substantial evidence of effectiveness for MT 300 as an acute treatment for migraine |
| The FDA noted that, although MT 300 provided a statistically significant improvement over placebo on the pre-defined endpoint of sustained pain relief at 24 hours post dose as well as relief of pain at two hours post dose, MT 300 failed to achieve statistical significance versus placebo for the relief of all of the ancillary symptoms of migraine (nausea, photophobia and phonophobia) at two hours |
| Further, the FDA noted that the incidence of nausea, one of the associated symptoms of migraine, was statistically significantly higher following MT 300 treatment versus placebo at two hours |
| Since our receipt of the not-approvable letter, we have had continuing communications with the FDA regarding the MT 300 NDA Based upon our understandings from our most recent communications with the FDA and our understanding of the FDA’s current standards for approval of migraine drugs, we do not believe it is possible to reverse the not approvable status of the MT 300 NDA Therefore, we do not believe that we will receive any revenue from sales of MT 300 in the US Our reliance on collaborations with third parties to develop and commercialize our products is subject to inherent risks and may result in delays in product development and lost or reduced revenues, restricting our ability to commercialize our products and adversely affecting our profitability |
| Under our current strategy, and for the foreseeable future, we expect to depend upon collaborations with third parties to develop our product candidates and we expect to depend substantially upon third parties to commercialize our products |
| As a result, our ability to develop, obtain regulatory approval of, manufacture and commercialize our existing and any future product candidates depends upon our ability to maintain existing, and enter into and maintain new, contractual and collaborative arrangements with others |
| We also engage, and intend in the future to continue to engage, contract manufacturers and clinical trial investigators |
| In addition, the identification of new compounds or product candidates for development has led us, and may continue to require us, to enter into license or other collaborative agreements with others, including pharmaceutical companies and research institutions, such as our license and development agreement with Nycomed pursuant to which we obtained an exclusive license to certain rights to develop, manufacture and commercialize products containing lornoxicam |
| Such collaborative agreements for the acquisition of new compounds or product candidates would typically require us to pay license fees, make milestone payments and/or pay royalties |
| Furthermore, these agreements may result in our revenues being lower than if we developed our product candidates ourselves and in our loss of control over the development of our product candidates |
| 17 ______________________________________________________________________ [47]Table of Contents Contractors or collaborators may have the right to terminate their agreements with us or reduce their payments to us under those agreements on limited or no notice and for reasons outside of our control |
| We currently have a collaboration with GSK for the development and commercialization of certain triptan combinations using our MT 400 technology in the US and a collaboration with Valeant NA in the US for the development and commercialization of MT 300 |
| In these collaboration agreements, as well as under our lornoxicam license agreement with Nycomed described above, our collaborators have the right to terminate the agreement upon a default by us |
| Additionally, GSK may reduce the royalties on net sales of products payable to us under the agreement if generic competitors attain a pre-determined share of the market for products marketed under the agreement, or if GSK owes a royalty to one or more third parties for rights it licenses from those third parties to commercialize products marketed under the agreement |
| Valeant NA is entitled to terminate its agreement with us and a dlra1dtta0 million withdrawal fee payable by us if we choose to withdraw the NDA for MT 300 for commercial or financial reasons under the conditions specified in the agreement |
| Due to our belief that the FDA will not approve the NDA for MT 300, we have begun discussions with Valeant NA regarding termination of our agreement and Valeant NA has demanded payment of the dlra1dtta0 million withdrawal fee |
| If our current or future licensees exercise termination rights they may have, or if these license agreements terminate because of delays in obtaining regulatory approvals, or for other reasons, and we are not able to establish replacement or additional research and development collaborations or licensing arrangements, we may not be able to develop and commercialize our product candidates |
| Moreover, any future collaborations or license arrangements we may enter into may not be on terms favorable to us |
| A further risk we face with our collaborations is that business combinations and changes in the collaborator or their business strategy may adversely affect their willingness or ability to complete their obligations to us |
| Our current or any future collaborations or license arrangements ultimately may not be successful |
| Our agreements with collaborators typically allow them discretion in electing whether to pursue various regulatory, commercialization and other activities or with respect to the timing of the development, such as our agreement with GSK under which GSK determines, among other things, the exact formulation and composition of the product candidates using our MT 400 technology for use in the Trexima clinical trials |
| If any collaborator were to breach its agreement with us or otherwise fail to conduct collaborative activities in a timely or successful manner, the pre-clinical or clinical development or commercialization of the affected product candidate or research program would be delayed or terminated |
| Any delay or termination of clinical development or commercialization would delay or eliminate our potential product revenues |
| Further, our collaborators may be able to exercise control, under certain circumstances, over our ability to protect our patent rights under patents covered by the applicable collaboration agreement |
| For example, under our collaboration agreement with GSK, GSK has the first right to enforce our MT 400 patents and would have exclusive control over such enforcement litigation |
| Other risks associated with our collaborative and contractual arrangements with others include the following: • we may not have day-to-day control over the activities of our contractors or collaborators; • third parties may not fulfill their regulatory or other obligations; • we may not realize the contemplated or expected benefits from collaborative or other arrangements; and • disagreements may arise regarding a breach of the arrangement, the interpretation of the agreement, ownership of proprietary rights, clinical results or regulatory approvals |
| These factors could lead to delays in the development of our product candidates and/or the commercialization of our products or reduction in the milestone payments we receive from our collaborators, or could result in our not being able to commercialize our products |
| Further, disagreements with our contractors or collaborators could require or result in litigation or arbitration, which would be time-consuming and expensive |
| Our ultimate success may depend upon the success and performance on the part of these third parties |
| If we fail to maintain these relationships or establish new relationships as required, development of our product candidates and/or the commercialization of our products will be delayed or may never be realized |
| A collaborator may withdraw support or cease to perform work on our product candidates if the collaborator determines to develop its own competing product candidate instead |
| We have entered into collaboration and license agreements, and expect to continue to enter into such agreements, with companies that have products and are developing new product candidates that compete or may compete with our product candidates |
| If one of our collaborators should decide that the product or a product candidate that the collaborator is developing would be more profitable for the collaborator than our product candidate covered by the collaboration or license agreement, the collaborator may withdraw support for our product candidate or may cease to perform under our agreement |
| In the event of a termination of the collaborator’s agreement upon such cessation of performance, we would need to negotiate an agreement 18 ______________________________________________________________________ [48]Table of Contents with another collaborator in order to continue the development and commercialization efforts for the product candidate |
| If we were unsuccessful in negotiating another agreement, we might have to cease development activities of the particular product candidate |
| Our development and commercialization agreement with GSK is subject to this risk |
| GSK has publicly disclosed that it is exploring the development of several early-stage compounds for the treatment of migraine |
| If GSK decides to focus its development and commercialization efforts on its own products rather than continuing to work with us on Trexima or any other product candidates that may be developed under the agreement, it has the ability to terminate our agreement upon 90 days’ written notice |
| In such a case, we would need to enter into a new development and commercialization agreement and would need to start the development process all over again |
| If we were able to negotiate a new development and commercialization agreement to develop our MT 400 technology, which is not certain, we would face delays and redundant expenses in that development |
| We need to maintain current agreements and enter into additional agreements with third parties that possess sales, marketing and distribution capabilities, or establish internally the capability to perform these functions, in order to successfully market and sell our future drug products |
| We have no sales or distribution personnel or capabilities |
| If we are unable to maintain current collaborations or enter into additional collaborations with established pharmaceutical or pharmaceutical services companies to provide those capabilities, or, alternatively, we are unable to develop internally sales and distribution capabilities, we will not be able to successfully commercialize our products |
| To the extent that we enter into marketing and sales agreements with third parties, our revenues, if any, will be affected by the sales and marketing efforts of those third parties |
| Further, we cannot guarantee that, should we elect to develop our own sales and distribution capabilities, we would have sufficient resources to do so, or would be able to hire the qualified sales and marketing personnel we would need |
| We need to conduct preclinical, toxicology, genotoxicity and carcinogenicity and other safety studies, and clinical trials for our product candidates |
| Any unanticipated results, unforeseen costs or delays in the conduct of these studies or trials, or the need to conduct additional studies or trials or to seek to persuade the FDA to evaluate the results of a study or trial in a different manner, could reduce, delay or eliminate our receipt of revenues for one or more of our product candidates and adversely affect our ability to achieve profitability |
| Generally, we must demonstrate the efficacy and safety of our product candidates before approval to market can be obtained from the FDA or the regulatory authorities in other countries |
| Our existing and future product candidates are and will be in various stages of clinical development |
| Depending upon the type of product candidate and the stage of the development process of a product candidate, we will need to complete preclinical, toxicology, genotoxicity and carcinogenicity and other safety studies, as well as clinical trials, on these product candidates before we submit marketing applications in the United States and abroad |
| These studies and trials can be very costly and time-consuming |
| For example, long-term cardiovascular safety studies, such as those the FDA has indicated will be required for approval of certain product candidates containing NSAIDs, typically take approximately three years |
| In addition, we rely on third parties to perform significant aspects of our studies and clinical trials, introducing additional sources of risk into our development programs |
| It should be noted that the results of our clinical trials are not necessarily predictive of results we will obtain in subsequent clinical trials |
| This may occur for many reasons, including, among others, the variability of patient characteristics, including patient symptoms at the time of study treatment, the larger scale testing of patients in later trials, or differences in formulation or doses of the product candidate used in later trials |
| For example, our results from the first of our two Phase 3 pivotal clinical trial of Trexima differed from the results of our second Phase 3 clinical trial and the Phase 2 proof-of-concept trial of MT 400 that we conducted prior to entering into our collaboration with GSK Whereas in the Phase 2 trial statistical significance was reached at two hours over placebo in the relief of all associated symptoms of migraine (nausea, photophobia and phonophobia), in the first Phase 3 study Trexima failed to achieve statistical significance at two hours compared to placebo in the relief of nausea |
| In the second Phase 3 pivotal clinical trial, Trexima demonstrated superiority over the individual components measured by sustained pain-free response (p<0dtta001 vs |
| sumatriptan) and met all other regulatory endpoints versus placebo |
| The successful completion of clinical trials depends upon many factors, including the rate of enrollment of patients |
| If we are unable to recruit sufficient clinical patients during the appropriate period, we may need to delay our clinical trials and incur significant additional costs |
| We also rely on the compliance of our clinical trial investigators with FDA regulatory requirements and noncompliance can result in disqualification of a clinical trial investigator and data that is unusable |
| In addition, the FDA or Institutional Review Boards may require us to conduct additional trials or delay, restrict or discontinue our clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk |
| For example, even though we are entitled to submit an NDA for Trexima as a 505(b)(2) application, the FDA may require us to conduct more studies or trials than we now believe are necessary or required |
| Further, even though we may have completed all clinical trials for a product candidate that were planned for submission in support of a marketing application, we may be required to conduct additional clinical trials, studies or investigations to support our marketing applications |
| In addition, we and/or our marketing or development partners may 19 ______________________________________________________________________ [49]Table of Contents determine that pre-approval marketing support studies should be conducted |
| Unanticipated adverse outcomes of such studies, including recognition of certain risks to human subjects, could a have material impact on the approval of filed or planned market applications |
| We may also determine from time to time that it would be necessary to seek to provide justification to the FDA or other regulatory agency that would result in evaluation of the results of a study or clinical trial in a manner that differs from the way the regulatory agency initially or customarily evaluated the results |
| In addition, we may have unexpected results that require us to reconsider the need for certain studies or trials |
| For example, results from a genotoxicity study involving MT 400 may require us to conduct chronic toxicology and carcinogenicity studies for Trexima or other MT 400 product candidates we may develop |
| Once submitted, an NDA requires FDA approval before we can distribute or commercialize the product described in the application |
| Even if we determine that data from our clinical trials, toxicology, genotoxicity and carcinogenicity studies are positive, we cannot assure you that the FDA, after completing its analysis, will not determine that the trials or studies should have been conducted or analyzed differently, and thus reach a different conclusion from that reached by us, or request that further trials, studies or analyses be conducted |
| For example, although we believe that we provided the necessary data to support approval of the NDAs for MT 100 and MT 300, the FDA issued not-approvable letters for the MT 100 and MT 300 NDAs on May 28, 2004 and October 17, 2003, respectively, and based upon our understandings from our most recent communication with the FDA and our understanding of the FDA’s current standards for approval of migraine drugs, we do not believe it is possible to reverse the not approvable status of the NDA for MT 300 |
| In addition, based upon our receipt of the not approvable letter for MT 100 and the outcome of an August 2005 FDA Advisory Committee meeting relating to the potential risk of tardive dyskinesia associated with the use of one of the components of MT 100, we made the decision to discontinue further development of MT 100 in the US The FDA may also require data in certain subpopulations, such as pediatric use, or, if such studies were not previously completed, may require long-term carcinogenicity studies, prior to NDA approval, unless we can obtain a waiver of such a requirement |
| We face similar regulatory hurdles in other countries to those that we face in the US Our costs associated with our human clinical trials vary based on a number of factors, including: • the order and timing of clinical indications pursued; • the extent of development and financial support from collaborative parties, if any; • the need to conduct additional clinical trials or studies; • the number of patients required for enrollment; • the difficulty of obtaining sufficient patient populations and clinicians; • the difficulty of obtaining clinical supplies of our product candidates; and • governmental and regulatory delays |
| We currently depend and will in the future depend on third parties to manufacture our product candidates |
| If these manufacturers fail to meet our requirements or any regulatory requirements, the product development and commercialization of our product candidates will be delayed |
| We do not have, and have no plans to develop, the internal capability to manufacture either clinical trial or commercial quantities of products that we may develop or have under development |
| We rely upon third-party manufacturers to supply us with our product candidates |
| We also need supply contracts to sell our products commercially |
| There is no guarantee that manufacturers that enter into commercial supply contracts with us will be financially viable entities going forward, or will not otherwise breach or terminate their agreements with us |
| If we do not have the necessary commercial supply contracts, or if our current manufacturer is, or any of our future manufacturers are, unable to satisfy our requirements or meet any regulatory requirements, and we are required to find alternative sources of supply, there may be additional costs and delays in product development and commercialization of our product candidates or we may be required to comply with additional regulatory requirements |
| If our competitors develop and commercialize products faster than we do or if their products are superior to ours, our commercial opportunities will be reduced or eliminated |
| Our product candidates will have to compete with existing and any newly developed migraine therapies or therapies for any newly developed product candidates for the treatment of other diseases |
| There are also likely to be numerous competitors developing new products to treat migraine and the other diseases and conditions for which we may seek to develop products in the future, which could render our product candidates or technologies obsolete or non-competitive |
| Our primary competitors will likely include large pharmaceutical companies (including, based upon their current migraine portfolios, GSK, Merck & Co, Astra Zeneca, Johnson & Johnson and Pfizer, Inc |
| ), biotechnology companies, universities and public and private research institutions |
| Based upon their migraine portfolios and the overall competitiveness of our industry, we believe that we face, and will continue to face, intense competition from other companies for securing collaborations with pharmaceutical companies, establishing relationships with academic and research institutions, and acquiring licenses to proprietary technology |
| 20 ______________________________________________________________________ [50]Table of Contents Our competitors, either alone or with collaborative parties, may also succeed with technologies or products that are more effective than any of our current or future technologies or products |
| Many of our actual or potential competitors, either alone or together with collaborative parties, have substantially greater financial resources, and almost all of our competitors have larger numbers of scientific and administrative personnel than we do |
| Many of these competitors, either alone or together with their collaborative parties, also have significantly greater experience than we do in: • developing product candidates; • undertaking preclinical testing and human clinical trials; • obtaining FDA and other regulatory approvals of product candidates; and • manufacturing and marketing products |
| Accordingly, our actual or potential competitors may succeed in obtaining patent protection, receiving FDA or other regulatory approval or commercializing products before we do |
| Any delays we encounter in obtaining regulatory approvals for our product candidates, such as we are currently experiencing as a result of the not-approvable letters we have received from the FDA on MT 100 and MT 300, increase this risk |
| Our competitors may also develop products or technologies that are superior to those that we are developing, and render our product candidates or technologies obsolete or non-competitive |
| If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may not ever receive any revenues from sales of products or may not receive sufficient revenues to achieve profitability |
| If there is an adverse outcome in the securities class action or shareholder derivative lawsuits that have been filed against us or our current or former directors and officers, our business may be materially harmed |
| Further, defending against these lawsuits may be expensive and will divert the attention of our management |
| Four purported class action lawsuits claiming violations of securities laws were filed between June 4 and July 28, 2004 in the US District Court for the Middle District of North Carolina by holders of our securities against us and certain of our current and former officers |
| These actions have been consolidated for pre-trial purposes |
| A fifth case filed on August 6, 2004 has also been consolidated with those actions for pre-trial purposes |
| By order dated November 4, 2004, the court appointed a lead plaintiff, who filed a consolidated amended complaint (amended complaint) on December 20, 2004 |
| The defendants named in the amended complaint are POZEN and John R Plachetka, our chairman and chief executive officer |
| The complaint alleges violations of federal securities laws, including violations of Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5, and violations of Section 20(a) of the Exchange Act against Dr |
| The amended complaint alleges that we made false and misleading statements concerning our product candidates MT 100 and MT 300 during the class period |
| The amended complaint requests certification of a plaintiff class consisting of purchasers of our stock between October 4, 2002 and May 28, 2004 |
| In January 2005, we moved to dismiss the amended complaint |
| In September 2004, two derivative actions were filed against certain of our current and former directors and officers in the Superior Court for the County of Orange in the State of North Carolina |
| These actions allege violations of state law, including breaches of fiduciary duties and insider sales, relating to the same allegedly misleading statements concerning the same product candidates MT 100 and MT 300 that are referenced in the various purported class action lawsuits |
| The cases were consolidated and assigned to the North Carolina Business Court |
| The plaintiffs in the derivative actions filed a consolidated amended complaint asserting the same claims as were asserted in the original complaints |
| In May 2005, we filed a motion to dismiss the consolidated and amended complaint |
| In August 2005, oral arguments were made before the North Carolina Business Court and, in a decision entered on November 10, 2005, the Court dismissed the consolidated and amended complaint “with prejudice” |
| As with any litigation proceeding, we cannot predict with certainty the eventual outcome of the pending class action lawsuit described above |
| Furthermore, we will have to incur expenses in connection with this lawsuit, which may be substantial |
| In the event of an adverse outcome, our business could be materially harmed |
| Moreover, responding to and defending the pending litigation will result in a significant diversion of management’s attention and resources and an increase in professional fees |
| If we are unable to protect our patents or proprietary rights, or if we are unable to operate our business without infringing the patents and proprietary rights of others, we may be unable to develop our product candidates or compete effectively |
| The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes |
| Our success will depend, in part, on our ability, and the ability of our licensors, to obtain and to keep protection for our products and technologies under the patent laws of the United States and other countries, so that 21 ______________________________________________________________________ [51]Table of Contents we can stop others from using our inventions |
| Our success also will depend on our ability to prevent others from using our trade secrets |
| In addition, we must operate in a way that does not infringe, or violate, the patent, trade secret and other intellectual property rights of other parties |
| We cannot know how much protection, if any, our patents will provide or whether our patent applications will issue as patents |
| The breadth of claims that will be allowed in patent applications cannot be predicted and neither the validity nor enforceability of claims in issued patents can be assured |
| If, for any reason, we are unable to obtain and enforce valid claims covering our products and technology, we may be unable to prevent competitors from using the same or similar technology or to prevent competitors from marketing identical products |
| In addition, due to the extensive time needed to develop and test our products, any patents that we obtain may expire in a short time after commercialization |
| This would reduce or eliminate any advantages that such patents may give us |
| In certain territories outside the US, our issued patents may be subject to opposition by competitors within a certain time after the patent is issued |
| Such is the case with our MT 400 patent in Europe, which is subject to opposition by Merck and Almirall Prodesfarma |
| Such opposition proceedings may not resolved for several years, and may result in the revocation of the issued patent |
| In certain territories outside the US, our issued patents may be subject to opposition by competitors within a certain time after the patent is issued |
| For example, in October 2005 oppositions were filed against our issued European patent for MT 400 by Merck & Co, Inc |
| and Almirall Prodesfarma asserting that the European patent should not have been granted |
| Such opposition proceedings may not be resolved for several years, and may result in the revocation of the issued patent |
| We may need to submit our issued patents for amendment or reissue if we determine that any claims within our patents should not have been issued |
| While such a submission may be based on our view that only specified claims should not have been granted to us, there can be no assurance that a patent examiner will not determine that additional claims should not have been granted to us |
| Such a risk exists with one of our patents covering MT 100, which we submitted for reissue after determining that certain specified claims that are not central to our protection of MT 100 should not have been issued |
| We may need to license rights to third party patents and intellectual property to continue the development and marketing of our product candidates |
| If we are unable to acquire such rights on acceptable terms, our development activities may be blocked and we may be unable to bring our product candidates to market |
| We may enter into litigation to defend ourselves against claims of infringement, assert claims that a third party is infringing one or more of our patents, protect our trade secrets or know-how, or determine the scope and validity of others’ patent or proprietary rights |
| As a result of such litigation, our patent claims may be found to be invalid, unenforceable or not of sufficient scope to cover the activities of an alleged infringement |
| With respect to some of our product candidates, under certain circumstances, our development or commercialization collaborators have the first right to enforce our patents and would have exclusive control over such enforcement litigation |
| For example, under our collaboration agreement with GSK, GSK has the first right to enforce our patents |
| If we are found to infringe the patent rights of others, then we may be forced to pay damages in an amount that might irreparably harm our business and/or be prevented from continuing our product development and marketing activities |
| Additionally, if we or our development or commercialization collaborator seek to enforce our patents and are unsuccessful, we may be subject to claims for bringing a failed enforcement action, including claims alleging various forms of antitrust violations (both state and federal) and unfair competition |
| If we are found to be liable for such claims, then we may be forced to pay damages in an amount that might irreparably harm our business and/or be prevented from continuing our product development and commercialization activities |
| Even if we are successful in defending any such claims of infringement or in asserting claims against third parties, such litigation is expensive, may have a material effect on our operations, and may distract management from our business operations |
| Regardless of its eventual outcome, any lawsuit that we enter into may consume time and resources that would impair our ability to develop and market our product candidates |
| We have entered into confidentiality agreements with our employees, consultants, advisors and collaborators |
| However, these parties may not honor these agreements and, as a result, we may not be able to protect our rights to unpatented trade secrets and know-how |
| Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how |
| Also, many of our scientific and management personnel were previously employed by competing companies |
| If we fail to acquire, develop and commercialize additional products or product candidates, or fail to successfully promote or market approved products, we may never achieve profitability |
| As part of our business strategy, we plan to identify, self-invent and/or acquire product candidates or approved products in areas in which we possess particular knowledge |
| Because we do not directly engage in basic research or drug discovery, we may rely upon third parties to sell or license product opportunities to us |
| Other companies, including some with substantially greater financial, marketing and sales resources, are competing with us to acquire such products and product candidates |
| We may not be able to acquire rights to additional products or product candidates on acceptable terms, if at all |
| In 22 ______________________________________________________________________ [52]Table of Contents addition, if we acquire new products or product candidates with different marketing strategies, distribution channels and bases of competition than those of our current product candidates, we may not be able to compete favorably in those product categories |
| Even if our product candidates perform successfully in clinical trials and are approved by the FDA and other regulatory authorities, our future products may not achieve market acceptance and may not generate the revenues that we anticipate |
| The degree of market acceptance will depend upon a number of factors, including: • the receipt and timing of regulatory approvals; • the availability of third-party reimbursement; • the indications for which the product is approved; • the rate of adoption by healthcare providers; • the rate of product acceptance by target patient populations; • the price of the product relative to alternative therapies; • the availability of alternative therapies; • the extent and effectiveness of marketing efforts by us and third-party distributors and agents; • the existence of adverse publicity regarding our products or similar products; and • the extent and severity of side effects as compared to alternative therapies |
| If we do not receive adequate third-party reimbursements for our future products, our revenues and profitability will be reduced |
| Our ability to commercialize our product candidates successfully will depend, in part, on the extent to which reimbursement for the costs 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 a newly approved healthcare product |
| Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development |
| If adequate coverage and reimbursement levels are not provided by government and third-party payors for use of our products, our products may fail to achieve market acceptance |
| Our future revenues, profitability and access to capital will be affected by the continuing efforts of governmental and private third-party payors to contain or reduce the costs of healthcare through various means |
| We expect that a number of federal, state and foreign proposals will seek to control the cost of drugs through governmental regulation |
| We are unsure of the form that any healthcare reform legislation may take or what actions federal, state, foreign and private payors may take in response to any proposed reforms |
| Therefore, we cannot predict the effect of any implemented reform on our business |
| If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates |
| The testing and marketing of pharmaceutical products entails an inherent risk of product liability |
| Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling our future products |
| If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities or be required to limit the commercialization of our product candidates |
| We have product liability insurance that covers our human clinical trials in an amount equal to up to dlra10dtta0 million annual aggregate limit with a dlra0dtta1 million deductible per claim |
| The amount of insurance that we currently hold may not be adequate to cover all liabilities that may occur |
| However, insurance coverage is becoming increasingly expensive, and no assurance can be given that we will be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability |
| We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our products |
| However, we may not be able to obtain commercially reasonable product liability insurance for any products approved for marketing |
| If a plaintiff brings a successful product liability claim against us in excess of our insurance coverage, if any, we may incur substantial liabilities and our business may be harmed or fail |
| 23 ______________________________________________________________________ [53]Table of Contents We may need additional funding and may not have access to capital |
| If we are unable to raise capital when needed, we may need to delay, reduce or eliminate our product development or commercialization efforts |
| We may need to raise additional funds to execute our business strategy |
| We have incurred losses from operations since inception and we may continue to incur additional operating losses |
| Our actual capital requirements will depend upon numerous factors, including: • the progress of our research and development programs; • the progress of preclinical studies, clinical and other testing or the need conduct additional trials, studies or other testing; • the time and cost involved in obtaining any regulatory approvals; • the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; • the effect of competing technological and market developments; • the timing of our receipt, if any, of milestone payments and royalties under collaborative agreements; • the effect of changes and developments in, or termination of, our collaborative, license and other relationships; • the terms and timing of any additional collaborative, license and other arrangements that we may establish; and • our ability to arrange for the commercialization of our product candidates |
| In addition, collaborative arrangements may require us to grant product development programs or licenses to third parties for products that we might otherwise seek to develop or commercialize ourselves which may increase our capital requirements |
| For fiscal years 2003 through 2005, our average annual operating expenses (including average non-cash deferred compensation of dlra0dtta6 million) were dlra25dtta4 million |
| We are currently expecting operating expenses for the 2006 fiscal year to be between dlra32dtta0 million and dlra36dtta0 million, excluding any non-cash compensation expense that would result from the award of stock options upon the adoption of SFAS 123(R) |
| As of December 31, 2005, we had dlra45dtta8 million in cash and cash equivalents and short-term investments |
| If our operating expenses in 2006 and 2007 are at the level of our currently expected operating expenses for 2006 and if we do not receive any additional milestone payments under any of our collaboration agreements, we will not have sufficient cash reserves to maintain our level of business activities throughout 2007 |
| Further, our expenses might increase in 2006 and 2007 beyond currently expected levels if any regulatory agency requires us to conduct additional clinical trials, studies or investigations, including in connection with their consideration, or reconsideration, of our regulatory filings for our product candidates |
| In addition, we may be required to pay Valeant NA a withdrawal fee of dlra1dtta0 million if we do not prevail in our current dispute with them as to whether the withdrawal fee is payable under our MT 300 collaboration agreement |
| We may be unable to raise additional equity funds when we desire to do so due to unfavorable market conditions in our industry or generally, or other unforeseen developments in our business |
| Further, we may not be able to find sufficient debt or equity funding, if at all, on acceptable terms |
| If we cannot, we may need to delay, reduce or eliminate research and development programs and therefore may not be able to execute our business strategy |
| The sale by us of additional equity securities or the expectation that we will sell additional equity securities may have an adverse effect on the price of our common stock |
| We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which would harm our research and development efforts |
| We are highly dependent on the efforts of our key management and scientific personnel, especially John R Plachetka, Pharm |
| Plachetka signed an employment agreement with us on April 1, 1999, as amended and restated on July 25, 2001, for a three-year term with automatic one-year renewal terms |
| We also entered into employment agreements with certain of our other key management personnel, which provide for one or two-year terms with automatic one-year renewal terms |
| If we should lose the services of Dr |
| Plachetka, or are unable to replace the services of our other key personnel who may leave the Company, such as Dr |
| W James Alexander, Senior Vice President, Product Development, or if we fail to recruit other key scientific personnel, we may be unable to achieve our business objectives |
| There is intense competition for qualified scientific personnel |
| We may not be able to continue to attract and retain the qualified personnel necessary for developing our business |
| Furthermore, our future success may also depend in part on the continued service of our other key management personnel and our ability to recruit and retain additional personnel, as required by our business |
| 24 ______________________________________________________________________ [54]Table of Contents Factors That May Affect Our Stockholders Our stock price is volatile, which may result in significant losses to stockholders |
| There has been significant volatility in the market prices of biotechnology companies’ securities |
| Various factors and events may have a significant impact on the market price of our common stock |
| These factors include: • fluctuations in our operating results; • announcements of technological innovations, acquisitions or licensing of therapeutic products or product candidates by us or our competitors; • published reports by securities analysts; • positive or negative progress with our clinical trials or with regulatory approvals of our product candidates; • governmental regulation, including reimbursement policies; • developments in patent or other proprietary rights; • developments in our relationships with collaborative partners; • developments in new or pending litigation; • public concern as to the safety and efficacy of our products; and • general market conditions |
| The trading price of our common stock has been, and could continue to be, subject to wide fluctuations in response to these factors, including the sale or attempted sale of a large amount of our common stock into the market |
| From October 16, 2000, when our common stock began trading on the Nasdaq National Market, through March 1, 2006, the high and low closing prices of our common stock ranged from dlra2dtta25 to dlra21dtta75 |
| Broad market fluctuations may also adversely affect the market price of our common stock |
| Sales of substantial amounts of our common stock in the public market could depress our stock price |
| We have not sold shares of common stock in a public offering since our initial public offering in October 2000 |
| Accordingly, we have a relatively small number of shares that are traded in the market and four of our stockholders and their affiliates beneficially hold approximately 34prca of our outstanding shares |
| Any sales of substantial amounts of our common stock in the public market, including sales or distributions of shares by our large stockholders, or the perception that such sales might occur, could harm the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities |
| Further, stockholders’ ownership will be diluted if we raise additional capital by issuing equity securities |
| We have filed with the SEC, and the SEC has declared effective, a shelf registration statement on Form S-3 under which we may register up to 8cmam540cmam000 shares of our common stock for sale to the public in one or more public offerings |
| Certain selling stockholders named in the prospectus for the registration statement may offer up to 540cmam000 of such shares, and we would not receive any of the proceeds from sales of those shares |
| Anti-takeover provisions in our charter documents and under Delaware law could prevent or delay transactions that our stockholders may favor and may prevent stockholders from changing the direction of our business or our management |
| Provisions of our charter and bylaws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares, and may also frustrate or prevent any attempt by stockholders to change the direction or management of POZEN For example, these provisions: • authorize the issuance of “blank check” preferred stock without any need for action by stockholders; • provide for a classified board of directors with staggered three-year terms; • require supermajority stockholder approval to effect various amendments to our charter and bylaws; • eliminate the ability of stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent; and • establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings |
| 25 ______________________________________________________________________ [55]Table of Contents Further, in January 2005 our board of directors adopted a stockholder rights plan, similar to plans adopted by many other publicly-traded companies |
| The stockholder rights plan is intended to deter an attempt to acquire us in a manner or on terms not approved by our board of directors |