| PRO PHARMACEUTICALS INC Item 1A Risk Factors An investment in our common stock involves a high degree of risk |
| You should carefully consider the risks described below and the other information before deciding to invest in our common stock |
| The risks described below are not the only ones facing our company |
| Additional risks not presently known to us or that we currently consider immaterial may also adversely affect our business |
| We have attempted to identify below the major factors that could cause differences between actual and planned or expected results, but we cannot assure you that we have identified all of those factors |
| If any of the following risks actually happen, our business, financial condition and operating results could be materially adversely affected |
| In this case, the trading price of our common stock could decline, and you could lose all or part of your investment |
| Risks Related to Pro-Pharmaceuticals (dollar amounts in thousands) We Are at an Early Stage of Development with Limited Operating History |
| We have no therapeutic products available for sale, and none are expected to be commercially available for several years, if at all |
| We may never generate revenue or become profitable, even if we are able to commercialize any products |
| 13 ______________________________________________________________________ [39]Table of Contents We Have Incurred Net Losses to Date and Depend on Outside Capital |
| Our accumulated deficit as of December 31, 2005 was dlra26cmam430 |
| We will need to continue to conduct significant research, development, testing and regulatory compliance activities that, together with projected general and administrative expenses, we expect will result in substantial operating losses for the next several years |
| Accordingly, we will not be generating sales or other revenue and will remain dependent on outside sources of financing during that time |
| If we are unable to raise funds from outside sources for our continuing operations, we may be adversely affected |
| We may raise such capital through public or private equity financings, partnerships, debt financings, bank borrowings, or other sources |
| Additional funding may not be available on favorable terms or at all |
| If adequate funds are not otherwise available, we may need to significantly curtail operations |
| To obtain additional funding, we may need to enter into arrangements that require us to relinquish rights to certain technologies, products and/or potential markets |
| To the extent that additional capital is raised through the sale of equity, or securities convertible into equity, our equity holders may experience dilution of their proportionate ownership of the company |
| Based on dlra4cmam466 of available cash and cash equivalents as of December 31, 2005, and approximately dlra9dtta3 million of net proceeds raised through issuance of Convertible Debentures on February 14, 2006 we believe that we have sufficient capital to fund our operations through at least June 2007 |
| Our Product Candidates Will Be Based on Novel Unproven Technologies |
| Our product candidates will be based on novel unproven technologies using proprietary carbohydrate compounds in combination with FDA approved of drugs currently used in the treatment of cancer and other diseases |
| Carbohydrates are difficult to synthesize, and we may not be able to synthesize carbohydrates that would be usable as delivery vehicles for the anti-cancer drugs we plan to work with |
| Our Drug Candidates are in Clinical Trials and Results Are Uncertain |
| We have one product candidate in human clinical trials |
| Pre-clinical results in animal studies are not necessarily predictive of outcomes in human clinical trials |
| Clinical trials are expensive, time-consuming and may not be successful |
| They involve the testing of potential therapeutic agents, or effective treatments, in humans, typically in three phases, to determine the safety and efficacy of the product candidates necessary for an approved drug |
| Many products in human clinical trials fail to demonstrate the desired safety and efficacy characteristics |
| Even if our products progress successfully through initial human testing, they may fail in later stages of development |
| We will be dependent on others to conduct our clinical trials, including clinical research organizations and, possibly, government-sponsored agencies |
| These trials may not start or be completed as we forecast, or may be unsuccessful |
| Even if our product candidates are successful in clinical trials, they may not be successfully commercialized |
| Potential products may fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical to produce, fail to achieve market acceptance, or be precluded from commercialization by proprietary rights of third parties |
| We have limited experience in manufacturing or procuring products in commercial quantities, conducting other later-stage phases of the regulatory approval process, selling pharmaceutical products, or negotiating, establishing and maintaining strategic relationships |
| Any growth of our company will require us to expand our management and our operational and financial systems and controls |
| If we are unable to do so, our business and financial condition would be materially harmed |
| If rapid growth occurs, it may strain our operational, managerial and financial resources |
| We Will Depend on Third Parties to Manufacture and Market Our Products |
| We do not have, and do not now intend to develop, facilities for the manufacture of any of our products for clinical or commercial production |
| Accordingly, we will need to develop relationships with manufacturers and enter into collaborative arrangements with licensees or have others manufacture our products on a contract basis |
| We expect to depend on such collaborators to supply us with products manufactured in compliance with standards imposed by the FDA and foreign regulators |
| 14 ______________________________________________________________________ [40]Table of Contents In addition, we have limited experience in marketing, sales or distribution, and we do not intend to develop a sales and marketing infrastructure to commercialize our pharmaceutical products |
| If we develop commercial products, we will need to rely on licensees, collaborators, joint venture partners or independent distributors to market and sell those products |
| We are highly dependent on Dr |
| David Platt, President and Chief Executive Officer; Dr |
| Anatole Klyosov, our chief scientist; and Dr |
| The loss of any of these persons, or failure to attract or retain other key personnel, could prevent us from pursuing collaborations or developing our products and core technologies |
| Platt filed a lawsuit in Massachusetts in January 2004 against GlycoGenesys, Inc |
| In its answer GlycoGenesys named us as a counterclaim defendant alleging tortious interference and misappropriation of proprietary rights, and seeks monetary damages and injunctive relief related to our intellectual property |
| In March 2004, we answered the counterclaim and denied any liability |
| Platt intend to contest these counterclaims vigorously |
| If we do not prevail there could be a material adverse impact on our financial position, results of operations or cash flows |
| We Could Be Required to Make Substantial Cash Payments Upon an Event of Default Under Our Debentures |
| Our 7prca Convertible Debentures provide for events of default including, without limitation, failure to timely make payments of principal, interest or other amounts due thereunder, failure to observe or perform any covenant or agreement set forth in the Debentures or other material agreements to which we are a party, default on another credit agreement or facility evidencing of obligations in excess of dlra250, ineligibility of our stock for listing on quotation on a trading market, lapse of effectiveness of the registration statement registering the shares subject to this prospectus or inability of selling stockholders to offer and sell shares thereunder in excess of certain “blackout” periods, and failure to have the shares registered within 180 days after the February 14, 2006 date of sale of the Debentures and warrants |
| If an event of default occurs, the outstanding principal, plus accrued and unpaid interest due thereon, and all other amounts due under each Debenture may become, at the holder’s election, immediately due and payable in cash in an amount that is not less than the sum of (i) 130prca of the outstanding principal plus accrued and unpaid interest and (ii) other amounts due to such holder |
| We would not be able to repay this amount without raising additional capital |
| Please see “Description of Transaction” below for additional detail about the Debentures and warrants |
| For as long as at least dlra1 million of our 7prca Convertible Debentures remains outstanding, we cannot take certain actions, including, among others, incurrence of indebtedness beyond a stated amount, amendments of our charter or governance documents, repurchase or other acquisition of more than a de minimis number of the shares of our common stock or securities exercisable, convertible or exchangeable for shares of our common stock |
| These negative covenants may limit actions, such as a finance transaction that requires an amendment of our certificate of organization, that we believe are in the best interests of Pro-Pharmaceuticals but which we cannot complete if the holders of the Debentures do not consent |
| We currently do not have products approved for sale in the US or any foreign market |
| We are required to obtain approval from the FDA in order to sell our products in the US and from foreign regulatory authorities in order to sell our products in other countries |
| The FDA’s review and approval process is lengthy, expensive and uncertain |
| Extensive pre-clinical and clinical data and supporting information must be submitted to the FDA for each indication for each product candidate in order to secure FDA approval |
| The FDA could reject an application or require us to conduct additional clinical or other studies as part of the regulatory review process |
| Delays in obtaining or failure to obtain FDA approvals would prevent or delay the commercialization of our products, which would prevent, defer 15 ______________________________________________________________________ [41]Table of Contents or decrease our receipt of revenues |
| If we receive initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation |
| Development and protection of our intellectual property are critical to our business |
| If we do not adequately protect our intellectual property, competitors may be able to practice our technologies |
| Our success depends in part on our ability to obtain patent protection for our products or processes in the United States and other countries, protect trade secrets, and prevent others from infringing on our proprietary rights |
| Since patent applications in the United States are maintained in secrecy for at least portions of their pendency periods (published on US patent issuance or, if earlier, 18 months from earliest filing date for most applications) and since other publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we are the first to make the inventions to be covered by our patent applications |
| The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions |
| The US Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotechnology patents |
| We cannot assure you that all of our patent applications will issue as patents or that the claims of any issued patents will afford meaningful protection for our technologies or products |
| In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented |
| Patent litigation is widespread in the biotechnology industry and could harm our business |
| Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue such litigation or to protect our patent rights |
| Although we require our scientific and technical employees and consultants to enter into broad assignment of inventions agreements, and all of our employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not be honored |
| We are a counterclaim defendant in a lawsuit instituted by Dr |
| We cannot assure that products based on our patents or intellectual property that we license from others will not be challenged by a third party claiming infringement of its proprietary rights |
| If we were not able to successfully defend our patents or licensed rights, we may have to pay substantial damages, possibly including treble damages, for past infringement |
| The biotechnology and pharmaceutical industries are intensely competitive |
| We face direct competition from US and foreign companies focusing on drug delivery technologies, which are rapidly evolving |
| Our competitors include major, multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions |
| Many of these competitors have greater financial and other resources, larger research and development staffs and more effective marketing and manufacturing organizations, than we do |
| In addition, academic and government institutions are increasingly likely to enter into exclusive licensing agreements with commercial enterprises, including our competitors, to market commercial products based on technology developed at such institutions |
| Our competitors may succeed in developing or licensing technologies and products that are more effective or less costly than ours, or succeed in obtaining FDA or other regulatory approvals for product candidates before we do |
| Our ability to commercialize our products successfully will be affected by the ongoing efforts of governmental and third-party payors to contain the cost of health care |
| These entities are challenging prices of health care products and 16 ______________________________________________________________________ [42]Table of Contents services, denying or limiting coverage and reimbursement amounts for new therapeutic products, and for FDA-approved products considered experimental or investigational, or which are used for disease indications without FDA marketing approval |
| Even if we succeed in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient |
| If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in research and product development |
| In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing |
| In the future, we may, in the ordinary course of business, be subject to claims by, and liability to, persons alleging injury as a result of taking products we have under development |
| If we are successful in having products approved by the FDA, the sale of such products would expose us to additional potential product liability and other claims resulting from their use |
| This liability may result from claims made directly by consumers or by pharmaceutical companies or others selling such products |
| Although we currently have insurance coverage for both product liability and professional liability, it is possible that we will not be able to maintain such insurance on acceptable terms |
| Any inability to maintain insurance coverage on acceptable terms could prevent or limit the commercialization of any products we develop |
| The market price for securities of biopharmaceutical and biotechnology companies historically has been highly volatile, and the market from time-to-time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies |
| Fluctuations in the trading price or liquidity of our common stock may adversely affect our ability to raise capital through future equity financings |
| We listed our common stock on the American Stock Exchange in September 2003, prior to which our stock traded on the OTC Bulletin Board |
| Based on varying trading volume to date, our stock could be considered “thinly traded |
| ” In 2003 and 2004, on behalf of existing stockholders, we registered for re-sale approximately 14dtta65 million shares of our common stock, and approximately 3dtta61 million shares of stock issuable upon exercise of immediately exercisable warrants |
| On behalf of the holders of our 7prca Convertible Debentures and common stock purchase warrants, we are registering an additional 7dtta3 million shares of common stock issuable upon conversion or redemption of, or as interest payments on, the Debentures and exercise of the warrants |
| The interest and principal are payable monthly commencing July 1, and August 1, 2006, respectively, in shares of common stock, subject to some restrictions |
| In general, shares of registered common stock may be re-sold into the public markets without volume or other restrictions |
| Large sales of our registered shares could place substantial downward pressure on the trading price of our common stock, particularly if the amount sold significantly exceeds the then-current trading volume of our stock |
| Downward Pressure on Our Stock Price Could Result if Certain Stockholders Become Short-term Investors |
| Provided we meet certain requirements, all outstanding principal and interest under the Debentures may be paid in shares of our common stock |
| Within 6 months after issuance, the warrants we concurrently sold become exercisable |
| In connection with the sale of these securities, we agreed to promptly register the shares of our common stock issuable under the Debentures, and upon exercise of the warrant, for re-sale into the public markets |
| We may enter into similar financing transactions in the future with the same or different investors |
| Because such investors typically receive registered shares well in advance of the expiration of the holding periods under Rule 144 of the Securities Act, they may choose to sell their shares after a short period of holding our stock |
| If sufficient quantities of stock are sold during a brief interval of time, this could result in downward pressure on the market price for shares of our publicly traded common stock |
| Four of our principal stockholders, David Platt, James Czirr, Offer Binder and Anatole Klyosov own or control approximately 42prca of the outstanding shares of our common stock, and Dr |
| Platt and Mr |
| Some or all of these stockholders, acting in concert, may be able to substantially influence the election of the Board of Directors and other corporate actions requiring stockholder approval, such as recapitalization or other fundamental corporate action, as well as the direction and policies of our company |
| Such concentration of ownership also could have the effect of delaying, deterring or preventing a change in control of the company that might otherwise be beneficial to stockholders |
| The Sarbanes-Oxley Act of 2002 and related regulations may result in changes in accounting standards or accepted practices within our industry and could add significant new costs to being a public company |
| New laws, regulations and accounting standards, as well as changes to currently accepted accounting practices, including the expensing of stock options, could adversely affect our reported financial results and negatively affect our stock price |
| Additional unanticipated expenses incurred to comply with new requirements could also negatively impact our results of operations |