| SUPERGEN INC ITEM 1A RISK FACTORS The following section lists some, but not all, of the risks and uncertainties that may have a material adverse effect on our business, financial condition and results of operations |
| You should carefully consider these risks in evaluating our company and business |
| Our business operations may be impaired if any of the following risks actually occur, and by additional risks and uncertainties that we do not know of or that we currently consider immaterial |
| In such case, the trading price of our common stock could decline |
| This report also contains forward-looking statements that involve risks and uncertainties |
| Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report |
| Risks Related to Dacogen, Orathecin and Nipent If we do not receive regulatory approval for Dacogen, our future revenues may be limited and our business would be harmed |
| Our NDA submission for Dacogen was accepted for filing by the FDA on December 31, 2004 |
| On September 1, 2005, we received an Approvable Letter for Dacogen from the FDA, which provides that Dacogen is approvable pending the FDA’s review of a requested analysis of the transfusion requirements of patients enrolled in the completed Phase III trial, submission of certain other information, and completion of labeling discussions |
| We completed the collection and analysis of the data requested by the FDA and submitted our response to the Approvable Letter on November 15, 2005 |
| On December 15, 2005, the FDA accepted our resubmission as a complete response to the Approvable Letter |
| The resubmission has been classified by the FDA as a Class 2 response, and the FDA established a user fee goal date to review the response by May 15, 2006 |
| We believe this response confirms the clinical benefit of Dacogen compared to supportive care with regard to overall response rate, duration of response, and transfusion independence in patients with MDS Our European subsidiary, EuroGen Pharmaceuticals Ltd, submitted an MAA for Dacogen to the EMEA, which submission was accepted for review on October 25, 2004 |
| MGI and SuperGen determined that additional clinical data will be required to continue the review of Dacogen in Europe |
| Therefore, we have withdrawn the MAA for Dacogen |
| This revision in the European regulatory strategy for Dacogen does not affect regulatory strategies being pursued in the US 28 ______________________________________________________________________ MGI and SuperGen will continue to work with European regulatory authorities to determine the information required to support a resubmission of the application, and anticipate resubmitting the application at a later date |
| MGI anticipates that next steps in the European regulatory strategy may be finalized in collaboration with a partner |
| If Dacogen is unsuccessful for any reason, including if the results of the Phase III study are deemed insufficient from either a clinical or statistical basis by the FDA, our future revenues would be limited and our business would be harmed |
| Additionally, we might be forced to substantially scale down our operations or sell certain of our assets, and it is likely the price of our stock would decline precipitously |
| In addition, pursuant to our license agreement with MGI, we are expecting to receive payments from MGI in connection with the achievement of certain commercialization milestones |
| If these commercialization milestones are not met, we will not receive these payments and our financial condition and business would be harmed |
| Even if we receive regulatory approval of Dacogen for the treatment of patients with myelodysplastic syndromes, Dacogen may not be commercially successful |
| If Dacogen receives regulatory approval in the United States or Europe, patients and physicians may not readily accept it, which would result in lower than projected sales and substantial harm to our business through the receipt of lower royalty revenue from MGI We are currently conducting clinical trials with Orathecin as a combination therapy |
| If these clinical trials do not support regulatory approval, our business may be harmed |
| In January 2005, we announced the withdrawal of our NDA for Orathecin based on feedback from the FDA that the data package we submitted in support of the drug would not be sufficient to gain regulatory approval |
| However, we are continuing to conduct clinical trials with Orathecin as a combination therapy while we review and determine whether or not we will continue to pursue regulatory approval for Orathecin |
| Clinical trials are expensive to conduct, time-consuming and have uncertain outcomes |
| We will incur substantial expense while conducting these studies, and if we are unable to complete the studies, or if the results of the studies do not support regulatory approval of Orathecin as a combination therapy, we will incur significant operating losses and our business will be harmed |
| Even if we receive regulatory approval of Orathecin as a combination therapy, Orathecin may not be commercially successful |
| If Orathecin receives regulatory approval in the United States as a combination therapy, patients and physicians may not readily accept it, which would result in lower than projected sales and substantial harm to our business |
| Acceptance will be a function of Orathecin being clinically useful and demonstrating superior therapeutic effect with an acceptable side effect profile as compared to currently existing or future treatments |
| In addition, even if Orathecin does achieve market acceptance, we may not be able to maintain that market acceptance over time if new products are introduced that are more favorably received than Orathecin or render Orathecin obsolete |
| If we are unable to expand our clinical support for use of Nipent to treat additional diseases our revenues will not expand as planned |
| Part of our strategy involves expanding the market opportunities for our approved drugs, including Nipent, by seeking clinical support of their use for treatment of patients with additional diseases |
| We are currently marketing Nipent for the treatment of patients with hairy cell leukemia, and revenues from selling Nipent has provided the majority of our annual product revenues over the past three years |
| We are conducting a series of clinical trials with Nipent, including Phase IV trials for CLL, NHL, cutaneous and 29 ______________________________________________________________________ peripheral T-cell lymphomas and Phase II/III studies for GvHD If our Nipent clinical trials are not successful, we will not be able to increase our revenue from Nipent |
| Risks Related to Our Financial Condition and Common Stock We have a history of operating losses and we expect to continue to incur losses for the foreseeable future |
| Since inception, we have funded our research and development activities primarily from private placements and public offerings of our securities, milestone payments and revenues generated primarily from sales of Nipent, which is marketed in the United States for the treatment of patients with hairy cell leukemia |
| Our substantial research and development expenditures and limited revenues have resulted in significant net losses |
| We have incurred cumulative losses of dlra348dtta0 million from inception through December 31, 2005, and our products have not generated sufficient revenues to support our business during that time |
| We expect to continue to incur substantial operating losses at least through 2007 and may never achieve profitability |
| Whether we achieve profitability depends primarily on the following factors: · our ability to obtain regulatory approval for Dacogen and the successful commercialization of Dacogen by MGI; · our ability to develop and obtain regulatory approval of Nipent for indications other than hairy cell leukemia; · our ability to bring to market other proprietary products that are advancing through our internal clinical development infrastructure; · our ability to successfully expand our product pipeline through in-licensing and product acquisition; · our ability to successfully market Nipent in Europe as planned; · our research and development efforts, including the timing and costs of clinical trials; · our competition’s ability to develop and bring to market competing products; · our ability to control costs and expenses associated with manufacturing, distributing and selling our products, as well as general and administrative costs related to conducting our business; · costs and expenses associated with entering into licensing and other collaborative agreements; and · delays in production or inadequate commercial sales of Dacogen, Orathecin and other products, once regulatory approvals have been received |
| Our products and product candidates, even if successfully developed and approved, may not generate sufficient or sustainable revenues to enable us to achieve or sustain profitability |
| 30 ______________________________________________________________________ We will require additional funding to expand our product pipeline, strengthen our commercialization efforts and expand our European operations, and if we are unable to raise the necessary capital or to do so on acceptable terms, our planned expansion and continued chances of survival could be harmed |
| We will continue to spend substantial resources on expanding our product pipeline, strengthening our commercialization efforts for our existing products, developing new avenues of revenue for Nipent, scaling-up of European operations to market, selling and distributing our existing and future products, and conducting research and development, including clinical trials for other products and product candidates |
| We anticipate that our capital resources will be adequate to fund operations and capital expenditures through 2006 |
| However, if we experience unanticipated cash requirements during this period, we could require additional funds much sooner |
| We may raise money by the sale of our equity securities or debt, or the exercise of outstanding warrants and stock options by the holders of such warrants and options |
| However, given uncertain market conditions and the volatility of our stock price, we may not be able to sell our securities in public offerings or private placements at prices and/or on terms that are favorable to us, if at all |
| Also, the dilutive effect of additional financings could adversely affect our per share results |
| We may also choose to obtain funding through licensing and other contractual agreements |
| For example, we recently licensed the worldwide rights to the development, commercialization and distribution of Dacogen to MGI Such arrangements may require us to relinquish our rights to our technologies, products or marketing territories, or to grant licenses on terms that are not favorable to us |
| If we fail to obtain adequate funding in a timely manner, or at all, we will be forced to scale back our product development activities, or be forced to cease our operations |
| Our collaborative relationship with MGI may not produce the financial benefits that we are anticipating, which could cause our business to suffer |
| In addition to raising money by selling our equity securities to MGI in connection with the license agreement, we also expect to record development and license revenue from payments made to us by MGI upon the achievement of regulatory and commercialization milestones |
| However, we may fail to achieve these milestones, either because we are unable to secure regulatory approval of Dacogen or due to our inability to expend the resources to commence sales of Dacogen as prescribed by the license agreement |
| In addition, the license agreement contemplates that MGI will pay us (i) a certain portion of revenues payable to MGI as a result of MGI sublicensing the rights to market, sell and/or distribute Dacogen, to the extent such revenues are in excess of the milestone payments, and (ii) a 20prca royalty increasing to a maximum of 30prca on annual worldwide net sales of Dacogen |
| We cannot guarantee that we will ever receive these payments, as MGI may choose not to sublicense Dacogen at all, nor can we be assured that MGI will expend the resources to sell Dacogen worldwide, or be successful in doing so |
| Our equity investment in AVI exposes us to equity price risk and any impairment charge would affect our results of operations |
| We are exposed to equity price risk on our equity investment in AVI Currently we own 2cmam684cmam211 shares of AVI During the year ended December 31, 2004, we recorded a write-down of dlra7dtta9 million related to an other than temporary decline in the value of our equity investment in AVI, resulting in a reduction of our cost basis in the AVI shares |
| Under our accounting policy, marketable equity securities are presumed to be impaired if their fair value is less than their cost basis for more than six months, absent compelling evidence to the contrary |
| As of June 30, 2004, the AVI shares had been trading below our original cost basis for more than six months |
| Since there was no compelling evidence to the contrary, we recorded the impairment charge of dlra7dtta9 million in our results of operations |
| The amount of the charge was based on the difference between the market price of the shares as of June 30, 2004 and our adjusted cost basis |
| The public trading prices of the AVI shares have fluctuated significantly since we purchased them and could continue to do so |
| If the public trading prices of these shares continue to trade below their new 31 ______________________________________________________________________ cost basis in future periods, we may incur additional impairment charges relating to this investment, which in turn will affect our results of operations |
| In addition, in connection with the restructuring of our February Notes and the issuance of the June Notes, we issued three-year warrants to the June Note holders exercisable into 2cmam634cmam211 of our AVI shares at an exercise price of dlra5dtta00 per share, and we pledged the AVI shares to secure our obligation under the June Notes |
| These warrants expire on December 31, 2006 |
| Product Development and Regulatory Risks Before we can seek regulatory approval of any of our product candidates, we must complete clinical trials, which are expensive and have uncertain outcomes |
| Most of our products are in the developmental stage and, prior to their sale, will require regulatory approval and the commitment of substantial resources |
| Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through pre-clinical testing and clinical trials that our product candidates are safe and effective for use in humans |
| We have a portfolio of cancer drugs in various stages of development, including Nipent (for indications other than hairy cell leukemia, Phase IV), Partaject busulfan (Phase I/II), Orathecin capsules as a combination therapy (Phase II), and we have been conducting pre-clinical studies for VEGF and Cremophor-free paclitaxel |
| In addition, we expect to commence new clinical trials from time to time in the course of our business as our product development work continues |
| Conducting clinical trials is a lengthy, time consuming and expensive process and the results are inherently uncertain |
| We have incurred and will continue to incur substantial expense for, and we have devoted and expect to continue to devote a significant amount of time to, pre-clinical testing and clinical trials |
| However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates |
| If we are unable to complete our clinical trials, our business will be severely harmed and the price of our stock will likely decline |
| We have ongoing research and pre-clinical projects that may lead to product candidates, but we have not begun clinical trials for these projects |
| If we do not successfully complete our pre-clinical trials, we could not commence clinical trials as planned |
| Our clinical trials may be delayed or terminated, which would prevent us from seeking necessary regulatory approvals |
| Completion of clinical trials may take several years or more |
| The length of a clinical trial varies substantially according to the type, complexity, novelty and intended use of the product candidate |
| For example, our three Phase III Orathecin clinical trials lasted from 1998 through the end of 2003 |
| The length of time and complexity of these studies make statistical analysis difficult and regulatory approval unpredictable |
| The commencement and rate of completion of our clinical trials may be delayed by many factors, including: · ineffectiveness of the study compound, or perceptions by physicians that the compound is not effective for a particular indication; · inability to manufacture sufficient quantities of compounds for use in clinical trials; · inability to obtain FDA approval of our clinical trial protocols; · slower than expected rate of patient recruitment; · inability to adequately follow patients after treatment; · difficulty in managing multiple clinical sites; 32 ______________________________________________________________________ · unforeseen safety issues; · lack of efficacy demonstrated during the clinical trials; or · government or regulatory delays |
| If we are unable to achieve a satisfactory rate of completion of our clinical trials, our business will be significantly harmed |
| We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in compliance with regulatory requirements |
| Our clinical trials must be conducted in accordance with the FDA’s regulations and are subject to continuous oversight by the FDA and institutional review boards at the medical institutions where the clinical trials are conducted |
| We outsource certain aspects of our research and development activities to contract research organizations (“CROs”) |
| We have agreements with these CROs for certain of our clinical programs |
| We and our CROs are required to comply with GCPs, regulations and guidelines enforced by the FDA for all of our products in clinical development |
| The FDA enforces GCPs through periodic inspections of study sponsors, principal investigators, and study sites |
| If our CROs or we fail to comply with applicable GCPs, the clinical data generated in our studies may be deemed unreliable and the FDA may require us to perform additional studies before approving our applications |
| In addition, our clinical trials must be conducted with product candidates produced under current GMPs, and may require a large number of test subjects |
| Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process |
| We may be required to suspend, repeat or terminate our clinical trials if later trial results fail to demonstrate safety and efficacy, or if the results are negative, inconclusive or if they fail to demonstrate safety or efficacy |
| Our clinical trials may be suspended at any time if we or the FDA believe the patients participating in our studies are exposed to unacceptable health risks or if we or the FDA find deficiencies in the conduct of these trials |
| Adverse medical events during a clinical trial could cause us to terminate or repeat a clinical trial |
| We may encounter other problems and failures in our studies that would cause us or the FDA to delay or suspend the studies |
| Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials |
| A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials |
| Negative or inconclusive results during a clinical trial could cause us to terminate or repeat a clinical trial |
| The potential failures would delay development of our product candidates, hinder our ability to conduct related pre-clinical testing and clinical trials and further delay the commencement of the regulatory approval process |
| Further, the failures or perceived failures in our clinical trials would delay our product development and the regulatory approval process, damage our business prospects, make it difficult for us to establish collaboration and partnership relationships and negatively affect our reputation and competitive position in the pharmaceutical industry |
| Finally, if we are required to conduct other clinical trials for the product candidates, the additional trials would require substantial funding and time, and we may be unable to obtain funding to conduct such clinical trials |
| Our failure to obtain regulatory approvals to market our product candidates in foreign countries would adversely affect our anticipated revenues |
| Sales of our products in foreign jurisdictions will be subject to separate regulatory requirements and marketing approvals |
| Approval in the United States, or in any one foreign jurisdiction, does not ensure 33 ______________________________________________________________________ approval in any other jurisdiction |
| The process of obtaining foreign approvals may result in significant delays, difficulties and expenses for us, and may require additional clinical trials |
| We have applied through our subsidiary EuroGen for regulatory approval to market mitomycin and paclitaxel in the United Kingdom and in other countries within the European Union |
| Although many of the regulations applicable to our products in these foreign countries are similar to those promulgated by the FDA, many of these requirements also vary widely from country to country, which could delay the introduction of our products in those countries |
| Failure to comply with these regulatory requirements or to obtain required approvals would impair our ability to commercialize our products in foreign markets |
| Nipent is currently sold in Europe, and in early 2004 we acquired the rights to market Nipent there directly |
| We plan to directly commercialize and market Nipent in Europe during 2006 |
| However, our revenue from sales of Nipent in Europe is currently less than 10prca of our total sales, and there is no guarantee that our marketing efforts will result in significantly increased revenues |
| Our strategy is to obtain regulatory approvals to sell our products in Europe and elsewhere, and we intend to contract with third-party licensees or distributors for sales outside the United States |
| Delays in obtaining regulatory approval from foreign jurisdictions will impair the commercialization of our products and would delay anticipated revenues |
| Even if we obtain regulatory approval, we will continue to be subject to extensive government regulation that may cause us to delay the introduction of our products or withdraw our products from the market |
| Even if regulatory approval of our products is obtained, later discovery of previously unknown problems may result in restrictions of a product, including withdrawal of that product from the market |
| Further, governmental approval may subject us to ongoing requirements for post-marketing studies |
| For example, despite receipt of governmental approval, the facilities of our third-party manufacturers are still subject to unannounced inspections by the FDA and must continue to comply with GMPs and other regulations |
| These regulations govern all areas of production, record keeping, personnel and quality control |
| In the past, our third-party manufacturers have experienced delayed FDA approval, which adversely affected our ability to supply Nipent in 2002 |
| If we or our third-party manufacturers fail to comply with any of the manufacturing regulations, we may be subject to, among other things, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution |
| Physicians may prescribe drugs for uses that are not described in a product’s labeling that differ from those tested by us and approved by the FDA While such “off-label” uses are common and the FDA does not regulate physicians’ choice of treatments, the FDA does restrict a manufacturer’s communications on the subject of off-label use |
| Companies cannot actively promote FDA-approved drugs for off-label uses, but they may disseminate to physicians articles published in peer-reviewed journals |
| To the extent allowed by law, we intend to disseminate peer-reviewed articles on our products to our physician customers |
| If, however, our promotional activities fail to comply with the FDA’s regulations or guidelines, we may be subject to enforcement action by the FDA For example, in June 2005 we received a Warning Letter from the FDA regarding certain promotional materials we disseminated for Nipent |
| The FDA asserted that these materials were false or misleading because they failed to present any risk information, contained an unsubstantiated claim regarding the mechanism of action, and overstated the safety and efficacy of the drug |
| In response, we recalled these materials from the field and commenced modifying our internal procedures to ensure that future Nipent marketing materials and promotional activities meet regulatory requirements |
| We will also be sending a corrective communication to physicians who received the violative Nipent materials |
| The FDA has accepted our remedial actions, nonetheless, any further Warning Letters or enforcement actions by the FDA could harm our reputation in the market, result in significant fines or have other affects that could harm our business |
| 34 ______________________________________________________________________ The continuing efforts of government and third-party payers to contain or reduce the costs of healthcare may adversely affect our revenues |
| Sales of our products depend in part upon the availability of reimbursement from third-party payers, such as health administration authorities like Medicare/Medicaid, managed care providers and private health insurers |
| Third-party payers are increasingly challenging the price and examining the cost effectiveness of medical products and services, which may effectively limit physicians’ ability to select products and procedures |
| In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products |
| For example, currently Medicare does not reimburse self-administered products, which could cover some of our product candidates |
| Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in a particular product |
| In addition, we believe government agencies will continue to propose and pass legislation designed to reduce the cost of healthcare, which could further limit reimbursement for pharmaceuticals, and we anticipate that there will continue to be proposals in the United States to implement government control over the pricing or profitability of prescription pharmaceuticals, as is currently the case in many foreign markets |
| If our current and proposed products are not considered cost-effective, reimbursement to the consumer may not be available or be sufficient to allow us to sell products on a competitive basis |
| The failure of the government and third-party payers to provide adequate coverage and reimbursement rates for our product candidates could adversely affect the market acceptance of our products, our competitive position and our financial performance |
| If we are unable to comply with environmental laws and regulations, our business may be harmed |
| We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products |
| We currently maintain a supply of biohazardous materials at our facilities |
| We believe our safety procedures for these materials comply with all applicable environmental laws and regulations, and we carry insurance coverage we believe is adequate for the size of our business |
| However, we cannot entirely eliminate the risk of accidental contamination or injury from these materials |
| If an accident or environmental discharge occurs, we could be held liable for any resulting damages, which could exceed our insurance coverage and financial resources |
| We currently outsource certain of our research and development programs involving the controlled use of biohazardous materials |
| We believe our collaborators have in place safety procedures for these materials that comply with governmental standards |
| Nevertheless, if an accident does occur, our research and product development will be negatively affected |
| Additional Risks Associated with Our Business We recently announced our intent to acquire Montigen Pharmaceuticals, Inc |
| This transaction could disrupt our business and harm our financial condition if we are not able to successfully close the acquisition or successfully integrate Montigen’s business and technology into ours, and if we do close the acquisition, the expected benefits of the combination may not materialize |
| We recently entered into an agreement to acquire Montigen Pharmaceuticals, Inc |
| for cash and shares of our common stock valued at approximately dlra40dtta0 million, including dlra22dtta0 million contingent upon the achievement of specific regulatory milestones |
| We have, and will continue to, expend significant efforts on closing this transaction |
| Such efforts are costly from both a personnel and financial perspective, distract key personnel from their ordinary responsibilities, and may or may not ultimately result in the consummation of the acquisition |
| The closing of the transaction is subject to numerous variables, some of which are beyond our control |
| There can be no assurance that we will be able to close the Montigen acquisition, and 35 ______________________________________________________________________ failure to do so may negatively affect our financial results, employee and investor confidence, and ultimately our stock price |
| The Montigen acquisition involves numerous risks, including problems combining the purchased operations or technologies, unanticipated costs and diversion of management’s attention from our core business |
| In addition, we may have to restructure aspects of our business in order to achieve anticipated synergies |
| There can be no assurance that we will be able to successfully integrate Montigen and its technology and personnel into our business |
| The failure to effectively manage the acquisition and integration of Montigen could disrupt our business and harm our financial results |
| Further, if consummated, the transaction will dilute our existing stockholders’ percentage ownership and decrease our cash position |
| If the third-party manufacturers upon whom we rely fail to produce our products in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the delivery of, or be unable to meet demand for, our products |
| Because we have no manufacturing facilities, we rely on third parties for manufacturing activities related to all of our products |
| As we develop new products and increase sales of our existing products, we must establish and maintain relationships with manufacturers to produce and package sufficient supplies of our finished pharmaceutical products, including Nipent |
| Reliance on third party manufacturing presents the following risks: · delays in scale-up to quantities needed for multiple clinical trials, or failure to (a) manufacture such quantities to our specifications or (b) deliver such quantities on the dates we require, which could cause delay or suspension of clinical trials, regulatory submissions and commercialization of our products; · inability to fulfill our commercial needs if market demand for our products increases suddenly, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market demand; · potential relinquishment or sharing of intellectual property rights to any improvements in the manufacturing processes or new manufacturing processes for our products; and · unannounced ongoing inspections by the FDA and corresponding state agencies for compliance with GMPs, regulations and foreign standards, and failure to comply with any of these regulations and standards may subject us to, among other things, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution |
| Any of these factors could delay clinical trials or commercialization of our product candidates under development, interfere with current sales and entail higher costs |
| For example, a failed production batch of Nipent in the second quarter of 2003 affected our ability to supply Nipent and adversely affected our sales |
| Currently we store the majority of the unpurified, bulk form of Nipent at the manufacturer’s location |
| Improper storage, fire, natural disaster, theft or other conditions at this location may lead to the loss or destruction of the bulk concentrate |
| Even if the manufacturer’s and our insurance coverage is adequate, such event would inevitably cause delays in distribution and sales of our products and harm our operating results |
| Our business may be harmed if the manufacture of our products is interrupted or discontinued |
| We may be unable to maintain our relationships with our third-party manufacturers |
| If we need to replace or seek new manufacturing arrangements, we may have difficulty locating and entering into arrangements with qualified contract manufacturers on acceptable terms, if at all |
| We are aware of only a 36 ______________________________________________________________________ limited number of companies on a worldwide basis who operate manufacturing facilities in which our products can be manufactured to our specifications and in compliance with GMPs |
| It could take several months, or significantly longer, for a new contract manufacturing facility to obtain FDA approval and to develop substantially equivalent processes for the production of our products |
| We may not be able to contract with any of these companies on acceptable terms, if at all |
| For example, the company that had been purifying Nipent filed for reorganization under Chapter 11 and ceased operations in late 2004 |
| We have contracted with another manufacturer for the purification of Nipent |
| If the new manufacturer is not qualified by the FDA or if the new manufacturer should go out of business, we may not have adequate inventory levels to sustain our business while we identify and contract with another manufacturer for the purification of Nipent |
| If our suppliers cannot provide the components we require, our product sales and revenue could be harmed |
| We rely on third-party suppliers to provide us with numerous components used in our products under development, including Orathecin |
| Relying on third-party suppliers makes us vulnerable to component failures and interruptions in supply, either of which could impair our ability to conduct clinical trials or to ship our products to our customers on a timely basis |
| Using third-party suppliers makes it difficult and sometimes impossible for us to maintain quality control, manage inventory and production schedules and control production costs |
| Vendor lead times to supply us with ordered components vary significantly and can exceed six months or more |
| Both now and as we expand our need for manufacturing capacity, we cannot be sure that our suppliers will furnish us with required components when we need them |
| These factors could make it difficult for us to effectively and efficiently manufacture our products, and could adversely impact our clinical trials, product development and sales of our products |
| Some suppliers are our only source for a particular component, which makes us vulnerable to cost increases and supply interruptions |
| We generally rely on one manufacturer for each product |
| We rely on one manufacturer for Nipent, a sole source supplier for the processing of pentostatin, which is used in the manufacturing of Nipent, and a sole source supplier for the ingredient used in the purification of pentostatin |
| We also rely on sole source suppliers for mitomycin products and Surface Safe |
| Vendors may decide to limit or eliminate sales of certain products to the medical industry due to product liability or other concerns |
| For example, one component used in the purification of pentostatin is no longer commercially available |
| In the event one of our sole source suppliers decides not to manufacture the component, goes out of business, or decides to cut off our supply, we may be unable to locate replacement supply sources, or the sources that we may locate may not provide us with similar reliability or pricing and our business could suffer |
| If we cannot obtain a necessary component, we may need to find, test and obtain regulatory approval for a replacement component, produce the component or redesign the related product, which would cause significant delay and could increase our manufacturing costs |
| Any of these events could adversely impact our sales and results of operations |
| We have limited sales and marketing capabilities and may not be able to successfully commercialize our products |
| We currently have limited sales and marketing resources |
| Although we have 34 sales, marketing and sales support personnel focusing on the sale of our products to hospitals and hospital buying groups, we must expand our sales and marketing organization to support commercialization of our new products |
| Building up our sales capabilities will require significant expenditures |
| We may not succeed in expanding and enhancing our sales and marketing capabilities or have sufficient resources to do so |
| If we do develop such capabilities, we will compete with other companies that have experienced and well-funded sales and marketing operations |
| We may not be able to upgrade our in-house sales expertise which may limit our ability to gain market acceptance for our products worldwide and generate revenues |
| If we fail to establish 37 ______________________________________________________________________ successful sales and marketing capabilities, we will not be able to market or sell our products effectively and our business, financial condition and results of operations will be materially and adversely affected |
| We intend to enter into strategic partnerships for the commercialization of our products outside of the United States |
| However, we may not be able to negotiate acceptable arrangements with partners, if at all |
| Moreover, such arrangements may involve sharing of profits from sales, requirements to relinquish certain of our rights to our products or marketing territories and impositions of other limitations on our operations |
| If we are not able to maintain and successfully establish new collaborative and licensing arrangements with third parties, our product development and business will be harmed |
| Our business model is based on establishing collaborative relationships with other parties both to license compounds upon which our products and technologies are based and to manufacture our products or our collaborators’ products |
| It is critical that we gain access to compounds and technologies to license for further development |
| For example, we licensed the exclusive worldwide royalty-bearing rights to Orathecin from The Stehlin Foundation for Research |
| Due to the expense of the drug approval process we must have relationships with established pharmaceutical companies to offset some of our development costs in exchange for a combination of development, marketing and distribution rights |
| From time to time we enter into discussions with various companies regarding the establishment of new collaborations |
| If we are not successful in establishing new partners for our product candidates, we may not be able to pursue further development of such product candidates and/or may have to reduce or cease our current development programs, which would materially harm our business |
| Even if we are successful in establishing new collaborations, they are subject to numerous risks and uncertainties including: · our ability to negotiate acceptable collaborative arrangements; · the collaboration making us less attractive to potential acquirers; · freedom of our collaborative partners to pursue alternative technologies either on their own or with others, including our competitors, for the diseases targeted by our programs and products; · the potential failure of our partners to fulfill their contractual obligations or their decision to terminate our relationships, in which event we may be required to seek other partners, or expend substantial resources to pursue these activities independently; and · our ability to manage, interact and coordinate our timelines and objectives with our collaborative partners may not be successful |
| In addition, our collaborators may undergo business combinations, which could have the effect of making the collaboration with us less attractive to them for a number of reasons |
| For example, if an existing collaborator purchases a company that is one of our competitors, that company may be less willing to continue its collaboration with us |
| A company that has a strategy of purchasing companies with attractive technologies might have less incentive to enter into a collaboration agreement with us |
| Moreover, disputes may arise with respect to the ownership of rights to any technology or products developed with any current or future collaborator |
| Lengthy negotiations with potential collaborators or disagreements between us and our collaborators may lead to delays in or termination of the research, development or commercialization of product candidates or result in time consuming and expensive litigation or arbitration |
| 38 ______________________________________________________________________ Our collaborative relationships with third parties could cause us to expend significant funds on development costs with no assurance of financial return |
| From time to time we enter into collaborative relationships with third parties to co-develop and market products |
| For example, we entered into an agreement with Peregrine Pharmaceuticals in February 2001, pursuant to which we licensed a drug-targeting technology known as Vascular Targeting Agent, which is a proprietary platform designed to specifically target a tumor’s blood supply and subsequently destroy the tumor with various attached therapeutic agents |
| The licensed technology is specifically related to VEGF Under the agreement, we made an up-front equity investment in Peregrine of dlra600cmam000 and will be obligated to make subsequent milestone payments that could ultimately total dlra8dtta25 million |
| In addition, we will pay royalties to Peregrine based on the net revenues of any drugs we commercialize using the VEGF technology |
| These relationships require substantial financial commitments from us, and at the same time the product developments are subject to the same regulatory requirements, risks and uncertainties associated with the development of our other product candidates |
| The compounds that are the subject of these collaborative agreements may prove to be ineffective, may fail to receive regulatory approvals, may be unprotectable by patents or other intellectual property rights, or may not be otherwise commercially viable |
| If these collaborative relationships are not successful, our product developments will be adversely affected, and our investments and efforts devoted to the product developments will be wasted |
| Our ability to protect our intellectual property rights will be critically important to the success of our business, and we may not be able to protect these rights in the United States or abroad |
| The success of our operations depends in part on our ability to obtain patents, protect trade secrets, operate without infringing the proprietary rights of others and enforce our proprietary rights against accused infringers |
| We actively pursue a policy of seeking patent protection when applicable for our proprietary products and technologies, whether they are developed in-house or acquired from third parties |
| We attempt to protect our intellectual property position by filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business |
| To date, we have acquired licenses to or assignments of over 50 US patents covering various aspects of our proprietary drugs and technologies, including 37 patents for various aspects of Orathecin and related products, six patents under our Nipent product portfolio, although none covers the use of Nipent for the treatment of patients with hairy cell leukemia, seven patents for our paclitaxel related products, three patents for Dacogen used in combination with an anti-neoplastic agent for the treatment of cancer, and two patents for our Surface Safe product |
| These issued United States patents will begin to expire in October 2012 |
| We have been granted patents and have received patent licenses relating to our proprietary formulation technology, non-oncology and Partaject technologies, among which at least five patents are issued or licensed to us |
| In addition, we are prosecuting a number of patent applications for drug candidates that we are not actively developing at this time |
| 39 ______________________________________________________________________ We also have patents, licenses to patents and pending patent applications in Europe, Australia, Japan, Canada, Mexico and New Zealand, among other countries |
| In addition, we have patent applications pending in China, Hungary and Israel |
| Limitations on patent protection, and the differences in what constitutes patentable subject matter, may limit the protection we have on patents issued or licensed to us in these countries |
| In addition, laws of foreign countries may not protect our intellectual property to the same extent as would laws in the United States |
| To minimize our costs and expenses and maintain effective protection, we focus our foreign patent and licensing activities primarily in the European Union, Canada and Japan |
| In determining whether or not to seek patent protection or to license any patent in a foreign country, we weigh the relevant costs and benefits, and consider, among other things, the market potential and profitability, the scope of patent protection afforded by the law of the jurisdiction and its enforceability, and the nature of terms with any potential licensees |
| Failure to obtain adequate patent protection for our proprietary drugs and technology would impair our ability to be commercially competitive in these markets |
| The pharmaceutical industry is characterized by a large number of patent filings involving complex legal and factual questions, and therefore we cannot predict with certainty whether our patents will be enforced effectively |
| Competitors may have filed applications for, or been issued patents on, products or processes that compete with or are similar to ours |
| We may not be aware of all of the patents potentially adverse to our interests which may have been issued to others |
| In addition, third parties may challenge, invalidate or circumvent any of our patents |
| Thus, any patents that we own or license from third parties may not provide adequate protection against competitors, if at all |
| Our pending patent applications and those we may file in the future, or those we may license from third parties, may not result in patents being issued with adequate claim scope, if at all |
| In addition to pursuing patent protection in appropriate instances, we also rely on trade secret protection or regulatory marketing exclusivity for unpatented proprietary technology |
| However, trade secrets are difficult to protect |
| Our trade secrets or those of our collaborators may become known or may be independently discovered by others |
| In the pharmaceutical industry there has been, and we believe that there will continue to be, significant litigation regarding patent and other intellectual property rights |
| Claims may be brought against us in the future based on patents held by others |
| These persons could bring legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected product |
| If we become involved in litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation |
| If a lawsuit against us is successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product |
| We cannot assure you that we would prevail in a lawsuit filed against us or that we could obtain any licenses required under any patents on acceptable terms, if at all |
| Our proprietary products are dependent upon compliance with numerous licenses and agreements |
| These licenses and agreements require us to make royalty and other payments, reasonably exploit the underlying technology of the applicable patents, and comply with regulatory filings |
| If we fail to comply with these licenses and agreements, we could lose the underlying rights to one or more of these potential products, which would adversely affect our product development and harm our business |
| If we fail to compete effectively against other pharmaceutical companies, our business will suffer |
| The pharmaceutical industry in general and the oncology sector in particular is highly competitive and subject to significant and rapid technological change |
| Our competitors and probable competitors include companies such as Aventis SG, Berlex Laboratories, Bristol-Myers Squibb Company, Eli Lilly & Co, GlaxoSmithKline, Novartis AG, Pfizer, Pharmion Corp |
| 40 ______________________________________________________________________ Many of our competitors and research institutions are addressing the same diseases and disease indications and working on products to treat such diseases as we are, and have substantially greater financial, research and development, manufacturing and marketing experience and resources than we do |
| Some of our competitors have received regulatory approval for products, or are developing or testing product candidates that compete directly with, our product candidates |
| For example, while we received orphan drug status for Orathecin and there is currently no competitor in the oral delivery market for the treatment of pancreatic cancer, there are approved drugs for the treatment of pancreatic cancer, including gemcitabine by Eli Lilly |
| In addition, Berlex Laboratories’ fludarabine competes with Nipent in the leukemia market, and Dacogen faces potential competition from Pharmion’s Vidaza, which was approved by the FDA in the first half of 2004 |
| Many of these competitors have significantly greater experience than we do in developing products, undertaking pre-clinical testing and clinical trials, obtaining FDA and other regulatory approvals, and manufacturing and marketing products |
| Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products before we do |
| If we commence sales of our product candidates, we will be competing against companies with greater marketing expertise and manufacturing capabilities, areas in which we have limited or no experience |
| We also face intense competition from other companies for collaborative relationships, for establishing relationships with academic and research institutions, and for licenses to proprietary technology |
| Our competitive positions in our generic drugs are uncertain and subject to risks |
| The market for generic drugs, including the pricing for generic drugs, is extremely competitive |
| As a result, unless our generic drugs are the first or among the initial few to launch, there is a high risk that our products would not gain meaningful market share, or we would not be able to maintain our price and continue the product line |
| Moreover, marketing of generic drugs is also subject to regulatory approval, and if we were not able to obtain such approval before our competitors, we would lose our competitive advantage |
| Failure to maintain our competitive position could have a material adverse effect on our business and results of operations |
| The pharmaceutical industry in general and the oncology sector in particular is subject to significant and rapid technological change |
| Developments by competitors may render our product candidates or technologies obsolete or non-competitive |
| Our competitors may succeed in developing technologies or products that are more effective than ours |
| Additionally, our products that are under patent protection face intense competition from competitors’ proprietary products |
| This competition may increase as new products enter the market |
| A number of our competitors have substantially more capital, research and development, regulatory, manufacturing, marketing, human and other resources and experience than we have |
| As a result, our competitors may: · develop products that are more effective or less costly than any of our current or future products or that render our products obsolete; · produce and market their products more successfully than we do; · establish superior proprietary positions; or · obtain FDA approval for labeling claims that are more favorable than those for our products |
| We will also face increasing competition from lower-cost generic products after patents on our proprietary products expire |
| Loss of patent protection typically leads to a rapid decline in sales for that product and could affect our future results |
| As new products enter the market, our products may become 41 ______________________________________________________________________ obsolete or our competitors’ products may be more effective or more effectively marketed and sold than our products |
| Technological advances, competitive forces and loss of intellectual property protection rights for our products may render our products obsolete |
| We are developing products based upon compounds that may be covered by patents held by third parties that are expected to expire or already expired |
| These compounds may also be the subject of method, formulation, and manufacturing process patents held by third parties |
| If these patents do not expire as anticipated or are expanded in scope, we will not be able to develop our products as planned |
| We developed, or are in the process of developing, and are planning to market several generic and proprietary formulation products based on existing compounds |
| Specifically, with respect to our generic products, we received approval of ANDA’s for our generic mitomycin for solid tumors for our generic paclitaxel |
| Our proprietary formulation technology is a platform technology that employs the use of an inert chemical excipient, cyclodextrin, combined with a drug |
| Most anti-cancer drugs are cytotoxic, and most must be administered intravenously |
| Our proprietary formulation technology is designed to “shield” the drug from the injection site, thus providing the patient protection from tissue ulceration |
| This technology may increase the relative solubility of hard-to-dissolve anti-cancer drugs, hence increasing its stability or shelf life |
| However, each of these benefits must be supported by appropriate data and approved by the FDA before we can make any claim in this regard |
| Our first product utilizing our proprietary formulation technology, a formulation of generic mitomycin, was approved by the FDA in November 2002 as Mitozytrex (mitomycin for injection) for use in the therapy of disseminated adenocarcinoma of the stomach or pancreas in proven combinations with other approved chemotherapeutic agents and as palliative treatment when other modalities have failed |
| We cannot promote Mitozytrex as providing any injection site ulceration protection, nor can we promote any increased stability, solubility or shelf life extension, as compared to generic mitomycin |
| We would be required to develop and submit additional data to the FDA and receive FDA approval before we could make these claims |
| Although no funds were spent in 2005, we have previously spent approximately dlra6dtta4 million on developing and marketing our generic and proprietary formulation products |
| We have completed our pre-commercial investment in developing Mitozytrex, and as of now we have not committed to an internal budget for additional proprietary formulation development programs |
| In addition, we have no further generic drug development commitments, as we are focusing on developing our proprietary drug candidates |
| We do not hold any intellectual property rights as to the underlying compounds on which our generic or proprietary formulation products are based |
| We may in the future evaluate the generic drug market and develop additional generic or proprietary products based on these compounds, which may also be the subject of method, formulation and manufacturing process patents held by third parties |
| Our development of generic or proprietary products may also take place prior to, but in anticipation of, the expected expiration of existing patent protection for drugs developed by third parties |
| However, if existing patent protection on such products is otherwise maintained, extended or expanded, it is unlikely that we will be able to market our own generic or proprietary formulation products without obtaining a license from the patent owner, which may not be available on commercially acceptable terms, if at all |
| We may be subject to product liability lawsuits and our insurance may be inadequate to cover damages |
| Clinical trials and commercial use of our current and potential products may expose us to liability claims from the use or sale of these products |
| Consumers, healthcare providers, pharmaceutical companies 42 ______________________________________________________________________ and others selling such products might make claims of this kind |
| We may experience financial losses in the future due to product liability claims |
| We have obtained limited product liability insurance coverage for our products and clinical trials, under which the coverage limits are dlra10dtta0 million per occurrence and dlra10dtta0 million in the aggregate |
| We do not know whether this coverage will be adequate to protect us in the event of a claim |
| We may not be able to obtain or maintain insurance coverage in the future at a reasonable cost or in sufficient amounts to protect us against losses |
| If third parties bring a successful product liability claim or series of claims against us for uninsured liabilities or in excess of insured liabilities, we may not have sufficient financial resources to complete development or commercialization of any of our product candidates and our business and results of operations will be adversely affected |
| If we are unable to attract and retain additional, highly skilled personnel required for the expansion of our activities, our business will suffer |
| Further, our success is dependent on key personnel, including members of our senior management and scientific staff |
| If any of our executive officers decides to leave and we cannot locate a qualified replacement in time to allow a smooth transition, our business operation may be adversely affected |
| To successfully expand our operations, we will need to attract and retain additional highly skilled individuals, particularly in the areas of sales, marketing, clinical administration, preclinical and development research, manufacturing and finance |
| We compete with other companies for the services of existing and potential employees, however to the extent these employees favor larger, more established employers, we may be at a disadvantage |
| Earthquake or other natural or man-made disasters and business interruptions could adversely affect our business |
| Our operations are vulnerable to interruption by fire, power loss, floods, telecommunications failure and other events beyond our control |
| In addition, our operations are susceptible to disruption as a result of natural disasters such as earthquakes |
| So far we have never experienced any significant disruption of our operations as a result of earthquakes or other natural disasters |
| Although we have a contingency recovery plan, any significant business interruption could cause delays in our drug development and sales and harm our business |
| Provisions in our certificate of incorporation, bylaws and applicable Delaware law may prevent or discourage third parties or stockholders from attempting to replace our management |
| Anti-takeover provisions of our certificate of incorporation and bylaws make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders |
| These provisions include: · authorization of the issuance of up to 2cmam000cmam000 shares of our preferred stock; · elimination of cumulative voting; and · elimination of stockholder action by written consent |
| Our bylaws establish procedures, including notice procedures, with regard to the nomination, other than by or at the direction of our board of directors, of candidates for election as directors or for stockholder proposals to be submitted at stockholder meetings |
| We are also subject to Section 203 of the Delaware General Corporation Law, an anti-takeover provision |
| In general, Section 203 of the Delaware General Corporation Law prevents a stockholder owning 15prca or more of a corporation’s outstanding voting stock from engaging in business combinations with a Delaware corporation for three years following the date the stockholder acquired 15prca or more of a corporation’s outstanding voting stock |
| This restriction is subject to exceptions, including the approval of 43 ______________________________________________________________________ the board of directors and of the holders of at least two-thirds of the outstanding shares of voting stock not owned by the interested stockholder |
| We believe that the benefits of increased protection of our potential ability to negotiate with the proponents of unfriendly or unsolicited proposals to acquire or restructure us outweigh the disadvantages of discouraging those proposals because, among other things, negotiation of those proposals could result in an improvement of their terms |
| Nevertheless, these provisions are expected to discourage different types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with us, and may have the effect of preventing or discouraging third parties or stockholders from attempting to replace our management |