| TELIK INC Item 1A Risk Factors |
| You should carefully consider these risk factors as each of these risks could adversely affect our business, operating results and financial condition |
| In those cases, the trading of our common stock could decline and you may lose all or a part of your investment |
| We have a history of net losses, which we expect to continue for the next several years |
| We will never be profitable unless we develop, and obtain regulatory approval and market acceptance of, our product candidates |
| Due to the significant research and development expenditures required to develop our TRAP technology and identify new product candidates, and the lack of any products to generate revenue, we have not been profitable and have incurred operating losses since we were incorporated in 1988 |
| As of December 31, 2005, we had an accumulated deficit of dlra313dtta3 million |
| We expect to incur losses for the next several years as we continue our research and development activities and incur significant clinical testing costs |
| We do not anticipate that we will generate product revenue for several years |
| Our losses, among other things, have caused and will cause our stockholders’ equity and working capital to decrease |
| To date, we have derived substantially all of our revenues, which have not been significant, from project initiation fees and research reimbursement paid pursuant to existing collaborative agreements with third parties and achievement of milestones under current collaborations |
| We expect that this trend will continue until we develop, and obtain regulatory approval and market acceptance of, our product candidates, if at all |
| We may never generate product revenue sufficient to become profitable |
| All of our product candidates are in research and development |
| If clinical trials of TELCYTA or TELINTRA are delayed or unsuccessful or if we are unable to complete the preclinical development of our other preclinical product candidates, our business may suffer |
| Preclinical testing and clinical trials are long, expensive and uncertain processes |
| It may take us or our collaborators several years to complete this testing, and failure can occur at any stage of the process |
| Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of clinical trials do not necessarily predict final results |
| A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier clinical trials |
| TELCYTA has to date been evaluated in Phase 1 and Phase 2 clinical trials |
| We have three ongoing Phase 3 registration trials of TELCYTA These Phase 3 clinical trials test TELCYTA against a control arm consisting of currently established standard drug treatments for these cancers |
| Changes in standards of care during our Phase 3 clinical trials may cause us to, or the FDA may require us to, perform additional clinical testing of TELCYTA against a different control arm prior to filing an NDA, for marketing approval |
| Our short-term success depends to a significant extent on the outcome of these trials |
| If the results of one or more of these trials do not demonstrate sufficient efficacy to support our NDA, then our business may suffer |
| We completed a Phase 2 clinical trial of TELINTRA in MDS, a form of pre-leukemia, to evaluate safety, pharmacokinetics, pharmacodynamics and efficacy |
| We received permission to proceed, under an IND application filed with the FDA, with the clinical study of a tablet formulation of TELINTRA Our success depends, in part, on our ability to complete clinical development of TELINTRA or other preclinical product candidates and take them through early clinical trials |
| Any clinical trial may fail to produce results satisfactory to the FDA Preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval |
| Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated or a program to be terminated |
| We typically rely on third-party clinical investigators to conduct our clinical trials and, as a result, we may face additional delays outside our control |
| We have engaged contract research organizations, or CROs, to facilitate the administration of our Phase 3 clinical trials of TELCYTA Dependence on a CRO subjects us to a number of risks |
| Delays in identifying and engaging a CRO may result in delays in the initiation of other clinical 14 ______________________________________________________________________ [44]Table of Contents trials |
| We may not be able to control the amount and timing of resources the CRO may devote to our clinical trials |
| Should the CRO fail to administer our Phase 3 clinical trials properly, regulatory approval, development and commercialization of TELCYTA will be delayed |
| We do not know whether we will begin planned clinical trials on time or whether we will complete any of our on-going clinical trials on schedule, if at all |
| We do not know whether any clinical trials will result in marketable products |
| Typically, there is a high rate of failure for product candidates in preclinical and clinical trials |
| We do not anticipate that any of our product candidates will reach the market for several years |
| Significant delays in clinical testing could materially impact our clinical trials |
| We do not know whether planned clinical trials will begin on time, will need to be revamped or will be completed on schedule, if at all |
| In addition to the reasons stated above, clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a study, delays in reaching agreement on acceptable clinical study agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a study at a prospective clinical site and delays in recruiting subjects to participate in a study |
| Delays can also materially impact our product development costs |
| If we experience delays in testing or approvals, our product development costs will increase |
| For example, we may need to make additional payments to third-party investigators and organizations to retain their services or we may need to pay recruitment incentives |
| If the delays are significant, our financial results and the commercial prospects for our product candidates will be harmed, and our ability to become profitable will be delayed |
| We believe that our ability to compete depends, in part, on our ability to use our proprietary TRAP technology to discover new pharmaceutical products |
| TRAP, our proprietary drug discovery technology, is a relatively new drug discovery method that uses a protein panel of approximately 20 proteins selected for their distinct patterns of interacting with small molecules |
| This panel may lack essential types of interactions that we have not yet identified, which may result in our inability to identify active compounds that have the potential for us to develop into commercially viable drugs |
| If we are unable to raise adequate funds in the future, we will not be able to continue to fund our operations, research programs, preclinical testing and clinical trials to develop our product candidates |
| The process of carrying out the development of our own unpartnered product candidates to later stages of development and developing other research programs to the stage that they may be partnered will require significant additional expenditures, including the expenses associated with preclinical testing, clinical trials and obtaining regulatory approval |
| We believe that our existing cash and investment securities will be sufficient to support our current operating plan until the end of 2007 |
| Changes in our research and development plans or other changes affecting our operating expenses may affect actual future consumption of existing cash resources as well |
| In any event, we will require substantial additional financing to fund our operations in the future |
| We do not know whether additional financing will be available when needed or that, if available, we will obtain financing on terms favorable to our stockholders |
| As of December 31, 2005, our accumulated deficit was dlra313dtta3 million, and we expect capital outlays and operating expenditures to increase over the next several years as we expand our clinical, research and development activities |
| The extent of any actual increase in operating or capital spending will depend in part on the clinical success of our product candidates |
| If we fail to raise adequate funds on terms acceptable to us, if at all, we will not be able to continue to fund our operations, research programs, preclinical testing and clinical trials |
| Raising additional capital by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders or require us to relinquish rights to our technologies or product candidates |
| We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources |
| To the extent that we raise additional capital by issuing 15 ______________________________________________________________________ [45]Table of Contents equity securities, our stockholders may experience dilution |
| To the extent that we raise additional capital through licensing arrangements or arrangements with collaborative partners, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves |
| If our competitors develop and market products that are more effective than our product candidates or any products that we may develop, or obtain marketing approval before we do, our commercial opportunity will be reduced or eliminated |
| The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change |
| Some of the drugs that we are attempting to develop will have to compete with existing therapies |
| In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting |
| We face competition from pharmaceutical and biotechnology companies in the United States and abroad |
| Our competitors may develop new screening technologies and may utilize discovery techniques or partner with collaborators in order to develop products more rapidly or successfully than we or our collaborators are able to do |
| Many of our competitors, particularly large pharmaceutical companies, have substantially greater financial, technical and human resources than we do |
| These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, licensing arrangements or other collaborations |
| In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competing products or technologies and may establish exclusive collaborative or licensing relationships with our competitors |
| Our competitors may succeed in developing technologies and drugs that are more effective, better tolerated or less costly than any which are being developed by us or which would render our technology and potential drugs obsolete and noncompetitive |
| In addition, our competitors may succeed in obtaining FDA or other regulatory approvals for product candidates more rapidly than us or our collaborators |
| Any drugs resulting from our research and development efforts, or from our joint efforts with our existing or future collaborative partners, may not be able to compete successfully with our competitors’ existing products or products under development or may not obtain regulatory approval in the United States or elsewhere |
| If we do not obtain regulatory approval to market products in the United States and foreign countries, we or our collaborators will not be permitted to commercialize our product candidates |
| Even if we are able to achieve success in our preclinical testing, we, or our collaborators, must provide the FDA and foreign regulatory authorities with clinical data that demonstrate the safety and efficacy of our product candidates in humans before they can be approved for commercial sale |
| Failure to obtain regulatory approval will prevent commercialization of our product candidates |
| The pharmaceutical industry is subject to stringent regulation by a wide range of authorities |
| We cannot predict whether regulatory clearance will be obtained for any product candidate that we are developing or hope to develop |
| A pharmaceutical product cannot be marketed in the United States until it has completed rigorous preclinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA Satisfaction of regulatory requirements typically takes many years and depends on the type, complexity and novelty of the product and requires the expenditure of substantial resources |
| Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use |
| Before commencing clinical trials in humans, we, or our collaborators, must submit and receive approval from the FDA of an IND application |
| We must comply with FDA “Good Laboratory Practices” regulations in our preclinical studies |
| Clinical trials are subject to oversight by institutional review boards of participating clinical sites and the FDA and: • must be conducted in conformance with the FDA regulations; 16 ______________________________________________________________________ [46]Table of Contents • must meet requirements for institutional review board approval; • must meet requirements for informed consent; • must meet requirements for Good Clinical Practices; • may require large numbers of participants; and • may be suspended by us, our collaborators or the FDA at any time if it is believed that the subjects participating in these trials are being exposed to unacceptable health risks or if the FDA finds deficiencies in the IND application or the conduct of these trials |
| Before receiving FDA clearance to market a product, we, or our collaborators must demonstrate that the product candidate is safe and effective in the patient population that will be treated |
| Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated, a program to be terminated and could delay approval |
| We typically rely on third-party clinical investigators to conduct our clinical trials and other third-party organizations to perform data collection and analysis |
| As a result, we may face additional delaying factors outside our control |
| In addition, we may encounter delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy or interpretation during the period of product development, clinical trials and FDA regulatory review |
| Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action |
| We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval |
| If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which the product is demonstrated through clinical trials to be safe and efficacious, which could limit our market opportunity |
| Furthermore, product approvals, once granted, may be withdrawn if problems occur after initial marketing |
| We cannot ensure that any compound developed by us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive marketing clearance |
| Regulatory clearance may also contain requirements for costly post-marketing testing and surveillance to monitor the safety and efficacy of the product |
| If problems occur after initial marketing, such as the discovery of previously unknown problems with our product candidates, including unanticipated adverse events or adverse events of unanticipated severity or frequency, or manufacturer or manufacturing issues, marketing approval can be withdrawn |
| Outside the United States, the ability to market a product depends on receiving a marketing authorization from the appropriate regulatory authorities |
| This foreign regulatory approval process typically includes all of the risks associated with FDA clearance described above and may include additional risks |
| As our product programs advance, we will need to hire additional scientific and management personnel |
| Our research and development efforts will be seriously jeopardized if we are unable to attract and retain key personnel |
| Our success depends in part on the continued contributions of our principal management and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, scientists and companies in the face of intense competition for such personnel |
| As we plan for and commence additional advanced clinical trials, including Phase 2 and Phase 3, we will also need to further expand our clinical development personnel |
| In addition, our research programs depend on our ability to attract and retain highly skilled chemists and other scientists |
| Wick or any of our other key personnel, our research and development efforts could be seriously and adversely affected |
| We have generally entered into consulting or other agreements with our scientific and clinical collaborators and advisors |
| Wick or any of our other key employees |
| There is currently a shortage of skilled executives and employees with technical expertise in the biotechnology industry and this shortage is likely to continue |
| As a result, competition among numerous companies, academic and other research institutions for 17 ______________________________________________________________________ [47]Table of Contents skilled personnel and experienced scientists is intense and turnover rates are high |
| The cost of living in the San Francisco Bay Area is very high compared to other parts of the country, which may adversely affect our ability to compete for qualified personnel and will increase costs |
| Because of this competitive environment, we have encountered and may continue to encounter increasing difficulty in attracting qualified personnel as our operations expand and the demand for these professionals increases and this difficulty could significantly impede the achievement of our research and development objectives |
| If physicians and patients do not accept products that we may develop, our ability to generate product revenue in the future will be adversely affected |
| Products that we may develop may not gain market acceptance among physicians, healthcare payors, patients and the medical community |
| Market acceptance of and demand for any products that we may develop will depend on many factors, including the following: • our ability to provide acceptable evidence of safety and efficacy; • convenience and ease of administration; • cost effectiveness; • the effectiveness of our marketing strategy and the pricing of any products that we may develop; • our ability to obtain third-party coverage or reimbursement; and • the prevalence and severity of adverse side effects |
| Physicians may elect not to recommend products that we may develop even if our products meet the above criteria |
| If any product that we may develop fails to achieve market acceptance, we may not be able to successfully market and sell that product, which would limit our ability to generate revenue and adversely affect our operations |
| If we or our licensees cannot obtain and defend our respective intellectual property rights, or if our product candidates, technologies or any products that we may develop are found to infringe patents of third parties, we could become involved in lengthy and costly legal proceedings that could adversely affect our business |
| Our success will depend in a large part on our own and our licensees’ ability to obtain and defend patents for each party’s respective technologies and the compounds and other products, if any, resulting from the application of these technologies |
| The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions |
| As a result, the degree of future protection for our proprietary rights is uncertain, and we cannot assure you that: • we were the first to make the inventions covered by each of our pending patent applications; • we were the first to file patent applications for these inventions; • others will not independently develop similar or alternative technologies or duplicate any of our technologies; • any of our pending patent applications will result in issued patents; • any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; • any of our issued patents will be valid or enforceable; or • we will develop additional proprietary technologies that are patentable |
| Accordingly, we cannot predict the breadth of claims allowed in our or other companies’ patents |
| 18 ______________________________________________________________________ [48]Table of Contents For TRAP, we hold patents in the United States and internationally, including a pending foreign application |
| These patents, and any patent that may issue on the pending application, will expire between 2014 and 2015 |
| For TELCYTA, we hold compound patents in the United States and internationally, including a pending foreign application |
| These patents, and any patent that may issue on the pending application, will expire in 2013 and 2014 |
| For TELINTRA, we hold compound patents in the United States and internationally, including a pending foreign application |
| These patents, and any patent that may issue on the pending application, will expire in 2014 |
| We can generally apply for patent term extensions on the patents for TELCYTA and TELINTRA when and if marketing approvals for these compounds are obtained in the relevant countries |
| Our success will also depend, in part, on our ability to operate without infringing the intellectual property rights of others |
| We cannot assure you that our activities will not infringe patents owned by others |
| As of the date of this annual report, we have not received any communications with the owners of related patents alleging that our activities infringe their patents |
| However, if our product candidates, technologies or any products that we may develop are found to infringe patents issued to third parties, the manufacture, use and sale of any products that we may develop could be enjoined, and we could be required to pay substantial damages |
| In addition, we may be required to obtain licenses to patents or other proprietary rights of third parties |
| We cannot assure you that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all |
| Failure to obtain such licenses could negatively affect our business |
| Others may have filed and in the future may file patent applications covering small molecules or therapeutic products that are similar to ours |
| We cannot assure you that our patent applications will have priority over patent applications filed by others |
| Any legal action against us or our collaborators claiming damages and seeking to enjoin commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain a license to continue to manufacture or market the affected products and processes |
| We cannot predict whether we, or our collaborators, would prevail in any of these actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all |
| We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights |
| If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, and we may not be successful in any such litigation |
| In addition, we could incur substantial costs and use of our key employees’ time and efforts in litigation if we are required to defend against patent suits brought by third parties or if we initiate these suits, and we cannot predict whether we would be able to prevail in any of these suits |
| Furthermore, some of our patents and intellectual property rights are owned jointly by us and our collaborators |
| While there are legal and contractual restraints on the rights of these joint owners, they may use these patents and other intellectual property in ways that may harm our business |
| We also rely on trade secrets to protect technology, including aspects of our TRAP technology, where we believe patent protection is not appropriate or obtainable |
| However, trade secrets are difficult to protect |
| While we require employees, academic collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information |
| If the identity of specific proteins or other elements of our TRAP technology become known, our competitive advantage in drug discovery could be reduced |
| Many of our collaborators and scientific advisors have publication and other rights to certain information and data gained from their collaboration and research with us |
| Any publication or other use could limit our ability to secure intellectual property rights or impair any competitive advantage that we may possess or realize by maintaining the confidentiality of the information or data |
| 19 ______________________________________________________________________ [49]Table of Contents We will depend on collaborative arrangements to complete the development and commercialization of some of our product candidates |
| These collaborative arrangements may place the development of our product candidates outside of our control, may require us to relinquish important rights or may otherwise not be on terms favorable to us |
| We expect to enter into collaborative arrangements with third parties for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our product candidates, particularly outside North America, or in disease areas requiring larger and longer clinical trials |
| Dependence on collaborative arrangements will subject us to a number of risks |
| We may not be able to control the amount and timing of resources our collaborative partners may devote to the product candidates |
| Our collaborative partners may experience financial difficulties |
| Should a collaborative partner fail to develop or commercialize a compound or product candidate to which it has rights from us, we may not receive any future milestone payments and will not receive any royalties for this compound or product candidate |
| Business combinations or significant changes in a collaborative partner’s business strategy may also adversely affect a partner’s willingness or ability to complete its obligations under the arrangement |
| If we fail to enter into additional collaborative agreements on favorable terms, our business, financial condition and results of operations could be materially adversely affected |
| Some of our collaborations are for early stage programs and allow partners significant discretion in electing whether to pursue any of the planned activities |
| We do not anticipate significant revenues to result from these relationships until the collaborator has advanced product candidates into clinical trials, which will not occur for several years, if at all |
| These arrangements are subject to numerous risks, including the right of the collaboration partner to control the timing of the research and development efforts, the advancement of lead product candidates to clinical trials and the commercialization of product candidates |
| In addition, a collaborative partner could independently move forward with a competing lead candidate developed either independently or in collaboration with others, including our competitors |
| If we are unable to enter into or maintain existing contracts with third parties to manufacture our product candidates or any products that we may develop in sufficient quantities and at an acceptable cost, clinical development of product candidates could be delayed and we may be unable to meet demand for any products that we may develop and lose potential revenue |
| We do not currently operate manufacturing facilities for clinical or commercial production of our product candidates |
| We expect to continue to rely on third parties for the manufacture of our product candidates and any products that we may develop |
| We currently lack the resources and capability to manufacture any of our product candidates on a clinical scale or any products that we may develop on a commercial scale |
| As a result, we will be dependent on corporate partners, licensees or other third parties for the manufacturing of clinical and commercial scale quantities of our product candidates and any products that we may develop |
| Our product candidates and any products that we may develop may be in competition with other product candidates and products for access to these facilities |
| For this and other reasons, our collaborators or third parties may not be able to manufacture these product candidates and products in a cost effective or timely manner |
| While we currently possess sufficient inventory of TELCYTA and TELINTRA that are stored in multiple locations and an additional, substantial quantity of the active ingredient in TELCYTA, if these inventories are lost or damaged, the clinical development of our product candidates or their submission for regulatory approval could be delayed, and our ability to deliver any products that we may develop on a timely basis could be impaired or precluded |
| We are currently dependent on a single source of supply of the active ingredient in TELCYTA, Organichem Corporation |
| While we have entered into an agreement with, and are working to qualify, an additional supplier, there is no certainty this will occur |
| We currently depend upon two sources for the drug product manufacture of TELCYTA We currently depend upon two sources of supply for clinical quantities of the active ingredient in TELINTRA We depend upon a single source of supply for key excipients used in the manufacture of TELINTRA, Lipoid GmbH While we are evaluating potential alternative sources of these materials, we have no such alternative sources that are immediately available |
| We currently depend upon two sources for the drug product manufacture of TELINTRA 20 ______________________________________________________________________ [50]Table of Contents If manufacturing is not performed in a timely manner, if our suppliers fail to perform or if our relationships with our suppliers or manufacturers should terminate, our clinical trials and commercialization of TELCYTA and TELINTRA could be delayed |
| We may not be able to enter into or maintain any necessary third-party manufacturing arrangements on acceptable terms, if at all |
| Our current dependence upon others for the manufacture of our product candidates and our anticipated dependence upon others for the manufacture of any products that we may develop may adversely affect our future profit margins and our ability to commercialize any products that we may develop on a timely and competitive basis |
| If we are unable to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will not be able to commercialize any products that we may develop |
| We currently have no sales, marketing or distribution capabilities |
| In order to commercialize any products that we may develop, we must internally develop sales, marketing and distribution capabilities or establish collaborations or other arrangements with third parties to perform these services |
| We intend to market some products that we may develop directly in North America and rely on relationships with one or more pharmaceutical companies with established distribution systems and direct sales forces to market other products that we may develop and address other markets |
| We may not be able to establish in-house sales and distribution capabilities or relationships with third parties |
| To the extent that we enter into co-promotion or other licensing arrangements, any product revenues are likely to be lower than if we directly marketed and sold any products that we may develop, and any revenues we receive will depend upon the efforts of third parties, whose efforts may not be successful |
| Budget constraints may force us to delay our efforts to develop certain product candidates in favor of developing others, which may prevent us from commercializing all product candidates as quickly as possible |
| Because we have limited resources, and because research and development is an expensive process, we must regularly assess the most efficient allocation of our research and development budget |
| As a result, we may have to prioritize development candidates and may not be able to fully realize the value of some of our product candidates in a timely manner, as they will be delayed in reaching the market, if at all |
| 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 and any products that we may develop |
| The testing and marketing of medical products entail an inherent risk of product liability |
| Although we are not aware of any historical or anticipated product liability claims or specific causes for concern, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates and any products that we may develop |
| In addition, product liability claims may also result in withdrawal of clinical trial volunteers, injury to our reputation and decreased demand for any products that we may commercialize |
| We currently carry product liability insurance that covers our clinical trials up to a dlra10 million annual aggregate limit |
| We will need to increase the amount of coverage if and when we have a product that is commercially available |
| If we are unable to obtain sufficient product liability insurance at an acceptable cost, potential product liability claims could prevent or inhibit the commercialization of any products that we may develop, alone or with corporate collaborators |
| If we use biological and hazardous materials in a manner that causes injury, we may be liable for damages |
| Our research and development activities involve the controlled use of potentially harmful biological materials, hazardous materials, chemicals and various radioactive compounds, and are subject to federal, state 21 ______________________________________________________________________ [51]Table of Contents and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products |
| We cannot eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials |
| We currently have several coverages applying to various types of biological and pollution exposures for a total amount of dlra350cmam000 in insurance, which we believe is a reasonably adequate amount to insulate us from damage claims arising from our use of hazardous materials |
| However, in the event of contamination or injury, we could be held liable for damages that result, and any liability could significantly exceed our coverage and resources |
| We have implemented anti-takeover provisions which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management |
| Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders |
| In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors |
| Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team |
| These provisions include: • establishing a classified board of directors requiring that members of the board be elected in different years, which lengthens the time needed to elect a new majority of the board; • authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares or change the balance of voting control and thwart a takeover attempt; • prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates; • limiting the ability of stockholders to call special meetings of the stockholders; • prohibiting stockholder action by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders; and • establishing 90 to 120 day advance notice requirements for nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at stockholder meetings |
| We adopted a stockholder rights plan that may discourage, delay or prevent a merger or acquisition that is beneficial to our stockholders |
| In November 2001, our board of directors adopted a stockholder rights plan that may have the effect of discouraging, delaying or preventing a merger or acquisition that is beneficial to our stockholders by diluting the ability of a potential acquiror to acquire us |
| Pursuant to the terms of our plan, when a person or group, except under certain circumstances, acquires 20prca or more of our outstanding common stock or 10 business days after commencement or announcement of a tender or exchange offer for 20prca or more of our outstanding common stock, the rights (except those rights held by the person or group who has acquired or announced an offer to acquire 20prca or more of our outstanding common stock) would generally become exercisable for shares of our common stock at a discount |
| Because the potential acquiror’s rights would not become exercisable for our shares of common stock at a discount, the potential acquiror would suffer substantial dilution and may lose its ability to acquire us |
| In addition, the existence of the plan itself may deter a potential acquiror from acquiring us |
| As a result, either by operation of the plan or by its potential deterrent effect, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur |
| 22 ______________________________________________________________________ [52]Table of Contents Substantial future sales of our common stock by us or by our existing stockholders could cause our stock price to fall |
| Additional equity financings or other share issuances by us, including shares issued in connection with strategic alliances, could adversely affect the market price of our common stock |
| Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the market price of our common stock to drop |
| As of December 31, 2005, 52cmam038cmam850 shares of our common stock were outstanding, of which 51cmam732cmam791 shares were freely tradable and 306cmam059 shares were transferable in accordance with certain volume, notice and manner of sale restrictions under Rule 144 of the Securities Act of 1933 |
| If we do not progress in our programs as anticipated, our stock price could decrease |
| For planning purposes, we estimate the timing of a variety of clinical, regulatory and other milestones, such as when a certain product candidate will enter clinical development, when a clinical trial will be completed or when an application for regulatory approval will be filed |
| Our estimates are based on present facts and a variety of assumptions |
| Many of the underlying assumptions are outside of our control |
| If milestones are not achieved when we estimated that they would be, investors could be disappointed, and our stock price may decrease |
| Our stock price may be volatile, and you may not be able to resell your shares at or above your purchase price |
| Our stock prices and the market prices for securities of biotechnology companies in general have been highly volatile, with recent significant price and volume fluctuations, and may continue to be highly volatile in the future |
| You may not be able to sell your shares quickly or at the market price if trading in our stock is not active or the volume is low |
| The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock, some of which are beyond our control: • developments regarding, or the results of, our clinical trials, including TELCYTA clinical trials; • announcements of technological innovations or new commercial products by our competitors or us; • developments concerning proprietary rights, including patents; • developments concerning our collaborations; publicity regarding actual or potential medical results relating to products under development by our competitors or us; • regulatory developments in the United States and foreign countries; • litigation; • economic and other external factors or other disaster or crisis; or • period-to-period fluctuations in our financial results |
| We are required to recognize expense for stock based compensation related to employee stock options and employee stock purchases, and there is no assurance that the expense we are required to recognize measures accurately the value of our share-based payment awards, and the recognition of this expense could cause the trading price of our common stock to decline |
| On January 1, 2006, we adopted SFAS 123R which requires the measurement and recognition of compensation expense for all stock-based compensation based on estimated fair values |
| As a result, our operating results for the first quarter of 2006 and for future periods will contain a charge for stock-based compensation related to employee stock options and employee stock purchases |
| The application of SFAS 123R requires the use of an option-pricing model to determine the fair value of share-based payment awards |
| This determination of fair 23 ______________________________________________________________________ [53]Table of Contents value is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables |
| These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors |
| Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable |
| Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion the existing valuation models may not provide an accurate measure of the fair value of our employee stock options |
| Although the fair value of employee stock options is determined in accordance with SFAS 123R and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction |
| We expect that our adoption of SFAS 123R will have a material impact on our financial statements and results of operations and this will continue to be the case for future periods |
| We cannot predict the effect that this adverse impact on our reported operating results will have on the trading price of our common stock |