| UNITED THERAPEUTICS CORP ITEM 1A RISK FACTORS Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995 which are based on our beliefs and expectations as to future outcomes |
| These statements include, among others, statements relating to the following: · expectations of revenues and profitability; · the timing and outcome of clinical studies and regulatory filings; · the achievement and maintenance of regulatory approvals; · the ability to find alternate sources of supply and manufacturing for our products; · the existence and activities of competitors; · the expectation not to pay dividends on common stock in the foreseeable future; · the pricing of Remodulin; · the dosing and rate of patient consumption of Remodulin; · the impacts of price changes and changes in patient consumption of Remodulin on future revenues; · the expectation of reimbursement by third-party payers for intravenous Remodulin; · the timing, impact, materiality and outcome of under-reimbursement by third-party payers, such as Medicare; · the timing and outcome of the Remodulin Phase IV clinical trial; · acceptance by the FDA of the Remodulin Phase IV clinical trial interim study report following the 21-patient interim assessments; · any actions that may or may not be taken by the FDA as a result of the timing and outcome of the Remodulin Phase IV clinical trial; · the outcome of potential future warning letters from the FDA and any actions that may or may not be taken by the FDA as a result of any such warning letters; · the rate of physician and patient acceptance of our products as safe and effective; · the development and sale of products covered by licenses and assignments; · the adequacy of our intellectual property protections; · the outcome of any litigation in which we are or become involved; · the ability of third parties to develop, market, distribute and sell our products; · the composition of our management team; · the adequacy of our insurance coverage; · the ability to obtain financing in the future; · the value of our common stock; · the funding of operations from future revenues; 19 ______________________________________________________________________ · the expectation of continued profits or losses; · the expected impact of the discontinuance of the HeartBar line-of-products in January 2006; · expectations concerning milestone and royalty payments in 2006 and beyond; · expectations concerning payments of contractual obligations in all future years and their amounts; · the use of net operating loss carryforwards and business tax credit carryforwards and the impact of Section 382 of the Internal Revenue Code on their use; · income tax expenses and benefits in current and future periods; · the completion of in-process research and development projects and their impact on our business; · the pace and timing of enrollment in clinical trials; · the expectation, outcome and timing of new and continuing regulatory approvals; · the timing, resubmission, completion and outcome of the applications for approval of subcutaneous Remodulin in Ireland, Spain and the United Kingdom; · the timing, completion and outcome of pricing approvals in European Union countries that approve subcutaneous Remodulin; · the expected levels and timing of Remodulin sales; · the adequacy of our resources to fund operations; · the timing and level of spending to construct a laboratory production facility in Silver Spring, Maryland; · the potential amount of the minimum residual value guarantee to Wachovia under the synthetic lease; · events that could occur upon termination of the Wachovia synthetic lease and related agreements; · the potential impacts of new accounting standards; · the sale of common stock at favorable terms under the primary registration statement filed with the SEC in February 2005; · our intent and ability to hold certain marketable investments until maturity; · any statements preceded by, followed by or that include the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “estimates,” “should,” “may” or similar expressions; and · other statements contained or incorporated by reference in this Annual Report on Form 10-K that are not historical facts |
| The statements identified as forward-looking statements may exist in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” or elsewhere in this Annual Report on Form 10-K These statements are subject to risks and uncertainties and our actual results may differ materially from anticipated results |
| We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise |
| Unless the context requires otherwise or unless otherwise noted, all references in this section to “United Therapeutics” and to the “company”, “we”, “us” or “our” are to United Therapeutics Corporation and its subsidiaries |
| 20 ______________________________________________________________________ Actual consolidated revenues and net income may be different from published securities analyst projections |
| Many independent securities analysts have published quarterly and annual projections of our revenues and profits |
| These projections were made independently by the securities analysts based on their own analysis |
| Such estimates are inherently subject to a degree of uncertainty |
| Even small variations in reported revenues and profits as compared to securities analysts’ expectations can lead to significant changes in our stock price |
| Although we were profitable for every quarter ended after March 31, 2004, we lost money from the date of our inception in 1996 through March 31, 2004 |
| At December 31, 2005, our accumulated deficit was approximately dlra115dtta3 million |
| Factors that could affect consolidated revenues and profitability and cause our quarterly and annual operating results to fluctuate include the following: · Extent and timing of sales of Remodulin to distributors; · Levels of Remodulin inventory held by our distributors and changes to those levels from quarter to quarter; · Level of patient demand for Remodulin and other products; · Changes in prescribers’ opinions about Remodulin; · Impact of medical and scientific opinion about our products; · Levels of research and development, selling, general and administrative expenses; · Timing of payments to licensors and corporate partners; · Retention and growth of patients treated with Remodulin; · Remodulin side effects, including impact of infusion site pain and reaction from subcutaneous use of Remodulin; · Changes in the current pricing and dosing of Remodulin; · Changes in the length of time that Remodulin vials may be used by patients; · Changes in the pricing of other therapies approved for PAH, including possible generic formulations of other approved therapies, such as Flolan, which may be sold in generic form beginning in May 2007; · Willingness of private insurance companies, Medicare and Medicaid to reimburse Remodulin at current pricing levels; · Impacts of new legislation and regulations and changes to the Medicare and Medicaid programs; · The outcome of the Remodulin Phase IV post-marketing study; · Our ability to maintain regulatory approval of Remodulin in the United States and other countries; · Additional regulatory approvals for Remodulin in countries other than where it is currently sold; · Status and impact of other approved competitive products such as Ventavis, Revatio, Tracleer and Flolan and investigational competitive products such as ambrisentan, Thelin, Cialis®, Gleevec® and other potential investigational competitive products; 21 ______________________________________________________________________ · Continued performance by current Remodulin distributors under existing agreements; · Size, scope and outcome of development efforts for existing and additional products; · Future milestone and royalty payments under license and other agreements; · Cost, timing and outcomes of regulatory reviews; · Rate of technological advances; · Our ability to establish, defend and enforce intellectual property rights; · Development of manufacturing resources or the establishment, continuation or termination of third-party manufacturing arrangements; · Establishment, continuation or termination of third-party clinical trial arrangements; · Development of sales and marketing resources or the establishment, continuation or termination of third-party sales and marketing arrangements; · Impact of any regulatory restrictions on our marketing and promotional activities; · Recovery of goodwill, intangible assets and investments in affiliates; · Collection of accounts receivable and realization of inventories; · Risks associated with acquisitions, including the ability to integrate acquired businesses; · Unforeseen expenses; · Actual growth in sales of telemedicine and arginine products; · Actual expenses incurred in future periods; and · Completion of additional acquisitions and execution of licensing agreements |
| Most of our pharmaceutical products are in clinical studies |
| We might not maintain or obtain regulatory approvals for our pharmaceutical products and may not be able to sell our pharmaceutical products commercially |
| Even if we sell our products, we may not be profitable and may not be able to sustain any profitability we achieve |
| We may not successfully compete with established drugs and the companies that develop and market them |
| We compete with established drug companies during product development for, among other things, funding, access to licenses, expertise, personnel, clinical trial patients, and third-party collaborators |
| We also compete with these companies following approval of our products |
| Almost all of these competitors have substantially greater financial, marketing, sales, distribution and technical resources, and more experience in research and development, clinical trials and regulatory matters, than we do |
| We are aware of existing treatments that compete with our products, especially in the field of PAH Patients and doctors may perceive these competing products to be safer, more effective, more convenient or less expensive than Remodulin |
| Accordingly, sales of Remodulin may not increase or may even decrease if doctors prescribe less Remodulin than they are prescribing at present |
| For the treatment of PAH, we compete with many approved products in the United States and worldwide, including the following: · Flolan was the first product approved by the FDA for treating PAH and has been marketed by GlaxoSmithKline PLC since 1996 |
| Generic formulations of Flolan could be available for 22 ______________________________________________________________________ commercial sale as early as 2007 |
| Flolan is delivered by intravenous infusion and considered to be an effective treatment by most PAH experts; · Ventavis was approved in December 2004 in the United States and in September 2003 in Europe |
| Ventavis is the only prostacyclin that has been approved for inhalation, whereas Remodulin is only currently approved to be delivered through intravenous or subcutaneous infusion |
| Ventavis is marketed by CoTherix, Inc |
| in the United States and Schering AG in Europe; · Tracleer, the first oral drug to be approved for PAH, is also the first drug in its class, known as endothelin receptor antagonists |
| Tracleer was approved in December 2001 in the United States and May 2002 in Europe |
| Tracleer is marketed by Actelion, Ltd |
| As an oral therapy, Tracleer is a very convenient therapy; and · Revatio was approved in June 2005 in the United States |
| Revatio is also an oral therapy and is marketed by Pfizer |
| Revatio is a different formulation of the very successful drug Viagra and is the first drug in its class, known as PDE-5 inhibitors, to be approved for PAH Doctors may reduce the dose of Remodulin given to their patients if they prescribe our competitors’ products in combination with Remodulin |
| Many companies are marketing and developing products containing arginine that compete with our arginine product line |
| Many local and regional competitors and a few national competitors provide cardiac Holter and event monitoring services and systems that compete with our telemedicine products |
| A number of drug companies are pursuing treatments for ovarian and other cancers and hepatitis that will compete with any products we may develop from our immunotherapeutic monoclonal antibody platform and glycobiology antiviral agents platform |
| Discoveries or developments of new technologies by others may make our products obsolete or less useful |
| Other companies may make discoveries or introduce new products that render all or some of our technologies and products obsolete or not commercially viable |
| Researchers are continually making new discoveries that may lead to new technologies to treat the diseases for which our products are intended |
| In addition, alternative approaches to treating chronic diseases, such as gene therapy, may make our products obsolete or noncompetitive |
| Other investigational therapies for PAH could be used in combination with Remodulin |
| If this happens, doctors may reduce the dose of Remodulin given to their patients |
| This could result in less Remodulin being used by such patients and, hence, reduced sales of Remodulin |
| We are aware of investigational products being developed for the treatment of PAH with which our products may have to compete |
| Our Remodulin-based products may have to compete with investigational products currently being developed by other companies, including: · Sitaxentan (Thelin) is being developed by Encysive Pharmaceuticals, Inc |
| worldwide for the treatment of PAH Encysive has completed testing of Thelin, an oral tablet, and, based on favorable results, has filed for approval with the Food and Drug Administration in the United States |
| This application is currently being reviewed |
| If approved, Thelin would become the second drug available in the class known as endothelin receptor antagonists; · Ambrisentan is being developed by Myogen, Inc |
| for the treatment of PAH Ambrisentan, an oral tablet, is still in clinical testing and is also an endothelin receptor antagonist; · Cialis® is an approved oral treatment for erectile dysfunction and is currently marketed by Lilly ICOS LLC, a joint venture of Eli Lilly & Company and ICOS Corporation |
| Cialis is currently being studied in patients with PAH; and is in the same class of drugs as Revatio; 23 ______________________________________________________________________ · Gleevec® is an approved oral treatment for chronic myeloid leukemia (a cancer of the blood and bone marrow) and is currently marketed by Novartis Pharmaceuticals Corporation |
| Recently, researchers experienced in PAH have conducted studies of Gleevec and believe that it may be effective in treating PAH; · PRX-08066, a serotonin receptor 5-HT2B antagonist, is being developed by Predix Pharmaceuticals Holdings, Inc, as an oral tablet for the treatment of PAH Two Phase I clinical trials of PRX-08066 are being conducted in healthy volunteers; · PulmoLAR™ is being developed by PR Pharmaceuticals, Inc |
| It is a once-a-month injectible which contains a metabolite of estradiol and has been shown in animal and cell models to address the key pathological processes associated with PAH; and · Aviptadil, an inhaled formulation of vasoactive intestinal protein, is being developed by mondoBIOTECH Holding SA, for the treatment of PAH There may be additional drugs in development for PAH and there may also be currently approved drugs that may be effective in treating the disease |
| If any of these drugs in development or other currently approved drugs are used to treat PAH, sales of Remodulin may fall |
| If third-party payers will not reimburse patients for our drug products or if third-party payers limit the amount of reimbursement, our sales will suffer |
| Our commercial success depends heavily on third-party payers, such as Medicare, Medicaid and private insurance companies, agreeing to reimburse patients for the costs of our pharmaceutical products |
| These third-party payers frequently challenge the pricing of new and expensive drugs, and it may be difficult for pharmacies selling Remodulin to convince these payers to reimburse patients for the cost of Remodulin |
| Remodulin and the associated infusion pump and supplies are very expensive |
| We believe our investigational products, if approved, will also be very expensive |
| Presently, most third-party payers, including Medicare and Medicaid, reimburse patients for the cost of Remodulin therapy |
| In the past, Medicare has not reimbursed the full cost of the therapy for some patients |
| Beginning on January 1, 2007, the Medicare Modernization Act requires that we and the Centers for Medicare and Medicaid Services negotiate a new price for Remodulin |
| Third-party payers may not approve our new products for reimbursement or continue to approve Remodulin for reimbursement, or may seek to reduce the amount of reimbursement for Remodulin based on changes in pricing of other therapies for PAH, including possible generic formulations of other approved therapies, such as Flolan, which may be sold in generic form beginning in May 2007 |
| If third-party payers do not approve a product of ours for reimbursement or limit the amount of reimbursement, sales will suffer, as patients will opt for a competing product that is approved for reimbursement |
| We rely on third parties to develop, market, distribute and sell most of our products and those third parties may not perform |
| We are currently marketing products in three of our five therapeutic platforms: Remodulin in our prostacyclin analog platform, the products containing arginine in our arginine formulations platform, and CardioPAL cardiac event monitors and Holter monitors in our telemedicine platform |
| We do not have the ability to independently conduct clinical studies, obtain regulatory approvals, market, distribute or sell most of our products and intend to rely substantially on experienced third parties to perform all of those functions |
| We may not locate acceptable contractors or enter into favorable agreements with them |
| If third parties do not successfully carry out their contractual duties or meet expected deadlines, we might not be able to obtain marketing approvals and sell our products |
| 24 ______________________________________________________________________ Medtronic MiniMed is our exclusive partner for the subcutaneous delivery of Remodulin using the MiniMed microinfusion device for PAH We rely on Medtronic MiniMed’s experience, expertise and performance |
| Any disruption in the supply to PAH patients of MiniMed’s microinfusion device could delay or prevent patients from initiating or continuing Remodulin therapy, which could adversely affect our revenues |
| Similarly, we rely on Accredo Therapeutics, Inc |
| ), CuraScript (a wholly owned subsidiary of Express Scripts, Inc |
| and formerly Priority Healthcare Corporation) and Caremark, Inc |
| to market, distribute, and sell Remodulin in the United States |
| Accredo, CuraScript and Caremark are also responsible for convincing third-party payers to reimburse patients for the cost of Remodulin, which is very expensive |
| If our partners and contractors do not achieve acceptable profit margins, they may not continue to distribute our products |
| If our partners in the United States and internationally are unsuccessful in their efforts, our revenues will suffer |
| During 2005, two of our Remodulin distributors in the United States were sold to larger companies |
| These distributors continue to purchase Remodulin from us and distribute it |
| Together, they account for most of the Remodulin sales we have made thus far |
| When these distributors were independently managed, distribution of Remodulin was more significant to the distributors, because they were much smaller |
| Now, Remodulin is much less significant to the distributors because they are divisions or subsidiaries of multi-billion dollar companies |
| It is possible, therefore, that these distributors may devote fewer resources to the distribution of Remodulin |
| If so, this may negatively impact our sales |
| If we cannot maintain regulatory approvals for our products, we cannot sell those products and our revenues will suffer |
| The process of obtaining and maintaining regulatory approvals for new drugs is lengthy, expensive and uncertain |
| The manufacture, distribution, advertising and marketing of these products are subject to extensive regulation |
| Any new product approvals we receive in the future could include significant restrictions on the use or marketing of the product |
| Product approvals, if granted, can be withdrawn for failure to comply with regulatory requirements (including those relating to misleading advertising and we already received one warning letter from the FDA related to advertising in 2005 which was resolved satisfactorily) or upon the occurrence of adverse events following commercial introduction of the products |
| The FDA has approved Remodulin for the treatment of PAH in patients with Class II-IV symptoms to diminish symptoms associated with exercise |
| This approval is subject to the requirement that we perform a post-marketing Phase IV clinical study to further assess the clinical benefits of Remodulin |
| Continued FDA approval of Remodulin is subject to the diligent and timely completion of that trial, as well as its outcome |
| The 39-patient Phase IV clinical trial was required to have been one-half enrolled by June 2004 and to have been fully enrolled by June 2005 |
| The final study report was required to have been submitted in December 2005 |
| Twenty two patients were enrolled in the Phase IV trial |
| Enrolling patients in this study is difficult, in part because it involves randomizing some of the patients to placebo despite the fact that approved drugs were available for these patients |
| We did not enroll the Phase IV trial within the time frame specified by the FDA, and therefore are at risk of the FDA at any time instituting a public hearing to withdraw marketing approval for Remodulin |
| The FDA permitted an interim assessment and opportunity to terminate the Phase IV study after only 21 patients completed the study |
| In July 2005, the first 21 patients completed the study and we performed the interim assessment |
| The results of the interim assessment, as analyzed by an independent statistician, were positive |
| Specifically, 13 of 14 patients (93prca) in the Remodulin arm were able to successfully transition from Flolan and complete the study without the need to institute rescue therapy, compared to only 1 of 7 patients (14prca) in the placebo arm |
| Based on this positive outcome, we have submitted the interim study results to the FDA and have requested permission to end the Phase IV clinical 25 ______________________________________________________________________ study in satisfaction of our Phase IV commitments |
| By agreement with the FDA, enrollment in the Phase IV clinical study was suspended pending FDA review and acceptance of the interim study results |
| We do not know how long the FDA will take to review the interim study results, and we cannot predict the outcome of the review |
| If the FDA does not accept the interim study results or does not agree with our assessment of the interim results, we would still be required to comply with the FDA-approved protocol for the Phase IV clinical study, including enrolling 39 patients in the study and submitting the final study report by December 2005 |
| The FDA could, among other things, grant an extension of time to continue to enroll the trial, or institute a public hearing to withdraw marketing approval for Remodulin |
| We rely heavily on sales of Remodulin |
| During the year ended December 31, 2005, our Remodulin sales accounted for 94 percent of our total revenues |
| If approvals are withdrawn for a product, we cannot sell that product and our revenues will suffer |
| In addition, if product approvals are withdrawn, governmental authorities could seize our products or force us to recall our products |
| Our products may not be commercially successful because physicians and patients may not accept them |
| Even if regulatory authorities approve our products, these products may not be commercially successful |
| We expect that most of our products, including Remodulin, which is already approved by the FDA, will be very expensive |
| Patient acceptance of and demand for our products will depend largely on the following factors: · Acceptance by physicians and patients of our products as safe and effective therapies; · Willingness of payers to reimburse and the level of reimbursement of drug and treatment costs by third-party payers such as Medicare, Medicaid and private insurance companies; · Safety, efficacy, pricing and convenience of alternative products; · Convenience and ease of administration of our products; and · Prevalence and severity of side effects associated with our products, including the infusion site pain and reaction associated with the use of subcutaneous Remodulin and the potential for infections associated with intravenous Remodulin |
| We have limited experience with manufacturing and depend on third parties, who may not perform, to synthesize and manufacture many of our products |
| Prior to our 1999 acquisition of SynQuest, Inc, a company that manufactured treprostinil, the bulk active ingredient in Remodulin, we had no experience with manufacturing |
| Presently, commercial treprostinil is being manufactured only by us |
| We rely on third parties for the manufacture of all our products other than treprostinil |
| We rely on Baxter Healthcare Corporation for the formulation of Remodulin from treprostinil |
| We rely on Cardinal Health, Inc |
| for stability studies on Remodulin, the formulation of treprostinil for inhalation use, and analyses of other products that we are developing |
| We rely on MSI of Central Florida, Inc |
| to manufacture our telemedicine devices |
| We rely on other manufacturers to make our investigational drugs for use in trials |
| Although there are a limited number of companies that could replace each of these suppliers, we believe that other suppliers could provide similar services and materials |
| A change in suppliers, however, could cause a delay in distribution of Remodulin and other products, and in the conduct of clinical trials and commercial launch, which would adversely affect our research and development efforts and future sales efforts |
| Our manufacturing strategy presents the following risks: · The manufacturing processes for some of our products have not been tested in quantities needed for commercial sales; 26 ______________________________________________________________________ · Delays in scale-up to commercial quantities could delay clinical studies, regulatory submissions and commercialization of our products; · A long lead time is needed to manufacture Remodulin, and the manufacturing process is complex; · We and the manufacturers of our products are subject to the FDA’s good manufacturing practices regulations and similar foreign standards, and although we control compliance issues with respect to synthesis and manufacturing conducted internally, we do not have control over compliance with these regulations by our third-party manufacturers; · Even if we and the manufacturers of our products comply with the FDA’s good manufacturing practices regulations and similar foreign standards, the sterility and quality of the products being manufactured may be deficient |
| If this occurred, such products would not be available for sale or use; · If we have to change to another manufacturing contractor or abandon our own manufacturing operations, the FDA and comparable foreign regulators would require new testing and compliance inspections, and the new manufacturer would have to be educated in the processes necessary for the production of the affected product; · We may not be able to develop or commercialize our products, other than Remodulin, as planned or at all and will have to rely solely on internal manufacturing capacity; · We intend to transfer all of our drug laboratory operations to the Silver Spring, Maryland facility currently being built, and such transfer could result in manufacturing inefficiencies or delays because the building, equipment and many of the employees being deployed there will be new to the process of making our products |
| Additionally, the FDA and comparable foreign regulators will require new testing and compliance inspections and this could result in delays; · The supply of raw and advanced materials and components used in the manufacture of Remodulin and other products may be interrupted, which could delay the manufacture and subsequent sale of such products |
| Any proposed substitute materials and components are subject to approval by the FDA before any manufactured product can be sold |
| The timing of such FDA approvals is difficult to predict and approvals may not be timely obtained; · Without substantial experience in operating a manufacturing facility, we may not be able to successfully manufacture Remodulin without a third-party manufacturer; and · We may not have intellectual property rights, or may have to share intellectual property rights, to many of the improvements in the manufacturing processes or new manufacturing processes for our new products |
| Any of these factors could delay clinical studies or commercialization of our products, entail higher costs and, result in our inability to effectively sell our products |
| If our products fail in clinical studies, we will not be able to obtain or maintain FDA and foreign approvals and will not be able to sell those products |
| In order to sell our pharmaceutical products, we must receive regulatory approvals |
| To obtain those approvals, we must conduct clinical studies demonstrating that the drug product, including its delivery mechanism, is safe and effective |
| If we cannot obtain approval from the FDA for a product, that product cannot be sold, and our revenues will suffer |
| 27 ______________________________________________________________________ We recently conducted a Phase IV clinical study for Remodulin |
| For a description of the status of this Phase IV study, see our discussion above under “Factors that may affect United Therapeutics—If we cannot maintain regulatory approvals for our products, we cannot sell those products and our revenues will suffer |
| ” We have initiated a Phase II/III clinical study of an inhaled formulation of treprostinil and Phase I studies of an oral formulation of Remodulin |
| Our lead glycobiology antiviral agent, UT-231B, recently completed a Phase II, proof-of-concept study |
| In that trial, UT-231B did not demonstrate efficacy against hepatitis C in a population of patients that previously failed conventional treatments |
| We are now conducting preclinical testing of additional glycobiology drug candidates |
| We are also currently conducting two Phase III pivotal studies of OvaRex for the treatment of ovarian cancer |
| We are still completing or planning pre-clinical studies for our other products |
| In the past, several of our product candidates have failed or been discontinued at various stages in the product development process, including, but not limited to: beraprost, which failed in Phase III testing for early stage peripheral vascular disease; Ketotop, which failed in Phase III testing for osteoarthritis of the knee; and UT-77, which failed in Phase II testing for chronic obstructive pulmonary disease |
| Also, the length of time that it takes for us to complete clinical trials and obtain regulatory approval for product marketing has in the past varied by product and by the intended use of a product |
| We expect that this will likely be the case with future product candidates and we cannot predict the length of time to complete necessary clinical trials and obtain regulatory approval |
| Our ongoing and planned clinical studies might be delayed or halted for various reasons, including: · The drug is not effective, or physicians think that the drug is not effective; · Patients do not enroll in the studies at the rate we expect; · Patients experience severe side effects during treatment, including site pain; · Other investigational or approved therapies are viewed as more effective or convenient by physicians or patients; · Patients die during the clinical study because their disease is too advanced or because they experience medical problems that are not related to the drug being studied; · Drug supplies are not available or suitable for use in the studies; and · The results of preclinical testing cause delays in clinical trials |
| In addition, the FDA and foreign regulatory authorities have substantial discretion in the approval process |
| The FDA and foreign regulatory authorities may not agree that we have demonstrated that our products are safe and effective |
| Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable federal, state and foreign regulations |
| The development, manufacture, distribution, pricing, sales, marketing, and reimbursement of our products, together with our general operations, are subject to extensive federal, state and foreign regulation |
| While we have developed and instituted corporate compliance programs, we cannot assure that we or our employees are or will be in compliance with all potentially applicable federal, state and foreign regulations |
| If we fail to comply with any of these regulations, a range of actions could result, including, but not limited to, the termination of clinical trials, the failure to approve a product candidate, restrictions on our products or manufacturing processes, including withdrawal of our products from the market, significant fines, exclusion from government healthcare programs, or other sanctions or litigation |
| 28 ______________________________________________________________________ If the licenses, assignments and alliance agreements we depend on are breached or terminated, we would lose our right to develop and sell the products covered by the licenses, assignments and alliance agreements |
| Our business depends upon the acquisition, assignment and license of drugs and other products which have been discovered and initially developed by others, including Remodulin, all of the products in the immunotherapeutic monoclonal antibody platform, all of the products in the glycobiology antiviral agents platform, and all arginine based products |
| Under our product license agreements, we are granted certain rights to existing intellectual property owned by third parties subject to the terms of each license agreement, whereas assignment agreements transfer all right, title and ownership of the intellectual property to us, subject to the terms of each assignment agreement |
| In addition, we have obtained licenses to other third-party technology to conduct our business, including licenses for our products and an alliance agreement for the use of the Medtronic MiniMed microinfusion device for the administration of Remodulin |
| In addition, we may be required to obtain licenses to other third-party technology to commercialize our early-stage products |
| This dependence has the following risks: · We may not be able to obtain future licenses, assignments and agreements at a reasonable cost or at all; · If any of our licenses or assignments are terminated, we will lose our rights to develop and market the products covered by such licenses or assignments; · The licenses and assignments that we hold generally provide for termination by the licensor or assignor in the event we breach the license or assignment agreement, including failing to pay royalties and other fees on a timely basis; · In the event that GlaxoSmithKline (formerly Glaxo Wellcome) terminates its assignment agreement or Pfizer (formerly Pharmacia) terminates its license agreement, we will have no further rights to utilize the assigned patents or trade secrets to develop and commercialize Remodulin |
| For the year ended December 31, 2005, sales of Remodulin accounted for approximately 94 percent of our total revenues |
| GlaxoSmithKline or Pfizer could seek to terminate the assignment or license, respectively, in the event that we fail to pay royalties based on sales of Remodulin; and · If licensors fail to maintain the intellectual property licensed or assigned to us as required by most of our license and assignment agreements, we may lose our rights to develop and market some or all of our products and may be forced to incur substantial additional costs to maintain the intellectual property ourselves or force the licensor or assignor to do so |
| Certain license and assignment agreements relating to our products may restrict our ability to develop products in certain countries and/or for particular diseases and impose other restrictions on our freedom to develop and market our products |
| When we acquire, license or receive assignments of drugs and other products that have been discovered and initially developed by others, we may receive rights only to develop such drugs or products in certain territories and not throughout the world |
| For example, we do not have the right to develop OvaRex and all our other monoclonal antibody immunotherapies for sale in most of Europe and the Middle East, and we only have the rights to develop beraprost for sale in the United States and Canada |
| In addition, provisions in our license and assignment agreements impose other restrictions on our freedom to develop and market our products |
| For example, in assigning Remodulin to us, GlaxoSmithKline retained an exclusive option and right of first refusal to negotiate a license agreement with us if we ever decide to license any aspect of the commercialization of Remodulin anywhere in the world |
| Similarly, in connection with its licenses of beraprost to us, Toray Industries, Inc |
| obtained a right of first refusal from us to develop and sell in Japan up to two compounds that we develop |
| We also agreed to provisions giving Toray the conditional right to approve our North American distributor, a conditional 29 ______________________________________________________________________ restricted non-competition clause, and to minimum annual sales in order to maintain our exclusive rights to beraprost |
| The restrictions that we have accepted in our license and assignment agreements restrict our freedom to develop and market our products in the future |
| If our patent and other intellectual property protection is inadequate, our sales and profits could suffer or competitors could force our products completely out of the market |
| Our United States patent for the method of treating pulmonary hypertension with Remodulin is currently set to expire in October 2014 |
| The patent for OvaRex and its method of use are the subject of a combination of issued patents and pending applications in the United States and around the world |
| The issued patents for OvaRex have expiration dates ranging from 2017 to 2020 |
| We believe that some of the patents to which we have rights may be eligible for extensions of up to five years based upon patent term restoration procedures in Europe and in the United States under the Waxman-Hatch Act |
| Competitors may develop products based on the same active ingredients as our products, including Remodulin, and market those products after the patents expire, or may design around our existing patents |
| If this happens, our sales would suffer and our profits could be severely impacted |
| Patents may be issued to others that prevent the manufacture or sale of our products |
| We may have to license those patents and pay significant fees or royalties to the owners of the patents in order to keep marketing our products |
| We have been granted patents in the United States for the synthesis of Remodulin, but patent applications that have been or may be, filed by us may not result in the issuance of additional patents |
| The scope of any patent issued may not be sufficient to protect our technology |
| The laws of foreign jurisdictions in which we intend to sell our products may not protect our rights to the same extent as the laws of the United States |
| In addition to patent protection, we also rely on trade secrets, proprietary know-how and technology advances |
| We enter into confidentiality agreements with our employees and others, but these agreements may not be effective in protecting our proprietary information |
| Others may independently develop substantially equivalent proprietary information or obtain access to our know-how |
| Litigation, which is very expensive, may be necessary to enforce or defend our patents or proprietary rights and may not end favorably for us |
| We are currently a party to pending litigation against other parties believed to have violated our patents related to our arginine products line, and the validity and enforceability of the patents related to our arginine products is currently being challenged |
| We may also choose to initiate litigation against other parties who we come to believe are infringing these patents |
| If such litigation is unsuccessful or if the patents are invalidated or canceled, we may have to write off the related intangible assets and such an event could significantly reduce our earnings |
| Any of our licenses, patents or other intellectual property may be challenged, invalidated, canceled, infringed or circumvented and may not provide any competitive advantage to us |
| If our highly qualified management and technical personnel leave us, our business may suffer |
| We are dependent on our current management, particularly our founder and Chief Executive Officer, Martine Rothblatt, Ph |
| D, our Executive Vice President for Business Development and Chief Financial Officer, Fred Hadeed, our Executive Vice President for Strategic Planning, General Counsel and Corporate Secretary, Paul Mahon, our Executive Vice President and Chief Operating Officer for Production, David Walsh, our Senior Vice President for Pharmaceutical Development, David Zaccardelli, Pharm |
| D, and our Senior Vice President for Biologics Production, Development and Supply, James Levin, DVM While these individuals are employed by us pursuant to multi-year employment agreements, employment agreements do not ensure the continued retention of employees |
| We do not maintain key person life insurance on these officers |
| Our success will 30 ______________________________________________________________________ depend in part on retaining the services of our existing management and key personnel and attracting and retaining new highly qualified personnel |
| Expertise in the field of cardiovascular medicine, infectious disease and oncology is not generally available in the market, and competition for qualified management and personnel is intense |
| We may not have adequate insurance and may have substantial exposure to payment of product liability claims |
| The testing, manufacture, marketing, and sale of human drugs involve product liability risks |
| Although we currently have product liability insurance covering claims up to dlra20 million per occurrence and in the aggregate for our pharmaceutical products and product liability insurance covering claims up to dlra10 million per occurrence and in the aggregate for our telemedicine and arginine supplement products, we may not be able to maintain this product liability insurance at an acceptable cost, if at all |
| In addition, this insurance may not provide adequate coverage against potential losses |
| If claims or losses exceed our liability insurance coverage, we may go out of business |
| We may not have, or may have to share rights to, future inventions arising from our license, assignment and alliance agreements and may lose potential profits or savings |
| Pursuant to our agreements with certain business partners, any new inventions or intellectual property that arise from our activities will be owned jointly by us and these partners |
| If we do not have rights to new developments or inventions that arise during the terms of these agreements, or we have to share the rights with others, we may lose some or all of the benefit of these new rights, which may mean a loss of future profits or savings generated from improved technology |
| If we need additional financing and cannot obtain it, product development and sales may be limited |
| We may need to spend more money than currently expected because we may need to change our product development plans or product offerings to address difficulties with clinical studies, to prepare for commercial sales or to continue sales of Remodulin |
| We may not be able to obtain additional funds on commercially reasonable terms or at all |
| If additional funds are not available, we may be compelled to delay clinical studies, curtail operations or obtain funds through collaborative arrangements that may require us to relinquish rights to certain products or potential markets |
| Our activities involve hazardous materials, and improper handling of these materials could expose us to significant liabilities |
| Our research and development and manufacturing activities involve the controlled use of chemicals and hazardous materials |
| As a consequence, we are subject to numerous federal, state, and local environmental and safety laws and regulations, including those governing the management, storage and disposal of hazardous materials |
| We may be required to incur significant costs to comply with current or future environmental laws and regulations, and substantial fines and penalties for failure to comply with these laws and regulations |
| While we believe that we are currently in substantial compliance with laws and regulations governing these materials, the risk of accidental contamination or injury from these materials cannot be eliminated |
| In the event of such an accident, we could be liable for civil damages that result or for the cleanup of any release of hazardous materials, the cost of which could be substantial |
| Any such liability could exceed our resources and could have a material adverse effect on our business, financial condition and results of operations |
| Our stock price could be volatile and could decline |
| The market prices for securities of drug and biotechnology companies are highly volatile, and there are significant price and volume fluctuations in the market that may be unrelated to particular companies’ 31 ______________________________________________________________________ operating performances |
| The table below sets forth the high and low closing prices for our common stock for the periods indicated: High Low January 1, 2003 – December 31, 2003 $ 24dtta65 $ 14dtta70 January 1, 2004 – December 31, 2004 $ 46dtta73 $ 20dtta51 January 1, 2005 – December 31, 2005 $ 77dtta82 $ 41dtta37 Our stock price could decline suddenly due to the following factors, among others: · Quarterly and annual financial and operating results; · Failure to meet estimates or expectations of securities analysts or our projections; · Public concern as to the safety of products developed by us or by others; · Changes in or new legislation and regulations affecting reimbursement of Remodulin by Medicare or Medicaid; · Announcements by us or others of technological innovations or new products or announcements regarding our existing products; · Developments in patent or other proprietary rights; · Future sales of substantial amounts of common stock by us or our existing stockholders; · The pace of enrollment in and the results of clinical trials; · Future sales of common stock by our directors and officers; · Failure to maintain approvals to sell Remodulin; · Timing and outcome of additional regulatory approvals; and · General market conditions |
| Future sales of shares of our common stock may depress our stock price |
| If we issue common stock to raise capital, or our stockholders transfer their ownership of our common stock or sell a substantial number of shares of common stock in the public market, or investors become concerned that substantial sales might occur, the market price of our common stock could decrease |
| In February 2005, we filed a shelf registration statement covering the potential sale of up to five million shares of our common stock |
| In addition, each of our four executive officers has announced their adoption of 10b5-1 prearranged trading plans |
| In accordance with these plans, twice each month these executives sell a specified number of our common stock either owned by them or acquired through the exercise of stock options |
| However, these executives and our directors may choose to sell additional shares outside of 10b5-1 trading plans and one executive and five directors have done so |
| In addition, Toray Industries, Inc |
| has an option to acquire 500cmam000 shares of our common stock and piggyback registration rights with respect to such shares that arise if and when this option becomes exercisable |
| A decrease in our common stock price could make it difficult for us to raise capital by selling stock or to pay for acquisitions using stock |
| To the extent outstanding options are exercised or additional shares of capital stock are issued, existing stockholders may incur additional dilution |
| 32 ______________________________________________________________________ Provisions of Delaware law and our certificate of incorporation, by-laws and shareholder rights plan could prevent or delay a change of control or change in management that could be beneficial to us and our public stockholders |
| Certain provisions of Delaware law and our certificate of incorporation, by-laws and shareholder rights plan may prevent, delay or discourage: · A merger, tender offer or proxy contest; · The assumption of control by a holder of a large block of our securities; and · The replacement or removal of current management by our stockholders |
| For example, our certificate of incorporation divides the board of directors into three classes, with members of each class to be elected for staggered three-year terms |
| This provision may make it more difficult for stockholders to change the majority of directors and may hinder accumulations of large blocks of common stock by limiting the voting power of such blocks |
| This may further result in discouraging a change of control or change in current management |
| Our existing directors and executive officers own a substantial block of our stock and might be able to influence the outcome of matters requiring stockholder approval |
| Our directors and named executive officers beneficially owned approximately 10dtta1 percent of our outstanding common stock as of December 31, 2005, including stock options that could be exercised by those directors and executive officers within 60 days of that date |
| Accordingly, these stockholders as a group might be able to influence the outcome of matters requiring approval by our stockholders, including the election of our directors |
| Such stockholder influence could delay or prevent a change of control with respect to us |
| If stockholders do not receive dividends, stockholders must rely on stock appreciation for any return on their investment in us |
| We have never declared or paid cash dividends on any of our capital stock |
| We currently intend to retain our earnings for future growth and therefore do not anticipate paying cash dividends in the future |