The
following important factors could cause our actual business and financial
results to differ materially from those contained in forward-looking statements
made in this Current Report on Form 8-K, in the Company’s other filings with the
Securities and Exchange Commission or elsewhere by management from time to
time.
The
technology on which our channel partnering arrangement with Intrexon Corporation
is based is early stage biotechnology in the field of human oncologic
therapeutics.
Our
exclusive channel partnership with Intrexon Corporation contemplates our using
Intrexon’s advanced transgene engineering platform for the controlled and
precise cellular production of anti-cancer effectors. The in vivo effector
platform in which we have acquired rights represents early-stage technology in
the field of human oncologic therapeutics, with INXN 3001/1001 currently in a
Phase Ib study and INXN 2001/1001 the basis of an IND application that we expect
to submit during the first half of 2011. Although we plan to leverage Intrexon’s
synthetic biology platform for additional products targeting key pathways used
by cancers to grow and metastasize, we may not be successful in developing and
commercializing these products for a variety of reasons. The risk factors set
forth in this Report that apply to our small molecule drug candidates, which are
various stages of development, also apply to product candidates that we seek to
develop under our exclusive channel partnership with Intrexon
Corporation.
We
will incur additional expenses in connection with the exclusive Intrexon channel
partnership.
The in vivo effector platform in
which we have acquired rights from Intrexon Corporation includes two existing
product candidates, with INXN 3001/1001 currently in a Phase Ib study and INXN
2001/1001 the basis of an IND application that we expect to submit during the
first half of 2011. Upon entry into the exclusive channel partnership with
Intrexon we assumed responsibility for the clinical development of these product
candidates, which we expect will increase the level of our overall research and
development expenses significantly going forward. Although all human clinical
trials are expensive and difficult to design and implement, we believe that
costs associated with clinical trials for synthetic biology products are greater
than the corresponding costs associated with clinical trials for small molecule
candidates. In addition to increased research and development costs, we have
added headcount in part to support our exclusive channel partnership endeavors
and are opening a small office in the greater Washington D.C. area, which will
add to our general and administrative expenses going forward.
Although
our forecasts for expenses and the sufficiency of our capital resources set
forth elsewhere in this Report takes into account our plans to develop the
Intrexon products, we have only recently assumed development responsibility for
these products and the actual costs associated therewith may be significantly in
excess of forecast amounts. In addition to the amount and timing of expenses
related to the clinical trials, our actual cash requirements may vary materially
from our current expectations for a number of other factors that may include,
but are not limited to, changes in the focus and direction of our development
programs, competitive and technical advances, costs associated with the
development of our product candidates and costs of filing, prosecuting,
defending and enforcing our intellectual property rights. If we exhaust our
capital reserves more quickly than anticipated, regardless of the reason, and we
are unable to obtain additional financing on terms acceptable to us or at all,
we will be unable to proceed with development of some or all of our product
candidates on expected timelines and will be forced to prioritize among
them.
We
are required to register the resale of a substantial number of shares of our
common stock that have been and will be issued to Intrexon Corporation and the
sale of those shares could adversely affect our stock price.
In
connection with our issuance and sale of 6,063,131 shares of common stock to
Intrexon Corporation on January 12, 2011 in a private sale, we agreed to file a
registration statement on Form S-3 registering the resale of such shares on or
before May 11, 2011 and to use our reasonable best efforts to cause the
Registration Statement to become effective. If the selling stockholder(s) named
in such resale registration statement sell, or indicate an intention to sell,
all or a substantial portion of such shares after the registration is declared
effective by the SEC, the trading price of our common stock could be adversely
affected.
Risks
Related to our Business
We
will require additional financial resources in order to continue on-going
development of our product candidates; if we are unable to obtain these
additional resources, we may be forced to delay or discontinue clinical testing
of our product candidates.
We have
never generated revenue and have incurred significant net losses in each year
since our inception. For the nine months ended September 30, 2010, we had a net
loss of $20.8 million and we had incurred approximately $112.0 million of
cumulative net losses since our inception in 2003. We expect to continue to
incur significant operating expenditures. Further development of our product
candidates, including product candidates that we develop under our channel
partnering arrangement with Intrexon Corporation, will likely require
substantial increases in our expenses as we:
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Continue to undertake clinical
trials for product
candidates;
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Continue with the formulation,
manufacturing and scale-up of our product
candidates;
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Seek
regulatory approvals for product
candidates;
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Hire additional
personnel.
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We
continue to seek additional financial resources to fund the further development
of our product candidate portfolio. If we are unable to obtain sufficient
additional capital, one or more of these programs could be placed on hold.
Because we are currently devoting a significant portion of our resources to the
development of palifosfamide, further progress with the development and our
other candidates may be significantly delayed and may depend on the success of
our ongoing clinical trial involving palifosfamide.
Other
than the Intrexon equity commitment ( See “Recent
Developments — Intrexon Corporation Private Placement and Equity
Commitment.” ), we have no current committed sources of additional
capital. We do not know whether additional financing will be available on terms
favorable or acceptable to us when needed, if at all. Our business is highly
cash-intensive and our ability to continue operations after our current cash
resources are exhausted depends on our ability to obtain additional financing
and achieve profitable operations, as to which no assurances can be given. If
adequate additional funds are not available when required, or if we are
unsuccessful in entering into partnership agreements for the further development
of our small molecule products, we will be required to delay, reduce or
eliminate planned preclinical and clinical trials and may be forced to terminate
the approval process for our product candidates from the FDA or other regulatory
authorities. In addition, we could be forced to discontinue product development,
forego attractive business opportunities or pursue merger or divestiture
strategies. In the event we are unable to obtain additional financing, we may be
forced to cease operations altogether.
We
need to raise additional capital to fund our operations. The manner in which we
raise any additional funds may affect the value of your investment in our common
stock.
As of
September 30, 2010, we had incurred approximately $112.0 million of cumulative
net losses and had approximately $66.5 million of cash and cash equivalents.
Assuming completion of this offering and given our current plans for development
of our product candidates, we anticipate that our cash resources will be
sufficient to fund our operations until late 2012. However, changes may occur
that would consume our existing capital prior to that time, including the scope
and progress of our research and development efforts and changes in governmental
regulation. Actual costs may ultimately vary from our current expectations,
which could materially impact our use of capital and our forecast of the period
of time through which our financial resources will be adequate to support our
operations. Specifically, we commenced the PICASSO 3 pivotal trial for IV
palifosfamide early in the third quarter of 2010. We have estimated the
sufficiency of our cash resources based in part on this trial design and our
timing expectations for enrollment in the study. In addition, our forecast
anticipates the initiation of a two-stage potentially pivotal trial for the
study of darinaparsin in combination with “CHOP” for the treatment of PTCL,
likely in certain relapsed patients. We also recently assumed responsibility for
two product candidates under our exclusive channel partnership with Intrexon
Corporation and we expect that the costs associated with these additional
product candidates will increase the level of our overall research and
development expenses significantly going forward. Although our forecasts for
expenses and the sufficiency of our capital resources takes into account our
plans to develop the Intrexon products, we have only recently assumed
development responsibility for these products and the actual costs associated
therewith may be significantly in excess of forecast amounts. In addition to
these factors our actual cash requirements may vary materially from our current
expectations for a number of other factors that may include, but are not limited
to, changes in the focus and direction of our development programs, competitive
and technical advances, costs associated with the development of our product
candidates, our ability to secure partnering arrangements, and costs of filing,
prosecuting, defending and enforcing our intellectual property rights. If we
exhaust our capital reserves more quickly than anticipated, regardless of the
reason, and we are unable to obtain additional financing on terms acceptable to
us or at all, we will be unable to proceed with development of some or all of
our product candidates on expected timelines and will be forced to prioritize
among them.
In the
current economic environment, our need for additional capital and limited
capital resources may force us to accept financing terms that could be
significantly more dilutive than if we were raising capital when the capital
markets were more stable. To the extent that we raise additional capital by
issuing equity securities, our stockholders may experience dilution. In
addition, we may grant future investors rights superior to those of our existing
stockholders. If we raise additional funds through collaborations and licensing
arrangements, it may be necessary to relinquish some rights to our technologies,
product candidates or products, or grant licenses on terms that are not
favorable to us. If we raise additional funds by incurring debt, we could incur
significant interest expense and become subject to covenants in the related
transaction documentation that could affect the manner in which we conduct our
business.
Clinical
trials are very expensive, time-consuming, and difficult to design and
implement.
Human
clinical trials are very expensive and difficult to design and implement, in
part because they are subject to rigorous regulatory requirements. The clinical
trial process itself is also time-consuming. We estimate that clinical trials of
our product candidates will take at least several years to complete.
Furthermore, failure can occur at any stage of the trials, and we could
encounter problems that cause us to abandon or repeat clinical trials. The
commencement and completion of clinical trials may be delayed by several
factors, including:
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Unforeseen safety
issues;
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Determination of dosing
issues;
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Lack of effectiveness during
clinical trials;
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Slower than expected rates of
patient recruitment and
enrollment;
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Inability to monitor patients
adequately during or after
treatment;
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Inability or unwillingness of
medical investigators to follow our clinical protocols;
and
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Regulatory determinations to
temporarily or permanently cease enrollment for other reasons not related
to patient safety.
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We
commenced the PICASSO 3 pivotal trial for IV palifosfamide early in the third
quarter of 2010. The trial is in front-line metastatic soft tissue sarcoma,
entitled PICASSO 3, and is an international, randomized, double-blinded,
placebo-controlled trial with a targeted enrollment of 424 patients. To date,
the Company has experienced slower than anticipated enrollment in the trial due
in part to the timing of regulatory approvals for opening trials sites and
unanticipated contractual delays attributable to international healthcare
budgetary constraints. The Company has taken steps to accelerate patient
enrollment in order to meet its previous forecasted timeline for full enrollment
by the end of 2011, including utilizing significantly more trial sites in the
United States and elsewhere. However, the Company cannot assure that it will be
able to enroll sufficient numbers of patients in the PICASSO trial to meet its
previous forecast for full enrollment. As an orphan designated indication, the
patient population available for participation in the PICASSO 3 trial is
generally limited. Also affecting the enrollment and pace of the study is a
recent limited supply of doxorubicin necessary for the trial. If the Company
cannot accelerate enrollment in the PICASSO 3 study to meet its forecasted
timeline, if limited supply of doxorubicin prevents treatment of patients in the
trial, or the trial is delayed for other reasons, the delay will postpone our
receipt of results from the trial and, consequently, our ability to submit a
corresponding NDA with FDA for regulatory approval in accordance with our plans.
See also “Risk
Factors — Our product candidates are in various stages of clinical
trials, which are very expensive and time-consuming. We cannot be certain when
we will be able to file an NDA or BLA with the FDA and any failure or delay in
completing clinical trials for our product candidates could harm our
business.”
In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if the
FDA finds deficiencies in our IND submission or in the conduct of these trials.
For example, the Phase 1a study of INXN 3001/1001 was previously placed on
clinical hold for safety concerns relating to intra-patient dose escalation.
Therefore, we cannot predict with any certainty the schedule for future clinical
trials.
We
may not be able to commercialize any products, generate significant revenues, or
attain profitability.
To date,
none of our product candidates have been approved for commercial sale in any
country. The process to develop, obtain regulatory approval for, and
commercialize potential product candidates is long, complex, and costly. Unless
and until we receive approval from the FDA and/or other regulatory authorities
for our product candidates, we cannot sell our products and will not have
product revenues. Even if we obtain regulatory approval for one or more of our
product candidates, if we are unable to successfully commercialize our products,
we may not be able to generate sufficient revenues to achieve or maintain
profitability, or to continue our business without raising significant
additional capital, which may not be available. Our failure to achieve or
maintain profitability could negatively impact the trading price of our common
stock.
We
have a limited operating history upon which to base an investment
decision.
We are a
development-stage company that was incorporated in September 2003. To date, we
have not demonstrated an ability to perform the functions necessary for the
successful commercialization of any product candidates. The successful
commercialization of any product candidates will require us to perform a variety
of functions, including:
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Continuing to undertake
preclinical development and clinical
trials;
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Participating in regulatory
approval processes;
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Formulating and manufacturing
products; and
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Conducting sales and marketing
activities.
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Our
operations have been limited to organizing and staffing our Company, acquiring,
developing, and securing our proprietary product candidates, and undertaking
preclinical and clinical trials of our product candidates. These operations
provide a limited basis for you to assess our ability to commercialize our
product candidates and the advisability of investing in our
securities.
Because
we currently neither have nor intend to establish internal research
capabilities, we are dependent upon pharmaceutical and biotechnology companies
and academic and other researchers to sell or license us their product
candidates.
Proposing,
negotiating, and implementing an economically viable product acquisition or
license is a lengthy and complex process. We compete for partnering arrangements
and license agreements with pharmaceutical, biopharmaceutical, and biotechnology
companies, many of which have significantly more experience than we do, and have
significantly more financial resources. Our competitors may have stronger
relationships with certain third parties including academic research
institutions, with whom we are interested in collaborating and may have,
therefore, a competitive advantage in entering into partnering arrangements with
those third parties. We may not be able to acquire rights to additional product
candidates on terms that we find acceptable, or at all.
We
actively evaluate additional product candidates to acquire for development. Such
additional product candidates, if any, could significantly increase our capital
requirements and place further strain on the time of our existing personnel,
which may delay or otherwise adversely affect the development of our existing
product candidates. We must manage our development efforts and clinical trials
effectively, and hire, train and integrate additional management,
administrative, and sales and marketing personnel. We may not be able to
accomplish these tasks, and our failure to accomplish any of them could prevent
us from successfully growing our Company.
We
may not be able to successfully manage our growth.
In the
future, if we are able to advance our product candidates to the point of, and
thereafter through, clinical trials, we will need to expand our development,
regulatory, manufacturing, marketing and sales capabilities or contract with
third parties to provide for these capabilities. Any future growth will place a
significant strain on our management and on our administrative, operational, and
financial resources. Therefore, our future financial performance and our ability
to commercialize our product candidates and to compete effectively will depend,
in part, on our ability to manage any future growth effectively. To manage this
growth, we must expand our facilities, augment our operational, financial and
management systems, and hire and train additional qualified personnel. If we are
unable to manage our growth effectively, our business may be
harmed.
Our
business will subject us to the risk of liability claims associated with the use
of hazardous materials and chemicals.
Our
contract research and development activities may involve the controlled use of
hazardous materials and chemicals. Although we believe that our safety
procedures for using, storing, handling and disposing of these materials comply
with federal, state and local laws and regulations, we cannot completely
eliminate the risk of accidental injury or contamination from these materials.
In the event of such an accident, we could be held liable for any resulting
damages and any liability could have a materially adverse effect on our
business, financial condition, and results of operations. In addition, the
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous or radioactive materials and waste
products may require our contractors to incur substantial compliance costs that
could materially adversely affect our business, financial condition, and results
of operations.
We
rely on key executive officers and scientific and medical advisors, and their
knowledge of our business and technical expertise would be difficult to
replace.
We are
highly dependent on Dr. Jonathan Lewis, our Chief Executive Officer and Chief
Medical Officer, Richard Bagley, our President, Chief Operating Officer and
Chief Financial Officer, and our principal scientific, regulatory, and medical
advisors. Dr. Lewis’ and Mr. Bagley’s employment are governed by written
employment agreements that provide for terms that expire in January 2013 and
July 2011, respectively. Dr. Lewis and Mr. Bagley may terminate their employment
with us at any time, subject, however, to certain non-compete and
non-solicitation covenants. The loss of the technical knowledge and management
and industry expertise of Dr. Lewis and Mr. Bagley, or any of our other key
personnel, could result in delays in product development, loss of customers and
sales, and diversion of management resources, which could adversely affect our
operating results. We do not carry “key person” life insurance policies on any
of our officers or key employees.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products, if approved. Even a successful defense would
require significant financial and management resources. Regardless of the merit
or eventual outcome, liability claims may result in:
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Decreased demand for our product
candidates;
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Injury to our
reputation;
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Withdrawal of clinical trial
participants;
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Withdrawal of prior governmental
approvals;
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Costs of related
litigation;
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Substantial monetary awards to
patients;
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The inability to commercialize
our product
candidates.
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We
currently carry clinical trial insurance and product liability insurance.
However, our inability to renew our policies or to obtain sufficient insurance
at an acceptable cost could prevent or inhibit the commercialization of
pharmaceutical products that we develop, alone or with
collaborators.
Risks
Related to the Clinical Testing, Regulatory Approval and Manufacturing of our
Product Candidates
If
we are unable to obtain the necessary U.S. or worldwide regulatory approvals to
commercialize any product candidate, our business will suffer.
We may
not be able to obtain the approvals necessary to commercialize our product
candidates, or any product candidate that we may acquire or develop in the
future for commercial sale. We will need FDA approval to commercialize our
product candidates in the U.S. and approvals from regulatory authorities in
foreign jurisdictions equivalent to the FDA to commercialize our product
candidates in those jurisdictions. In order to obtain FDA approval of any
product candidate, we must submit to the FDA a New Drug Application or Biologics
License Application (“BLA”), demonstrating that the product candidate is safe
for humans and effective for its intended use. This demonstration requires
significant research and animal tests, which are referred to as preclinical
studies, as well as human tests, which are referred to as clinical trials.
Satisfaction of the FDA’s regulatory requirements typically takes many years,
depending upon the type, complexity, and novelty of the product candidate, and
will require substantial resources for research, development, and testing. We
cannot predict whether our research, development, and clinical approaches will
result in drugs that the FDA will consider safe for humans and effective for
their intended uses. The FDA has substantial discretion in the drug approval
process and may require us to conduct additional preclinical and clinical
testing or to perform post-marketing studies. The approval process may also be
delayed by changes in government regulation, future legislation, or
administrative action or changes in FDA policy that occur prior to or during our
regulatory review. Delays in obtaining regulatory approvals may:
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Delay commercialization of, and
our ability to derive product revenues from, our product
candidates;
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Impose costly procedures on us;
and
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Diminish any competitive
advantages that we may otherwise
enjoy.
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In
foreign jurisdictions, we similarly must receive approval from applicable
regulatory authorities before we can commercialize any drugs. Foreign regulatory
approval processes generally include all of the risks associated with the FDA
approval procedures described above.
Our
product candidates are in various stages of clinical trials, which are very
expensive and time-consuming. We cannot be certain when we will be able to
submit an NDA or BLA to the FDA and any failure or delay in completing clinical
trials for our product candidates could harm our business.
Our
product candidates are in various stages of development and require extensive
clinical testing. Notwithstanding our current clinical trial plans for each of
our existing product candidates, we may not be able to commence additional
trials or see results from these trials within our anticipated timelines. As
such, we cannot predict with any certainty if or when we might submit an NDA for
regulatory approval of our product candidates or whether such an NDA will be
accepted. Because we do not anticipate generating revenues unless and until we
submit one or more NDAs and thereafter obtain requisite FDA approvals, the
timing of our NDA submissions and FDA determinations regarding approval thereof,
will directly affect if and when we are able to generate revenues.
The
results of our clinical trials may not support our product candidate
claims.
Even if
our clinical trials are completed as planned, we cannot be certain that their
results will support approval of our product candidates. FDA normally expects
two randomized, well controlled Phase 3 pivotal studies in support of approval
of an NDA or BLA. Our PICASSO 3 trial, even if successful, may not be sufficient
to support approval and we may be required to conduct additional pivotal trials
of palifosfamide in soft tissue sarcoma in order to obtain NDA approval. Success
in preclinical testing and early clinical trials does not ensure that later
clinical trials will be successful, and we cannot be certain that the results of
later clinical trials will replicate the results of prior clinical trials and
preclinical testing. The clinical trial process may fail to demonstrate that our
product candidates are safe for humans and effective for the indicated uses.
This failure would cause us to abandon a product candidate and may delay
development of other product candidates. Any delay in, or termination of, our
clinical trials will delay the submission of our NDAs or BLAs with the FDA and,
ultimately, our ability to commercialize our product candidates and generate
product revenues. In addition, our clinical trials involve small patient
populations. Because of the small sample size, the results of these clinical
trials may not be indicative of future results.
Because
we are dependent upon clinical research institutions and other contractors for
clinical testing and for research and development activities, the results of our
clinical trials and such research activities are, to a certain extent, beyond
our control.
We
materially rely upon independent investigators and collaborators, such as
universities and medical institutions, to conduct our preclinical and clinical
trials under agreements with us. These collaborators are not our employees and
we cannot control the amount or timing of resources that they devote to our
programs. These investigators may not assign as great a priority to our programs
or pursue them as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time and resources
to our drug development programs, or if their performance is substandard, the
approval of our FDA applications, if any, and our introduction of new products,
if any, will be delayed. These collaborators may also have relationships with
other commercial entities, some of whom may compete with us. If our
collaborators assist our competitors to our detriment, our competitive position
would be harmed.
Our
reliance on third parties to formulate and manufacture our product candidates
exposes us to a number of risks that may delay the development, regulatory
approval and commercialization of our products or result in higher product
costs.
We do not
have experience in drug formulation or manufacturing of drugs or biologics and
do not intend to establish our own manufacturing facilities. Although we will
work closely with and rely upon Intrexon on the manufacturing and scale-up of
Intrexon product candidates, we lack the resources and expertise to formulate or
manufacture our own product candidates. We currently are contracting for the
manufacture of our product candidates. We intend to contract with one or more
manufacturers to manufacture, supply, store, and distribute drug supplies for
our clinical trials. If a product candidate we develop or acquire in the future
receives FDA approval, we will rely on one or more third-party contractors or
Intrexon to manufacture our products. Our anticipated future reliance on a
limited number of third-party manufacturers exposes us to the following
risks:
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We may be unable to identify
manufacturers on acceptable terms or at all because the number of
potential manufacturers is limited and the FDA must approve any
replacement contractor. This approval would require new testing and
compliance inspections. In addition, a new manufacturer would have to be
educated in, or develop substantially equivalent processes for, production
of our products after receipt of FDA approval, if
any.
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Our third-party manufacturers
might be unable to formulate and manufacture our products in the volume
and of the quality required to meet our clinical needs and commercial
needs, if any.
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Our future contract manufacturers
may not perform as agreed or may not remain in the contract manufacturing
business for the time required to supply our clinical trials or to
successfully produce, store, and distribute our
products.
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Drug manufacturers are subject to
ongoing periodic unannounced inspection by the FDA, the Drug Enforcement
Administration and corresponding state agencies to ensure strict
compliance with good manufacturing practices and other government
regulations and corresponding foreign standards. We do not have control
over third-party manufacturers’ compliance with these regulations and
standards.
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If any third-party manufacturer
makes improvements in the manufacturing process for our products, we may
not own, or may have to share, the intellectual property rights to the
innovation.
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Each of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA or the commercialization of our product candidates
or result in higher costs or deprive us of potential product
revenues.
Risks
Related to our Ability Commercialize Our Product Candidates
If
we are unable either to create sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these functions, we will be
unable to commercialize our product candidates successfully.
We
currently have no marketing, sales, or distribution capabilities. If and when we
become reasonably certain that we will be able to commercialize our current or
future products, we anticipate allocating resources to the marketing, sales and
distribution of our proposed products in North America and in certain other
countries; however, we cannot assure that we will be able to market, sell, and
distribute our products successfully. Our future success also may depend, in
part, on our ability to enter into and maintain collaborative relationships for
such capabilities and to encourage the collaborator’s strategic interest in the
products under development, and such collaborator’s ability to successfully
market and sell any such products. Although we intend to pursue certain
collaborative arrangements regarding the sale and marketing of certain of our
products, there are no assurances that we will be able to establish or maintain
collaborative arrangements or, if we are able to do so, whether we would be able
to conduct our own sales efforts. There can also be no assurance that we will be
able to establish or maintain relationships with third-party collaborators or
develop in-house sales and distribution capabilities. To the extent that we
depend on third parties for marketing and distribution, any revenues we receive
will depend upon the efforts of such third parties, and there can be no
assurance that such efforts will be successful. In addition, there can also be
no assurance that we will be able to market and sell our products in the United
States or overseas.
If
we cannot compete successfully for market share against other drug companies, we
may not achieve sufficient product revenues and our business will
suffer.
The
market for our product candidates is characterized by intense competition and
rapid technological advances. If a product candidate receives FDA approval, it
will compete with a number of existing and future drugs and therapies developed,
manufactured and marketed by others. Existing or future competing products may
provide greater therapeutic convenience or clinical or other benefits for a
specific indication than our products, or may offer comparable performance at a
lower cost. If our products fail to capture and maintain market share, we may
not achieve sufficient product revenues and our business will
suffer.
We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have products already approved or in
development. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs or have substantially greater financial resources than we do, as well
as significantly greater experience in:
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Developing drugs and
biopharmaceuticals;
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Undertaking preclinical testing
and human clinical
trials;
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Obtaining FDA and other
regulatory approvals of drugs and
biopharmaceuticals;
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Formulating and manufacturing
drugs and biopharmaceuticals;
and
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Launching, marketing, and selling
drugs and
biopharmaceuticals.
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If
physicians and patients do not accept and use our product candidates, our
ability to generate revenue from sales of our products will be materially
impaired.
Even if
the FDA approves our product candidates, physicians and patients may not accept
and use them. Acceptance and use of our products will depend upon a number of
factors including:
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Perceptions by members of the
health care community, including physicians, about the safety and
effectiveness of our
products;
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Pharmacological benefit and
cost-effectiveness of our products relative to competing
products;
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Availability of reimbursement for
our products from government or other healthcare
payors;
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Effectiveness of marketing and
distribution efforts by us and our licensees and distributors, if any;
and
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The price at which we sell our
products.
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Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of a drug to find market acceptance would harm our business and could
require us to seek additional financing in order to fund the development of
future product candidates.
Our
ability to generate product revenues will be diminished if our products sell for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our
ability to commercialize our drugs, alone or with collaborators, will depend in
part on the extent to which reimbursement will be available from:
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Government and health
administration
authorities;
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Private health maintenance
organizations and health insurers;
and
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Other healthcare
payers.
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Government
and other healthcare payers increasingly attempt to contain healthcare costs by
limiting both coverage and the level of reimbursement for drugs. As a result, we
cannot provide any assurances that third-party payors will provide adequate
coverage of and reimbursement for any of our product candidates. If we are
unable to obtain adequate coverage of and payment levels for our product
candidates from third-party payors, physicians may limit how much or under what
circumstances they will prescribe or administer them and patients may decline to
purchase them. This in turn could affect our ability to successfully
commercialize our products and impact our profitability and future
success.
In both
the United States and certain foreign jurisdictions, there have been a number of
legislative and regulatory proposals and changes in recent years to change the
healthcare system in ways that could impact our ability to sell our products
profitably.
We cannot
predict the impact on our business of any legislation or regulations that may be
adopted in the future. The implementation of cost containment measures or other
healthcare reforms may prevent us from being able to generate revenue, attain
profitability, or commercialize our products.
In
addition, in many foreign countries, particularly the countries of the European
Union, the pricing of prescription drugs is subject to government control. We
may face competition for our product candidates from lower-priced products in
foreign countries that have placed price controls on pharmaceutical products. In
addition, there may be importation of foreign products that compete with our own
products, which could negatively impact our profitability.
Risks
Related to Our Intellectual Property
If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position, and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights, and to operate without infringing the proprietary rights of
third parties.
To date,
we have exclusive rights to certain U.S. and foreign intellectual property with
respect to our small molecule product candidates but are dependent on Intrexon’s
filings with respect to the existing Intrexon product candidates. Per the
Channel Partner agreement, Intrexon has the sole right to control the filings,
prosecution and maintenance of the Channel Program patents and applications.
Although Intrexon has agreed to consider our comments regarding Channel Program
patents and patent applications, we cannot guarantee that our comments will be
solicited or followed. Without direct control of the Channel Program patents and
patent applications, we are dependent on Intrexon to keep us advised of
prosecution, particularly in foreign jurisdictions where prosecution information
may not be publicly available. We anticipate that we and Intrexon will file
additional patent applications both in the U.S. and in other countries. However,
we cannot predict or guarantee:
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The degree and range of
protection any patents will afford us against competitors, including
whether third parties will find ways to invalidate or otherwise circumvent
our patents;
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If and when patents will be
issued;
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Whether or not others will obtain
patents claiming aspects similar to those covered by our patents and
patent applications; or
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Whether we will need to initiate
litigation or administrative proceedings that may be costly whether we win
or lose.
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Certain
technologies utilized in our research and development programs are already in
the public domain. Moreover, a number of our competitors have developed
technologies, filed patent applications or obtained patents on
technologies, compositions and methods of use that are related to our business
and may cover or conflict with our patent applications, technologies or product
candidates. Such conflicts could limit the scope of the patents that we may be
able to obtain or may result in the denial of our patent applications. In
addition, our own earlier filed patents and applications or those of Intrexon
may limit the scope of later patents we obtain or may result in the denial of
our later filed patent applications. If third parties filed patent applications
or obtained patents on technologies, compositions and methods of use that are
related to our business and that cover or conflict with our patent applications,
technologies or product candidates, we may be required to challenge such
protection, terminate or modify our programs impacted by such protection or
obtain licenses from such third parties, which might not be available on
acceptable terms, or at all.
Our
success also depends upon the skills, knowledge, and experience of our
scientific and technical personnel, our consultants and advisors, as well as our
licensors and contractors. To help protect our proprietary know-how and our
inventions for which patents may be unobtainable or difficult to obtain, we rely
on trade secret protection and confidentiality agreements. To this end, it is
our general policy to require our employees, consultants, advisors, and
contractors to enter into agreements that prohibit the disclosure of
confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries, and inventions
important to our business. These agreements may not provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such
information. If any of our trade secrets, know-how or other proprietary
information is disclosed, the value of our trade secrets, know-how and other
proprietary rights would be significantly impaired and our business and
competitive position would suffer.
Third-party
claims of intellectual property infringement would require us to spend
significant time and money and could prevent us from developing or
commercializing our products.
In order
to protect or enforce patent rights, we or Intrexon may initiate patent
litigation against third parties. Similarly, we may be sued by others. We also
may become subject to proceedings conducted in the U.S. Patent and Trademark
Office, including interference proceedings to determine the priority of
inventions, or reexamination proceedings. In addition, any foreign patents that
are granted may become subject to opposition, nullity, or revocation proceedings
in foreign jurisdictions having such proceedings. The defense and prosecution,
if necessary, of intellectual property actions are costly and divert technical
and management personnel away from their normal responsibilities.
No patent
can protect its holder from a claim of infringement of another patent.
Therefore, our patent position cannot and does not provide any assurance that
the commercialization of our products would not infringe the patent rights of
another. While we know of no actual or threatened claim of infringement that
would be material to us, there can be no assurance that such a claim will not be
asserted.
If such a
claim is asserted, there can be no assurance that the resolution of the claim
would permit us to continue marketing the relevant product on commercially
reasonable terms, if at all. We may not have sufficient resources to bring these
actions to a successful conclusion. If we do not successfully defend any
infringement actions to which we become a party or are unable to have infringed
patents declared invalid or unenforceable, we may have to pay substantial
monetary damages, which can be tripled if the infringement is deemed willful, or
be required to discontinue or significantly delay commercialization and
development of the affected products.
Any legal
action against us or our collaborators claiming damages and seeking to enjoin
developmental or marketing activities relating to affected products could, in
addition to subjecting us to potential liability for damages, require us or our
collaborators to obtain licenses to continue to develop, manufacture, or market
the affected products. Such a license may not be available to us on commercially
reasonable terms, if at all.
An
adverse determination in a proceeding involving our owned or licensed
intellectual property may allow entry of generic substitutes for our
products.
We
are subject to Sarbanes-Oxley and the reporting requirements of federal
securities laws, which can be expensive.
As a
public reporting company, we are subject to the Sarbanes-Oxley Act of 2002, as
well as to the information and reporting requirements of the Securities Exchange
Act of 1934, as amended, and other federal securities laws. As a result, we
incur significant legal, accounting, and other expenses that we did not incur as
a private company, including costs associated with our public company reporting
requirements and corporate governance requirements. As an example of public
reporting company requirements, we evaluate the effectiveness of disclosure
controls and procedures and of our internal control over financing reporting in
order to allow management to report on such controls. Sarbanes-Oxley generally
requires that a public reporting company’s independent registered public
accounting firm attest to the effectiveness of the company’s internal control
over financial reporting as of the end of each fiscal year in the company’s
Annual Report on Form 10-K. While our management has not currently identified
any material weaknesses in our internal control over financial reporting, there
can be no assurance that we will not identify identified any material weaknesses
during the current year or that our systems will be deemed effective when our
independent registered public accounting firm reviews the systems during 2010
and tests transactions. In addition, any updates to our finance and accounting
systems, procedures and controls, which may be required as a result of our
ongoing analysis of internal controls, or results of testing by our independent
auditor, may require significant time and expense.
Management
is working to continuously monitor and improve internal controls and has set in
place controls to mitigate the potential segregation of duties risk. In the
event significant deficiencies or material weaknesses are indentified in our
internal control over financial reporting that we cannot remediate in a timely
manner, investors and others may lose confidence in the reliability of our
financial statements and the trading price of our common stock and ability to
obtain any necessary equity or debt financing could suffer. In addition, in the
event that our independent registered public accounting firm is unable to rely
on our internal controls over financial reporting in connection with its audit
of our financial statements, and in the further event that it is unable to
devise alternative procedures in order to satisfy itself as to the material
accuracy of our financial statements and related disclosures, we may be unable
to file our periodic reports with the Securities and Exchange Commission. This
would likely have an adverse affect on the trading price of our common stock and
our ability to secure any necessary additional equity or debt financing, and
could result in the delisting of our common stock from the NASDAQ Capital
Market, which would severely limit the liquidity of our common
stock.
Anti-takeover
provisions in our charter documents and under Delaware law may make an
acquisition of us, which may be beneficial to our stockholders, more
difficult.
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 benefit our stockholders. These provisions
authorize the issuance of “blank check” preferred stock that could be issued by
our board of directors to increase the number of outstanding shares and hinder a
takeover attempt, and limit who may call a special meeting of stockholders. In
addition, we are subject to Section 203 of the Delaware General Corporation Law.
In general, this statute prohibits a publicly-held Delaware corporation from
engaging in a business combination with a party that owns at least 15% of its
common stock unless the business combination is approved by the company’s board
of directors before the person acquires the 15% ownership stake or later by its
board of directors and two-thirds of its stockholders. In connection with our
January 12, 2011 issuance of shares of common stock to Intrexon Corporation in a
private placement transaction ( see “Recent
Developments — Intrexon Corporation Private Placement and Equity
Commitment” ), our board of directors waived the Section 203 prohibition
with respect to a future business combination with Intrexon Corporation.
However, the Stock Purchase Agreement governing such issuance contains a
standstill provision that generally prohibits Intrexon from seeking, initiating,
offering or proposing to effect such a transaction with our inviting them to do
so. Section 203 and this standstill provision could have the effect of delaying,
deferring or preventing a change in control that our stockholders might consider
to be in their best interests.
We have
never paid dividends on our capital stock and we do not anticipate that we will
pay any dividends for the foreseeable future. Accordingly, any return on an
investment in our Company will be realized, if at all, only when you sell shares
of our common stock.