EXHIBIT 99.1
FACTORS AFFECTING FUTURE OPERATIONS AND RESULTS
From time to time, we may make forward-looking public statements, such as
statements concerning our then expected future revenues or results of operations
or concerning projected development of products or results of operations or
collaborations, as well as other estimates relating to future operations.
Forward-looking statements may be in reports filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in press releases or informal
statements made with the approval of an authorized executive officer. The words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of Section 21E of the
Exchange Act and Section 27A of the Securities Act of 1933, as amended, as
enacted by the Private Securities Litigation Reform Act of 1995.
We wish to caution you not to place undue reliance on these forward-looking
statements which speak only as of the date on which they are made. In addition,
we wish to advise you that the factors listed below, as well as other factors we
have not currently identified, could affect our financial or other performance
and could cause our actual results for future periods to differ materially from
any opinions or statements expressed with respect to future periods or events in
any current statement.
We will not undertake, and specifically decline any obligation, to publicly
release revisions to these forward-looking statements to reflect either
circumstances after the date of the statements or the occurrence of events which
may cause us to re-evaluate our forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act, we are hereby filing cautionary statements identifying
important factors that could cause our actual results to differ materially from
those projected in forward-looking statements made by us or on our behalf.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR SIGNIFICANT ADDITIONAL
OPERATING LOSSES
We have generated operating losses since our inception in 1989. As of December
31, 2000, we had an accumulated deficit of approximately $66,844,000 million. We
expect to incur substantial additional operating losses over the next several
years as our research, development, preclinical testing and clinical trial
activities increase. We do not have any commercial products developed, or
derived, using phage display that have generated revenues, and we do not expect
them to generate significant product revenues for the next several years. Even
if our research and development efforts in phage display eventually generate
revenues from sales of phage display-derived products, those revenues may not
fully offset the expenses of our efforts.
To date, our chromatography separations products business has not been
profitable. For sales of our separations business to increase, we must expand
the market penetration of our existing products as well as develop new
chromatography-based and new phage display-derived separations products, which
are still in the early stages of development.
To date, we have received revenues principally from:
o sales of chromatography separations systems and products;
o milestone payments and signing and maintenance fees paid by licensees
of our phage display patents and libraries; and
o research and development funding received from our collaborative
partners.
To become profitable, we must:
o fully develop and commercialize biopharmaceuticals;
o establish additional collaborative arrangements; and
o achieve greater market penetration for our separations products by
producing new and existing chromatography and phage display-derived
separations products.
WE MAY BE UNABLE TO RAISE THE CAPITAL THAT WE WILL NEED TO SUSTAIN OUR
OPERATIONS
We expect that our existing resources will be sufficient to fund our operations
through at least 2002. We may, however, need to raise additional funds before
that date. We will need additional funds if our cash requirements exceed our
current expectations, or if we generate less revenue than currently expected.
Our future capital requirements will depend on many factors, including:
o the progress of our drug discovery and separations technology
development programs using phage display;
o maintaining our existing collaborative and license arrangements and
entering into additional ones;
o sales of existing and new separations products;
o our decision to manufacture some of our products;
o competing technological and market developments;
o costs of defending our patents and other intellectual property rights;
o the amount and timing of additional capital equipment purchases; and
o the progress of the development and commercialization of milestone and
royalty-bearing compounds by our collaborative partners and licensees.
We also may seek additional funding through collaborative arrangements and
public or private financings. We may not be able to obtain financing on
acceptable terms or at all. In addition, the terms of any financing may
adversely affect the holdings or the rights of our stockholders. If we are
unable to obtain funding on a timely basis, we may be required to curtail
significantly one or more of our research or development programs. We also could
be required to seek funds through arrangements with collaborators or others that
may require us to relinquish rights to some of our technologies, product
candidates or products that we would otherwise pursue on our own.
WE DEPEND ON THE EXPERTISE, EFFORT, PRIORITIES AND CONTRACTUAL OBLIGATIONS OF
OUR COLLABORATORS; ANY CHANGES IN OUR COLLABORATORS' BUSINESS DIRECTION OR
PRIORITIES OR DEFAULTS IN THEIR OBLIGATIONS MAY HAVE AN ADVERSE IMPACT ON OUR
RESEARCH REVENUES AND ULTIMATELY OUR LICENSE REVENUES AND EXPENSES
We depend on the expertise, effort, priorities and contractual obligations of
our collaborators to realize revenues from our phage display technology.
However, our collaborators:
o are not obligated under our collaborative arrangements to develop or
market product candidates we discover;
o may pursue alternative technologies or develop competing products;
o control many of the decisions with respect to research, clinical trials
and commercialization of product candidates we discover or develop with
them;
o may terminate their collaborative arrangements with us under specified
circumstances with short notice; and
o may disagree with us as to whether a milestone or royalty payment is
due under the terms of our collaborative arrangements.
The termination of a significant number of our existing or prospective
collaborative arrangements would reduce our research revenues and our potential
for royalties and milestone payments if we could not enter into other
collaborations.
OUR BIOPHARMACEUTICAL OR DIAGNOSTIC PRODUCT CANDIDATES MUST UNDERGO RIGOROUS
CLINICAL TRIALS AND REGULATORY APPROVALS, WHICH COULD SUBSTANTIALLY DELAY OR
PREVENT THEIR DEVELOPMENT OR MARKETING
Any biopharmaceutical or diagnostic product we develop will be subject to
rigorous clinical trials and an extensive regulatory approval process
implemented by the Food and Drug Administration. This approval process is
typically lengthy and expensive, and approval is never certain. Positive results
from preclinical studies and early clinical trials do not ensure positive
results in late stage clinical trials designed to permit application for
regulatory approval. Prior to marketing products in the United States, any
biopharmaceutical or diagnostic product that we develop must undergo rigorous
preclinical testing and clinical trials. We may not be able to conduct clinical
trials at preferred sites, enroll sufficient patients or begin or successfully
complete clinical trials in a timely fashion, if at all.
We expect to enter into contractual arrangements with collaborators and third
parties to conduct clinical trials on our behalf. Any failure of these
collaborators or third parties to perform may delay or terminate the trials.
Beginning in February 2001, Debiopharm S.A. started a Phase IIa human clinical
trial in Europe in cystic fibrosis patients to determine the safety of EPI-HNE4
at different dose levels. We have completed a Phase I human clinical trial to
determine the safety of DX-88 and recently we began enrolling patients in Europe
for a Phase II study of DX-88.
Because of the risks and uncertainties in biopharmaceutical development,
products that we or our collaborators develop through phage display could take a
significantly longer time to gain regulatory approval than we expect or may
never gain approval. If we or our collaborators do not receive these necessary
approvals, we will not be able to generate substantial product or royalty
revenues and may not become profitable. We and our collaborators may encounter
significant delays or excessive costs in our efforts to secure regulatory
approvals. Factors that raise uncertainty in obtaining these regulatory
approvals include:
o we must demonstrate through clinical trials that the proposed product
is safe and effective for its intended use;
o preclinical and clinical data on safety and efficacy of
biopharmaceutical compounds developed through phage display is limited,
and we are not aware of any that have obtained marketing approval from
a regulatory agency;
o data obtained from preclinical and clinical activities are susceptible
to varying interpretations, which could delay, limit or prevent
regulatory approvals; and
o we have limited experience in conducting the clinical trials necessary
to obtain regulatory approval.
Regulatory authorities may delay, suspend or terminate clinical trials at any
time if they believe that the patients participating in trials are being exposed
to unacceptable health risks or if they find deficiencies in the clinical trial
procedures. In addition, the failure to comply with applicable regulatory
requirements may result in criminal prosecution, civil penalties and other
actions that could impair our ability to conduct our business.
BECAUSE WE CURRENTLY LACK THE RESOURCES, CAPABILITY AND EXPERIENCE NECESSARY TO
MANUFACTURE, MARKET AND SELL BIOPHARMACEUTICALS, WE WILL DEPEND ON THIRD PARTIES
TO PERFORM THESE FUNCTIONS, WHICH MAY AFFECT OUR ABILITY TO COMMERCIALIZE ANY
BIOPHARMACEUTICALS WE MAY DEVELOP
We do not currently operate manufacturing facilities for the clinical or
commercial production of biopharmaceuticals. We also lack the resources,
capability and experience necessary to manufacture, market and sell
biopharmaceuticals. As a result, we will depend on collaborators, partners,
licensees and other third parties to manufacture clinical and commercial scale
quantities of our biopharmaceuticals and to market, sell and distribute them to
our target customers. If we enter into these types of third party arrangements,
then we will be dependent on the efforts of others, which if not successful
could result in decreased revenue.
Because our existing contract manufacturer is not currently able to produce
biopharmaceuticals on a commercial scale, we may incur substantial expenses to
contract with others to manufacture any biopharmaceuticals that we may develop.
Similarly, if we are not able to enter into third party arrangements for the
marketing and sale of biopharmaceuticals on acceptable terms, then we may incur
substantial expenses to develop our own marketing and sales force in order to
commercialize our biopharmaceuticals and our efforts may not be successful. As a
result we may experience delays in the manufacture and commercialization of our
biopharmaceuticals and we may be unable to price our products competitively.
BECAUSE OUR PHAGE DISPLAY TECHNOLOGY IS RELATIVELY NEW, WE AND OUR COLLABORATORS
MAY NOT BE ABLE TO GAIN MARKET ACCEPTANCE OF OUR PHAGE DISPLAY-DERIVED
BIOPHARMACEUTICALS, WHICH COULD ADVERSELY AFFECT OUR REVENUES
Our phage display technology is a relatively new drug discovery technology.
Although there are several biopharmaceutical candidates in preclinical or
clinical trials, we are not aware of any commercialized biopharmaceuticals that
have been developed using phage display technologies, nor have we commercialized
any ourselves. As a result, we cannot be certain that any of our
biopharmaceutical candidates, even if successfully approved, will gain market
acceptance among physicians, patients, healthcare payors, pharmaceutical
manufacturers or others. We may not achieve market acceptance even if clinical
trials demonstrate safety and efficacy of our biopharmaceutical and diagnostic
products and the necessary regulatory and reimbursement approvals are obtained.
The degree of market acceptance of our biopharmaceutical candidates will depend
on a number of factors, including:
o their clinical efficacy and safety;
o their cost-effectiveness;
o their potential advantage over alternative treatment methods;
o their marketing and distribution support;
o reimbursement policies of government and third-party payors; and
o market penetration and pricing strategies of competing and future
products.
If our products do not achieve significant market acceptance, our revenues could
be adversely affected.
COMPETITION AND TECHNOLOGICAL CHANGE MAY MAKE OUR POTENTIAL PRODUCTS AND
TECHNOLOGIES LESS ATTRACTIVE OR OBSOLETE
We compete with major pharmaceutical and biotechnology companies that are
pursuing forms of treatment or prevention for the diseases that we target and
technology platforms that compete with phage display. The primary technology
platforms that compete with our phage display technology include combinatorial
chemistry, single target high throughput screening and antibody technologies.
Our business depends significantly on the competitive position of phage display
technology. If competing technology platforms obtain broader market acceptance
or
technologies superior to phage display are developed, our business would be
adversely affected. We are aware of several pharmaceutical and biotechnology
companies that use in their own operations combinatorial chemistry, single
target high throughput screening or peptide, antibody technologies to identify
molecules that bind to a desired target. In addition, a number of companies are
in the business of providing access to these technology platforms and performing
research for other companies. For example, our patent licensees, Cambridge
Antibody Technology Group plc, Morphosys AG and Biosite Diagnostics Inc.,
provide research services in the field of phage display. In addition, these
three companies, as well as Abgenix, Inc., Medarex, Inc. and Protein Design
Labs, Inc. are our principal competitors providing antibody services.
In addition, we may experience competition from companies that have acquired or
may acquire technology from universities and other research institutions. As
these companies develop their technologies, they may develop proprietary
positions which may prevent us from successfully commercializing our products.
Our chromatography separations business competes in mature markets with several
companies that manufacture, market and sell chromatography separations and
purification systems. We will continue to face intense competition from other
suppliers of separations products. The principal competitors in our existing
product markets include Millipore Corporation, Isco, Inc. and Gilson, Inc., some
of which also have long-term relationships with our existing customers. Our
principal competitor in the chromatography separations system and cartridge
market is Isco, Inc. In addition, many therapeutic and diagnostic product
manufacturers have traditionally assembled their own chromatography systems. As
a result, any future innovative separations products that we develop may not
become accepted in the marketplace as effective technology for use in
purification processes for the manufacture of pharmaceuticals and other
products.
Many of our competitors in our markets have substantially greater financial and
other resources than we do and are conducting extensive research and development
activities. Other companies may succeed in developing products earlier than we
do, obtaining regulatory approval for products more rapidly than we do, or
developing products that are more effective or less costly than those we
develop.
OUR SUCCESS DEPENDS SIGNIFICANTLY UPON OUR ABILITY TO OBTAIN AND MAINTAIN
INTELLECTUAL PROPERTY PROTECTION FOR OUR PRODUCTS AND TECHNOLOGIES
We face risks and uncertainties related to intellectual property rights. For
example:
o we may be unable to obtain or maintain patent or other intellectual
property protection for any products or processes that we may develop;
o third parties may obtain patents covering the manufacture, use or sale
of these products, which may prevent us from commercializing any of our
products under development globally or in certain regions; or
o our patents or any future patents that we may obtain may not prevent
other companies from competing with us by designing their products or
conducting their activities so as to avoid the coverage of our patents.
Our phage display patent rights are central to our non-exclusive patent
licensing program. As part of that licensing program, we generally seek to
negotiate a phage display license agreement with parties practicing technology
covered by our patents. In countries where we do not have and/or have not
applied for phage display patent rights, we will be unable to prevent others
from using phage display or developing or selling products or technologies
derived using phage display. In addition, in jurisdictions where we have phage
display patent rights, we may not be able to prevent others from selling or
importing products or technologies derived elsewhere using phage display. Any
inability to protect and enforce our phage display patent rights, whether by
licensing or any invalidity of our patents or otherwise, would negatively affect
our research and revenues.
In all of our activities, we also rely substantially upon proprietary materials,
information, trade secrets and know-how to conduct our research and development
activities and to attract and retain collaborators, licensees and
customers. Although we take steps to protect our proprietary rights and
information, including the use of confidentiality and other agreements with our
employees and consultants and in our academic and commercial relationships,
these steps may be inadequate, these agreements may be violated, or there may be
no adequate remedy available for a violation. Also, our trade secrets or similar
technology may otherwise become known to, or be independently developed or
duplicated by, our competitors.
Other parties have patents and pending applications to various products and
methods related to phage display and may obtain additional patents in the
future. From time to time we learn of issued patents which may cover our
product development activities as well as commercialization of potential
future products. To date, we have filed oppositions against two European
patents in the general field of phage display. We do not believe these
European patents cover any of our present activities, but we cannot predict
whether the claims in these patents may, in their current or future form,
cover our future activities or the activities of our collaborators and
licensees. We may file other oppositions in the future.
Before we and our collaborators can market some of our processes or products, we
and our collaborators may need to obtain licenses from other parties who have
patent or other intellectual property rights. If a third party does not offer us
a needed license or offers a license only on terms that are unacceptable, we
might be unable to commercialize one or more of our products. If a third party
does not offer a needed license to our collaborators and as a result our
collaborators stop work under the agreement, we might lose future milestone
payments and royalties.
We seek affirmative rights of license or ownership under existing patent rights
relating to phage display technology of others. For example, through our patent
licensing program, we have secured a limited freedom to practice some of these
patent rights pursuant to our standard license agreement, which contains a
covenant by the licensee that it will not sue us under certain of the licensee's
phage display improvement patents. We cannot guarantee, however, that we will be
successful in enforcing any agreements from our licensees, including agreements
not to sue under their phage display improvement patents, or in acquiring
similar agreements in the future, or that we will be able to obtain commercially
satisfactory licenses to the technology and patents of others. If we cannot
obtain and maintain these licenses and enforce these agreements, this could have
a negative effect on our business.
PROCEEDINGS TO OBTAIN, ENFORCE OR DEFEND PATENTS AND TO DEFEND AGAINST CHARGES
OF INFRINGEMENT ARE TIME CONSUMING AND EXPENSIVE ACTIVITIES. UNFAVORABLE
OUTCOMES IN THESE PROCEEDINGS COULD LIMIT OUR PATENT RIGHTS AND OUR ACTIVITIES,
WHICH COULD MATERIALLY AFFECT OUR BUSINESS
Obtaining, protecting and defending against patent and proprietary rights can be
expensive. For example, if a competitor files a patent application claiming
technology also invented by us, we may have to participate in an expensive and
time-consuming interference proceeding before the U.S. Patent and Trademark
Office to address who was first to invent the subject matter of the claim and
whether that subject matter was patentable. Moreover, an unfavorable outcome in
an interference proceeding could require us to cease using the technology or to
attempt to license rights to it from the prevailing party. Our business would be
harmed if a prevailing third party does not offer us a license on terms that are
acceptable to us.
In patent offices outside the United States, we may be forced to respond to
third party challenges to our patents. For example, two companies filed
oppositions in late 1997 against the only phage display patent that the European
Patent Office issued to us to date. A hearing on these oppositions was held
April 6, 2000 and our patent was revoked. We have appealed this decision to the
European Patent Office's Technical Board of Appeals. This appeal suspends the
Opposition Division's decision and reinstates our patent pending the decision of
the Technical Board. Although we will be able to enforce this patent during the
appeal, any infringement action we file will likely be stayed pending the
results of the appeal. We also have a second patent application related to our
phage display technology pending in the European Patent Office. The continued
prosecution of this application will involve consideration of the grounds on
which the Opposition Division revoked our first patent. We cannot give
assurances that we will be successful in overturning the Opposition Division's
decision or in obtaining allowance of this second patent application. We will
not be able to prevent other parties from using our phage display technology in
Europe if we are not successful in the reinstatement of our first European
patent or if the European Patent Office does not grant us another patent that we
can maintain after any opposition.
We may need to resort to litigation to enforce any patent issued to us. Third
parties may assert that we are employing their proprietary technology without
authorization. In addition, third parties may have or obtain patents in the
future and claim that the use of our technology infringes these patents. For
example, we are engaged in a United States court proceeding brought by George
Pieczenik and I.C. Technologies America, Inc. alleging infringement of three
patents. We could incur substantial costs in connection with any litigation or
patent proceeding and our management's efforts would be diverted, regardless of
the results of the litigation. An unfavorable result could subject us to
significant liabilities to third parties, require us to cease manufacturing or
selling the affected products or using the affected processes, require us to
license the disputed rights from third parties or result in awards of
substantial damages against us. Our business will be harmed if we cannot obtain
a license, can obtain a license only on terms we consider to be unacceptable or
if we are unable to redesign our products or processes to avoid infringement.
OUR REVENUES AND OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST,
AND WE EXPECT THIS TO CONTINUE IN THE FUTURE
Our revenues and operating results have fluctuated significantly on a quarter to
quarter basis. We expect these fluctuations to continue in the future.
Fluctuations in revenues and operating results in the future will depend on:
o the timing of our increased research and development expenses;
o the establishment of new collaborative and licensing arrangements;
o the timing and results of clinical trials;
o the development and marketing programs of current and prospective
collaborators;
o the completion of certain milestones; and
o the timing of customer purchases of larger separations equipment
systems.
If the revenues we actually receive are less than the revenues we expect for a
given fiscal period, then we may be unable to reduce our expenses quickly enough
to compensate for the shortfall. Our revenues in any period are not a reliable
indicator of our future performance. In addition, our fluctuating revenues and
operating results may fail to meet the expectations of securities analysts or
investors. Our failure to meet these expectations may cause the price of our
common stock to decline.
WE MAY NOT SUCCEED IN ACQUIRING TECHNOLOGY AND INTEGRATING COMPLEMENTARY
BUSINESSES
We may acquire additional technology and complementary businesses in the future.
Acquisitions involve many risks, any one of which could materially harm our
business, including:
o the diversion of management's attention from core business concerns;
o the failure to exploit effectively acquired technologies or integrate
successfully the acquired businesses;
o the loss of key employees from either our current business or any
acquired businesses; and
o the assumption of significant liabilities of acquired businesses.
We may be unable to make any future acquisitions in an effective manner. In
addition, the ownership represented by the shares of our common stock held by
you will be diluted if we issue equity securities in connection with any
acquisition. If we make any significant acquisitions using cash consideration,
we may be required to use a substantial portion of our available cash. If we
issue debt securities to finance acquisitions, then the debtholders
would have rights senior to the holders of shares of our common stock to make
claims on our assets and the terms of any debt could restrict our operations,
including our ability to pay dividends on our shares of common stock.
Acquisition financing may not be available on acceptable terms, or at all. In
addition, we may be required to amortize significant amounts of goodwill and
other intangible assets in connection with future acquisitions, which could harm
our operating results.
IF WE LOSE OR ARE UNABLE TO HIRE AND RETAIN QUALIFIED PERSONNEL, THEN WE MAY NOT
BE ABLE TO DEVELOP OUR PRODUCTS OR PROCESSES
We are highly dependent on qualified scientific and management personnel, and we
face intense competition from other companies and research and academic
institutions for qualified personnel. If we lose an executive officer, a manager
of one of our principal business units or research programs, or a significant
number of any of our staff or are unable to hire and retain qualified personnel,
then our ability to develop and commercialize our products and processes may be
delayed or prevented. We do not have employment agreements with any of our key
employees other than Robert Ladner, Scott Chappel and Stephen Galliker. We do
not maintain key-man life insurance with respect to any employees, and we do not
currently intend to obtain such insurance.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH
We may not be able to manage our growth and expansion, and the failure to do so
may slow our growth rate or give rise to inefficiencies that would increase our
losses. Our ability to manage our operations and growth effectively depends upon
the continual improvement of our operational, financial and management controls,
reporting systems and procedures.
WE CURRENTLY DEPEND ON ONE SUPPLIER FOR A KEY COMPONENT IN OUR SEPARATIONS
PRODUCTS, AND IF WE LOSE THAT SUPPLIER WE COULD EXPERIENCE DELAYS IN THE
PRODUCTION AND SHIPMENT OF OUR SEPARATIONS PRODUCTS, WHICH WOULD ADVERSELY
IMPACT OUR SEPARATIONS PRODUCT SALES REVENUES
We manufacture our chromatography separations products using compounds and
separations media manufactured by third parties. We currently purchase a
significant percentage of the silica that we use as separations media in our
prepacked disposable separations cartridges and other separations products from
Chemie Uetikon, a major bulk producer of silica located in Zurich, Switzerland.
While we have arranged to obtain separations media from alternative sources of
supply at prices and on terms and conditions substantially similar to those in
the agreement with our current supplier, any interruption in our source of
supply could slow production and delay shipments to our customers, which would
adversely impact our separations product sales revenues. To date, we have not
experienced any major difficulties in obtaining commercial quantities of
separations media from any of our current suppliers.
WE USE AND GENERATE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING
TO THE IMPROPER HANDLING, STORAGE, RELEASE OR DISPOSAL OF THESE MATERIALS COULD
BE TIME-CONSUMING AND EXPENSIVE
Our development and manufacture of chromatography separations systems and
products involves the controlled storage, use and disposal of hazardous
materials and chemicals, including acetone, isopropyl alcohol, propylene glycol
and other flammable solvents. Our phage display research and development also
involves the controlled storage, use and disposal of similar chemicals and
solvents, as well as biological materials. We are subject to foreign, federal,
state and local laws and regulations governing the use, manufacture and storage
and the handling and disposal of materials and waste products. Although we
believe that our safety procedures for handling and disposing of these hazardous
materials comply with the standards prescribed by laws and regulations, we
cannot completely eliminate the risk of contamination or injury from hazardous
materials. In the event of an accident, an injured party could seek to hold us
liable for any damages that result, and any liability could exceed the limits or
fall outside the coverage of our insurance. We may not be able to maintain
insurance on acceptable terms, or at all. We may incur significant costs to
comply with current or future environmental laws and regulations.
WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE
We face exposure to product liability and other claims if products or processes
are alleged to have caused harm. These risks are inherent in the testing,
manufacturing and marketing of human therapeutic products. Although we currently
maintain product liability insurance, we may not have sufficient insurance
coverage, and we may not be able to obtain sufficient coverage at a reasonable
cost. Our inability to obtain product liability insurance at an acceptable cost
or to otherwise protect against potential product liability claims could prevent
or inhibit the commercialization of any products that we or our collaborators
develop. We also have liability for products manufactured by us on a contract
basis for third parties. If we are sued for any injury caused by our products or
processes, then our liability could exceed our product liability insurance
coverage and our total assets.
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS AND COLLABORATIONS
Since we sell our products worldwide, our business is subject to risks
associated with doing business internationally. Product revenues from the
conduct of business in the United Kingdom are received in pounds sterling and
represented 15% of our total product revenues in 2000. We anticipate that
revenues from international operations will continue to represent a portion of
our total revenues. Accordingly, our future results could be harmed by a variety
of factors.
The laws of foreign countries do not protect our intellectual property rights to
the same extent as do the laws of the United States. In countries where we do
not have and/or have not applied for patents on our products, we will be unable
to prevent others from developing or selling similar products. In addition, in
jurisdictions outside the United States where we have phage display patent
rights, we may not be able to prevent unlicensed parties from selling or
importing products or technologies derived elsewhere using phage display.
Until we or our licensees obtain the required regulatory approvals for
biopharmaceuticals developed using phage display in any specific foreign
country, we or our licensees will be unable to sell these products in that
country. International regulatory authorities have imposed numerous and varying
regulatory requirements and the approval procedures can involve additional
testing. Approval by one regulatory authority does not ensure approval by any
other regulatory authority.
OUR COMMON STOCK MAY CONTINUE TO HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW
TRADING VOLUME
Prior to our initial public offering in August 2000, our equity did not trade in
a public market. Fourteen million five thousand ninety of our issued and
outstanding shares were subject to lock-up agreements in favor of the
underwriters of that offering, and those lock-up agreements expired on February
10, 2001.
The market price of our common stock has been highly volatile. The market has
experienced significant price and volume fluctuations for reasons unrelated to
our operating performance.
Many factors may have a negative effect on the market price of our common stock,
including:
o public announcements by us, our competitors or others;
o developments concerning proprietary rights, including patents and
litigation matters;
o publicity regarding actual or potential results with respect to
products or compounds we or our collaborators are developing;
o regulatory developments in both the United States and abroad;
o public concern about the safety or efficacy of new technologies;
o general market conditions and comments by securities analysts; and
o quarterly fluctuations in our revenues and financial results.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND PROVISIONS OF DELAWARE LAW
MAY MAKE AN ACQUISITION MORE DIFFICULT
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and
our charter documents may make a change in control more difficult. Also, under
Delaware law, our board of directors may adopt additional anti-takeover
measures. Our charter will authorize our board of directors to issue up to
1,000,000 shares of preferred stock and to determine the terms of those shares
of stock without any further action by our stockholders. If the board of
directors exercises this power to issue preferred stock, it could be more
difficult for a third party to acquire a majority of our outstanding voting
stock. Our charter also provides staggered terms for the members of our board of
directors. This may prevent stockholders from replacing the entire board in a
single proxy contest, making it more difficult for a third party to acquire
control of us without the consent of our board of directors. Our equity
incentive plans generally permit our board of directors to provide for
acceleration of vesting of options granted under these plans in the event of
certain transactions that result in a change of control. If our board of
directors used its authority to accelerate vesting of options, then this action
could make an acquisition more costly, and it could prevent an acquisition from
going forward. Under Delaware law, a corporation may not engage in a business
combination with any holder of 15% or more of its capital stock until the holder
has held the stock for three years unless, among other possibilities, the board
of directors approves the transaction. Our board of directors could use this
provision to prevent changes in management.