Exhibit 99
RISK FACTORS
The following risk factors should be carefully considered in evaluating our
Company and our business because these risk factors have a significant impact on
our business, operating results, financial condition, and cash flows. If any of
these risks actually occurs, our business, financial condition, operating
results and/or cash flows could be harmed.
If we continue to incur operating losses, we may be unable to continue our
operations.
We have incurred losses since we started our company in January 1992. As of
July 31, 2001, we had an accumulated deficit of approximately $124.3 million. If
we continue to incur operating losses and fail to become a profitable company,
we may be unable to continue our operations. Since we began our business, we
have focused on research and development of product candidates. We have no
products that are available for sale and do not know when we will have products
available for sale, if ever. We expect to continue to operate at a net loss for
at least the next several years as we continue our research and development
efforts, continue to conduct clinical trials and develop manufacturing, sales,
marketing and distribution capabilities. Our future profitability depends on our
receiving regulatory approval of our product candidates and our ability to
successfully manufacture and market approved drugs. The extent of our future
losses and the timing of our profitability, if we are ever profitable, are
highly uncertain.
If we do not obtain regulatory approval for our drug products, we will not be
able to sell our drug products.
We cannot sell or market our drugs without regulatory approval. If we do
not obtain regulatory approval for our products, the value of our company and
our results of operations will be harmed. In the United States, we must obtain
approval from the U.S. Food and Drug Administration, or FDA, for each drug that
we intend to sell. Obtaining FDA approval is typically a lengthy and expensive
process, and approval is highly uncertain. Foreign governments also regulate
drugs distributed outside the United States, whose approval can also be lengthy,
expensive and highly uncertain. None of our product candidates has received
regulatory approval to be marketed and sold in the United States or any other
country. We do not anticipate receiving regulatory approval of any of our
product candidates, if ever, for at least the next several years.
If our drug trials are delayed or achieve unfavorable results, we will have to
delay or may be unable to obtain regulatory approval for our products.
We must conduct extensive testing of our product candidates before we can
obtain regulatory approval for our products. We need to conduct both preclinical
animal testing and clinical human trials. These tests and trials may not achieve
favorable results. We would need to reevaluate any drug that did not test
favorably and either alter the study, the drug or the dose and perform
additional or repeat tests, or abandon the drug development project. In those
circumstances, we would not be able to obtain regulatory approval on a timely
basis, if ever. Even if approval is granted it may entail limitations on the
indicated uses for which the drug may be marketed.
We have announced the completion of a Phase IIb trial of pexelizumab for
the treatment of complications in patients after cardiopulmonary bypass surgery,
including the reduction of the frequency and severity of myocardial infarctions
and frequency of death, and completion of a Phase II trial of 5G1.1 for the
treatment of rheumatoid arthritis. Completion of these and other trials does not
guarantee that we will initiate additional trials for our product candidates,
that if the trials are initiated what the scope and phase of the trial will be
or that they will be completed, or that if the trials are completed, the results
will provide a sufficient basis to proceed with further trials or to apply for
or receive regulatory approvals or to commercialize products. Results of these
trials could be inconclusive, necessitating additional or repeat trials.
There are many reasons why drug testing could be delayed or terminated. For
human trials, patients must be recruited and each product candidate must be
tested at various doses and formulations for each clinical indication. Also, to
ensure safety and effectiveness, the effect of drugs often must be studied over
a long period of time,
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especially for the chronic diseases that we are studying. Unfavorable results or
insufficient patient enrollment in our clinical trials could delay or cause us
to abandon a product development program.
Additional factors that can cause delay or termination of our clinical
trials include:
. slow patient enrollment;
. long treatment time required to demonstrate effectiveness;
. lack of sufficient supplies of the product candidate;
. adverse medical events or side effects in treated patients;
. lack of effectiveness of the product candidate being tested; and
. lack of sufficient funds.
We may expand our business through new acquisitions that could disrupt our
business and harm our financial condition.
Our business strategy includes expanding our products and capabilities, and
we may seek acquisitions to do so. Acquisitions involve numerous risks,
including:
. substantial cash expenditures;
. potentially dilutive issuance of equity securities;
. incurrence of debt and contingent liabilities;
. difficulties in assimilating the operations of the acquired companies;
. diverting our management's attention away from other business
concerns;
. risks of entering markets in which we have limited or no direct
experience; and
. the potential loss of our key employees or key employees of the
acquired companies.
We cannot assure you that any acquisition will result in long-term benefits
to us. We may incorrectly judge the value or worth of an acquired company or
business. In addition, our future success would depend in part on our ability to
manage the rapid growth associated with some of these acquisitions. We cannot
assure you that we will be able to make the combination of our business with
that of acquired businesses or companies work or be successful. Furthermore, the
development or expansion of our business or any acquired business or companies
may require a substantial capital investment by us. We may not have these
necessary funds nor may they be readily available to us on acceptable terms or
at all. We may also seek to raise funds by selling shares of our stock, which
could dilute your ownership interest in our company.
On September 22, 2000, we purchased all of the capital stock and other
outstanding securities of Prolifaron, Inc., a privately held biopharmaceutical
company that is developing therapeutic antibodies addressing multiple disease,
including cancer, for approximately 400,000 shares of our outstanding capital
stock. We cannot assure you that the integration of our business with the
businesses of Prolifaron will be successful.
If we fail to obtain the capital necessary to fund our operations, we will be
unable to continue or complete our product development.
We believe we have sufficient capital to fund our operations and product
development for at least thirty-six months. We may need to raise additional
capital after that time to complete the development and commercialization of our
product candidates. Additional financing could take the form of public or
private debt or equity offerings, equity line facilities, bank loans and/or
collaborative research and development arrangements with corporate partners. The
amount of capital we may need depends on many factors, including:
. the progress, timing and scope of our research and development
programs;
. the progress, timing and scope of our preclinical studies and clinical
trials;
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. the time and cost necessary to obtain regulatory approvals;
. the time and cost necessary to further develop manufacturing
processes, arrange for contract manufacturing or build manufacturing facilities
and obtain the necessary regulatory approvals for those facilities;
. the time and cost necessary to develop sales, marketing and
distribution capabilities;
. changes in applicable governmental regulatory policies; and
. any new collaborative, licensing and other commercial relationships
that we may establish.
We may not get funding when we need it or funding may only be available on
unfavorable terms. If we cannot raise adequate funds to satisfy our capital
requirements, we may have to delay, scale-back or eliminate our research and
development activities or future operations. We might have to license our
technology to others. This could result in sharing revenues that we might
otherwise retain for ourselves. Any of these actions may harm our business.
If our collaboration with Procter & Gamble is terminated or Procter & Gamble
reduces its commitment to our collaboration, our ability to commercialize
pexelizumab in the time expected, or at all, and our business would be harmed.
We rely exclusively on Procter & Gamble to perform development, obtain
commercial manufacturing, and provide sales and marketing for pexelizumab. While
we cannot assure you that pexelizumab will ever be successfully developed and
commercialized if Procter & Gamble does not perform its obligations in a timely
manner, or at all, our ability to commercialize pexelizumab in a timely manner
or at all, will be significantly adversely affected. We rely exclusively on
Procter & Gamble to provide funding and additional resources for the development
and commercialization of pexelizumab. These include funds and resources for:
. clinical development and clinical and commercial manufacturing;
. obtaining regulatory approvals; and
. sales, marketing and distribution efforts worldwide.
We cannot guarantee that Procter & Gamble will devote the resources
necessary to successfully develop and commercialize pexelizumab in a timely
manner, if at all. Furthermore, Procter & Gamble may devote the necessary
resources, but we may still not successfully develop and commercialize
pexelizumab. Either party may terminate our collaboration agreement for
specified reasons, including a material breach.
Termination of our agreement with Procter & Gamble would cause significant
delays in the development of pexelizumab and result in additional development
costs. We would need to fund the development and commercialization of
pexelizumab on our own or identify a new development partner. We might also have
to repeat testing already completed with Procter & Gamble.
If we are unable to engage and retain third-party collaborators, our research
and development efforts may be delayed.
We depend upon third-party collaborators to assist us in the development of
our product candidates. If any of our existing collaborators breaches or
terminates its agreement with us or does not perform its development work under
an agreement in a timely manner or at all, we would experience significant
delays in the development or commercialization of our product candidates. We
would also experience significant delays if we could not engage additional
collaborators when required. In either event, we would be required to devote
additional funds or other resources to these activities or to terminate them.
This would divert funds or other resources from other parts of our business.
We cannot assure you that:
. current collaboration arrangements will be continued in their current
form;
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. we will be able to negotiate acceptable collaborative agreements to
develop or commercialize our products;
. any arrangements with third parties will be successful; or
. current or potential collaborators will not pursue treatments for
other diseases or seek other ways of developing treatments for our disease
targets.
If the trading price of our common stock continues to fluctuate in a wide range,
our stockholders will suffer considerable uncertainty with respect to an
investment in our stock.
The trading price of our common stock has been volatile and may continue to
be volatile in the future. Factors such as announcements of fluctuations in our
or our competitors' operating results, fluctuations in the trading prices or
business prospects of our competitors and collaborators, including, but not
limited to Procter & Gamble, changes in our prospects, and market conditions for
biotechnology stocks in general could have a significant impact on the future
trading prices of our common stock and our outstanding notes. In particular, the
trading price of the common stock of many biotechnology companies, including
ours, has experienced extreme price and volume fluctuations, which have at times
been unrelated to the operating performance of the companies whose stocks were
affected. This is due to several factors, including general market conditions,
the announcement of the results of our clinical trials or product development
and the results of our attempts to obtain FDA approval for our products. In
particular, since August 1, 1999, the sales price of our common stock has ranged
from a low of $10.00 per share to a high of $119.88 per share. While we cannot
predict our future performance, if our stock continues to fluctuate in a wide
range, an investment in our stock or our outstanding notes may result in
considerable uncertainty for an investor.
If we cannot protect the confidentiality and proprietary nature of our trade
secrets, our business and competitive position will be harmed.
Our business requires using sensitive technology, techniques and
proprietary compounds that we protect as trade secrets. However, since we are a
small company, we also rely heavily on collaboration with suppliers, outside
scientists and other drug companies. Collaboration presents a strong risk of
exposing our trade secrets. If our trade secrets were exposed, it would help our
competitors and adversely affect our business prospects.
In order to protect our drugs and technology more effectively, we need to
obtain patents covering the drugs and technologies we develop. Our drugs are
expensive and time-consuming to test and develop. Without patent protection,
competitors may copy our methods, or the chemical structure or other aspects of
our drug. Even if we obtain patents, the patents may not be broad enough to
protect our drugs from copycat products.
If we are found to be infringing on patents owned by others, we may be forced to
obtain a license to continue the sale or development of our drugs and/or pay
damages.
Parts of our technology, techniques and proprietary compounds and potential
drug candidates may conflict with patents owned by or granted to others. If we
cannot resolve these conflicts, we may be liable for damages, be required to
obtain costly licenses or be stopped from manufacturing, using or selling our
products or conducting other activities. For example, we are aware of broad
patents owned by others relating to the manufacture, use and sale of recombinant
humanized antibodies, recombinant humanized single chain antibodies, recombinant
human antibodies, recombinant human single chain antibodies, and genetically
engineered animals. Many of our products are genetically engineered antibodies,
including recombinant humanized antibodies, recombinant humanized single chain
antibodies, recombinant human antibodies, and recombinant human single chain
antibodies, and other products are tissues from genetically engineered animals.
We have received notices from the owners of some of these patents claiming
that their patents may be relevant to the development of some of our drug
candidates. In response to some of these notices, we have obtained licenses.
However, with regard to other patents, we have either determined in our judgment
that:
. our products do not infringe the patents;
. we do not believe the patents are valid; or
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. we have identified and are testing various modifications that we
believe should not infringe the patents and which should permit
commercialization of our product candidates.
Any patent holders could sue us for damages and seek to prevent us from
manufacturing, selling or developing our drugs. Legal disputes can be costly and
time consuming to defend. If any of these actions are successful, we could be
required to pay damages or to obtain a license to sell or develop our drugs. A
required license may not be available on acceptable terms, if at all.
If the testing or use of our products harms people, we could be subject to
costly and damaging product liability claims.
The testing, manufacturing, marketing and sale of drugs for use in humans
exposes us to product liability risks. Side effects and other problems from
using our products could give rise to product liability claims against us. We
might have to recall our products, if any, from the marketplace. Some of these
risks are unknown at this time. For example, little is known about the potential
long-term health risks of transplanting pig tissue into humans, a goal of our
UniGraft product development program. Use of C5 Complement Inhibitors, such as
5G1.1 and pexelizumab, is associated with an increased risk for infection with
Neisseria bacteria. Serious cases of Neisseria infection can result in brain
damage, loss of limbs or parts of limbs, kidney failure, or death.
In addition, we may be sued by people who participate in our clinical
trials. A number of patients who participate in such trials are already very ill
when they enter a study. Any informed consents or waivers obtained from people
who sign up for our trials may not protect us from liability or litigation. Our
product liability insurance may not cover all potential liabilities or may not
completely cover any covered liabilities. Moreover, we may not be able to
maintain our insurance on acceptable terms. In addition, negative publicity
relating to a product liability claim may make it more difficult, or impossible,
for us to recruit patients for our clinical trials or to market and sell our
products. As a result of these factors, a product liability claim, even if
successfully defended, could have a material adverse effect on our business,
financial condition or results of operations.
If we cannot manufacture our drug candidates in sufficient amounts at acceptable
costs and on a timely basis, we may be unable to have the necessary materials
for product testing, and later for potential sale in the market. Either event
would harm our business.
For our drug trials, we need to produce sufficient amounts of product for
testing. Our small manufacturing plant cannot manufacture enough of our product
candidates for later stage clinical development. In addition, we do not have the
capacity to produce more than one product candidate at a time. We depend on a
few outside suppliers for manufacturing. If we experience interruptions in the
manufacture of our products for testing, our drug development efforts will be
delayed. If any of our outside manufacturers stops manufacturing our products or
reduces the amount manufactured, we will need to find other alternatives. If we
are unable to find an acceptable outside manufacturer on reasonable terms, we
will have to divert our own resources to manufacturing which may not be
sufficient to produce the necessary quantity or quality of product. As a result,
our ability to conduct testing would be materially adversely affected.
Submission of products and new development programs for regulatory approval
would be delayed. Our competitive position and our prospects for achieving
profitability could be materially and adversely affected.
Manufacture of drug products is highly regulated by the FDA and other
domestic and foreign authorities. We cannot assure you that we or our third-
party collaborators will successfully comply with all of those regulations,
which would have a materially adverse effect on our business.
We have no experience or capacity for manufacturing drug products in
volumes that would be necessary to support commercial sales. If we are unable to
establish and maintain commercial scale manufacturing within our planned time
and cost parameters, sales of our products and our financial performance would
be adversely affected.
Other than our agreement with Procter & Gamble to develop and commercialize
pexelizumab, we have no arrangements to manufacture our products on a commercial
basis. Currently, we are relying on Procter & Gamble to retain appropriate
commercial manufacturing for pexelizumab through one or more third-party
manufacturers. The failure of Procter & Gamble to obtain appropriate commercial
manufacturing for pexelizumab on a timely basis, or at all, may prevent or
impede the commercialization of pexelizumab. We have not proceeded far enough in
negotiations with any other potential partner to predict the cost of a
commercial manufacturing arrangement for our
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other potential products nor have we explored the cost or time required to
establish our own commercial manufacturing facility.
If we are unable to establish sales, marketing and distribution capabilities, or
to enter into agreements with third parties to do so, we will be unable to
successfully market and sell future drug products.
We have no sales, marketing or distribution personnel or capabilities. If
we are unable to establish those capabilities, either by developing our own
capabilities or entering into agreements with others, we will not be able to
successfully sell our products. In that event, we will not be able to generate
significant revenues. We cannot guarantee that we will be able to hire the
qualified sales and marketing personnel we need. We may not be able to enter
into any marketing or distribution agreements with third-party providers on
acceptable terms, if at all. Currently, we are relying on Procter & Gamble for
sales, marketing and distribution of pexelizumab. Procter & Gamble, or any
future third-party collaborators, may not succeed at selling, marketing or
distributing any of our future drug products.
If we are unable to obtain reimbursement from government health administration
authorities, private health insurers and other organizations for our future
products, our products may be too costly for regular use and our ability to
generate revenues would be harmed.
Our products, once commercialized, like similar products in the market
place, may be significantly more expensive than traditional drug treatments. Our
future revenues and profitability will be adversely affected if we cannot depend
on governmental and private third-party payors to defray the cost of our
products to the consumer. If these entities refuse to provide reimbursement with
respect to our products or determine to provide a low level of reimbursement,
our products may be too costly for general use. Our profitability may be
adversely impacted if we choose to offer our products at a reduced price. Any
limitation on the use of our products or any decrease on the price of our
products without a corresponding decrease in expenses will have a material
adverse effect on our ability to achieve profitability.
Even if we successfully develop our products for transplanting animal cells into
humans, this technology may not be accepted by the market due to medical
concerns or unanticipated regulation.
Our program for the development of animal cells for transplantation into
humans may never result in any therapeutic products. This technology is subject
to extensive clinical testing and we are not aware of any such technology that
has been approved for sale by the FDA or comparable foreign regulatory
authorities. Even if we succeed in developing these products, our products may
not be widely accepted by the medical community or third-party payors until more
facts are established and ethical consensus is reached regarding the use of
animal cells. In addition, concerns relating to the risk of introducing animal
viruses to infect the human species through the transplantation process may also
create additional regulatory hurdles for FDA approval. If accepted, the degree
of acceptance may limit the size of the market for our products. Moreover, due
to the controversial nature of transplantation of animal cells into humans
generally, market prices for our securities may be subject to increased
volatility.
If our competitors get to the marketplace before we do with better or cheaper
drugs, our drugs may not be profitable to sell or to continue to develop.
Each of Avant Immunotherapeutics, Inc, Millennium Pharmaceuticals, Inc.,
Tanox, Inc., Abbott Laboratories, Baxter International Inc., Gliatech Inc.,
Neurogen Corporation, and Biocryst Pharmaceuticals have publicly announced their
intentions to develop drugs which target the inflammatory effects of complement
in the immune system. We are also aware that Pfizer, Inc., GlaxoSmithKline Plc
and Merck & Co., Inc. are also attempting to develop complement inhibitor
therapies. Each of Cambridge Antibody Technology Group plc, MorphoSys AG and
Dyax Corporation have publicly announced intentions to develop therapeutic human
antibodies from libraries of human antibody genes. Additionally, each of Abgenix
Inc. and Medarex, Inc. have publicly announced intentions to develop therapeutic
human antibodies from mice that have been bred to include some human antibody
genes. These and other pharmaceutical companies, many of which have
significantly greater resources than we, may develop, manufacture and market
better or cheaper drugs than our product candidates. They may establish
themselves in the marketplace before we are able to even finish our clinical
trials. Other pharmaceutical companies also compete with
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us to attract academic research institutions as drug development partners,
including for licensing these institutions' proprietary technology. If our
competitors successfully enter into such arrangements with academic
institutions, we will be precluded from pursuing those specific unique
opportunities and may not be able to find equivalent opportunities elsewhere.
If we fail to recruit and retain personnel, our research and product development
programs may be delayed.
We are highly dependent upon the efforts of our senior management and
scientific personnel, particularly, Leonard Bell, M.D., our president, chief
executive officer and director, David W. Keiser, our executive vice president
and chief operating officer and Stephen P. Squinto, Ph.D., our executive vice
president and head of research. There is intense competition in the
biotechnology industry for qualified scientific and technical personnel. Since
our business is very science-oriented and specialized, we need to continue to
attract and retain such people. We may not be able to continue to attract and
retain the qualified personnel necessary for developing our business. We have a
key man insurance policy for Dr. Bell and we have employment agreements with
each of Dr. Bell, Mr. Keiser and Dr. Squinto. To our knowledge, none of our key
personnel is planning to retire or is nearing retirement age. Further, to our
knowledge, there is no tension between any of our key personnel and the Board.
If we lose the services of our management and scientific personnel or fail to
recruit other scientific and technical personnel, our research, and product
development programs would be significantly and detrimentally affected.
In particular, we highly value the services of Dr. Leonard Bell, our
President and Chief Executive Officer. The loss of his services could materially
and adversely affect our ability to achieve our development objectives.
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