EXHIBIT 99
RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our common stock. If any of these risks actually occurs, our business
prospects, financial condition, operating results or cash flows could be
materially adversely affected. This could cause the trading price of our common
stock to decline, and you may lose part or all of your investment.
Risks Related to Our Business
We depend heavily on the success of our lead product candidate, MT 100, which
is still in clinical trials and may never be approved for commercial use. If we
are unable to develop, gain approval of or commercialize MT 100, we may never
be profitable.
Since our founding, we have invested a significant portion of our time and
financial resources in the development of MT 100 and anticipate that for the
foreseeable future our ability to achieve profitability will be dependent on
its successful development, approval and commercialization. Many factors could
negatively affect the success of our efforts to develop and commercialize MT
100, including:
. negative, inconclusive or otherwise unfavorable results from our
toxicology, genotoxicity or carcinogenicity studies or from our
clinical trials;
. an inability to obtain, or delay in obtaining, regulatory approval
for the commercialization of MT 100;
. an inability to establish collaborative arrangements with third
parties for the manufacture and commercialization of MT 100, or any
disruption of any of these arrangements, if established;
. a failure to achieve market acceptance of MT 100;
. significant delays in our ongoing clinical trials and toxicology,
genotoxicity and carcinogenicity studies; and
. significant increases in the costs of our clinical trials and
toxicology, genotoxicity and carcinogenicity studies.
We have incurred losses since inception and anticipate that we will incur
continued losses for the foreseeable future. We do not have a current source of
product revenue and may never be profitable.
We have incurred losses in each year since our inception and we currently have
no source of product revenue. As of June 30, we had an accumulated deficit of
approximately $34.2 million. We expect to incur significant and increasing
operating losses and do not know when or if we will generate product revenue.
We expect that the amount of our operating losses will fluctuate significantly
from quarter to quarter as a result of increases and decreases in development
efforts, the timing of payments that we may receive from others, and other
factors. Our ability to achieve profitability is dependent on a number of
factors, including our ability to:
. develop and obtain regulatory approvals for our product candidates;
. receive upfront and milestone payments;
. successfully commercialize our product candidates, which may include
entering into collaborative agreements; and
. secure contract manufacturing and distribution services.
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If we, or our collaborators, do not obtain and maintain required regulatory
approvals, we will be unable to commercialize our product candidates.
Our product candidates under development are subject to extensive domestic and
foreign regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, recordkeeping, labeling, storage,
approval, advertisement, promotion, sale and distribution of pharmaceutical
products. If we market our products abroad, they are also subject to extensive
regulation by foreign governments. None of our product candidates, including MT
100, has been approved for sale in the United States or any foreign market. We
will need to successfully complete clinical testing and toxicology studies for
each of our product candidates, including MT 100, before submitting a New Drug
Application, or NDA, to the FDA for approval to market the product candidate.
If we are unable to obtain and maintain FDA and foreign governmental approvals
for our product candidates, we will not be permitted to sell them.
Approval of a product candidate may be conditioned upon certain limitations and
restrictions as to the drug's use, or upon the conduct of further studies, and
is subject to continuous review. The FDA may also require us to conduct
additional post-approval studies. These post-approval studies may include
carcinogenicity studies in animals or further human clinical trials. The later
discovery of previously unknown problems with the product, manufacturer or
manufacturing facility may result in criminal prosecution, civil penalties,
recall or seizure of products, total or partial suspension of production, as
well as other regulatory action against our product candidates or us. If
approvals are withdrawn for a product, or if a product were seized or recalled,
we would be unable to sell that product and our revenues would suffer.
We and our contract manufacturers are required to comply with the applicable
FDA current Good Manufacturing Practices, or cGMP, regulations, which include
requirements relating to quality control and quality assurance, as well as the
corresponding maintenance of records and documentation. Further, manufacturing
facilities must be approved by the FDA before they can be used to manufacture
our product candidates, and are subject to additional FDA inspection. We or our
third-party manufacturers may not be able to comply with cGMP regulations or
other FDA regulatory requirements, resulting in delay or inability to
manufacture the products.
Labeling and promotional activities are subject to scrutiny by the FDA and
state regulatory agencies and, in some circumstances, the Federal Trade
Commission. FDA enforcement policy prohibits the marketing of approved products
for unapproved, or off-label, uses. These regulations and the FDA's
interpretation of them may impair our ability to effectively market products
for which we gain approval. Failure to comply with these requirements can
result in regulatory enforcement action by the FDA. Further, we may not obtain
the labeling claims we believe are necessary or desirable for the promotion of
our product candidates.
We need to conduct preclinical, toxicology, genotoxicity and carcinogenicity
studies and clinical trials of all of our product candidates. Any unanticipated
costs or delays in these studies or trials, or the need to conduct additional
trials, could reduce our revenues and profitability.
Generally, we must demonstrate the efficacy and safety of our product
candidates before approval to market can be obtained from the FDA. Our product
candidates are in various stages of clinical development. Depending upon the
stage at which a product candidate is in the development process, we will need
to complete preclinical, toxicology, genotoxicity and carcinogenicity studies,
as well as clinical trials on these product candidates before we submit
marketing applications in the United States and abroad. These studies and
trials can be very costly and time-consuming. In addition, we rely on third
parties to perform significant aspects of our studies and clinical trials,
introducing additional sources of risk into our development programs. Results
from preclinical testing and early clinical trials
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are not necessarily predictive of results obtained in later clinical trials
involving large scale testing of patients in comparison to control groups.
The completion of clinical trials depends upon many factors, including the rate
of enrollment of patients. If we are unable to accrue sufficient clinical
patients during the appropriate period, we may need to delay our clinical
trials and incur significant additional costs. In addition, FDA or
Institutional Review Boards may require us to conduct additional trials or
delay, restrict or discontinue our clinical trials on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Even if we complete our clinical trials, we may be
unable to submit an NDA to the FDA as scheduled. Once submitted, an NDA would
require FDA approval before we could distribute or commercialize the product
described in the application.
Even if we determine that data from our clinical trials, toxicology,
genotoxicity and carcinogenicity studies are positive, we cannot assure you
that the FDA, after completing its analysis, will not determine that the trials
should have been conducted or analyzed differently, and thus reach a different
conclusion from that reached by us, or request that further trials or analysis
be conducted. For example, the FDA may also require data in certain
subpopulations, such as pediatric use, prior to NDA approval, unless we can
obtain a waiver to delay such a study.
Our costs associated with our human clinical trials vary based on a number of
factors, including:
. the order and timing of clinical indications pursued;
. the extent of development and financial support from collaborative
parties, if any;
. the number of patients required for enrollment;
. the difficulty in obtaining sufficient patient populations and
clinicians;
. the difficulty of obtaining clinical supplies of our product
candidates; and
. governmental and regulatory delays.
Even if we obtain positive preclinical or clinical study results initially,
future clinical trial results may not be similarly positive.
We depend on collaborations with third parties, which may reduce our product
revenues or restrict our ability to commercialize products.
Our ability to develop, manufacture, commercialize and obtain regulatory
approval of our existing and any future product candidates depends upon our
ability to enter into and maintain contractual and collaborative arrangements
with others. We have and intend in the future to retain contract manufacturers
and clinical trial investigators. In addition, the identification of new
compounds or product candidates for development may require us to enter into
licensing or other collaborative agreements with others, including
pharmaceutical companies and research institutions. We currently intend to
market and commercialize our products through others, which will require us to
enter into sales, marketing and distribution arrangements with third parties.
These arrangements may reduce our product revenues.
Our third party contractual or collaborative arrangements may require us to
grant rights, including marketing rights, to one or more parties. These
arrangements may also contain covenants restricting our product development or
business efforts in the future, or other terms which are burdensome to us,
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and may involve the acquisition of our equity securities. Collaborative
agreements for the acquisition of new compounds or product candidates may
require us to pay license fees, make milestone payments and/or pay royalties.
We cannot be sure that we will be able to maintain our existing or future
collaborative or contractual arrangements, or that we will be able to enter
into future arrangements with third parties on terms acceptable to us, or at
all. If we fail to maintain our existing arrangements or to establish new
arrangements when and as necessary, we could be required to undertake these
activities at our own expense, which would significantly increase our capital
requirements and may delay the development, manufacture and commercialization
of our product candidates.
We are subject to a number of risks associated with our dependence on
contractual and collaborative arrangements with others:
. We may not have day-to-day control over the activities of our
contractors or collaborators.
. Third parties may not fulfill their obligations to us.
. We may not realize the contemplated or expected benefits from
collaborative or other arrangements.
. Business combinations and changes in the contractual or collaborative
party's business strategy may adversely affect its willingness or
ability to complete its obligations to us.
. The contractor or collaborative party may have the right to terminate
its arrangements with us on limited or no notice and for reasons
outside of our control.
. The contractual or collaborative party may develop or have rights to
competing products or product candidates and withdraw support or
cease to perform work on our products.
. Disagreements may arise regarding breach of the arrangement,
ownership of proprietary rights, clinical results or regulatory
approvals.
These factors could lead to delays in the development or commercialization of
our product candidates, and disagreements with our contractors or collaborators
could require or result in litigation or arbitration, which would be time-
consuming and expensive. Our ultimate success may depend upon the success and
performance on the part of these third parties. If we fail to maintain these
relationships or establish new relationships as required, development and
commercialization of our product candidates will be delayed.
We currently depend and will in the future depend on third parties to
manufacture our product candidates, including MT 100. If these manufacturers
fail to meet our requirements, the product development and commercialization of
our product candidates will be delayed.
We do not have, and have no plans to develop, the internal capability to
manufacture either clinical trial or commercial quantities of products that we
may develop or are under development. We rely upon third party manufacturers to
supply us with MT 100 and our other product candidates. We are negotiating a
contract with the manufacturer of our clinical trial materials to manufacture
MT 100 commercially; however, we may not be able to reach an agreement on terms
agreeable to us. Even if we are able to negotiate a commercial supply contract
with our current manufacturer, there is no guarantee that this manufacturer
will be a financially viable entity going forward. If any of the foregoing
occurs, or if our current manufacturer is unable to satisfy our requirements,
and we are required to find an alternative source of supply, there may be
additional cost and delays in product development and commercialization of our
product candidates, including MT 100, or we may be required to comply with
additional regulatory requirements.
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If we are unable to build sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these functions, we will
not be able to commercialize any of our drug candidates.
We intend to enter into agreements with third parties to market and sell any of
our product candidates approved by the FDA for commercial sale. We may not be
able to enter into marketing and sales agreements with others on terms
acceptable to us, if at all. To the extent that we enter into marketing and
sales agreements with others, our revenues, if any, will be affected by the
sales and marketing efforts of others. We may also retain the right, where
possible, to co-promote our products in conjunction with our collaborative
parties. If we are unable to enter into third-party sales and marketing
agreements, or if we are exercising our rights to co-promote a product, then we
will be required to develop internal marketing and sales capabilities. We may
not successfully establish marketing and sales capabilities or have sufficient
resources to do so.
If our competitors develop and commercialize products faster than we do or if
their products are superior to ours, our commercial opportunities will be
reduced or eliminated.
Our product candidates will have to compete with existing migraine therapies.
There are also numerous competitors developing new products to treat migraine
and the other diseases and conditions for which we may seek to develop products
in the future, which could render our product candidates or technologies
obsolete or non-competitive. Our competitors include large pharmaceutical
companies, biotechnology companies, universities and public and private
research institutions. We face, and will continue to face, intense competition
from other companies for securing collaborations with pharmaceutical companies,
establishing relationships with academic and research institutions, and
acquiring licenses to proprietary technology. These competitors, either alone
or with collaborative parties, may succeed with technologies or products that
are more effective than any of our current or future technologies or products.
Many of our actual or potential competitors, either alone or together with
collaborative parties, have substantially greater financial resources, and
almost all of our competitors have larger numbers of scientific and
administrative personnel than we do. Many of these competitors, either alone or
together with their collaborative parties, also have significantly greater
experience than we do in:
. developing product candidates;
. undertaking preclinical testing and human clinical trials;
. obtaining FDA and other regulatory approvals of product candidates;
and
. manufacturing and marketing products.
Accordingly, our actual or potential competitors may succeed in obtaining
patent protection, receiving FDA approval or commercializing products before we
do. Our competitors may also develop products or technologies that are superior
to those we are developing, and render our product candidates or technologies
obsolete or non-competitive. If we cannot successfully compete with new or
existing products, our marketing and sales will suffer and we may not ever be
profitable.
If we are unable to protect our patents or proprietary rights, or if we are
unable to operate our business without infringing the patents and proprietary
rights of others, we may be unable to develop our product candidates or compete
effectively.
The pharmaceutical industry places considerable importance on obtaining patent
and trade secret protection for new technologies, products and processes. Our
success will depend, in part, on our ability, and the ability of our licensors,
to obtain and to keep protection for our products and technologies under the
patent laws of the United States and other countries, so that we can stop
others from using our inventions. Our success also will depend on our ability
to prevent others from using our trade secrets. In addition, we must operate in
a way that does not infringe, or violate, the patent, trade secret, and other
intellectual property rights of other parties.
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We cannot know how much protection, if any, our patents will provide or whether
our patent applications will issue as patents. The breadth of claims that will
be allowed in patent applications cannot be predicted and neither the validity
nor enforceability of claims in issued patents can be assured. If, for any
reason, we are unable to obtain and enforce valid claims covering our products
and technology, we may be unable to prevent competitors from using the same or
similar technology or to prevent competitors from marketing identical products.
In addition, due to the extensive time needed to develop and test our products,
any patents that we obtain may expire in a short time after commercialization.
This would reduce or eliminate any advantages that such patents may give us.
We may need to license rights to third party patents and intellectual property
to continue the development and marketing of our product candidates. If we are
unable to acquire such rights on acceptable terms, our development activities
may be blocked and we may be unable to bring our product candidates to market.
We may enter into litigation to defend ourselves against claims of
infringement, assert claims that a third party is infringing one or more of our
patents, protect our trade secrets or know-how, or to determine the scope and
validity of other's patent or proprietary rights. As a result of such
litigation, our patent claims may be found to be invalid, unenforceable or not
of sufficient scope to cover the activities of an alleged infringer. If we are
found to infringe the patent rights of others, then we may be forced to pay
damages sufficient to irreparably damage the company and/or be prevented from
continuing our product development and marketing activities. Regardless of its
eventual outcome, any lawsuit that we enter into may consume time and resources
that will impair our ability to develop and market our product candidates.
We have entered into confidentiality agreements with our employees,
consultants, advisors and collaborators. However, these parties may not honor
these agreements and, as a result, we may not be able to protect our rights to
unpatented trade secrets and know-how. Others may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets and know-how. Also, many of our scientific and
management personnel were previously employed by competing companies. As a
result, such companies may allege trade secret violations and similar claims
against us.
If we fail to acquire, develop and commercialize additional products or product
candidates, or fail to successfully promote or market approved products, we may
never achieve profitability.
As part of our business strategy, we plan to identify and acquire product
candidates or approved products in areas in which we possess particular
knowledge. Because we do not directly engage in basic research or drug
discovery, we must rely upon third parties to sell or license product
opportunities to us. Other companies, including some with substantially greater
financial, marketing and sales resources, are competing with us to acquire such
products. We may not be able to acquire rights to additional products on
acceptable terms, if at all. In addition, we may acquire new products with
different marketing strategies, distribution channels and bases of competition
than those of our current products. Therefore, we may not be able to compete
favorably in those product categories.
Any of our future products, including MT 100, may not be accepted by the
market, which would limit the commercial opportunities for our products.
Even if our product candidates perform successfully in clinical trials and are
approved by the FDA and other regulatory authorities, our future products,
including MT 100, may not achieve market acceptance and may not generate the
revenues that we anticipate. The degree of market acceptance will depend upon a
number of factors, including:
. the receipt and timing of regulatory approvals;
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. the availability of third-party reimbursement;
. indications for which the product is approved;
. rate of adoption by health care providers;
. rate of product acceptance by target patient populations;
. price of product relative to alternative therapies;
. availability of alternative therapies;
. extent of marketing efforts by us and third-party distributors and
agents;
. publicity regarding our products or similar products; and
. extent and severity of side effects as compared to alternative
therapies.
If we do not receive adequate third-party reimbursements for any of our future
products, our revenues and profitability will be reduced.
Our ability to commercialize our product candidates successfully will depend,
in part, on the extent to which reimbursement for the costs of such products
and related treatments will be available from government health administration
authorities, such as Medicare and Medicaid in the United States, private health
insurers and other organizations. Significant uncertainty exists as to the
reimbursement status of a newly approved health care product particularly for
indications for which there is no current effective treatment or for which
medical care is typically not sought. Adequate third-party coverage may not be
available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product research and development. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for use of our products, our products may fail to achieve
market acceptance.
Our future revenues, profitability and access to capital will be affected by
the continuing efforts of governmental and private third-party payors to
contain or reduce the costs of health care through various means. We expect
that a number of federal, state and foreign proposals will seek to control the
cost of drugs through governmental regulation. We are unsure of the form that
any health care reform legislation may take or what actions federal, state,
foreign and private payors may take in response to the proposed reforms.
Therefore, we cannot predict the effect of any implemented reform on our
business.
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities and may be required to limit commercialization of our
product candidates.
The testing and marketing of pharmaceutical products entails an inherent risk
of product liability. Product liability claims might be brought against us by
consumers, health care providers, pharmaceutical companies or others selling
our future products. If we cannot successfully defend ourselves against such
claims, we may incur substantial liabilities or be required to limit the
commercialization of our product candidates. We have obtained limited product
liability insurance coverage only for our human clinical trials. However,
insurance coverage is becoming increasingly expensive, and no assurance can be
given that we will be able to maintain insurance coverage at a reasonable cost
or in sufficient amounts to protect us against losses due to liability. We may
not be able to obtain commercially reasonable product liability insurance for
any products approved for marketing. If a plaintiff brings a successful product
liability claim against us in excess of our insurance coverage, if any, we may
incur substantial liabilities and our business may fail.
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We may need substantial additional funding and may not have access to capital.
If we are unable to raise capital when needed, we may need to delay, reduce or
eliminate our product development or commercialization efforts.
We may need to raise additional funds to execute our business strategy. We have
incurred losses from operations since inception and we expect to incur
additional operating losses. In particular, we believe that we will require
additional capital to fund the acquisition of new product candidates. Our
actual capital requirements will depend upon numerous factors, including:
. the progress of our research and development programs;
. the progress of preclinical studies and clinical testing;
. the time and cost involved in obtaining regulatory approvals;
. the costs of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
. the effect of competing technological and market developments;
. the effect of changes and developments in our collaborative,
licensing and other relationships; and
. the terms and timing of any new collaborative, licensing and other
arrangements that we may establish.
We may be unable to raise sufficient funds to execute our business strategy. In
addition, we may not be able to find sufficient debt or equity funding on
acceptable terms. If we cannot, we may need to delay, reduce or eliminate
research and development programs. The sale by us of additional equity
securities or the expectation that we will sell additional equity securities
may have an adverse effect on the price of our common stock. In addition,
collaborative arrangements may require us to grant product development programs
or licenses to third parties for products that we might otherwise seek to
develop or commercialize ourselves.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our research and
development efforts.
We are highly dependent on the efforts of our key management and scientific
personnel, especially John Plachetka, our President, Chief Executive Officer
and Chief Scientist. Dr. Plachetka signed an employment agreement with us on
April 1, 1999, for a three-year term with automatic one year renewal terms. We
do not have employment agreements with our other key management personnel. If
we lose the services of Dr. Plachetka or the services of any of our other key
personnel, or fail to recruit key scientific personnel, we may be unable to
achieve our business objectives. There is intense competition for qualified
scientific personnel. Since our business is very science-oriented, 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. Furthermore, our future success will also depend in part on the
continued service of our other key management personnel.
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