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EXHIBIT 99.1
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES REFORM ACT OF 1995
Guilford Pharmaceuticals Inc. ("Guilford" or the "Company")
desires to take advantage of the new "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act") and is filing this Form
8-K in order to do so. Many of the following important factors discussed below
have been discussed in Guilford's prior SEC filings.
Guilford wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the future
could affect, Guilford's actual results, and could cause Guilford's actual
results for the financial periods ending after the date hereof, including,
without limitation, the fiscal quarter ending September 30, 1996, to differ
materially from those expressed in any forward-looking statements made by or on
behalf of Guilford. The filing of this list should not be construed as
constituting all factors which investors should consider prior to making an
investment decision in Guilford's securities, nor should investors assume that
the information contained herein is complete or accurate in all respects after
the date of this filing. The Company disclaims any duty to update the
statements contained herein.
Early Stage of Development; Technological Uncertainties.
Guilford, a development stage company founded in July 1993, has a limited
history of operations and has generated limited revenues to date. Several of
the Company's product candidates are in the clinical trial stage, while others
currently are in research and development. Except for GLIADEL(R) Wafer
("GLIADEL"), the Company's product candidates are not expected to generate
revenues for at least the next several years, if at all. Substantially all of
the Company's resources have been, and for the foreseeable future will continue
to be, dedicated to the discovery, development and commercialization of
proprietary products for the diagnosis, treatment and prevention of
neurological diseases and conditions and for targeted, controlled drug delivery
using biodegradable polymers for the treatment of cancer and other diseases.
The Company's product candidates will require additional development, extensive
preclinical and clinical trials, regulatory approval and additional investment
prior to any commercialization. There can be no assurance that the Company's
product development efforts will progress as expected, or at all. In addition,
the Company's potential products are subject to the risks of failure inherent
in the development of pharmaceutical products based on new technologies. These
risks include the possibilities that the Company's new approaches to the
diagnosis, treatment and prevention of neurological diseases and conditions and
targeted, controlled drug delivery will not result in any products that gain
market acceptance; that any or all of the Company's pharmaceutical product
candidates will be found to be unsafe, ineffective, or otherwise fail to
receive necessary regulatory clearances or if granted, such clearances will not
be revoked; that any or all of the products, if safe and effective, will be
difficult to manufacture on a large scale or uneconomical to market; that
proprietary rights of third parties will preclude the Company from marketing
such products; or that third parties will market superior or more
cost-effective products. As a result, there can be no assurance that the
Company's activities will result in any commercially viable products.
Dependence on GLIADEL, Principal Product Candidates and
Rhone-Poulenc Rorer, Inc. Future revenues of the Company are highly dependent
on sales, if any, of the Company's first commercial product, GLIADEL. While the
Company has received clearance from the FDA to market GLIADEL for the
indication of treatment of the recurrent form of glioblastoma multiforme, there
can be no assurance that further clinical studies will not be needed for
GLIADEL, or that the FDA will approve GLIADEL, for broader indications.
Further, there is no assurance that GLIADEL or any of the Company's other
product candidates will be successfully marketed or sold. Guilford's June 1996
agreements with Rhone-Poulenc Rorer, Inc. and an affiliate
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(collectively, "RPR"), which grant to RPR the worldwide (excluding Scandinavia)
marketing rights for GLIADEL, does not impose any minimum purchase or sale
requirements on RPR, and Guilford has no experience dealing with RPR in the
sale of any products. There can be no assurance that RPR will successfully
market or promote GLIADEL or that GLIADEL will achieve market acceptance.
Failure to achieve market acceptance would have a material adverse effect on
the Company's results of operation and business prospects. Except for
DOPASCAN(TM) injection ("DOPASCAN") which is currently undergoing Phase II
clinical trials in the United States, the remainder of the Company's product
candidates are still in the preclinical and research stages. Although the
Company is currently seeking to develop further its other product candidates in
research and development and to expand its product candidate portfolio, there
can be no assurance that it will be successful in those efforts.
Marketing, Sales and Distribution Rights Agreement and Related
Agreements with RPR for GLIADEL. The Company has entered into agreements with
RPR granting RPR exclusive worldwide marketing rights (excluding Scandinavia)
for GLIADEL. The Company received $15 million in cash (including $7.5 million
in equity). In addition, RPR has extended to the Company a $7.5 million line
of credit for expansion of the Company's manufacturing and related facilities
under certain conditions commencing in January 1997. As a result of the
Company's receipt of FDA approval of GLIADEL for the indication of recurrent
glioblastoma multiforme, the Company is entitled to receive an additional $20
million cash from RPR. Furthermore, the Company may, under certain
conditions, receive up to an additional $40 million in milestone payments ($7.5
million of which would be in equity) only if certain regulatory approvals are
received. There can be no assurance that the Company and/or RPR will be able
to obtain such regulatory approvals on the schedule necessary to receive any of
the milestone payments from RPR. Guilford has also agreed to act as the
exclusive supplier of GLIADEL to RPR. Any profits to the Company from its
agreements with RPR will depend completely on the ability and success of RPR in
procuring international regulatory approval and marketing and selling GLIADEL
in the United States and abroad. The Agreements have no minimum purchase
requirements, and there can be no assurance that RPR will be successful in
marketing and selling GLIADEL. The agreements establish an exclusive
collaboration between RPR and Guilford respecting the manufacture, supply,
marketing and sale of GLIADEL, and if RPR is not successful in marketing and
selling GLIADEL, the Company will receive no transfer fees for supply of
GLIADEL or royalty payments related to the sale of GLIADEL and may not be able
to market GLIADEL itself or through an entity other than RPR.
Reliance on Suppliers. The Company currently is able to
purchase certain key components for its product candidates only from single
suppliers. These suppliers are subject to many strict regulatory requirements.
There can be no assurance that these suppliers will comply or in all cases have
complied with those regulatory requirements or that they will otherwise
continue to supply the Company with the key components for its product
candidates. In the event that suppliers are unable or refuse to supply the
Company, or will supply the Company only at a prohibitive cost, there can be no
assurance that the Company could timely access additional sources at acceptable
prices, or at all. The current formulation of GLIADEL utilizes BCNU, or
carmustine (the chemotherapeutic agent used in GLIADEL), that is supplied by a
single supplier. While the Company is taking steps to obtain an alternative
supplier, there can be no assurance that the Company's efforts will be
successful The manufacture of DOPASCAN requires labeling a precursor to the
final DOPASCAN product with a radioactive isotope of iodine. Only a limited
number of companies are capable of performing the necessary radioiodination of
the precursor and the distribution of the final radioiodinated product. While
the Company currently has a development and supply arrangement with one of
these companies, there can be no assurance that the Company, if necessary or
desirable, will be able to enter into an agreement with another of these
companies for the radioiodination of the precursor on acceptable terms, or at
all or that the Company's current supplier will meet the Company's need for the
final DOPASCAN product.
Need for Additional Partners. The Company's strategy for the
research, development and commercialization of its product candidates has
required, and will continue to require, the Company to enter into various
arrangements with corporate and academic collaborators, licensors, licensees
and others, and the Company will, therefore, be dependent upon the success of
these parties in performing
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their responsibilities and obligations. There can be no assurance that the
Company will be able to enter into collaborative arrangements or license
agreements that the Company deems necessary or appropriate to develop and
commercialize its product candidates, or that any or all of the contemplated
benefits from such collaborative arrangements or license agreements will be
realized. Failure to obtain such arrangements or agreements could result in
delays in marketing the Company's proposed products or the inability to proceed
with the development, manufacture or sale of proposed products. Certain of the
collaborative arrangements that the Company may enter into in the future could
place responsibility on the collaborative partner for preclinical testing and
human clinical trials and for preparation and submission of applications for
regulatory approval of potential pharmaceutical or other products. Should a
collaborative partner fail to develop or commercialize successfully any product
candidate to which it has rights, the Company's business prospects may be
materially and adversely affected. There can be no assurance that
collaborators will not pursue alternative technologies or product candidates
either on their own or in collaboration with others, including the Company's
competitors, as a means for developing treatments for the diseases or disorders
targeted by the Company through or independent of collaborative arrangements.
Collaborative arrangements may also require the Company to meet certain
regulatory, research or other development milestones and expend minimum levels
of funds, and there can be no assurance that the Company will be successful in
doing so. Failure of the Company to meet its obligations under its
collaborative arrangements could result in a termination of those arrangements
and could have a material adverse effect on the Company's results of operations
and business prospects.
Likely Volatility of Stock Price. The market price of the
Company's common stock has been and is likely to continue to be highly
volatile, as is frequently the case with publicly traded emerging growth
companies and biopharmaceutical companies. Announcements of technological
innovations, new products or product candidates by the Company or its
competitors, developments or disputes concerning patent or proprietary rights,
publicity regarding actual or potential medical results relating to products
under development by the Company or its competitors, regulatory developments
affecting the Company's products, in both the United States and foreign
countries, market conditions for emerging growth companies and
biopharmaceutical companies, and economic and other internal and external
factors, as well as period-to-period fluctuations in results of operations, may
have a significant impact on the price of the Company's common stock.
Novel Alternative Therapeutic Approaches. Many of the
Company's product development efforts represent novel alternative therapeutic
approaches and new technologies used, among other things, in the diagnosis and
monitoring of Parkinson's disease, the promotion of nerve growth and the
prevention of neuronal damage, and have not been widely studied. There is no
assurance that these approaches and technologies will be successful. Moreover,
the Company is applying these approaches and technologies to discover new
treatments for conditions that are also the subject of research and development
efforts by numerous other companies. The Company's competitors may succeed in
developing technologies or products that are more efficacious or cost-effective
than those of the Company. Rapid technological change or developments by
others may result in the Company's technology or product candidates becoming
obsolete or noncompetitive.
History of Losses; Uncertainty of Future Profitability. The
Company incurred net operating losses from its inception through the first
quarter of 1996 and has incurred a significant accumulated deficit to date.
While the Company reported net income for the second quarter of 1996 because of
a one-time non-refundable rights payment from RPR, and expects to report net
income for the third quarter of 1996, assuming it receives a $20 million
milestone payment from RPR relating to FDA approval of GLIADEL for recurrent
glioblastoma multiforme, there can be no assurance that the Company will
sustain profitability. Further, the Company expects to experience
quarter-to-quarter and year-to-year fluctuations in revenues, expenses, net
income and net losses, some of which may be significant, depending in part on
the timing and receipt, if ever, of regulatory approvals for the Company's
product candidates and receipt of any license fees, milestone payments,
transfer prices and royalties related to product sales. The Company will be
required to conduct further research,
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development, clinical trials and regulatory compliance activities that,
together with projected general and administrative expenses, are expected to
result in significant expenses for the foreseeable future. The Company's
ability to sustain or achieve profitability will depend upon its ability,
either alone or with others, to develop its product candidates successfully,
conduct clinical trials, obtain required regulatory approvals, manufacture at
reasonable cost and market its product candidates and enter into collaborative
arrangements and license agreements on acceptable terms. If the Company does
not receive necessary regulatory approvals for its product candidates, any
revenues that the Company may receive will be limited to any payments received
under the Company's agreements with RPR relating to GLIADEL, payments under
research or product development relationships and license agreements that the
Company has established or may hereafter establish and return on investments.
There also can be no assurance that the Company will receive regulatory
approval to market its products or, if approved, that such products can be
manufactured and marketed profitably. The Company may never achieve
significant revenues or profitable operations.
Government Regulation and Product Approvals. The Company's
research, preclinical development and clinical trials and the manufacturing and
marketing of its product candidates are subject to extensive regulation by
numerous governmental authorities in the United States and other countries,
including, but not limited to, the FDA and the United States Drug Enforcement
Administration ("DEA"), which regulates controlled substances such as
narcotics. Except for GLIADEL, none of the Company's product candidates has
received marketing clearance from the FDA, and none has received such clearance
from any other foreign regulatory authority for commercial sale. Other than
revenues received under the Company's agreements with RPR and Orion
Corporation Farmos related to GLIADEL and with Daiichi Radioisotope
Laboratories Ltd. related to DOPASCAN, the Company does not expect to generate
product revenues over the next several years. In addition, the FDA could
require additional preclinical, clinical or other studies as a condition to
approval of the Company's drug candidates under development or require
additional preclinical, clinical or other studies with respect to GLIADEL. Any
requirement for the Company to perform additional preclinical, clinical or
other studies or purchase data from other companies in order to obtain approval
of such drug candidates under development could have a material adverse effect
on the Company's results of operations and financial prospects. In order to
obtain FDA approval of a drug product for an indication, the Company must
demonstrate to the satisfaction of the FDA that the product is safe and
effective for its intended uses and that the product is capable of being
manufactured in accordance with applicable regulatory standards. There can be
no assurance that the Company will be able to demonstrate the foregoing
elements with respect to any of its product candidates, that the FDA will
approve any of its product candidates or that, if such product candidates are
approved, the FDA will approve the full scope of intended use and labeling
sought by the Company. Failure to obtain regulatory approvals on a timely
basis could have a material adverse effect on the Company's results of
operations and financial prospects.
The process of obtaining FDA and other required approvals or
licenses and of meeting other regulatory requirements to test and market drugs,
including controlled substances and radiolabeled drugs, is rigorous and lengthy
and has required, and will continue to require, the expenditure of substantial
resources. Most, and perhaps all, of the Company's product candidates will
need to be the subject of further clinical and other studies. Unsatisfactory
clinical trial results and other delays in obtaining regulatory approvals or
licenses would prevent the marketing of products developed by the Company, and
pending the receipt of such approvals or licenses and the meeting of other
regulatory requirements, the Company will not receive product revenues or
royalties.
The Company hopes to capitalize on current FDA regulations, as
applicable, that permit accelerated or expedited approval or treatment use of,
and cost recovery for, certain experimental drugs. These regulations are
limited to drug products intended to treat seriously debilitating or
life-threatening diseases and that provide meaningful therapeutic benefit to
patients over
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existing treatments or that are for diseases for which no satisfactory or
alternative therapy exists, among other requirements. There can be no
assurance that the Company's product candidates will qualify for expedited or
accelerated approvals or for treatment use and cost recovery.
Controlled drug products and radiolabeled drugs are subject to
special regulations in addition to those applicable to other drugs. Certain
of the Company's products and product candidates (including DOPASCAN) are or
may be subject to regulation by the DEA as controlled substances and other
federal agencies as radiolabeled drugs. The Company has obtained registrations
for its facilities from the DEA and exceptions from the DEA with respect to
various of its activities involving DOPASCAN, including the shipment of certain
quantities of a precursor of this product candidate to an overseas
collaborative partner. However, there can be no assurance that such exceptions
will be sufficient to cover future activities of the Company, will not be
revoked, or that other requirements to test, manufacture and market controlled
substances or radiolabeled drugs can be satisfied, or that the Company will be
able to obtain additional necessary approvals or licenses to meet state,
federal and international regulatory requirements to manufacture and distribute
such products.
Dependence on Licenses of Intellectual Property. The Company
has licensed certain intellectual property from third parties, including
certain intellectual property underlying GLIADEL and DOPASCAN. Under the terms
of its license agreements, the Company is obligated to exercise diligence,
achieve certain milestones, and expend minimum amounts of resources in bringing
potential products to market and make certain royalty, milestone and patent
cost reimbursement payments. In addition, each of these agreements contains
certain record keeping and reporting obligations. Each agreement is terminable
by either party, upon notice, if the other party defaults in its obligations.
Should the Company default under any of these agreements, the Company may lose
its right to market and sell any products based on the licensed technology. In
such event, the Company's results of operations and business prospects would be
materially and adversely affected. There can be no assurance that the Company
will be able to meet its obligations under these agreements on a timely basis,
or at all.
Aspects of the technology licensed under the Company's license
agreements may be subject to certain rights held by the United States
government (the "Government Rights"). These rights include a non-exclusive,
royalty-free, worldwide license to practice or have practiced such inventions
for any governmental purpose. In addition, the United States government has
the right to grant licenses which may be exclusive under any of such inventions
to a third-party if it determines that: (i) adequate steps have not been taken
to commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs or (iii) such action is necessary to meet requirements
for public use under federal regulations. The government also has the right to
take title to a subject invention if there is failure to disclose the invention
and elect title within specified time limits. In addition, the government may
acquire title in any country in which a patent application is not filed within
specified time limits. Federal law requires any licensor of an invention that
was partially funded by the federal government to obtain a covenant from any
exclusive licensee to manufacture products using the invention substantially in
the United States. Further, the Government Rights include the right to use and
disclose without limitation technical data relating to licensed technology that
was developed in whole or in part at government expense. Provisions recognizing
these Government Rights are contained in the Company's principal technology
license agreements.
Competition and Technological Change. The Company is involved
in evolving
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technological fields in which developments are expected to continue at a rapid
pace. Guilford's future success depends upon maintaining its competitive
position in the research, development and commercialization of products and
technologies in its areas of focus. Competition from pharmaceutical, chemical
and biotechnology companies, universities and research institutions is intense
and expected to increase. Many of these competitors have substantially greater
research and development capabilities and experience and manufacturing,
marketing, financial and managerial resources than the Company. Acquisitions of
competing companies by large pharmaceutical companies or other companies could
enhance financial, marketing and other resources available to these
competitors. The Company is aware of the development by other companies and
research scientists of alternative approaches to the treatment of malignant
glioma, the diagnosis of Parkinson's disease, the promotion of nerve growth and
repair, the treatment and prevention of neuronal damage, and the treatment of
cocaine addiction. There can be no assurance that developments by others will
not render the Company's products or technologies noncompetitive or obsolete,
or that the Company will be able to keep pace with technological developments.
Future Capital Needs; Uncertainty of Additional Funding. The
Company will require substantial funds in order to continue its research and
development programs and preclinical and clinical testing and to manufacture
and, where applicable, market its products. The Company's capital requirements
depend on numerous factors, including the progress of its research and
development programs, the progress of preclinical and clinical testing, the
time and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, changes in
the Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of collaborative and
licensing agreements and other arrangements and the progress of manufacturing
scale-up efforts.
The Company anticipates that it will fund future capital
requirements through a combination of revenues generated under its agreements
with RPR relating to GLIADEL, public or private financings (as necessary),
additional collaborative or other research and development agreements,
commercialization and marketing arrangements with corporate partners or other
potential sources. The Company's ability to raise future capital on acceptable
terms is dependent on conditions in the public and private equity markets and
the performance of the Company, as well as the overall performance of other
companies in the biopharmaceutical and biotechnology sectors. There can be no
assurance that required future financing arrangements will be available on
acceptable terms, or at all.
Uncertainty Regarding Patents and Proprietary Technology. The
Company's success will depend in part on its ability to obtain, maintain and
enforce patent protection for its products and processes or license rights to
patents, maintain trade secret protection and operate without infringing upon
the proprietary rights of others. The degree of patent protection afforded to
pharmaceutical and biotechnological inventions is uncertain, and a number of
Guilford's product candidates are subject to this uncertainty. There can be no
assurance that any patent applications filed by, or assigned or licensed to,
the Company will be granted, that the Company will develop additional products
or processes that are patentable, or that any patents issued to, or licensed
by, the Company will provide the Company with any competitive advantages or
adequate protection for its products. In addition, there can be no assurance
that any existing or future patents or intellectual property issued to, or
licensed by, the Company will not subsequently be challenged, invalidated or
circumvented by others.
It is Guilford's policy to control the disclosure and use of
Guilford's know-how and trade secrets under confidentiality agreements with
employees, consultants and other parties. There can be no assurance, however,
that its confidentiality agreements will be honored, that others will not
independently develop equivalent or competing technology, that disputes will
not arise concerning the ownership of intellectual property or the
applicability of confidentiality obligations, or that disclosure
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of Guilford's trade secrets will not occur. To the extent that consultants or
other research collaborators use intellectual property owned by others in their
work with the Company, disputes may also arise as to the rights to related or
resulting intellectual property.
Guilford supports and collaborates in research conducted in
universities and in governmental research organizations. There can be no
assurance that the Company will have or be able to acquire exclusive rights to
the inventions or technical information derived from such collaborations or
that disputes will not arise as to rights in derivative or related research
programs conducted by the Company. In addition, in the event of a contractual
breach by the Company, certain of the Company's collaborative research
contracts provide for the return of technology rights (including any patents or
patent applications) to the contract sponsors.
If the Company is required to defend against charges of
infringement of patent or proprietary rights of third parties or to protect its
own patent or proprietary rights against third parties, the Company may incur
substantial costs and could lose rights to develop or market certain products
or be required to pay monetary damages or royalties to license proprietary
rights from third parties. In response to actual or threatened litigation, the
Company may seek licenses from third parties or attempt to redesign its
products or processes to avoid infringement; however, there can be no assurance
that the Company will be able to obtain licenses on acceptable terms, or at
all, or redesign its products or processes. The Company may also be forced to
initiate legal proceedings to protect its patent position or other proprietary
rights. These proceedings typically are costly, protracted, and offer no
assurance of success.
Dependence on Qualified Personnel and Consultants. The Company
is highly dependent on the principal members of its management and scientific
staff, including the Company's Chief Executive Officer, Craig R. Smith, M.D.,
and the Chairman of the Company's Scientific Advisory Board, Solomon H. Snyder,
M.D. The loss by the Company of the services of either of these individuals or
other members of its senior management could have a material adverse effect on
the Company's operations. Although the Company has entered into a consulting
agreement with Dr. Snyder and an employment agreement with Dr. Smith that
provide for the protection of the Company's proprietary rights, either Dr.
Snyder or Dr. Smith may terminate his relationship with the Company at any
time. Accordingly, there can be no assurance that either of these individuals
or other employees or consultants will remain with the Company or that, in the
future, these employees or consultants will not organize, or become employed by
or associated with companies competitive with the Company.
The Company's planned activities will require individuals with
expertise in many areas including, without limitation, preclinical testing,
clinical trial management, regulatory affairs, manufacturing and business
development. These activities will require the addition of new personnel,
including management personnel and the development of additional expertise by
existing management personnel. Recruiting and retaining qualified personnel,
collaborators, advisors and consultants will be critical to the Company's
activities, and there can be no assurance that the Company will be able to
attract and retain the personnel necessary for the development of the Company's
business. There is significant competition for experienced scientists from
numerous pharmaceutical, biotechnology and health care companies and academic
and other research institutions. The inability to hire such personnel or to
develop such expertise could have a material adverse effect on the Company's
operations. In addition, the Company is dependent on collaborators at research
institutions and its Scientific Advisory Board members and consultants.
No Assurance of Market Acceptance. There can be no assurance
that Guilford's product candidates will achieve adequate or any market
acceptance. The degree of market acceptance will depend upon a number of
factors, including the receipt of regulatory clearances and the scope thereof
and the establishment and demonstration in the neurological, neurosurgical
and/or other relevant
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medical communities of the clinical safety and efficacy of the Company's
product candidates and their advantages over existing diagnostic techniques and
technologies, drug delivery systems and therapeutics. Furthermore, there is no
assurance that physicians, or the medical community in general, will accept and
use any diagnostic and therapeutic products that may be developed by the
Company.
Limited Manufacturing Capabilities. The Company is
manufacturing its initial product candidate, GLIADEL, at its manufacturing
facility in Baltimore, Maryland. This facility consists of production
laboratories and a cleanroom occupying approximately 12,500 square feet.
Although the Company believes the facility meets Good Manufacturing Practices
("GMP") requirements and the facility has been inspected by the FDA, the
Company has manufactured only limited quantities of GLIADEL in the facility.
There can be no assurance that the Company will be able to continue to satisfy
applicable regulatory standards, including GMP requirements, and other
requirements relating to the manufacture of GLIADEL in the facility. The
Company also faces risks inherent in the operation of a single facility for
manufacture of its lead product, including risks of unforeseen plant shutdowns
due to personnel, equipment or other factors, and the possible inability of the
facility to produce GLIADEL in quantities sufficient to meet demand. To
commercialize GLIADEL, the Company must be able to manufacture this product
candidate in commercial quantities in compliance with regulatory requirements
and at acceptable costs.
Currently, the Company has no manufacturing capabilities for
its other product candidates, and in order to complete the commercialization
process of its other product candidates, the Company must either acquire, build
or expand its manufacturing facilities or rely on third parties to manufacture
these product candidates. There can be no assurance that the Company will be
able to acquire, build or expand facilities that will meet the Company's
quality, quantity and timing requirements on acceptable terms, or at all, or
that the Company will be able to enter into manufacturing contracts with others
on acceptable terms, or at all. Third-party manufacturers must also comply
with FDA, DEA, and other regulatory requirements for their facilities,
including GMP regulations. There can be no assurance that such facilities can
be used, built or acquired on commercially acceptable terms or that such
facilities, if used, built or acquired, will be adequate for the Company's
long-term needs or will meet all relevant regulatory requirements. Moreover,
there can be no assurance that the manufacturing of product candidates on a
limited basis for investigational use will lead to a successful transition to
commercial, large-scale production. Small changes in methods of manufacture
may affect the safety, efficacy or controlled release of the product. Changes
in methods of manufacture, including commercial scale-up, can, among other
things, require the performance of new clinical studies. Should the Company
decide to manufacture its other product candidates, substantial start-up
expenses would be incurred, expansion of facilities would be required and
additional personnel would have to be hired.
Shares Eligible for Future Sale; Registration and Exchange
Rights. As of June 30, 1996, the Company had 9,301,621 shares of Common Stock
outstanding. As of that date, there were options to purchase approximately an
aggregate of 1.2 million shares of Common Stock and warrants to purchase
208,719 shares outstanding. The Company's joint venture partner in the cocaine
addiction therapeutics program, The Abell Foundation, has the right to exchange
its 80% equity interest in the joint venture for 500,000 shares of the
Company's common stock. In certain circumstances, the Company has the right to
require such exchange. To the extent that these outstanding stock options,
warrants and exchange rights are exercised, the interests of the Company's
stockholders will be diluted. In addition, certain holders of the Company's
common stock, exchange rights, and warrants (representing approximately an
aggregate of 1.9 million shares) have demand and/or piggyback registration
rights. These rights may be exercised at any time and would permit the resale
of some or all of such shares in the public market. If the Company were
required to include shares in a Company-initiated registration pursuant to
exercise of registration rights, the sale of such shares could have a
materially adverse effect on the Company's ability to raise additional capital.
No prediction can be made as to the effect, if any,
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that sales of shares of Common Stock or the availability of such shares for
sale will have on the market prices of the Common Stock prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold in
the public market may adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities.
Limited Clinical and Regulatory Compliance Capabilities. The
Company has limited resources in the areas of product testing and regulatory
compliance, and thus will have to expend capital to acquire and expand such
capabilities, reach collaborative arrangements with third parties to provide
these capabilities or contract with third parties to provide these capabilities
in order to carry its products through the necessary regulatory approvals and
prepare its product candidates for commercialization and marketing.
Reimbursement Uncertainty. Sales of the Company's product
candidates will depend in part on the availability of reimbursement from
third-party health care payors, such as government and private insurance plans.
No assurance can be given that such reimbursement will be available at all or
will be available at price levels sufficient to realize an appropriate return
on the Company's investment in product development.
Health Care Reform. Health care reform has been, and may
continue to be, an area subject to significant national attention and a
priority of many governmental officials. Any reform measures, if adopted,
could adversely affect the pricing of diagnostic and therapeutic products in
the United States or the amount of reimbursement available from governmental
agencies or third-party health care payors. The effect of these measures upon
the Company cannot be predicted, but may have a material adverse effect on the
Company.
Risk of Product Liability. The Company may potentially become
subject to large liability claims and significant defense costs as a result of
the design, manufacture or marketing of, or the conduct of clinical trials
involving, its products. A product liability related claim or recall could
have a material adverse effect on the Company. The Company currently maintains
$5,000,000 of product liability insurance covering clinical trials, and there
can be no assurance that such or any future insurance coverage obtained by the
Company will be adequate or that claims, if any, will be covered by the
Company's insurance. Product liability insurance varies in cost, can be
difficult to obtain and may not be available in the future on terms acceptable
to the Company, if at all. An inability to obtain or maintain sufficient
insurance coverage at an acceptable cost or otherwise protect against potential
product liability claims could prevent or inhibit the clinical development
and/or commercialization of any products developed by the Company.
Hazardous and Radioactive Materials; Environmental Matters;
Animal Testing. Research and development processes sponsored by the Company
involve the controlled use of hazardous and radioactive materials. The Company
and its collaborative partners are subject to international, federal, state and
local laws and regulations governing the use, manufacture, storage, handling
and disposal of hazardous and radioactive materials. The Company believes that
the safety procedures relating to its in-house research and development and
manufacturing efforts comply in all material respects with the standards
prescribed by such laws and regulations. However, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
Moreover, there can be no assurance that the Company's collaborative partners
are in compliance with such standards or that the Company and its collaborative
partners will be in compliance with such standards in the future. In such
event, the business, operations or finances of the Company may be materially
adversely affected, and the Company and/or its collaborative partners could be
held liable for damages, fines or other liability, and any such liability could
exceed the resources of the Company. Although the Company believes that it is
and will continue to be in compliance in all material respects with applicable
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environmental laws and regulations and currently does not expect to make
material capital expenditures for environmental control facilities in the near
term, there can be no assurance that the Company will not be required to incur
significant costs to comply with environmental laws and regulations in the
future or that the operations, business or assets of the Company will not be
materially adversely affected by current or future environmental laws or
regulations. In addition, much of the research and development efforts
sponsored by the Company involves use of laboratory animals. The Company may
be adversely affected by changes in laws, regulations or accepted clinical
procedures or by social pressures that would restrict the use of animals in
testing or by actions against the Company or its collaborators by groups or
individuals opposed to such testing.
Anti-takeover Provisions; Preferred Stock. The Company's
Amended and Restated Certificate of Incorporation and the Delaware General
Corporation Law contain certain provisions, including the requirements of
Section 203 of the Delaware General Corporation Law, that may delay or prevent
an attempt by a third party to acquire control of the Company. The Company has
adopted a stockholder rights plan intended to deter hostile or coercive
attempts to acquire the Company through the distribution of rights to
stockholders enabling those stockholders to acquire shares of the Company's
Common Stock, or that of an acquirer, at a substantial discount to the public
market price should any person or group acquire more than 20% of the Common
Stock without approval of the Board of Directors under certain circumstances.
The Company has reserved 300,000 shares of Series A Junior Participating
Preferred Stock for issuance in connection with the stockholder rights plan.
The Company is authorized to issue an additional 4,700,000 shares of Preferred
stock in one or more series, having terms fixed by the Board of Directors
without a stockholder vote. While the Board of Directors has no current
intentions or plans to issue any Preferred Stock, issuance of these shares
could also be used as an anti-takeover device.
Absence of Dividends. The Company has never declared or paid
any cash dividends on its Common Stock and does not intend to do so for the
foreseeable future. In addition, the Company is prohibited from paying any cash
dividends under the terms of its loan agreement with Signet Bank and the
Maryland Industrial Development Financing Authority.
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