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EXHIBIT 99.1
ARQULE, INC.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
MARCH 2001
From time to time, ArQule through its management may make forward-looking public
statements, such as statements concerning then expected future revenues or
earnings or concerning anticipated collaborative agreements, projected plans,
performance, product development and commercialization as well as other
estimates relating to future operations. Forward-looking statements may be in
reports filed under the Securities Exchange Act of 1934, as amended, in press
releases or in oral statements made with the approval of an authorized executive
officer. The words or phrases "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of Section
21E of the Securities and Exchange Act of 1934 and Section 27A of the Securities
Act of 1933, as enacted by the Private Securities Litigation Reform Act of 1995.
We wish to caution readers not to place undue reliance on these forward-looking
statements that speak only as of the date on which they are made. In addition,
we wish to advise readers that the factors listed below, as well as other
factors not currently identified by management, could affect our financial or
other performance and could cause the actual results for future periods to
differ materially from any opinions or statements expressed with respect to
future periods or events in any current statement.
We will not undertake and specifically decline any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events which may
cause management to re-evaluate such forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we are hereby filing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in our forward-looking statements made by us or
on our behalf.
Although we were profitable in fiscal year 2000, we may not be able to sustain
profitability.
From our inception in 1993 to December 31, 2000, we have incurred
cumulative net losses of approximately $30.7 million. The costs of our research
activities and enhancements to our technology principally have resulted in these
losses. We have derived our revenue primarily from:
- license fees;
- payments for product deliveries;
- milestone payments; and
- research and development funding paid under our agreements with our
collaboration partners.
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To date, except for during 1997 and 2000, these revenues have not generated
profits, nor have we realized any revenue from royalties from the sale by any of
our collaboration partners of a commercial product developed using our
technology.
OUR STRATEGY OF USING OUR TECHNOLOGIES TO ASSIST IN THE DEVELOPMENT OF NEW DRUGS
AND OTHER PRODUCTS MAY NOT BE COMMERCIALLY SUCCESSFUL.
Our approach to compound discovery has not yet yielded a commercially successful
drug.
Our strategy is to use our technologies to rapidly identify, optimize and
obtain financial interest in as many compounds with commercial potential as
possible. This approach has not yet yielded any commercially successful drug. In
addition, we have recently reoriented our business and technology strategies to
offer comprehensive compound discovery, in addition to chemical compound
products and services. Our potential customers may not accept our new strategy.
In particular, we have not proven that we can use our products successfully to
assist our customers to conduct lead optimization. Our ability to succeed
depends on our potential customers accepting our approach to crafting viable
chemical compounds, known as combinatorial chemistry, and comprehensive compound
discovery as effective tools in the discovery and development of compounds with
commercial potential. If we cannot demonstrate that our approach can result in
successful products, we may not be able to attract additional customers or to
retain our existing customers. Furthermore, Camitro has not launched any of its
products and, therefore, the market may not accept any of its products. If the
market does not accept these products, or does so at a lower than expected rate,
we may not be able to attract new customers to support such products.
The specialized nature and high price of our services limit our potential
customer base. These potential customers may decide to try to use our approach
themselves without our assistance, or they may try other methods.
Because we offer specialized assistance in the development of drugs, our
potential customer base consists of a limited number of pharmaceutical and
biotechnology companies and research institutions. These companies have
historically identified lead compounds and capitalized upon the most promising
leads within their own research departments. Because of the high cost of our
products and programs, they may decide to conduct these activities without our
assistance.
WE DEPEND ON COLLABORATION ARRANGEMENTS WITH THIRD PARTIES FOR OUR REVENUE AND
OUR COLLABORATIONS MAY NOT BE SUCCESSFUL OR WE MAY NOT REALIZE MUCH OF THE
POTENTIAL REVENUE FROM OUR COLLABORATIONS.
We will only realize much of the potential revenue under these collaborations if
we meet compound delivery goals, satisfy milestones and earn royalties.
Our revenue stream and our business strategy depend largely on the
formation of collaborative arrangements with third parties, initially
pharmaceutical and biotechnology companies and research institutions. To date,
we have entered into many of these arrangements. Much of the potential revenue
from our collaborations consists of contingent payments, such as payments for
achieving development milestones and royalties payable on sales of drugs
developed using our products. We may not achieve these milestones and our
partners may not develop commercial drugs or other products on which we will
receive royalties.
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Our ability to realize potential revenue from milestones and royalties from our
collaborations depends, in large part, on the efforts of our partners, over
which we have little control.
Much of the revenue from milestones and royalties that we may receive under
these collaborations will depend upon our partners' ability to successfully
develop, introduce, market and sell new drugs they develop using our products.
Our products will result in commercialized drugs generating milestone payments
and royalties only after, among other things:
- significant preclinical and clinical development efforts or the
completion of preliminary field trials;
- the receipt of the required regulatory approvals;
- developing manufacturing capabilities; and
- successful marketing efforts.
With the exception of certain aspects of preclinical drug development, we
do not currently intend to perform any of these activities. Accordingly, we will
depend on our partners having the necessary expertise and dedicating sufficient
resources to develop and commercialize products. Our collaboration partners may
fail to develop or commercialize a compound or product to which they have
obtained rights from us, because, among other reasons:
- they decide not to devote the necessary resources because of internal
constraints or other development priorities;
- they decide to pursue a competitive potential drug or compound
developed outside of the collaboration; or
- they cannot obtain the necessary regulatory approvals.
For our strategy to be successful, we must maintain existing collaborations and
enter into new ones, either of which may not be possible to do.
To be successful, we must expand the number of our collaborations both by
maintaining existing collaborations, as well as continuing to enter into
agreements with new partners to use our technology to develop potential drugs.
We may not be able to maintain our existing collaborations or establish new
collaborations with commercially acceptable terms.
WE MAY NOT SUCCESSFULLY INTEGRATE CERTAIN ASPECTS OF CAMITRO OPERATIONS, THE
INTEGRATION OF THE BUSINESSES MAY BE COSTLY, AND WE MAY ULTIMATELY NOT
CAPITALIZE ON CAMITRO'S TECHNOLOGY AND KNOW-HOW.
On January 29, 2001, we acquired Camitro Corporation, a California
corporation, through a wholly owned subsidiary of ours. We have to integrate
certain aspects of Camitro's operations into our pre-existing operations. The
integration will require significant efforts from each company, including
coordinating research and development efforts. Camitro personnel may leave
because of the merger. Camitro collaborators, customers, distributors, or
suppliers may terminate their arrangements with Camitro or demand new
arrangements. Integrating our operations may distract management's attention
from the day-to-day business of the combined company. If ArQule is unable to
successfully integrate certain aspects of the operations of the two companies or
if this integration process costs more than expected, ArQule's future results
will be negatively impacted.
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OUR COMPETITORS MAY HAVE GREATER RESOURCES OR RESEARCH AND DEVELOPMENT
CAPABILITIES THAN WE HAVE AND WE MAY NOT HAVE THE RESOURCES REQUIRED TO
SUCCESSFULLY COMPETE WITH THEM.
The drug development business is highly competitive. We compete with many
organizations that are engaged in attempting to identify and utilize compounds
as potential drugs. Many of these competitors have greater financial and human
resources and more experience in research and development than we have. They
include:
- biotechnology, pharmaceutical, combinatorial chemistry and other
companies;
- academic and scientific institutions;
- governmental agencies; and
- public and private research organizations.
Historically, pharmaceutical companies have maintained close control over
their research activities, including the synthesis, screening and optimization
of potential drugs. Many of these companies, which represent a significant
potential market for our products and services, have developed or are developing
internal compound discovery processes and other capabilities to improve
productivity. We anticipate that we will face increased competition in the
future as new companies enter the market and alternative technologies become
available.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD HURT OUR ABILITY TO
COMPETE.
We are highly dependent on the principal members of our scientific and
management staff which includes Stephen A. Hill, David C. Hastings, Phillipe Bey
and Harold E. Selick. The loss of one or more of these members of our staff
could have a material adverse effect on our business. We have employment
agreements with Stephen Hill, Phillipe Bey and Harold E. Selick. We do not
maintain keyperson life insurance coverage on the life of any employee. Our
success will depend in part on our ability to identify, attract and retain
qualified managerial and scientific personnel. We face intense competition for
qualified personnel in our industry. We may not be able to continue to attract
and retain personnel with the advanced technical qualifications or managerial
expertise necessary for the development of our business.
WE FACE UNCERTAINTY IN RAISING ADDITIONAL FUNDS THAT MAY BE NECESSARY TO FUND
OUR OPERATIONS.
Our capital requirements depend on many factors. If our operations do not
become profitable on a sustainable basis before we exhaust existing resources,
we will need to obtain additional financing, either through public or private
financings, including debt or equity financings, or through collaborations or
other arrangements with corporate partners. We may not be able to obtain
adequate funds for our operations from these sources when needed or on
acceptable terms. If we raise additional capital through the sale of equity, or
securities convertible into equity, it may dilute your proportionate ownership
in ArQule. If we cannot obtain additional financing, we could be forced to delay
or scale back our research and development programs. If adequate funds are not
available, we may be required to curtail operations significantly or to obtain
funds by entering into arrangements with collaboration partners or others that
may require that we relinquish rights to certain technologies, product
candidates, products or potential markets.
WE WILL NOT BE ABLE TO SUCCESSFULLY GROW OUR BUSINESS IF WE ARE UNABLE TO EXPAND
AND INTEGRATE OUR TECHNOLOGIES.
Our success depends on the integration and expansion of various chemistry
based, drug discovery technologies. In order for us to achieve our goal of
reducing the current industry average for identifying IND candidates by half, we
will have to integrate and acquire complimentary technologies. We also must
successfully structure and manage multiple collaborative relationships. If we do
not, we could lose significant amounts of revenues. Further, we may not succeed
in managing and meeting the staffing requirements of additional collaborative
relationships.
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OUR PATENTS AND OTHER PROPRIETARY RIGHTS MAY FAIL TO PROTECT OUR TECHNOLOGIES
AND THIS FAILURE COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Our success will depend on our ability to obtain and protect patents on our
technology and to protect our trade secrets. We may not receive any additional
patents, and the claims of our patents may not offer significant protection of
our technology. Third parties may challenge, narrow, invalidate or circumvent
our patents. In order to protect or enforce our patent rights, we may initiate
patent litigation against third parties, such as infringement suits or
interference proceedings. These lawsuits could be expensive, take significant
time and divert management's attention from other business concerns. We may also
provoke these third parties to assert claims against us. The patent position of
biotechnology firms is generally highly uncertain, involves complex legal and
factual questions, and has recently been the subject of much litigation. Neither
the U.S. Patent and Trademark Office, nor the courts have set forth a consistent
policy regarding the breadth of claims allowed or the degree of protection
afforded under many biotechnology patents. In addition, there is a substantial
backlog of biotechnology patent applications at the U.S. Patent and Trademark
Office, and the approval or rejection of patent applications may take several
years.
In an effort to protect our trade secrets, we require our employees,
consultants and advisors to execute confidentiality agreements. These
agreements, however, may not provide us with adequate protection against
improper use or disclosure of confidential information. In addition, in some
situations, these agreements may conflict with, or be subject to, the rights of
third parties with whom our employees, consultants or advisors have previous
employment or consulting relationships. Also, others may independently develop
substantially equivalent proprietary information and techniques, or otherwise
gain access to our trade secrets.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.
Others may sue us for infringing on their patent rights. Intellectual
property litigation is costly to defend, and, even if we prevail, the cost of
such litigation could adversely affect our business, financial condition and
results of operations. In addition, litigation is time consuming and could
divert management's attention and resources away from our business. If we do not
prevail in litigation, in addition to any damages we might have to pay, we could
be required to stop the infringing activity or obtain a license. Any required
license may not be available to us on acceptable terms, or at all. In addition,
some licenses may be non-exclusive and, accordingly, our competitors may have
access to the same technology licensed to us. If we fail to obtain a required
license or are unable to design around a patent, we may be unable to sell some
of our products. Any of these occurrences will result in lost revenues and
profits for us.
OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW TRADING
VOLUME.
The market price of our common stock has been highly volatile and the
market for our common stock has experienced significant price and volume
fluctuations, some of which are unrelated to our operating performance. For
example, from January 2, 2001 to March 12, 2001, the per share price of our
common stock has fluctuated from $31.25 to $14.00 per share with an average
daily trading volume over such period of approximately 338,400 shares. Many
factors can have a significant adverse effect on our common stock's market
price, including:
- announcements by us or our competitors of technological innovations or
new commercial products;
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- developments concerning our proprietary rights, including patent and
litigation matters;
- publicity regarding actual or potential results relating to our or our
collaborators' products or compounds under development;
- an unexpected termination of one of our collaborations;
- announcements of business acquisitions and other business ventures;
- regulatory developments in the United States and other countries;
- general market conditions; and
- quarterly fluctuations in our revenues and other financial results.
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