1
EXHIBIT 99.1
RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our common stock. Any of these risks could have a material adverse impact on
our business, financial condition, operating results or cash flows. This could
cause the trading price of our common stock to decline, and you may lose part or
all of your investment.
WE CANNOT GUARANTEE THAT WE WILL EVER COMMERCIALIZE ANY OF OUR THERAPEUTIC OR
PROPHYLACTIC VACCINES AND GENERATE ADDITIONAL REVENUE IN THE FUTURE.
WE MUST RECEIVE SEPARATE REGULATORY APPROVALS FOR EACH OF OUR VACCINES
IN EACH INDICATION BEFORE WE CAN SELL THEM COMMERCIALLY IN THE UNITED
STATES OR INTERNATIONALLY.
To obtain regulatory approvals, we must, among other requirements, complete
clinical trials demonstrating that a particular therapeutic or prophylactic
vaccine is safe and effective. We have a number of therapeutic or prophylactic
vaccines in clinical trials, any delays or difficulties that we encounter in
these clinical trials may have a substantial adverse impact on our operations
and cause our stock price to decline significantly. We have limited clinical
data and future clinical trials may not show that our vaccines are safe and
effective. In addition, we or the United States Food and Drug Administration,
commonly known as the FDA, might delay or halt the clinical trials for various
reasons, including:
- our vaccines may not appear to be more effective than current
therapies;
- our vaccines may have adverse side effects;
- the time required to determine whether our vaccines are
effective may be longer than expected;
- patients may die during a clinical trial because their disease
is too advanced or because they experience medical problems
that may not be related to our vaccines;
- sufficient number of patients may not enroll in the trials; or
- we may not be able to produce sufficient quantities of a
vaccine to complete the trials.
We rely on third party clinical investigators to conduct our clinical trials. As
a result, we may encounter delays outside of our control. Furthermore, the
success of these third parties in performing their responsibilities under
license agreements may affect the timing and amount of license fee payments,
royalties and revenues from product sales, and we cannot assure that these
collaborations will be successful.
We may not be able to establish additional acceptable collaborative arrangements
or license agreements should we deem these necessary to develop and
commercialize product candidates, nor can we assure that such future
arrangements will be successful.
The process of obtaining and maintaining regulatory approvals for new
therapeutic products is lengthy, expensive and uncertain. It also can vary
substantially, based on the type, complexity and novelty of the product
involved. To date, the FDA and foreign regulatory agencies have approved only a
limited number of cancer therapeutic vaccines for commercial sale. Furthermore,
the FDA and foreign regulatory agencies have relatively little experience with
autologous therapies. This lack of experience may lengthen the regulatory review
process for Oncophage, increase our development costs and delay or prevent
commercialization. In addition, problems encountered with other companies'
therapeutic vaccine products may slow the regulatory review of our therapeutic
vaccines. The FDA may not consider Oncophage to be an appropriate candidate for
fast track designation should we choose to seek it. Accordingly, Oncophage or
any of our other future drug candidates could take a significantly longer time
to gain regulatory approval than we expect or may never gain approval.
2
BECAUSE DEVELOPMENT OF OUR THERAPEUTIC OR PREVENTIVE VACCINES FOR
INFECTIOUS DISEASES, AUTOIMMUNE DISORDERS, AND DEGENERATIVE DISORDERS
WILL INVOLVE A LENGTHY AND COMPLEX PROCESS, WE ARE NOT CERTAIN WE WILL
BE ABLE TO DEVELOP ANY MARKETABLE THERAPEUTIC OR PREVENTIVE VACCINES
FOR THESE INDICATIONS.
With the exception of our immunotherapeutic agent for the treatment of genital
herpes, we have not completed all of the preclinical development of any of our
therapeutic or preventive vaccines for infectious diseases, autoimmune disorders
or degenerative disorders. We will need to conduct extensive additional research
and preclinical and clinical testing of these vaccines prior to
commercialization. This development process takes several years and often fails
to yield commercial products. Regulatory authorities may not permit human
testing of these vaccines and, even if they permit human testing, we may not
demonstrate that a vaccine is safe and effective.
EVEN IF SOME OF OUR VACCINES RECEIVE REGULATORY APPROVAL, THOSE
VACCINES MAY STILL FACE SUBSEQUENT REGULATORY DIFFICULTIES.
If we receive regulatory approval to sell any of our human therapeutic or
prophylactic vaccines, the FDA or a comparable foreign regulatory agency may,
nevertheless, limit the categories of patients who can use that therapeutic or
prophylactic vaccine. In addition, regulatory agencies subject a marketed
product, its manufacturer and the manufacturer's facilities to continual review
and periodic inspections. Furthermore, the FDA or foreign regulatory agencies
may require expensive post-approval trials. If we discover previously unknown
problems with a product or its manufacturing and laboratory facility, a
regulatory agency may impose restrictions on that product or on us, including
requiring us to withdraw the product from the market. If we fail to comply with
applicable regulatory approval requirements, a regulatory agency may:
- send us warning letters;
- impose fines and other civil penalties on us;
- suspend our regulatory approvals;
- refuse to approve pending applications or supplements to
approved applications filed by us;
- refuse to permit exports of our products from the United
States;
- require us to recall products;
- seize our products;
- impose restrictions on our operations; or
- criminally prosecute us.
WE MAY ENCOUNTER MANUFACTURING PROBLEMS THAT LIMIT OUR ABILITY TO SUCCESSFULLY
COMMERCIALIZE OUR THERAPEUTIC AND PROPHYLACTIC VACCINES.
IF WE ARE UNABLE TO PURIFY HEAT SHOCK PROTEINS FROM SOME CANCER TYPES,
THE SIZE OF OUR POTENTIAL MARKET WOULD DECREASE.
Our ability to successfully commercialize a therapeutic vaccine for a particular
cancer type depends on our ability to purify heat shock proteins from that type
of cancer. Based on our clinical trials conducted to date, in renal cell
carcinoma, we have been able to manufacture Oncophage from 98% of the tumors
delivered to our manufacturing facility; for melanoma, 86%; for colorectal
carcinoma, 100%; for gastric cancer, 70%; and for pancreatic cancer, 30%. The
relatively low rate for pancreatic cancer is due to the abundance of proteases
in pancreatic tissue. Proteases are enzymes that break down proteins. These
proteases degrade the heat shock proteins during the purification process. We
may encounter this problem or similar problems with other types of cancers as we
expand our research. If we cannot overcome these problems, the number of cancer
types that our therapeutic vaccines could treat would be limited.
2
3
DELAYS IN OBTAINING REGULATORY APPROVAL OF OUR MANUFACTURING FACILITY
AND DISRUPTIONS IN OUR MANUFACTURING PROCESS MAY DELAY OR DISRUPT OUR
COMMERCIALIZATION EFFORTS.
Before we can begin commercially manufacturing our therapeutic vaccines, we must
obtain regulatory approval of our manufacturing facility and process.
Manufacturing of our therapeutic vaccines must comply with the FDA's current
Good Manufacturing Practices requirements, commonly known as cGMP, and foreign
regulatory requirements. The cGMP requirements govern quality control and
documentation policies and procedures. In complying with cGMP and foreign
regulatory requirements, we will be obligated to expend time, money and effort
in production, recordkeeping and quality control to assure that the product
meets applicable specifications and other requirements. If we fail to comply
with these requirements, we will be subject to possible regulatory action and
may be limited in the jurisdictions in which we are permitted to sell our
therapeutic vaccines.
The FDA, the Commonwealth of Massachusetts and foreign regulatory authorities
have the authority to continuously inspect our manufacturing facility in Woburn,
Massachusetts. Preparing this facility for commercial manufacturing may take
longer than planned and the costs of complying with FDA regulations may be
higher than those for which we have budgeted. In addition, any material changes
we make to the manufacturing process may require approval by the FDA, the
Commonwealth of Massachusetts or foreign regulatory authorities. It could take
longer than we expect for us to obtain these approvals. Any delays in obtaining
these approvals could disrupt our manufacturing process.
We are the only manufacturer of our therapeutic vaccines. For the next several
years, we expect that we will conduct all of the manufacturing of our
therapeutic vaccines in the facility in Woburn, Massachusetts. If this facility
or the equipment in the facility is significantly damaged or destroyed, we will
not be able to quickly or inexpensively replace our manufacturing capacity. Due
to the nature of our therapeutic vaccines, a third party may not be able to
manufacture our therapeutic vaccines.
We have no experience manufacturing Oncophage in the volumes that will be
necessary to support large clinical trials or commercial sales. Our present
manufacturing process may not meet our initial expectations as to:
- scheduling;
- reproducibility;
- yield;
- purity;
- cost;
- potency;
- quality; and
- other measurements of performance.
We are the only manufacturer of our Feline Leukemia vaccine and the QS-21 family
of adjuvants. For the next several years, we expect that we will conduct all of
our manufacturing of these products in our facility in Framingham,
Massachusetts. If this facility or the equipment in the facility is
significantly damaged or destroyed, we will not be able to quickly or
inexpensively replace our manufacturing capacity. This manufacturing facility
has limited expansion potential and we may need to construct additional
manufacturing facilities or contract with another company manufacture of our
products. Furthermore, if product demand increases substantially, we will not be
able to respond quickly or inexpensively to meet this demand. We cannot
guarantee that we will be able to construct additional facilities or out-source
our manufacturing at a reasonable cost, if at all.
3
4
WE MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO UNSUCCESSFUL
RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO FUTURE
COLLABORATIONS.
Part of our strategy is to develop and commercialize some of our products by
continuing our existing collaborative arrangements with academic and corporate
collaborators and licensees and by entering into new collaborations. Our success
depends on the success of these parties in performing research, preclinical and
clinical testing. These arrangements may require us to transfer important rights
to these corporate collaborators and licensees. These collaborators and
licensees could choose not to devote resources to these arrangements or, under
certain circumstances, may terminate these arrangements early. In addition,
these collaborators and licensees, outside of their arrangements with us, may
develop technologies or products that are competitive with those that we are
developing. As a result, we cannot guarantee that any of our strategic
collaborations will continue, that we will be able to enter into new
collaborations or that we will receive revenues from any of these relationships.
WE MAY HAVE CONFLICTS OF INTEREST WITH OUR CORPORATE PARTNERS THAT COULD
ADVERSELY AFFECT EXPECTATIONS REGARDING OUR COLLABORATIONS.
We may have conflicts of interest with our corporate partners that could
adversely affect our business. For example, existing or future corporate
partners may pursue alternative technologies, including those of our
competitors. Disputes may arise with respect to the ownership of rights to any
technology or products developed with any current or future corporate partner.
If our corporate partners pursue alternative technologies or fail to develop or
commercialize successfully any product candidate to which they have obtained
rights from us, our business will suffer.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, TRADE SECRETS OR
KNOW-HOW, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS PROFITABLY.
IF WE FAIL TO SUSTAIN AND FURTHER BUILD OUR INTELLECTUAL PROPERTY
RIGHTS, COMPETITORS WILL BE ABLE TO TAKE ADVANTAGE OF OUR RESEARCH AND
DEVELOPMENT EFFORTS TO DEVELOP COMPETING THERAPIES.
Our success depends, in part, on our ability to maintain 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
intellectual property rights of others.
We currently have exclusive rights to 30 issued United States patents and
foreign counterpart patents relating to its heat shock protein technology. Our
rights to these patents are as a result of exclusive worldwide licenses with
Fordham University and Mount Sinai School of Medicine of New York University. In
addition, we have licensed or optioned rights to 106 pending United States
patent applications and foreign counterpart patent applications relating to our
heat shock protein technology. We also have exclusive rights to 31 issued and 59
pending U.S. and foreign patents and patent applications, respectively, relating
to our Saponin and CD1 technology. The standards which the United States Patent
and Trademark Office uses to grant patents are not always applied predictably or
uniformly and can change. Consequently, we cannot be certain as to the type and
extent of patent claims that will be issued to us in the future. Any patents
which are issued may not contain claims which will permit us to stop competitors
from using similar technology. The standards which courts use to interpret
patents are not always applied predictably or uniformly and can change,
particularly as new technologies develop. Consequently, we cannot be certain as
to how much protection, if any, will be given to our patents, if we attempt to
enforce them and they are challenged in court. If we choose to go to court to
stop someone else from using the inventions claimed in our patents, that
individual or company has the right to ask the court to rule that our patents
are invalid and should not be enforced against us. These lawsuits are expensive
and would consume time and other resources, even if we are successful in
stopping the violation of our patents. In addition, there is a risk that the
court will decide that our patents are not valid and that we do not have the
right to stop the other party from using the inventions. There is also the risk
that, even if the validity of our patents is upheld, the court will refuse to
stop the other party on the ground that such other party's activities are not
covered by, that is, do not infringe, our patents.
Furthermore, a third party may claim that we are using inventions covered by
such third party's patent and may go to court to stop us from engaging in our
normal operations and activities. These lawsuits are expensive and would consume
time and other resources. There is a risk that a court would decide that we are
violating the third party's patent and
4
5
would order us to stop the activities covered by the patent. In addition, there
is a risk that a court will order us to pay the other party damages for having
violated the other party's patent.
We rely on certain proprietary trade secrets and know-how. We have taken
measures to protect our trade secrets and know-how, including the use of
confidentiality agreements with our employees, consultants and certain
contractors. It is possible, however, that:
- these persons will breach the agreements;
- we would have inadequate remedies for any breach; or
- our competitors will independently develop or otherwise
discover its trade secrets.
ANTIGENICS MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR
OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY
RIGHTS.
The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial. Some of
our competitors may be able to sustain the costs of complex patent litigation
more effectively than we can because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to continue our operations.
Should third parties file patent applications, or be issued patents claiming
technology also claimed by us in pending applications, we may be required to
participate in interference proceedings in the United States Patent and
Trademark Office to determine priority of invention. We, or our licensors, may
also need to participate in interference proceedings involving our issued
patents and pending applications of another entity. An unfavorable outcome in an
interference proceeding could require us to cease using the technology or to
license rights from prevailing third parties. There is no guarantee that any
prevailing party would offer us a license or that we could acquire any license
made available to us on commercially acceptable terms.
We cannot guarantee that the practice of our technologies will not conflict with
the rights of others. We are aware of a United States patent, issued to a third
party, with claims directed to certain heat shock protein based therapeutic
vaccines and their use in the field of tissue grafting. We do not believe that
our products or activities are infringing any valid claims of this patent. We
also is aware of two United States patents, issued to a different third party,
with claims directed to certain methods of making heat shock protein products
and related apparatuses. These patents do not claim any therapeutic
applications. These patents also do not claim any of the methods we presently
use to make Oncophage. Moreover, we do not believe that our methods of producing
any of our heat shock protein-based therapeutic vaccines would infringe any
valid claim of either of these patents. However, we cannot guarantee that this
third party, or any other third party, will not sue us for infringing these, or
any other, patents. One of the patent applications licensed to us contains
claims which are substantially the same as claims in one of this third party's
patents. Therefore, there is a possibility that the United States Patent and
Trademark Office will declare an interference proceeding between one or both of
this third party's patents and our patent application. In an interference
proceeding, the party with the earliest effective filing date has certain
advantages. We believe that our claims have an earlier effective filing date
than the claims of the other patents. However, we cannot guarantee that we would
prevail in any interference proceeding. In the past and again recently, this
third party has contacted us about licensing patents rights and we have not yet
made a decision regarding this matter.
In some foreign jurisdictions, we could become involved in opposition
proceedings, either by opposing the validity of another's foreign patent or by
third parties opposing the validity of our foreign patents. In 1995, the
European Patent Office issued a European patent, with claims directed to the use
of heat shock proteins to produce or enhance immune responses to cancer and
infectious diseases, to the Whitehead Institute for Biomedical Research and the
Medical Research Council. This patent is exclusively licensed to StressGen
Biotechnologies Corporation. The patent holders have made no attempt to enforce
this patent against us. Nevertheless, we have successfully sought to have this
patent revoked in its entirety in an opposition proceeding in the European
Patent Office. After an oral hearing at the European Patent Office before the
Opposition Division, the Opposition Division revoked the patent in its entirety.
The holders of the patent have the right to appeal the decision to revoke the
patent in its entirety. Even if the decision to revoke the patent were to be
reversed on appeal, we still should be free to practice its autologous cancer
business in Europe.
5
6
However, the patent owners or their licensee might still try to enforce the
revoked patent against our infectious disease business in Europe during any
appeal. We may not obtain a final, non-appealable decision for several years,
during which time the patent remains enforceable. We may incur significant costs
by participating in the opposition proceedings and any appeals. Furthermore, if
we are sued on this patent in Europe prior to any final decision of revocation,
we may incur significant defense costs, even if we ultimately succeed in proving
that we do not infringe any valid claims of this patent.
This European patent claims priority to a United States patent application filed
in 1988. We do not know whether this application, or any related application, is
still pending. We do not believe that any United States patent has issued from
this application, and we do not know whether a United States patent will ever
issue from this patent application. If a United States patent does issue, we do
not know whether the patent will be enforceable, whether any valid claims will
cover its activities or products, or whether the patent owner will attempt to
assert the patent against us.
In 1999, we received correspondence from both Copernicus Therapeutics, Inc. and
its counsel alleging similarity between the companies' respective logos and
demanding that we cease using its logo. In July 1999, we sent a response to
Copernicus stating that we have prior rights in the logo. In the response to
Copernicus, we also stated that since the respective corporate names are vastly
different, both companies should be able to continue the use of their respective
logos without causing public confusion. At this time, we have not received any
further communications from Copernicus or its counsel. Although we do not
believe we are infringing any rights owned by Copernicus, Copernicus may proceed
with a trademark lawsuit against us.
WE ARE AN EARLY STAGE BIOTECHNOLOGY COMPANY THAT MAY NEVER BE PROFITABLE.
IF WE INCUR OPERATING LOSSES FOR LONGER THAN WE EXPECT, WE MAY BE
UNABLE TO CONTINUE OUR OPERATIONS.
We have generated $443,000 in revenues for the year ended December 31, 2000 and
we do not expect to generate significant revenues for several years. We have
incurred losses since we were formed. From inception through December 31, 2000,
we have generated losses totaling $84.3 million. We expect to incur increasing
and significant losses over the next several years as we complete our Oncophage
clinical trials, apply for regulatory approvals, continue development of our
technology and expand our operations.
Our profitability will depend on the market acceptance of any of our therapeutic
and prophylactic vaccines that receive FDA or foreign regulatory marketing
approval. The commercial success of any of our vaccines will depend on whether:
- the vaccine is more effective than alternative treatments;
- side effects of the vaccine are acceptable to doctors and
patients;
- we produce the vaccine at a competitive price;
- we obtain sufficient reimbursement for the vaccine; and
- we have sufficient capital to market the vaccine effectively.
Because Oncophage is autologous, or patient specific, it may be more expensive
to manufacture than conventional therapeutic products. This increased expense
may decrease our profit margins. Furthermore, because our autologous products
are novel, some doctors and patients may be reluctant to use them.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE
WILL BE UNABLE TO ADVANCE OUR DEVELOPMENT PROGRAMS AND COMPLETE OUR
CLINICAL TRIALS.
Developing therapeutic and prophylactic vaccines and conducting clinical trials
for multiple diseases is expensive. We plan to conduct clinical trials for many
different diseases simultaneously, which will increase our costs. We will need
to raise additional capital:
6
7
- to fund operations;
- to continue the research and development of our vaccines; and
- to commercialize our vaccines.
Additional financing may not be available on favorable terms or at all. If we
are unable to raise additional funds when we need them, we may be required to
delay, reduce or eliminate some or all of our development programs and some or
all of our clinical trials. We also may be forced to license technologies to
others that we would prefer to develop internally.
On December 31, 2000, we had $99.1 million in cash, cash equivalents, and
marketable securities. We believe that we will have sufficient capital to fund
our operations for the next two years. We may need to raise capital sooner,
however, due to a number of factors, including:
- an acceleration of the number, size or complexity of our
clinical trials;
- slower than expected progress in developing our vaccines;
- higher than expected costs to obtain regulatory approvals;
- higher than expected costs to pursue our intellectual property
strategy;
- higher than expected costs to further develop our
manufacturing capability; and
- higher than expected costs to develop our sales and marketing
capability.
BECAUSE OF THE SPECIALIZED NATURE OF OUR BUSINESS, THE TERMINATION OF
RELATIONSHIPS WITH OUR SCIENTIFIC ADVISORS OR THE DEPARTURE OF KEY MEMBERS OF
MANAGEMENT MAY PREVENT US FROM ACHIEVING OUR OBJECTIVES.
IF PRAMOD K. SRIVASTAVA, PH.D. SEVERS HIS RELATIONSHIP WITH US, WE MAY
EXPERIENCE SIGNIFICANT DIFFICULTIES IN OUR FUTURE DEVELOPMENT EFFORTS.
Since our formation, Dr. Srivastava has played a significant role in our
research efforts. Dr. Srivastava is our chief scientific officer, a member of
our board of directors and acts as chairman of our scientific advisory board. In
addition, we have licensed a significant portion of our intellectual property
from institutions at which Dr. Srivastava has worked. We sponsor research in Dr.
Srivastava's laboratory at the University of Connecticut Health Center in
exchange for the right to license discoveries made in that laboratory with our
funding. Dr. Srivastava is a member of the faculty of the University of
Connecticut School of Medicine. The regulations and policies of the University
of Connecticut Health Center govern the relationship between a faculty member
and a commercial enterprise. These regulations and policies prohibit Dr.
Srivastava from becoming an employee of Antigenics. Furthermore, the University
of Connecticut may modify these regulations and policies in the future to
further limit Dr. Srivastava's relationship with us. While Dr. Srivastava has a
consulting agreement with us, which includes financial incentives for him to
remain associated with us, we cannot guarantee that he will remain associated
with us even during the time covered by the consulting agreement. In addition,
this agreement does not restrict his ability to compete with us after his
association is terminated.
IF WE FAIL TO KEEP KEY MANAGEMENT AND SCIENTIFIC PERSONNEL, WE MAY BE
UNABLE TO SUCCESSFULLY DEVELOP OUR THERAPEUTIC OR PROPHYLACTIC
VACCINES, CONDUCT CLINICAL TRIALS AND OBTAIN FINANCING.
We are highly dependent on our senior management and scientific staff,
particularly Garo H. Armen, Ph.D., our chairman and chief executive officer, and
Elma Hawkins, Ph.D. our vice chairman. The competition for qualified personnel
in the biotechnology field is intense, and we rely heavily on our ability to
attract and retain qualified scientific, technical and managerial personnel.
Since our manufacturing process is unique, our manufacturing and quality control
personnel are also very important.
7
8
THE COMMERCIAL SUCCESS OF ANY OF OUR THERAPEUTIC OR PREVENTIVE VACCINES WILL
DEPEND UPON THE STRENGTH OF OUR SALES AND MARKETING EFFORT AND THE AVAILABILITY
OF THIRD PARTY REIMBURSEMENT.
IF WE ARE UNABLE TO ESTABLISH SALES AND MARKETING CAPABILITIES OR ENTER
INTO AGREEMENTS WITH PHARMACEUTICAL COMPANIES TO SELL AND MARKET OUR
THERAPEUTIC OR PROPHYLACTIC VACCINES, WE MAY EXPERIENCE DIFFICULTY
GENERATING REVENUES.
We do not have a sales organization and have no experience in the sales,
marketing and distribution of pharmaceutical products. If Oncophage is approved
for commercial sale, we plan to market it in the United States with our own
sales force. Developing a sales force is expensive and time consuming and could
delay any product launch. We cannot be certain that we would be able to develop
this capacity. If we are unable to establish our sales and marketing capability,
we will need to enter into sales and marketing agreements to market Oncophage in
the United States. We plan to enter into these types of arrangements for sales
outside the United States. If we are unable to establish successful distribution
relationships with pharmaceutical companies, we may fail to realize the full
sales potential of our vaccines.
If we fail to obtain adequate levels of reimbursement for our therapeutic or
prophylactic vaccines from third party payors, the commercial potential of our
therapeutic or prophylactic vaccines will be significantly limited.
Our profitability will depend on the extent to which government administration
authorities, private health insurance providers and other organizations provide
reimbursement for the cost of our therapeutic or prophylactic vaccines. Many
patients will not be capable of paying for our therapeutic or prophylactic
vaccines themselves. A primary trend in the United States health care industry
is toward cost containment. Large private payors, managed care organizations,
group purchasing organizations and similar organizations are exerting increasing
influence on decisions regarding the use of particular treatments. These
organizations are becoming increasingly economically focused. Furthermore, many
third party payors limit reimbursement for newly approved health care products.
Cost containment measures may prevent us from becoming profitable.
In addition, healthcare reform is an area of significant government focus. Any
reform measures, if adopted, could adversely affect:
- the pricing of therapeutic or prophylactic vaccines in the
United States or internationally; and
- the amount of reimbursement available from governmental
agencies or other third party payors.
For example, recent proposals regarding Medicare coverage, if they take effect,
may put novel cancer therapies like Oncophage, at a competitive disadvantage
compared to existing therapies.
PRODUCT LIABILITY AND OTHER CLAIMS AGAINST US MAY REDUCE DEMAND FOR OUR PRODUCTS
OR RESULT IN SUBSTANTIAL DAMAGES.
We face an inherent risk of product liability exposure related to testing
therapeutic or prophylactic vaccines in human clinical trials and will face even
greater risks when we sell additional therapeutic or prophylactic products
commercially. An individual may bring a product liability claim against us if
one of our therapeutic or prophylactic vaccines causes, or merely appears to
have caused, an injury. Regardless of merit or eventual outcome, product
liability claims may result in:
- decreased demand for our therapeutic or prophylactic vaccines;
- injury to our reputation;
- withdrawal of clinical trial volunteers;
- costs of related litigation; and
- substantial monetary awards to plaintiffs.
8
9
We manufacture Oncophage from a patient's tumor, and a medical professional must
inject the Oncophage into that same patient. A patient may sue us if we, a
hospital or a delivery company fails to deliver the removed tumor or that
patient's Oncophage. We anticipate that the logistics of shipping will become
more complex as the number of patients we treat increases, and we cannot assure
that all shipments will be made without incident. In addition, administration of
Oncophage at a hospital poses another chance for delivery to the wrong patient.
Currently, we do not have insurance that covers loss of or damage to Oncophage
and do not know whether insurance will be available to us at a reasonable price
or at all.
We have limited product liability coverage for clinical research use of product
candidates such as the Stimulon adjuvants and Oncophage, Quilvax and Quilimmune
products. We also maintain limited product liability insurance for the
commercial sale of our feline leukemia vaccine.
WE MAY INCUR SIGNIFICANT COSTS COMPLYING WITH ENVIRONMENTAL LAWS AND
REGULATIONS.
We use hazardous, infectious and radioactive materials that could be dangerous
to human health, safety or the environment. As appropriate, we store these
materials and various wastes resulting from their use at our facility pending
ultimate use and disposal. We are subject to a variety of federal, state and
local laws and regulations governing the use, generation, manufacture, storage,
handling and disposal of these materials and wastes resulting from their use. We
may incur significant costs complying with both existing and future
environmental laws and regulations. In particular, we are subject to regulation
by the Occupational Safety and Health Administration and the Environmental
Protection Agency and to regulation under the Toxic Substances Control Act and
the Resource Conservation and Recovery Act. OSHA or the EPA may adopt
regulations that may affect our research and development programs. We are unable
to predict whether any agency will adopt any regulations which could have a
material adverse effect on our operations.
Although we believe our safety procedures for handling and disposing of these
materials comply with federal, state and local laws and regulations, we cannot
entirely eliminate the risk of accidental injury or contamination from these
materials. In the event of an accident, we could be held liable for any
resulting damages which could be substantial.
OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR PRODUCTS, MANUFACTURING CAPABILITY OR MARKETING EXPERTISE.
Our business may fail because we face intense competition from major
pharmaceutical companies and specialized biotechnology companies engaged in the
development of therapeutic or preventive vaccines and other therapeutic products
directed at cancer, infectious diseases, autoimmune disorders, and degenerative
disorders. Many of our competitors have greater financial and human resources
and more experience. Our competitors may:
- develop safer or more effective therapeutic or preventive
vaccines and other therapeutic products;
- implement more effective approaches to sales and marketing; or
- establish superior proprietary positions.
More specifically, if we receive regulatory approvals, some of our therapeutic
or preventive vaccines will compete with well-established, FDA approved
therapies that have generated substantial sales over a number of years.
We anticipate that we will face increased competition in the future as new
companies enter our markets and scientific developments surrounding
immunotherapy and other cancer therapies continue to accelerate.
WE MAY NOT BE ABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES IN THE
BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES WHICH COULD MAKE OUR VACCINES
OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Research and discoveries by others may result in medical
insights or breakthroughs which may render our vaccines obsolete even before
they generate any revenue.
9
10
WE MAY NOT SUCCESSFULLY INTEGRATE OPERATIONS WITH OUR RECENTLY ACQUIRED
BUSINESS, AND THE INTEGRATION OF THE BUSINESSES MAY BE COSTLY.
On November 16, 2000 we acquired Aquila Biopharmaceuticals, Inc. We are
currently integrating our operations with those of Aquila. The integration
requires significant efforts from each entity, including coordinating research
and development efforts. Aquila collaborators, customers, distributors or
suppliers may terminate their arrangements with Aquila or demand new
arrangements and Aquila personnel may leave the company as a result of the
acquisition. Integrating our operations may distract management's attention from
the day-to-day business of the combined company. If we are unable to
successfully integrate the operations of the two companies or if this
integration process costs more than expected, our future results will be
negatively impacted.
OUR OFFICERS AND DIRECTORS MAY BE ABLE TO BLOCK PROPOSALS FOR A CHANGE IN
CONTROL.
Antigenics Holdings L.L.C. controls approximately 40.8% of our outstanding
common stock. Due to this concentration of ownership, Antigenics Holdings may be
able to prevail on all matters requiring a stockholder vote, including:
- the election of directors;
- the amendment of Antigenics' organizational documents; or
- the approval of a merger, sale of assets or other major
corporate transaction.
Our directors and officers, if they elect to act together, can control
Antigenics Holdings. In addition, several of Antigenics' directors and officers
directly and indirectly own shares of our common stock.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US MORE DIFFICULT.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and
our charter documents may make a change in control more difficult, even if the
stockholders desire a change in control. Our anti-takeover provisions include
provisions in our certificate of incorporation providing that stockholders'
meetings may only be called by the president or the majority of the board of
directors and a provision in our by-laws providing that our stockholders may not
take action by written consent. Additionally, our board of directors has the
authority to issue 1,000,000 shares of preferred stock and to determine the
terms of those shares of stock without any further action by our stockholders.
The rights of holders of our stock are subject to the rights of the holders of
any preferred stock that may be issued. The issuance of preferred stock could
make it more difficult for a third party to acquire a majority of our
outstanding voting stock. Our charter also provides for the classification of
our board of directors into three classes. This "staggered board" generally may
prevent stockholders from replacing the entire board in a single proxy contest.
In addition, our directors may only be removed from office for cause. Delaware
law also prohibits a corporation from engaging in a business combination with
any holder of 15% or more of its capital stock until the holder has held the
stock for three years unless, among other possibilities, the board of directors
approves the transaction. The board may use this provision to prevent changes in
our management. Also, under applicable Delaware law, our board of directors may
adopt additional anti-takeover measures in the future.
OUR STOCK HAS LOW TRADING VOLUME AND THEREFORE ITS PUBLIC TRADING PRICE MAY BE
VOLATILE.
Since our initial public offering on February 4, 2000, the per share price of
our common stock has fluctuated between $10.00 and $71.50 with an average daily
trading volume over the three months ended February 28, 2001 of approximately
90,400 shares. The market has experienced significant price and volume
fluctuations that are often unrelated to the operating performance of individual
companies. In addition to general market volatility, many factors may have a
significant adverse effect on the market price of our stock, including:
- announcements of decisions made by public officials;
- results of our preclinical and clinical trials;
10
11
- announcement of technological innovations or new commercial
products by us or our competitors;
- developments concerning proprietary rights, including patent
and litigation matters;
- publicity regarding actual or potential results with respect
to products under development by us or by our competitors;
- regulatory developments; and
- quarterly fluctuations in our revenues and other financial
results.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES COULD CAUSE THE MARKET PRICE OF OUR
STOCK TO DECLINE.
The sale by us or the resale by stockholders of shares of our stock could cause
the market price of our stock to decline. As of December 31, 2000, we had
27,316,295 shares of common stock outstanding. All of these shares are eligible
for sale on the Nasdaq National Market, although certain of the shares are
subject to sale volume and other limitations.
We have filed a registration statement to permit the sale of approximately
4,800,000 shares of common stock under our equity incentive plan and 300,000
shares of common stock under our employee stock purchase plan. As of December
31, 2000, options to purchase 2,651,796 shares of our stock upon exercise of
options with a weighted average exercise price per share of $8.49 were
outstanding. Many of these options are subject to vesting that generally occurs
over a period of up to five years following the date of grant. As of December
31, 2000, warrants to purchase 296,989 shares of Antigenics stock with a
weighted average exercise price per share of $13.98 were outstanding.
11