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EXHIBIT 99.1
ARQULE, INC.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
MARCH 1997
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 Exchange Act of 1934 and Section 27A of the Securities Act
of 1933, as enacted by the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on these
forward-looking statements which speak only as of the date on which they are
made. In addition, the Company wishes to advise readers that the factors listed
below, as well as other factors not currently identified by management, could
affect the Company's financial or other performance and could cause the
Company's 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.
The Company will not undertake and specifically declines 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, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
of the Company made by or on behalf of the Company.
Limited Operating History; History of Operating Losses; Uncertainty of
Future Profitability. The Company has had a limited operating history. For the
years ended December 31, 1994, 1995 and 1996, the Company had net losses of
approximately $4.2 million, $2.3 million and $3.0 million, respectively. As of
December 31, 1996, the Company had an accumulated deficit of approximately $10.9
million. The Company's expansion of its operations and enhancements to its
technology will result in significant expenses over the next several years that
may not be offset by significant revenues. The Company expects that revenue for
the foreseeable future and the Company's ability to achieve profitability will
be dependent upon the ability of the Company to enter into additional
collaborative arrangements with customers. To date, all revenue received by the
Company has been derived from up-front fees, payments for compound deliveries,
and research and development funding paid pursuant to collaborative agreements
with the Company's collaborative partners. The Company has not realized any
revenue from the achievement of milestones or royalties from the discovery,
development or sale of a commercial product by one of the Company's
collaborative partners, and there can be no assurance that any such revenue will
be realized. The Company is unable to predict when, or if, it will become
profitable.
Unproven Business Strategy. The Company's modular building block approach
to chemistry has not yet resulted in the commercialization of a product. The
Company uses chemical building blocks for the purpose of rapidly identifying,
optimizing and obtaining proprietary rights to as many compounds with commercial
potential as possible. The pricing and nature of the Company's programs are such
that there may only be a limited number of companies that are potential
customers for such programs. The Company's ability to succeed is dependent upon
the acceptance by potential customers of the Company's approach to chemistry and
compound analysis as an effective tool in the discovery and development of
compounds with commercial
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potential. Due to the highly proprietary nature of the activities being
conducted, the central importance of these activities to their product discovery
and development efforts, and the desire to obtain maximum patent and other
proprietary protection on the results of their internal programs,
pharmaceutical, biotechnology and agrichemical companies have historically
conducted lead compound identification and optimization within their own
research departments. There can be no assurance that the Company's present or
future collaborators will not pursue existing or alternative technology, either
independently or in collaboration with others, in preference to that of the
Company or that the Company will be able to attract future collaborators on
acceptable terms or develop a sustainable, profitable business.
Competition and the Risk of Obsolescence of Technology. Competition among
the many organizations actively attempting to identify and optimize compounds
for development in the pharmaceutical industry and in other areas is intense.
ArQule competes with the research departments of pharmaceutical companies,
biotechnology companies, agrichemical companies, co binatorial chemistry
companies and research and academic institutions. Many of these competitors have
greater financial and human resources, and more experience in research and
development, than the Company. Historically, pharmaceutical and agrichemical
companies have maintained close control over their research activities,
including the synthesis, screening and optimization of chemical compounds. Many
of these companies, which represent the greatest potential market for ArQule's
products and services, have developed or are developing internal combinatorial
chemistry and other methodologies to improve productivity, including major
investments in robotics technology to permit the automated parallel synthesis of
compounds. In addition, ArQule competes with biotechnology and combinatorial
chemistry companies that offer a range of products and services. Academic
institutions, governmental agencies and other research organizations are also
conducting research in areas in which the Company is working, either on their
own or in collaboration with others. The Company anticipates that it will face
increased competition in the future as new companies enter the market and
advanced technologies, including more sophisticated information technologies,
become available. The Company's technological approaches may be rendered
obsolete or uneconomical by advances in existing technological approaches or the
development of different approaches by one or more of the Company's competitors.
Limited Sales and Marketing Experience; Expansion of Sales Activities. To
date, the Company has sold its products to its collaborative partners primarily
through the efforts of its senior management. The Company's senior management
has limited experience in marketing products similar to those of the Company. In
order to achieve significant long-term growth in revenue and its overall
strategic goals, the Company intends to hire several dedicated sales an
marketing personnel. There can be no assurance that the Company will be able to
achieve anticipated expansion of its business, attract a significant number of
new collaborative partners as customers or build an efficient and effective
sales and marketing organization. In the event the Company is unable to achieve
any one or more of the foregoing goals, the Company's business, financial
condition and results of operations could be materially adversely affected. In
addition to the risks inherent in the Company's efforts to market its own
products, the Company's revenue from royalties and milestone payments from its
collaborative partners is substantially dependent upon the marketing efforts of
such collaborative partners as discussed below under "Dependence on Third
Parties."
Dependence on Third Parties. The Company's strategy for the development
and commercialization of its products and services involves the forma ion of
collaborative arrangements with third parties, initially pharmaceutical,
biotechnology and agrichemical companies. To date, the Company has entered into
numerous such arrangements. There can be no assurance that the Company's
existing collaborations will not be terminated under certain circumstances by
its collaborators and any such terminations could have a material adverse effect
on the Company. There can be no assurance that the Company will be able to
establish additional collaborative arrangements, that any such arrangements will
be on terms favorable to the Company, or that current or future collaborative
arrangements will ultimately be successful. Further, ArQule's receipt of revenue
from collaborative arrangements is affected by the timing of efforts expended by
third parties. The Company's products and services will result in commercialized
pharmaceutical and agrichemical products generating milestone payments and
royalties only after significant preclinical and clinical development efforts or
the completion of preliminary field trials, the receipt of the requisite
regulatory approvals, and the integration of manufacturing capabilities and
successful marketing efforts. With the exception of certain
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aspects of preclinical drug development, the Company does not currently intend
to perform any of these activities. Therefore, the Company will be dependent
upon the expertise of, and dedication of sufficient resources by, third parties
to develop and commercialize products. Should a collaborative partner fail to
develop or commercialize a compound or product to which it has obtained rights
from the Company, the Company may not receive any future milestone payments or
royalties associated with such compound or product. Furthermore, there can be no
assurance that any such development or commercialization would be successful or
that disputes will application of payment provisions to such products. There can
be no assurance that current or future collaborative partners will not pursue
alternative technologies or develop alternative products, either on their own or
in collaboration with others, including the Company's competitors, as a means
for developing alternative solutions in the areas targeted by collaborative
arrangements with the Company.
Dependence on Key Employees. The Company is highly dependent on the
principal members of its scientific and management staff, in particul r, Dr.
Joseph C. Hogan, Jr. and Dr. David L. Coffen. The loss of one or more members of
its staff could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain key
person life insurance on the life of any employee. The Company's future success
will also depend, in part, on its ability to identify, hire and retain
additional qualified personnel, including individuals with doctorates in basic
sciences. There is intense competition for such personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain personnel with the advanced technical
qualifications necessary for the development of the Company's business. Failure
to attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.
Future Capital Needs; Uncertainty of Additional Funding. The Company may
be required to raise additional capital over a period of several years in order
to conduct its operations. Such capital may be raised through additional public
or private equity financings, as well as collaborative arrangements, borrowings
and other available sources. The Company's capital requirements depend on
numerous factors, including entering into additional collaborative arrangements,
competing technological and market developments, changes in the Company's
existing collaborative relationships, the cost of filing, prosecuting, defending
and enforcing patent claims and other intellectual property rights, the purchase
of additional capital equipment, the progress of the Company's drug discovery
programs and the progress of the Company's collaborators' milestone and royalty-
producing activities. The Company does not currently plan to independently
develop, manufacture or market any products it discovers. Should the Company
choose to develop any such products, however, the Company will require
substantial funds to conduct research and development, preclinical studies,
clinical trials and field trials and to market any products that may be
developed. There can be no assurance that additional funding, if necessary, will
be available on favorable terms, if at all. If adequate funds are not available,
the Company may be required to curtail operations significantly or to obtain
funds by entering into arrangements with collaborative partners or others that
may require the Company to relinquish rights to certain of its technologies,
product candidates, products or potential markets. To the extent that additional
capital is raised through the sale of equity or securities convertible into
equity, the issuance of such securities could result in dilution to the
Company's existing stockholders.
Dependence on Scale Up and anagement of Growth. The Company's success will
depend on the expansion of its operations and the management of these expanded
operations. To be cost-effective in its delivery of services and products, the
Company must enhance productivity through further automation of its processes
and improvements to its technology. The Company also must successfully structure
and manage multiple additional collaborative relationships. There can be no
assurance that the Company will be successful in its engineering efforts to
further automate its processes or that the Company will be successful in
managing and meeting the staffing requirements of additional collaborative
relationships. Failure to achieve any of these goals could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Dependence on Patents and Proprietary Rights. ArQule has one issued patent
and has filed a num er of patent applications. There can be no assurance that
patent applications filed by ArQule will result in patents being issued, that
the claims of such patents will offer significant protection of the Company's
technology, or that any patents issued to or licensed by ArQule will not be
challenged, narrowed, invalidated or circum-
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vented. The Company believes its success will depend in large part on its
ability, and the ability of its licensees and its licensors, to obtain patents
for its technologies and the compounds and other products, if any, resulting
from the application of such technologies, to defend such patents once obtained
and to maintain trade secrets, both in the United States and in foreign
countries. In the absence of such patents, the Company may be unable to prevent
others from utilizing the Company's technology and may need to rely upon
expertise developed during pre-commercial implementation of the technology,
which may not provide the same level of competitive advantages. The commercial
success of the Company will also depend upon avoiding the infringement of
patents issued to others and maintaining the technology licenses upon which
certain of the Company's current products are, or any future products under
development might be, based.
Some of the Company's competitors have, or are affiliated with companies
having, substantially greater resources than the Company, and such competitors
may be able to sustain the costs of complex patent litigation to a greater
degree and for longer periods of time than the Company. Uncertainties resulting
from the initiation and continuation of any patent or related litigation could
have a material adverse effect on the Company's ability to compete in the
marketplace pending resolution of the disputed matters. To date, one patent has
been issued to the Company. There can be no assurance that other patents will
issue to the Company or its licensors as a result of their pending applications
or that, if issued, such patents will contain claims sufficiently broad to
afford protection against competitors with similar technology. Moreover, there
can be no assurance that the Company or its customers will be able to obtain
significant patent protection for compounds or products based upon the Company's
technology. There can be no assurance that any patents issued to the Company or
its collaborative partners, or for which the Company has license rights, will
not be challenged, narrowed, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce the Company's patent and license rights, to enforce or
defend an infringement claim, or to determine the scope and validity of others'
proprietary rights. If competitors of the Company prepare and file patent
applications in the United States or abroad that claim technology also claimed
by the Company, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine the priority of
invention, or opposition proceedings in a foreign patent office, both of which
could result in substantial cost to the Company, even if the outcome is
favorable. An adverse ouect the Company to significant liabilities to third
parties, and require the Company to cease using the technology or to license
disputed rights from third parties, which licenses may not be available at
reasonable cost.
A number of pharmaceutical, biotechnology and agrichemical companies, as
well as research and academic institutions, have developed technologies, filed
patent applications or received patents on various technologies that may be
related to the Company's business. Some of these technologies, applications or
patents may conflict with the Company's technologies or patent applications. Su
h conflicts could also limit the scope of the claim of any patents that the
Company may be able to obtain, or result in the rejection of the Company's
patent applications. The Company currently has certain licenses to patents and
patent applications from third parties, and in the future may require additional
licenses from other parties. There can be no assurance that: (i) such licenses
will be obtainable on commercially reasonable terms, if at all; (ii) the patents
underlying such licenses will be valid and enforceable; (iii) patents having
commercially valuable claims will issue from any licensed patent applications;
or (iv) the proprietary nature of any other technology underlying such licenses
will remain proprietary.
The Company relies substantially on certain technologies that are not
patentable or proprietary and are therefore available to the Company's
competitors. The Company also relies on certain proprietary trade secrets and
know-how that are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
collaborators, there can be no assurance that (i) the agreements will not be
breached; (ii) the Company would have adequate remedies for any breach; or (iii)
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors.
Potential Liability Regarding Hazardous Materials. The research and
development processes of the Company involve the controlled use of hazardous
materials. The Company is subject to federal, state and local
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laws and regulations governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products. The risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company. In
addition, 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.
Government Regulation. Although the anufacture, transportation and storage
of the Company's products are subject to the laws and regulations regarding
hazardous materials discussed in the preceding risk factor, the sale of the
Company's products is not subject to significant government regulations.
However, the Company's future profitability is dependent on the sales of
pharmaceuticals and other products developed from the Company's compounds by its
customers and collaborators. Regulation by governmental entities in the United
States and other countries may be a significant factor in the production and
marketing of products that may be developed by a customer or collaborative
partner of the Company. The nature and the extent to which such regulation may
apply to the Company's customers or its collaborative partners will vary
depending on the nature of any such products.
Virtually all pharmaceutical products developed by the Company's customers
or its collaborative partner will require regulatory approval by governmental
agencies prior to commercialization. In particular, human pharmaceutical
products are subject to rigorous preclinical and clinical testing and other
approval procedures by the U.S. Food and Drug Administration (the "FDA") and by
foreign regulatory authorities. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such pharmaceutical products.
The process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statutes and regulations are time consuming and
require the expenditure of substantial resources. Generally, in order to gain
FDA approval, a company first must conduct preclinical studies in the laboratory
and in animal models to gain preliminary information on a compound's efficacy
and to identify any safety problems. The results of these studies are submitted
as a part of an Investigational New Drug application ("IND") that the FDA must
review before human clinical trials of an investigational drug can start. In
order to commercialize any products, the Company or its customers or its
collaborative partners will be required to sponsor and file an IND and will be
responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA approval of any such
products. Clinical trials are normally done in three phases and generally take
two to five years, but may take longer, to complete. After completion of
clinical trials of a new product, FDA and foreign regulatory authority marketing
approval must be obtained. If the product is classified as a new drug, a New
Drug Application ("NDA") must be filed and approved before commercial marketing
of the drug. The testing and approval processes require substantial time and
effort and thsurance that any approval will be granted on a timely basis, if at
all. NDAs submitted to the FDA can take several years to obtain approval. Even
if FDA regulatory clearances are obtained, a marketed product is subject to
continual review, and later discovery of previously unknown problems or failure
to comply with the applicable regulatory requirements may result in restrictions
on the marketing of a product or withdrawal of the product from the market as
well as possible civil or criminal sanctions. For marketing outside the United
States, the Company will also be subject to foreign regulatory requirements
governing human clinical trials and marketing approval for pharmaceutical
products. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.
Fertilizers, pesticides and other agrichemical products sold by the
Company's collaborators will be subject to rigorous testing and approval
processes by the U.S. Environmental Protection Agency an similar regulatory
authorities in certain states and in other countries. The process of obtaining
these approvals can be time consuming and costly. There can be no assurance that
such approvals will be granted on a timely basis.
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