Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Our Management’s
Discussion and Analysis of Financial Condition and Results of Operations
includes the identification of certain trends and other statements that may
predict or anticipate future business or financial results. There are important
factors that could cause our actual results to differ materially from those
indicated. See “Risk Factors” in Item 1A. of Part II of this Quarterly Report
on Form 10-Q.
Business Overview
We are a
biotechnology company specializing in the detailed structural analysis of
complex mixture drugs. We apply our technology to the
development of generic versions of complex drug products as well as to the
discovery and development of novel drugs. Through detailed
analysis of the molecular structure of complex sugars and other complex
mixtures, we believe our proprietary technology enables us to define the
specific sequences contained in complex drugs, including those structures that had
previously not been described due to a lack of available technology. We apply our technology to the discovery and
development of novel drugs by gaining a deeper understanding of the role of
sugars in disease, such as the roles that complex sugars play in cellular
function, disease and drug action based on our analytical capabilities. With
our capabilities, we have developed a diversified pipeline of complex generic
and novel drug candidates, as well as a novel drug discovery program.
Our business strategy
is to apply our technology to develop generic versions of complex drugs, such
as M-Enoxaparin and M356, to generate product revenue, that we anticipate
will contribute to funding our novel drug discovery and development
programs. Over the long term, we expect to generate additional value by
leveraging our understanding of sugars to create novel therapeutics, which
potentially could address critical unmet medical needs in a wide range of
disease areas, including oncology, cardiovascular disease, infectious disease,
inflammation and immunology.
Our most advanced
product candidate, M-Enoxaparin, is designed to be a technology-enabled generic
version of Lovenox®, a widely prescribed low molecular weight heparin, or
LMWH. In 2003, we formed a collaboration with Sandoz N.V. and
Sandoz Inc., collectively Sandoz, affiliates of Novartis AG, to jointly
develop, manufacture and commercialize M-Enoxaparin, which we refer to as the
2003 Sandoz Collaboration. On August 29, 2005, Sandoz submitted an Abbreviated
New Drug Application, or ANDA, to the FDA for M-Enoxaparin, which was amended
in 2006 to include a paragraph IV certification stating that Sanofi-Aventis’
patents for Lovenox® listed in the FDA’s listing of approved drug products
known as the Orange Book, are, among other things, invalid or
unenforceable. In July 2006, we entered
into a series of agreements with Novartis Pharma AG and Sandoz AG, including a
Memorandum of Understanding, or MOU, with Sandoz AG, collectively referred to
as the 2006 Sandoz Collaboration. Under
the terms of the MOU, we expanded the geographic markets covered by our
collaboration efforts related to M-Enoxaparin to include the European Union and
further agreed to exclusively collaborate with Sandoz AG on the development and
commercialization of three other follow-on and complex generic products.
Since our
inception in May 2001, we have incurred annual net losses. As of March 31,
2007, we had an accumulated deficit of $142.5 million. We expect to incur substantial and increasing
losses for the next several years as we develop our product candidates, expand
our research and development activities and prepare for the commercial launch
of our product candidates. Additionally, we plan to continue to evaluate
possible acquisitions or licensing of rights to additional technologies,
products or assets that fit within our growth strategy. Accordingly, we will
need to generate significant revenues to achieve and then maintain
profitability.
Since our
inception, we have had no revenues from product sales. Our revenues have all
been derived from our 2003 Sandoz Collaboration and primarily consist of
amounts earned by us for reimbursement by Sandoz of research and development
services and development costs for M-Enoxaparin. In June 2004, we completed an initial
public offering of 6,152,500 shares of common stock, the net proceeds of which
were $35.3 million after deducting underwriters’ discounts and expenses.
In July 2005, we raised $122.3 million in a follow-on public offering, net
of expenses, from the sale and issuance of 4,827,300 shares of our common
stock. In September 2006, in connection with the 2006 Sandoz Collaboration, we
sold 4,708,679 shares of common stock to Novartis Pharma AG for an aggregate
purchase price of $75.0 million. To date, we have devoted substantially all of
our capital resource expenditures to the research and development of our
product candidates.
The biotechnology
and pharmaceutical industries in which we compete are undergoing, and are
expected to continue to undergo, rapid and significant technological change. We
expect competition to intensify as technological advances are made
12
or new biotechnology
products are introduced. To become and remain profitable, we must succeed in
rapidly developing and commercializing drugs with significant market potential.
This will require us to be successful in a range of challenging activities for
which we are only in the preliminary stages: developing drugs; obtaining
regulatory approval for them; and manufacturing, marketing and selling them. We
have invested a significant portion of our time, financial resources and
collaboration efforts in the development of our most advanced product
candidate, M-Enoxaparin. Our successful development and commercialization of
M-Enoxaparin, in collaboration with Sandoz, depends on several factors,
including: using our technology to successfully demonstrate to the FDA that
M-Enoxaparin is therapeutically equivalent to Lovenox; meeting any other FDA
requirements for marketing approval; successfully manufacturing
M-Enoxaparin in a consistent, cost-effective and reproducible manner and at a
commercial scale; achieving a favorable outcome in any patent litigation with
Sanofi-Aventis relating to enoxaparin, or a third party achieving a favorable
outcome in the pending patent litigation with Sanofi-Aventis; achieving market
acceptance of M-Enoxaparin in the medical community and with third-party
payors; and FDA approval of other generic versions of Lovenox.
Recent Developments
On April 20, 2007,
we entered into an Asset Purchase Agreement, or the Purchase Agreement, with
Parivid, LLC, or Parivid, a provider of data integration and analysis services
to us, and S. Raguram, pursuant to which we acquired certain of the assets and
assumed certain specified liabilities of Parivid related to the acquired
assets, for $2.5 million in cash paid at closing and up to $11.0 million in
contingent milestone payments in a combination of cash and/or stock.
The contingent
milestone payments are structured to include (i) potential payments of no more
than $2.0 million in cash if certain milestones are achieved within two years
from the date of the Purchase Agreement and (ii) the issuance of up to $9.0
million of our common stock to Parivid if certain other milestones are achieved
within fifteen years of the date of the Purchase Agreement. In addition, upon the completion and
satisfaction of those milestones that trigger the issuance of shares of our
common stock, we granted Parivid certain registration rights under the
Securities Act of 1933, as amended, with respect to such shares. We also entered into an employment agreement
with S. Raguram pursuant to the terms of the Purchase Agreement.
As part of our
acquisition of assets from Parivid, two previous collaboration agreements we
had in place with Parivid were terminated.
S. Raguram, the principal owner and Chief Technology Officer of Parivid,
is the brother of Ram Sasisekharan, a member of our Board of Directors. Ram Sasisekharan received no consideration in
connection with the execution of the Purchase Agreement. We recorded $1.0
million, $0.7 million and $1.0 million as research and development expense
related to work performed by Parivid in the years ended December 31, 2006, 2005
and 2004, respectively.
Financial Operations Overview
Revenue
We have not yet
generated any revenue from product sales and are uncertain whether or not we
will generate any revenue from the sale of products over the next several
years. We have recognized, in the aggregate, $40.5 million of revenue from our
inception through March 31, 2007. This revenue was derived entirely from our
2003 Sandoz Collaboration. We will seek
to generate revenue from a combination of research and development payments,
profit sharing payments, milestone payments and royalties in connection with
our 2003 and 2006 Sandoz Collaborations and similar future collaborative or
strategic relationships. We expect that any revenue we generate will fluctuate
from quarter to quarter as a result of the timing and amount of research and
development and other payments received under our collaborative or strategic
relationships, and the amount and timing of payments we receive upon the sale
of our products, to the extent any are successfully commercialized.
Research and
Development
Research and
development expenses consist of costs incurred in identifying, developing and
testing product candidates. These expenses consist primarily of salaries and
related expenses for personnel, license fees, consulting fees, contract
research and manufacturing, and the costs of laboratory equipment and
facilities. We expense research and development costs as incurred.
13
The following
summarizes our primary research and development programs:
Development
Programs
M-Enoxaparin
Our most advanced
product candidate, M-Enoxaparin, is designed to be a generic version of
Lovenox. Lovenox is a widely-prescribed
LMWH used for the prevention and treatment of deep vein thrombosis, or DVT, and
to support the treatment of acute coronary syndromes, or ACS.
Under
our 2003 Sandoz Collaboration, we work with Sandoz exclusively to develop,
manufacture and commercialize M-Enoxaparin in the U.S. and Sandoz is
responsible for funding substantially all of the U.S.-related M-Enoxaparin
development, regulatory, legal and commercialization costs. The total cost of
development and commercialization, and the timing of M-Enoxaparin product
launch, are subject to uncertainties relating to the development, regulatory
approval and legal processes. In accordance with our 2003 Sandoz Collaboration,
Sandoz submitted ANDAs to the FDA for M-Enoxaparin in syringe and vial forms
seeking approval to market M-Enoxaparin in the United States. The syringe ANDA
was subsequently amended in 2006 to include a paragraph IV certification
stating that Sanofi-Aventis’ patents listed in the Orange Book for Lovenox are,
among other things, invalid and unenforceable.
The FDA is
currently reviewing the M-Enoxaparin ANDAs, including our manufacturing data
and technology and characterization methodology. In parallel, and in
collaboration with Sandoz, we are focused on activities related to supporting
the FDA’s review of the ANDA and preparing for the commercialization of
M-Enoxaparin, if and when approved, by advancing manufacturing, supply chain,
and sales and marketing objectives.
Our 2006 Sandoz
Collaboration expanded our collaboration efforts related to M-Enoxaparin to
include the European Union. Under the 2006 Sandoz Collaboration, we will
share certain development, regulatory, legal and commercialization costs as
well as a portion of the profits, if any.
M118
M118 is a novel
anticoagulant drug that was rationally designed with the goal of providing
improved clinical anticoagulant properties to support the treatment of patients
diagnosed with ACS and stable angina. We believe that M118 has the
potential to provide baseline anticoagulant therapy to treat patients with ACS
or stable angina who require invasive treatment, as well as those ACS patients
who are medically managed, or do not require invasive treatment. M118 is designed to be a reversible and
monitorable anticoagulant that can be administered intravenously or
subcutaneously and have a pharmacokinetic profile similar to other LMWHs.
We believe that these properties of M118 have the potential to provide greater
flexibility than other therapies presently used to treat patients diagnosed
with ACS and stable angina.
In July 2006, we
filed our Investigational New Drug Application, or IND, with the FDA for our
M118 intravenous injection product, and in October 2006 began Phase I clinical
trials to evaluate its human safety, tolerability and pharmacokinetic
profile. In April 2007, we filed our IND
for our M118 subcutaneous product.
M356
M356 is targeted to be a technology-enabled generic
version of Copaxone®, a complex drug consisting of a mixture of polypeptide
chains. Copaxone is indicated for reduction of the frequency of relapses in
patients with Relapse-Remitting Multiple Sclerosis. Multiple sclerosis is a chronic disease of
the central nervous system characterized by inflammation and
neurodegeneration. In North America, Copaxone is marketed through Teva
Neuroscience LLC, a wholly owned subsidiary of Teva Pharmaceutical Industries
Ltd., and distributed by Sanofi-Aventis. Teva and Sanofi-Aventis have an
additional collaborative arrangement for the marketing of Copaxone in Europe
and other markets, under which Copaxone is either co-promoted with Teva or is
marketed solely by Sanofi-Aventis. Under our 2006 Sandoz Collaboration,
we and Sandoz jointly develop, manufacture and commercialize M356. We are
responsible for funding substantially all of the U.S.-related M356 development
costs, with Sandoz responsible for regulatory, legal and commercialization
costs. Outside of the U.S., we and Sandoz share equally the development costs,
with Sandoz responsible for commercialization and legal costs.
14
Glycoproteins
Our glycoprotein
program is focused on extending our technology for the analysis of complex
sugars to glycoproteins. The goal of the program is to facilitate the
development of follow-on versions of major marketed glycoprotein drugs.
In addition, we believe we can assist pharmaceutical and biotechnology
companies in developing improved versions of their branded glycoprotein products
by analyzing and modifying the sugar structures contained in the
products.
Most glycoprotein
drugs have been approved by the FDA under the Biological Licensing Application,
or BLA, regulatory pathway. These glycoprotein drugs, which include drugs like
erythropoietin, blood clotting factors and interferon beta, exist as complex
mixtures and contain various modifications, including branched sugars that vary
from molecule to molecule, that affect their key clinical properties. Many of
these products have not been thoroughly characterized to date given their
complexity and the inadequacies in standard analytic technology. This makes
them ideal candidates for application of Momenta’s characterization technology.
Under our 2006
Sandoz Collaboration, we are currently applying our technology to develop two
follow-on proteins in partnership with Sandoz.
We refer to these two product candidates as M178 and M249.
M-Dalteparin
M-Dalteparin is
targeted to be a technology-enabled generic version of Fragmin®, a LMWH
product. Fragmin is indicated for the prevention of DVT and selected
indications in ACS. In September 2005, Eisai Inc., a U.S. pharmaceutical
subsidiary of Eisai Co. Ltd., obtained U.S. promotion rights to Fragmin from
Pfizer Inc. Fragmin is marketed by Pfizer in Europe and by Kissei
Pharmaceutical Co., Ltd. in Japan. Through our technology, we believe we
have the ability to analyze Fragmin and develop a generic product that can be
demonstrated to be therapeutically equivalent to Fragmin. The M-Dalteparin program has been
reprioritized in light of other more commercially attractive opportunities.
Discovery Program
We are also
applying our analytical capabilities to drug discovery. Our discovery program is focused on the role
that complex sugars play in biological systems, including regulating the
development and progression of disease. Our initial focus is in the area of
cancer, which is a disease characterized by unregulated cell growth, where we
are seeking to discover sugar sequences with anti-cancer properties for
development as therapeutics. Sugars play a part in the conversion of normal
cells into cancerous cells, the regulation of tumor growth and tumor invasion
and metastasis. We believe that our technology can provide us with a better
understanding of the role of sugars in disease, enabling us to discover novel
sugar therapeutics, as well as to discover new disease mechanisms that can be
targeted with other small molecule and biologic drugs.
General and Administrative
General and
administrative expenses consist primarily of salaries and other related costs
for personnel in executive, finance, legal, accounting, investor relations,
business development and human resource functions. Other costs include facility
and insurance costs not otherwise included in research and development expenses
and professional fees for legal and accounting services and other general
expenses.
Results of Operations
Three Months Ended March 31, 2007 and 2006
Revenue
Revenues for the
three months ended March 31, 2007 and 2006 were $2.2 million and $2.5 million,
respectively, which were entirely attributable to our 2003 Sandoz
Collaboration. These revenues consist of
amounts earned by us for reimbursement by Sandoz of research and development
services and reimbursement of development costs for M-Enoxaparin and
amortization of the initial payment received under our 2003 Sandoz
Collaboration. Under the 2003 Sandoz Collaboration, Sandoz bears the costs of
commercial activities. The decrease in
revenues is a result of the decrease in
15
reimbursable development
activities. As we prepare for the launch
of M-Enoxaparin, development activities are decreasing while commercial
activities are increasing.
We have not
recognized any revenue to date from the 2006 Sandoz Collaboration. We will
commence amortization of the $13.6 million representing the excess of the
purchase price of $15.93 per share of common stock purchased by Novartis Pharma
AG over the closing price of $13.05 per share on July 24, 2006, the last
trading day of our common stock before execution of the 2006 Sandoz
Collaboration, as collaboration revenue when we can reasonably estimate the
period of ongoing involvement or performance obligations under the 2006 Sandoz
Collaboration. We expect to be able make such an estimate later in 2007 when a
definitive collaboration and license agreement is executed with Sandoz AG.
Research and
Development
The following
table summarizes the primary components of our research and development expense
for our principal research and development programs for the three months ended
March 31, 2007 and 2006:
|
|
|
(in thousands)
|
|
|
Research and Development Program
|
|
2007
|
|
2006
|
|
|
Development
programs
|
|
$
|
12,142
|
|
$
|
7,175
|
|
|
Discovery
programs
|
|
997
|
|
1,273
|
|
|
Other research
|
|
633
|
|
997
|
|
|
|
|
|
|
|
|
|
Total research and
development expense
|
|
$
|
13,772
|
|
$
|
9,445
|
|
Research and
development expense for the three months ended March 31, 2007 was $13.8 million
compared to $9.4 million during the three months ended March 31, 2006. The increase of $4.4 million from 2006 to
2007 principally resulted from an increase of $1.7 million in personnel and
related costs, $1.1 million in manufacturing and research provided by third
parties, $0.6 million in lab expenses, $0.5 million in stock-based compensation
and $0.3 million in facilities costs.
The increase in
expenditures on our development programs of $5.0 million was primarily related
to the expenses of our M356 and glycoprotein programs. The decrease in expenditures on our discovery
program of $0.3 million was primarily attributed to decreased drug delivery
program expenditures of $0.7 million due to the termination of the program in
late 2006, offset by increased disease biology program expenditures of $0.4
million.
The decrease in
other research expense of $0.3 million was primarily due to a decrease in
headcount and headcount related costs relating to general technology
development and support activities.
General and
Administrative
General and
administrative expense for the three months ended March 31, 2007 was $7.7
million compared to $6.0 million during the three months ended March 31,
2006. The increase of $1.7 million was
primarily due to an increase of $1.1 million in personnel and related costs and
$0.6 million in stock-based compensation.
Interest Income
and Expense
Interest income
increased to approximately $2.5 million for the three months ended March 31,
2007 from approximately $1.7 million for the three months ended March 31, 2006,
primarily due to higher average investment balances as a result of the proceeds
from the issuance of common stock to Novartis Pharma AG in September 2006. Interest expense increased to approximately
$0.2 million for the three months ended March 31, 2007 from approximately $0.1
million for the three months ended March 31, 2006, due to additional amounts
drawn from our equipment line of credit during 2006.
Liquidity and Capital Resources
We have financed our
operations since inception primarily through the sale of equity securities,
payments from our 2003 Sandoz Collaboration, borrowings from our lines of
credit and capital lease obligations.
16
At March 31, 2007
we had $176.7 million in cash, cash equivalents and marketable securities. In
addition, we also hold $4.7 million in restricted cash that serves as
collateral for letters of credit related to our facility leases. Net cash used in operating activities for the
three months ended March 31, 2007 and 2006 was $13.5 million and $6.6 million,
respectively. The use of cash in each period was primarily a result of net
losses associated with our research and development activities and
administrative costs.
Net cash provided
by investing activities for the three months ended March 31, 2007 and 2006 was
$7.5 million and $10.2 million, respectively. In the first three months
of 2007, we used $81.6 million of cash to purchase marketable securities and
had $91.7 million in maturities of marketable securities.
Net cash used in
financing activities for the three months ended March 31, 2007 was $0.2
million. We received proceeds of $0.3 million from stock option exercises and
purchases of common shares through our Employee Stock Purchase Plan, offset by
principal payments of $0.1 million on financed leasehold improvements related
to our corporate facility and $0.4 million on our line of credit and lease
agreement obligations. Net cash provided
by financing activities for the three months ended March 31, 2006 was $0.9
million. We had net borrowings of $0.8 million on an equipment lease agreement
entered into in December 2005, and received proceeds of $0.3 million from
stock option exercises and purchases of common shares through our Employee
Stock Purchase Plan, offset by principal payments of $0.2 million on our line
of credit obligations.
We anticipate that
our current cash, cash equivalents and short-term investments will be
sufficient to fund our operations through at least 2008. However, our forecast
of the period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially.
Contractual
Obligations
Our major
outstanding contractual obligations relate to license maintenance obligations,
short and long-term line of credit obligations and capital and operating lease
obligations. The disclosures relating to our contractual obligations in our
Annual Report on Form 10-K for the year ended December 31, 2006 have
not materially changed since we filed that report.
Critical Accounting Policies and Estimates
Our discussion and
analysis of our financial condition and results of operations are based on our
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods.
On an on-going basis, we evaluate our estimates and judgments, including those
related to revenue, accrued expenses and certain equity instruments. Prior to
the initial public offering of our stock, we also evaluated our estimates and
judgments regarding the fair valuation assigned to our common stock. We base
our estimates on historical experience, known trends and events and various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
We believe the
following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our financial statements.
Revenue
We record revenue
on an accrual basis as it is earned and when amounts are considered collectible.
Revenues received in advance of performance obligations or in cases where we
have a continuing obligation to perform services are deferred and recognized
over the performance period. Revenues from milestone payments that represent
the culmination of a separate earnings process are recorded when the milestone
is achieved. Contract revenues are recorded as the services are performed. When
we are required to defer revenue, the period over which such revenue should be
recognized is subject to estimates by management and may change over the term
of the performance obligation.
17
Accrued Expenses
As part of the
process of preparing financial statements, we are required to estimate accrued
expenses. This process involves identifying services which have been performed
on our behalf, and estimating the level of service performed and the associated
cost incurred for such service as of each balance sheet date in our financial
statements. Examples of estimated expenses for which we accrue include contract
service fees paid to contract manufacturers in conjunction with the production
of clinical drug supplies and to contract research organizations. In connection
with such service fees, our estimates are most affected by our understanding of
the status and timing of services provided relative to the actual levels of
services incurred by such service providers. The majority of our service
providers invoice us monthly in arrears for services performed. In the event
that we do not identify certain costs, which have begun to be incurred, or we
under- or over-estimate the level of services performed or the costs of such
services, our reported expenses for such period would be too low or too high.
The date on which certain services commence, the level of services performed on
or before a given date and the cost of such services are often determined based
on subjective judgments. We make these judgments based upon the facts and
circumstances known to us and in accordance with generally accepted accounting
principles.
Stock-Based
Compensation
We adopted
Statement of Financial Accounting Standards, or SFAS, No. 123 (revised
2004),
Share Based Payment
, or
SFAS 123R, effective January 1, 2006 under the modified prospective
transition method. SFAS 123R requires the recognition of the fair value of
stock-based compensation expense in our operations, and accordingly the
adoption of SFAS No. 123R fair value method has had and will continue to
have a significant impact on our results of operations, although it will have
no impact on our overall financial position. Option valuation models require
the input of highly subjective assumptions, including stock price volatility
and expected term of an option. Changes in market price directly affect volatility
and could cause future stock-based compensation expense to vary significantly
in future reporting periods. The
compensation cost for stock options and our ESPP that has been incurred during
the three months ended March 31, 2007 is $1.6 million. At March 31, 2007, the total unrecognized
compensation cost related to non-vested stock options was $14.9 million.
The cost is expected to be recognized over a weighted average period of
2.8 years.
Due to our limited
historical share options exercise data and the characteristics of our share
options, we follow the simplified method of estimating the expected term, as
described in the U.S. Securities and Exchange Commission, or SEC, issued Staff
Accounting Bulletin, or SAB, No. 107,
Share-Based Payments,
or SAB 107. The expected term is derived from
the average midpoint between vesting and the contractual term. We update these
assumptions on a quarterly basis to reflect recent historical data.
Additionally, we are required to estimate forfeiture rates to estimate the
number of shares that will vest in a period to which the fair value is applied.
The value of our restricted stock awards is recognized as
compensation cost in our consolidated statement of operations over each award’s
explicit or implicit service periods. We
estimate an award’s implicit service period based on our best estimate of the
period over which an award’s vesting conditions will be achieved. We reevaluate these estimates on a quarterly
basis and will recognize any remaining unrecognized compensation as of the date
of an estimate revision over the revised remaining implicit service
period. At March 31, 2007, the total
unrecognized compensation cost related to non-vested restricted stock awards
was $8.0 million. The costs are expected
to be recognized over a weighted-average period of 1.7 years.
Item
3.
Quantitative
and Qualitative Disclosures About Market Risk.
We are exposed to
market risk related to changes in interest rates. Our current investment policy
is to maintain an investment portfolio consisting mainly of U.S. money market
and high-grade corporate securities, directly or through managed funds, with
maturities of twenty-four months or less. Our cash is deposited in and invested
through highly rated financial institutions in North America. Our marketable
securities are subject to interest rate risk and will fall in value if market
interest rates increase. If market interest rates were to increase immediately
and uniformly by 10% from levels at March 31, 2007, we estimate that the fair value
of our investment portfolio would decline by an immaterial amount. While our
cash and investment balances have increased as a result of our initial and
follow-on public offerings, we have the ability to hold our fixed income
investments until maturity, and therefore we would not expect our operating
results or cash flows to be affected to any significant degree by the effect of
a change in market interest rates on our investments.
Item
4.
Controls
and Procedures.
Our management,
with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures
as of March 31, 2007. The term “disclosure controls and procedures,” as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934,
means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s
rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act of 1934 is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure. Our
management
18
recognizes that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of March 31, 2007, our chief executive officer and
chief financial officer concluded that, as of such date, our disclosure
controls and procedures were effective at the reasonable assurance level.
No change in our
internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the fiscal quarter ended March 31, 2007 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
19
PART II. OTHER INFORMATION
Item
1A. Risk Factors
Statements
contained or incorporated by reference in this Quarterly Report on
Form 10-Q that are not based on historical fact are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. These forward-looking statements
regarding future events and our future results are based on current
expectations, estimates, forecasts, projections, intentions, goals, strategies,
plans, prospects and the beliefs and assumptions of our management including,
without limitation, our expectations regarding results of operations, general
and administrative expenses, research and development expenses, current and
future development and manufacturing efforts, regulatory filings, clinical
trial results and the sufficiency of our cash for future operations.
Forward-looking statements can be identified by terminology such as “anticipate,”
“believe,” “could,” “could increase the likelihood,” “hope,” “target,” “project,”
“goals,” “potential,” “predict,” “might,” “estimate,” “expect,” “intend,” “is
planned,” “may,” “should,” “will,” “will enable,” “would be expected,” “look
forward,” “may provide,” “would” or similar terms, variations of such terms or
the negative of those terms.
We
cannot assure investors that our assumptions and expectations will prove to
have been correct. Important factors could cause our actual results to differ
materially from those indicated or implied by forward-looking statements. Such
factors that could cause or contribute to such differences include those
factors discussed below. We undertake no intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. If any of the following risks actually occur, our
business, financial condition or results of operations would likely suffer.
The following discussion includes two revised risk factors (“We will need to develop or acquire additional
technologies as part of our efforts to analyze the chemical composition of
complex mixtures other than heparins,”
and “If we are not able to demonstrate therapeutic equivalence for our
generic versions of complex drugs, including M-Enoxaparin, to the satisfaction
of the FDA, we will not obtain regulatory approval for commercial sale of our
generic product candidates, and our future results of operations will be
adversely affected”), that reflect developments subsequent to the
discussion of risk factors included in our most recent Annual Report on
Form 10-K.
Risks
Relating to Our Business
We have a limited operating history and have incurred a
cumulative loss since inception. If we do not generate significant revenues, we
will not be profitable.
We have incurred
significant losses since our inception in May 2001. At March 31, 2007, our
accumulated deficit was approximately $142.5 million. We have not generated
revenues from the sale of any products to date. We expect that our annual
operating losses will increase over the next several years as we expand our
drug commercialization, development and discovery efforts. To become
profitable, we must successfully develop, and obtain regulatory approval for,
our existing drug candidates, and effectively manufacture, market and sell any
drugs we develop. Accordingly, we may never generate significant revenues and,
even if we do generate significant revenues, we may never achieve
profitability.
To become and
remain profitable, we must succeed in developing and commercializing drugs with
significant market potential. This will require us to be successful in a range
of challenging activities: developing drugs; obtaining regulatory approval for
them; and manufacturing, marketing and selling them. We may never succeed in
these activities and may never generate revenues that are significant or large
enough to achieve profitability. Even if we do achieve profitability, we may
not be able to sustain or increase profitability on a quarterly or annual
basis. Our failure to become and remain profitable would cause the market price
of our common stock to decrease and could impair our ability to raise capital,
expand our business, diversify our product offerings or continue our
operations.
If we fail to obtain approval for and commercialize our most
advanced product candidate, M-Enoxaparin, we may have to curtail our product
development programs and our business would be materially harmed.
We have invested a
significant portion of our time, financial resources and collaboration efforts
in the development of our most advanced product candidate, M-Enoxaparin, a
technology-enabled generic version of Lovenox. Our near-term ability to
generate revenues and our future success, in large part, depends on the
development and commercialization of M-Enoxaparin.
20
In accordance with
our 2003 Sandoz Collaboration, Sandoz submitted an ANDA to the FDA on
August 29, 2005 seeking approval to market M-Enoxaparin in the United
States. FDA approval of an ANDA is required before marketing of a generic
equivalent of a drug previously approved under an NDA. If we are unable to
satisfactorily demonstrate therapeutic equivalence, if the FDA disagrees with
our characterization approach or does not agree that M-Enoxaparin is equivalent
to Lovenox, or if we otherwise fail to meet FDA requirements for the ANDA
(including but not limited to manufacturing and bioequivalence requirements) or
obtain FDA approval for, and successfully commercialize, M-Enoxaparin, we may
never realize revenue from this product and we may have to curtail our other
product development programs. As a result, our business would be materially harmed.
Patent litigation with Sanofi-Aventis, the innovator of
Lovenox, may cause delays and additional expense in the commercialization of
M-Enoxaparin. If we are not successful in commercializing M-Enoxaparin or
are significantly delayed in doing so, our business would be materially harmed,
which could include without limitation the curtailment of our other development
programs.
Companies that
produce branded pharmaceutical products for which there are unexpired patents
listed in the FDA’s listing of approved drug products, the Orange Book, often
bring patent infringement litigation against applicants seeking FDA approval to
manufacture and market generic forms of the branded products before patent
expiration. Litigation against Sandoz, us or others with respect to
Lovenox may cause delays and additional expense in the commercialization of
M-Enoxaparin.
Currently,
Sanofi-Aventis has two listed patents for Lovenox in the Orange Book, the ‘618
Patent and the ‘743 Reissue Patent. Sanofi-Aventis has reported that the
claims of the ‘618 Patent are identical or substantially identical to the
corresponding claims of the ‘743 Reissue Patent. According to
Sanofi-Aventis, by operation of law, the ‘618 Patent ceases to exist and has
been replaced by the ‘743 Reissue Patent. According to the Orange Book,
the ‘743 Reissue Patent expires February 14, 2012.
Sanofi-Aventis has
brought lawsuits for patent infringement; one against Amphastar and Teva, and a
second, separate patent infringement lawsuit pending against Sandoz.
Amphastar/Teva Patent Infringement Lawsuit
In September 2003,
prior to issuance of the ‘743 Reissue Patent, Sanofi-Aventis announced that it
received individual notices from Amphastar and Teva indicating that each had
submitted with the FDA its own ANDA with a paragraph IV certification for
enoxaparin. Sanofi-Aventis sued Amphastar and Teva for patent
infringement, and in response Amphastar and Teva asserted claims of
non-infringement, invalidity and/or unenforceability of the ‘618 Patent, as
well as various counterclaims, and sought related declaratory judgment relief
against Sanofi-Aventis. In
September 2005, Amphastar and Teva each subsequently amended their own ANDAs to
include a second paragraph IV certification for the ‘743 Reissue Patent.
On June 16, 2005,
the District Court granted summary judgment in the Amphastar/Teva case, finding
that the ‘743 Reissue Patent was unenforceable due to Aventis’ inequitable
conduct before the United States Patent and Trademark Office, or USPTO.
Thereafter, Sanofi-Aventis appealed the decision to the U.S. Court of Appeals
for the Federal Circuit, or the Court of Appeals. On April 10, 2006, the Court of Appeals
determined that, although there were no issues of material fact with respect to
the materiality of certain information withheld from the USPTO, there remained
genuine issues of material fact regarding the intent to deceive the
USPTO. Accordingly, the Court of Appeals reversed the District Court’s
ruling and remanded the case to the District Court for further proceedings
consistent with the Court of Appeals’ decision.
The District Court held a bench trial in December 2006 focused only on
inequitable conduct. On February 7, 2007 the District Court ruled in
favor of Amphastar and Teva holding both the ‘618 Patent and the ‘743 Reissue
Patent unenforceable by virtue of inequitable conduct before the USPTO. Sanofi-Aventis has filed a Notice to Appeal
appeal this ruling. If Sanofi-Aventis is
successful in its appeal, all other remaining issues regarding invalidity,
non-infringement and unenforceability could be subsequently tried by the
District Court, if necessary.
Sandoz
Patent Infringement Lawsuit
In August 2005,
Sandoz filed an ANDA with the FDA to obtain approval for the commercial
manufacture, use and sale of enoxaparin.
In 2006, Sandoz amended its ANDA by filing with the FDA a paragraph IV
certification, stating, among
21
other things, that the ‘618
Patent and ‘743 Reissue Patent are invalid and unenforceable. Sanofi-Aventis brought a patent infringement
suit against Sandoz in August 2006. In
response to Sanofi-Aventis’ lawsuit, Sandoz asserted, among other things,
claims of invalidity and/or unenforceability of the ‘743 Reissue Patent. At this time, no trial date has been set for
this litigation. Sandoz has moved to
dismiss the suit based upon the District Court decision in the Amphastar/Teva
case, and that motion is pending.
Continuing
litigation could delay or prevent the introduction of M-Enoxaparin and
Sanofi-Aventis’ efforts to litigate against potential generic challengers to
protect its intellectual property around Lovenox may not be limited to
enforcement of the ‘743 Reissue Patent.
Pharmaceutical companies also frequently sue generic challengers over
potential infringement of patents that are not listed in the Orange Book. Presently, we are not aware of any litigation
relating to non-Orange Book patents, but it is possible that Sanofi-Aventis
will initiate such litigation against us, Sandoz, Teva, Amphastar, or others in
the future. If Sanofi-Aventis were to
initiate litigation relating to a non-Orange Book patents, this litigation
could significantly delay, impair or prevent our ability to commercialize
M-Enoxaparin and our business would be materially harmed.
Under our 2003
Sandoz Collaboration, in most circumstances, the decision as to when to begin
marketing M-Enoxaparin will be determined jointly by us and Sandoz.
Sandoz, however, has sole discretion over the decision as to when to begin
marketing M-Enoxaparin under certain circumstances. Sandoz could decide
to market M-Enoxaparin prior to final resolution of either the Teva and
Amphastar or Sandoz litigation matters, which could result in significant
damages, including possibly treble damages, in the event Sanofi-Aventis is
successful in either patent litigation case.
Although Sandoz has agreed to indemnify us for patent liability damages,
Sandoz’s has the right to offset certain of these liabilities against the
profit-sharing amounts, the royalties and the milestone payments otherwise due
to us from the marketing of M-Enoxaparin.
Litigation
involves many risks and uncertainties, and there is no assurance that
Amphastar, Teva, Sandoz or we will prevail in any lawsuit with
Sanofi-Aventis. In addition, Sanofi-Aventis has significant resources and
any litigation with Sanofi-Aventis could last a number of years, potentially
delaying or prohibiting the commercialization of M-Enoxaparin. If we are
not successful in commercializing M-Enoxaparin or are significantly delayed in
doing so, we may have to curtail our other product development programs and our
business would be materially harmed.
If other generic versions of enoxaparin are approved and
successfully commercialized, our business would suffer.
In March 2003,
Amphastar and Teva each submitted ANDAs for generic versions of Lovenox with
the FDA. In addition, other third
parties, including without limitation Sanofi-Aventis, may seek approval to
market generic versions of Lovenox in the United States. If a competitor obtains FDA approval or obtains
licenses from Sanofi-Aventis to market an authorized generic, the resulting
financial returns to us would be materially adversely affected. Under these circumstances, we may not gain
any competitive advantage and the resulting market price for our M-Enoxaparin
product may be lower, we may be delayed from commercial launch or we may not be
able to launch our product at all. Also, we may never achieve significant
market share for M-Enoxaparin if one or more third parties markets generic
versions of Lovenox. Under the
Hatch-Waxman Act, any developer of a generic drug that is first to have its
ANDA accepted for review by the FDA, and whose submission includes a paragraph
IV certification, is eligible to receive a 180-day period of generic market
exclusivity. Sandoz was not the first
applicant to file an enoxaparin ANDA with a paragraph IV certification, so we
will be forced to wait until the expiration of Teva and/or Amphastar’s
exclusivity period before the FDA will be able to finally approve our application.
As a result, Teva and/or Amphastar may have the opportunity to establish long
term supply agreements with institutional customers before we can enter the
market, which would hinder our ability to penetrate the market for generic
enoxaparin products
The 2003 Sandoz
Collaboration contains terms which specify the sharing of commercial returns of
M-Enoxaparin between us and Sandoz.
Under circumstances when one or more third parties successfully
commercialize a generic version of Lovenox, significantly less favorable
economic terms would be triggered under our collaboration with Sandoz.
Consequently, if other generic versions of Lovenox are approved and
commercialized, our revenues for M-Enoxaparin would be reduced and, as a
result, our business, including our near-term financial results and our ability
to fund future discovery and development programs, would suffer.
If our other generic versions of our generic and novel drug
products are approved and successfully commercialized, our business would
suffer.
We expect that
certain of our generic product candidates may face intense and increasing
competition from other manufacturers of generic and/or branded products. As patents for branded products and related
exclusivity periods expire,
22
manufacturers of generic
products may receive regulatory approval for generic equivalents and may be
able to achieve significant market penetration. As this happens, or as branded
manufacturers launch authorized generic versions of such products, market
share, revenues and gross profit typically decline, in some cases,
dramatically. If any of our generic product offerings, including M-Enoxaparin,
enter markets with a number of competitors, we may not achieve significant
market share, revenues or gross profit. In addition, as other generic products
are introduced to the markets in which we participate, the market share,
revenues and gross profit of our generic products could decline.
We utilize new technologies in the development of some of
our products that have not been reviewed or accepted by regulatory authorities.
Some of our
products in current or future development, including M-Enoxaparin and M356, may
be based on new technologies that have not previously been formally reviewed or
accepted by the FDA or other regulatory authorities. It is possible that the
FDA’s review and acceptance of our technologies may take time and resources,
require independent third-party analysis or not be accepted by the FDA and
other regulatory authorities. For some of our products, the regulatory approval
path and requirements may not be clear, which could add significant delay and
expense. Delays or failure to obtain regulatory approval of any of the products
that we develop would adversely affect our business.
If we experience manufacturing difficulties or are unable to
obtain sufficient quantities of raw materials or manufacture sufficient
quantities of M-Enoxaparin, our development and commercialization efforts may
be materially harmed.
We have limited
personnel with experience in, and we do not own facilities for, manufacturing
any products. We depend upon third parties to provide raw materials,
manufacture the drug substance, produce the final drug product and provide
certain analytical services with respect to M-Enoxaparin. We or our third party
contractors may have difficulty meeting FDA manufacturing requirements,
including but not limited to, reproducibility, validation and scale-up, and
continued compliance with current good manufacturing practices requirements. In addition, we or our third party
contractors may have difficulty producing M-Enoxaparin in the quantities
necessary to meet anticipated market demand.
If we are unable to satisfy the FDA requirements for approval or to
produce M-Enoxaparin in sufficient quantities to meet the requirements for the
launch of the product or to meet future demand, our revenues and gross margins
could be adversely affected.
We will need to develop or acquire additional technologies
as part of our efforts to analyze the chemical composition of complex mixtures
other than heparins.
To date, our
analytical techniques and methods have been primarily focused on the
characterization of complex mixtures composed of linear sugars, such as those
found in the heparin class of drugs. In order to adequately analyze other
complex mixtures, such as glycoproteins, we will need to develop or acquire new
technologies. Our inability to develop or acquire and apply these new
technologies would impair our ability to develop improved, next-generation or
follow-on versions of existing products. Our inability to develop or acquire
additional technology for the characterization of complex mixtures other than
heparins could reduce the likelihood of our success developing other products.
Competition in the biotechnology and pharmaceutical
industries is intense, and if we are unable to compete effectively, our
financial results will suffer.
The markets in
which we intend to compete are undergoing, and are expected to continue to
undergo, rapid and significant technological change. We expect competition to
intensify as technological advances are made or new biotechnology products are
introduced. New developments by competitors may render our current or future
product candidates and/or technologies non-competitive, obsolete or not economical.
Our competitors’ products may be more efficacious or marketed and sold more
effectively than any of our products.
Many of our
competitors have:
·
significantly greater financial,
technical and human resources than we have at every stage of the discovery,
development, manufacturing and commercialization process;
·
more
extensive experience in commercializing generic drugs, preclinical testing,
conducting clinical trials, obtaining regulatory approvals, challenging patents
and in manufacturing and marketing pharmaceutical products;
·
products
that have been approved or are in late stages of development; and
·
collaborative
arrangements in our target markets with leading companies and research
institutions.
23
If we successfully
develop and obtain approval for our drug candidates, we will face competition
based on many different factors, including:
·
the
safety and effectiveness of our products;
·
the
timing and scope of regulatory approvals for these products;
·
the
availability and cost of manufacturing, marketing and sales capabilities;
·
the
effectiveness of our marketing and sales capabilities;
·
the
price of our products;
·
the
availability and amount of third-party reimbursement for our products; and
·
the strength
of our patent position.
Our competitors
may develop or commercialize products with significant advantages in regard to
any of these factors. Our competitors may therefore be more successful in
commercializing their products than we are, which could adversely affect our
competitive position and business.
If we are unable to establish and maintain key customer
arrangements, sales of our products, and therefore revenues, would decline.
Generic
pharmaceutical products are sold through various channels, including retail,
mail order, and to hospitals through group purchasing organizations, or GPOs.
As enoxaparin is primarily a hospital-based product, we expect to derive a
large percentage of our future revenue for M-Enoxaparin through contracts with
GPOs. Currently, a relatively small number of GPOs control a substantial
portion of generic pharmaceutical sales to hospital customers. In order to
establish and maintain contracts with these GPOs, we believe that we, in
collaboration with Sandoz, will need to maintain adequate drug supplies, remain
price competitive, comply with FDA regulations and provide high-quality
products. The GPOs with whom we hope to establish contracts may also have
relationships with our competitors and may decide to contract for or otherwise
prefer products other than ours, limiting access of M-Enoxaparin to certain
hospital segments. Our sales could also be negatively affected by any rebates,
discounts or fees that are required by our customers, including the GPOs,
wholesalers, distributors, retail chains or mail order services, to gain and
retain market acceptance for our products. M356 is primarily distributed
through retail channels and mail order services. If we are unable to establish
and maintain arrangements with all of these customers, future sales of our
products, including M-Enoxaparin and M356, our revenues and our profits would
suffer.
Even if we receive approval to market our drug candidates,
the market may not be receptive to our drug candidates upon their commercial
introduction, which could prevent us from being profitable.
Even if our drug
candidates are successfully developed, our success and growth will also depend
upon the acceptance of these drug candidates by physicians and third-party
payors. Acceptance of our product development candidates will be a function of
our products being clinically useful, being cost effective and demonstrating
superior therapeutic effect with an acceptable side effect profile as compared
to existing or future treatments. In addition, even if our products achieve
market acceptance, we may not be able to maintain that market acceptance over
time.
Factors that we
believe will materially affect market acceptance of our drug candidates under
development include:
·
the
timing of our receipt of any marketing approvals, the terms of any approval and
the countries in which approvals are obtained;
·
the
safety, efficacy and ease of administration of our products;
·
the
competitive pricing of our products;
·
the
success of our physician education and marketing programs;
·
the
sales and marketing efforts of competitors; and
·
the
availability and amount of government and third-party payor reimbursement.
If our products do not
achieve market acceptance, we will not be able to generate sufficient revenues
from product sales to maintain or grow our business.
We will require substantial additional funds to execute our
business plan and, if additional capital is not available, we may need to
limit, scale back or cease our operations.
As of March 31,
2007, we had cash, cash equivalents and marketable securities totaling $176.7
million. For the three months ended March 31, 2007, we had a net loss of $17.0
million and used cash in operating activities of $13.5 million. We will
continue to require substantial funds to conduct research and development, process
development, manufacturing,
24
preclinical testing and
clinical trials of our drug candidates, as well as funds necessary to
manufacture and market any products that are approved for commercial sale.
Because successful development of our drug candidates is uncertain, we are
unable to estimate the actual funds we will require to complete research and
development and commercialize our products under development.
Our future capital
requirements may vary depending on the following:
·
the
timing of FDA approval of the products of our competitors;
·
the
advancement of our generic product candidates and other development programs;
·
the
cost of litigation, including potential patent litigation with Sanofi-Aventis
relating to Lovenox that is not otherwise covered by our collaboration
agreement, or potential patent litigation with others, as well as any damages,
including possibly treble damages, that may be owed to Sanofi-Aventis or others
should we be unsuccessful in such litigation;
·
the
time and costs involved in obtaining regulatory approvals;
·
the
continued progress in our research and development programs, including
completion of our preclinical studies and clinical trials;
·
the
potential acquisition and in-licensing of other technologies, products or assets;
and
·
the cost of
manufacturing, marketing and sales activities, if any.
We may seek
additional funding in the future and intend to do so through collaborative
arrangements and public or private equity and debt financings. Additional funds
may not be available to us on acceptable terms or at all. In addition, the
terms of any financing may adversely affect the holdings or the rights of our
stockholders. If we are unable to obtain funding on a timely basis, we may be
required to significantly curtail one or more of our research or development
programs. We also could be required to seek funds through arrangements with
collaborators or others that may require us to relinquish rights to some of our
technologies, product candidates or products which we would otherwise pursue on
our own.
If we are not able to retain our current senior management
team or attract and retain qualified scientific, technical and business
personnel, our business will suffer.
We are dependent
on the members of our senior management team for our business success. Our
employment arrangements with our executive officers are terminable by either
party on short notice or no notice. We do not carry life insurance on the lives
of any of our personnel. The loss of any of our executive officers would result
in a significant loss in the knowledge and experience that we, as an
organization, possess and could cause significant delays, or outright failure,
in the development and approval of our product candidates. In addition, our
growth will require us to hire a significant number of qualified scientific and
administrative personnel. There is intense competition from numerous
pharmaceutical and biotechnology companies, universities, governmental entities
and other research institutions, for human resources, including management, in
the technical fields in which we operate, and we may not be able to attract and
retain qualified personnel necessary for the successful development and
commercialization of our product candidates.
There is a substantial risk of product liability claims in
our business. If our existing product liability insurance is insufficient, a
product liability claim against us that exceeds the amount of our insurance
coverage could adversely affect our business.
Our business
exposes us to significant potential product liability risks that are inherent
in the development, manufacturing and marketing of human therapeutic products.
Product liability claims could delay or prevent completion of our development
programs. If we succeed in marketing
products, such claims could result in a recall of our products or a change in
the indications for which they may be used. While we currently maintain product
liability insurance coverage that we believe is adequate for our current
operations, we cannot be sure that such coverage will be adequate to cover any
incident or all incidents. Furthermore, clinical trial and product liability
insurance is becoming increasingly expensive. As a result, we may be unable to
maintain sufficient insurance at a reasonable cost to protect us against losses
that could have a material adverse effect on our business. These liabilities
could prevent or interfere with our product development and commercialization
efforts.
25
As we evolve from a company primarily involved in drug
discovery and development into one that is also involved in the
commercialization of drug products, we may have difficulty managing our growth
and expanding our operations successfully.
As we advance our
drug candidates through the development process, we will need to expand our
development, regulatory, manufacturing, sales and marketing capabilities or
contract with other organizations to provide these capabilities for us. As our
operations expand, we expect that we will need to manage additional
relationships with various collaborative partners, suppliers and other
organizations. Our ability to manage our operations and growth requires us to
continue to improve our operational, financial and management controls,
reporting systems and procedures. Such growth could place a strain on our
administrative and operational infrastructure. We may not be able to make
improvements to our management information and control systems in an efficient
or timely manner and may discover deficiencies in existing systems and
controls.
We may acquire or make investments in companies or
technologies that could adversely effect our business and financial results.
We may in the future
acquire or invest in companies, products and technologies. Such transactions
involve a number of risks, including:
·
we
may find that the acquired company or assets do not further our business
strategy, or that we overpaid for the company or assets, or that economic
conditions change, all of which may generate a future impairment charge;
·
difficulty
integrating the operations and personnel of the acquired business, and
difficulty retaining the key personnel of the acquired business;
·
difficulty
incorporating the acquired technologies;
·
difficulties
or failures with the performance of the acquired technologies or drug products;
·
we
may face product liability risks associated with the sale of the acquired
company’s products;
·
disruption
or diversion of management’s attention by transition or integration issues and
the complexity of managing diverse locations;
·
difficulty
maintaining uniform standards, internal controls, procedures and policies;
·
the
acquisition may result in litigation from terminated employees or
third-parties; and
·
we may experience
significant problems or liabilities associated with product quality, technology
and legal contingencies.
These factors
could have a material adverse effect on our business, results of operations and
financial condition or cash flows, particularly in the case of a larger
acquisition or multiple acquisitions in a short period of time. From time to
time, we may enter into negotiations for acquisitions that are not ultimately
consummated. Such negotiations could result in significant diversion of management
time, as well as out-of-pocket costs.
The consideration
paid in connection with an acquisition also affects our financial results. If
we were to proceed with one or more significant acquisitions in which the
consideration included cash, we could be required to use a substantial portion
of our available cash to consummate any acquisition. To the extent we issue
shares of stock or other rights to purchase stock, including options or other
rights, existing stockholders may be diluted and earnings per share may
decrease. In addition, acquisitions may result in the incurrence of debt, large
one-time write-offs and restructuring charges. They may also result in goodwill
and other intangible assets that are subject to impairment tests, which could
result in future impairment charges.
Risks
Relating to Development and Regulatory Approval
If we are not able to demonstrate therapeutic equivalence
for our generic versions of complex drugs, including M-Enoxaparin, to the
satisfaction of the FDA, we will not obtain regulatory approval for commercial
sale of our generic product candidates, and our future results of operations
will be adversely affected.
Our future results
of operations depend, to a significant degree, on our ability to obtain
regulatory approval for and commercialize generic versions of complex drugs,
including M-Enoxaparin. We will be required to demonstrate to the satisfaction
of the FDA, among other things, that our generic products contain the same
active ingredients, are of the same
26
dosage form, strength and
route of administration as the branded products upon which they are based, and
meet compendial or other applicable standards for strength, quality, purity and
identity, including potency. In addition, we may be required to conduct
in vivo
studies to demonstrate that our
generic versions of complex drugs are bioequivalent, meaning typically that
there are no significant differences between the generic drug and its branded
counterpart with respect to the rate and extent to which the active ingredients
are absorbed and become available at the site of drug action.
Determination of
the same active ingredients for our generic versions of complex drugs will be
based on our demonstration of chemical equivalence to the respective reference
listed drugs. The FDA may not agree that we have adequately characterized our
products or that our products are equivalent to their respective branded drugs.
The FDA may require additional information, including, for example, animal or
human testing, to determine therapeutic equivalence and that any inactive
ingredients or impurities do not compromise the product’s safety and efficacy.
Provision of sufficient information for approval may prove difficult, time
consuming and expensive. We must also demonstrate the adequacy of our methods,
controls and facilities used in the manufacture of the product, including that
they meet current good manufacturing practices, or cGMP. We cannot predict
whether any of our generic product candidates will meet FDA requirements for
approval.
In the event that
the FDA modifies its current standards for therapeutic equivalence with respect
to generic versions of Lovenox or other complex drug products, does not
establish standards for interchangeability for generic versions of complex drug
products, or requires us to conduct clinical trials or other lengthy processes,
the commercialization of some of our development candidates could be delayed or
prevented. Delays in any part of the process or our inability to obtain
regulatory approval for our products could adversely affect our operating
results by restricting or significantly delaying our introduction of new
products.
If the FDA is not able to establish specific guidelines or
arrive at a consensus regarding the scientific analyses required for characterizing
follow-on versions of complex protein drugs, and if the U.S. Congress does not
take action to create an abbreviated regulatory pathway for protein products,
then the uncertainty about the value of our glycoprotein program will be
increased.
The regulatory
climate for follow-on versions of protein products in the U.S. remains
uncertain. Although there has been
recent legislative activity, there is currently no established statutory or
regulatory pathway for approval of follow-on versions of most protein drugs.
The FDA has approved the majority of protein products under the Public Health
Service Act, or PHSA, through the use of BLAs. Unlike drugs approved through
the submission of NDAs, under section 505 of the Federal Food, Drug, and
Cosmetic Act, or the FDCA, there is no provision in the PHSA for an abbreviated
BLA approval pathway, and the FDA has stated it does not believe it has the
authority to rely on prior BLA approvals or on their underlying data to approve
follow-on products. Moreover, even for proteins originally approved as
NDAs, there is uncertainty as to what data the FDA may deem is necessary to
demonstrate the sameness required for approval of an ANDA under section 505(j)
of the FDCA. In addition, there has been
opposition to the FDA’s use of section 505(b)(2), which allows an applicant to
rely on information from published scientific literature and/or a prior
approval of a similar drug, to approve follow-on versions of protein and other
complex drug products approved under section 505 of the FDCA.
Although the FDA
has previously stated its intention to draft guidance that is broadly
applicable to follow-on protein products, the agency has not issued such
guidance to date and may never do so.
Protracted timelines and failure of the FDA to establish standards for
approval of follow-on protein products or of the U.S. Congress to enact
legislation establishing an abbreviated pathway for approval for follow-on
products to approved BLA products could reduce the value of, or render obsolete,
our glycoprotein program.
If our preclinical studies and clinical trials for our
development candidates, including M118, are not successful, we will not be able
to obtain regulatory approval for commercial sale of our novel or improved drug
candidates.
To obtain
regulatory approval for the commercial sale of our novel or improved drug
candidates, we are required to demonstrate through preclinical studies and
clinical trials that our drug development candidates are safe and effective.
Preclinical testing and clinical trials of new development candidates are
lengthy and expensive and the historical failure rate for development
candidates is high.
A failure of one
or more of our preclinical studies or clinical trials can occur at any stage of
testing. We may experience numerous
unforeseen events during, or as a result of, preclinical testing and the
clinical trial process that could delay or prevent our ability to receive
regulatory approval or commercialize M118 or our other drug candidates,
including:
27
·
regulators or institutional review boards may not authorize us to
commence a clinical trial or conduct a clinical trial at a prospective trial
site;
·
our preclinical studies or clinical trials may produce negative or
inconclusive results, and we may be required to conduct additional preclinical
studies or clinical trials or we may abandon projects that we expect to be
promising;
·
enrollment in our clinical trials may be slower than we anticipate,
resulting in significant delays, and participants may drop out of our clinical
trials at a higher rate than we anticipate;
·
we might have to suspend or terminate our clinical trials if the
participants are being exposed to unacceptable health risks;
·
regulators or institutional review boards may require that we hold,
suspend or terminate clinical research for various reasons, including
noncompliance with regulatory requirements;
·
the cost of our clinical trials may be greater than we anticipate; and
·
the effects of our drug candidates may
not be the desired effects or may include undesirable side effects or the
product candidates may have other unexpected characteristics.
The results from
preclinical testing of a development candidate may not predict the results that
will be obtained in human clinical trials.
If we are required to conduct additional clinical trials or other
testing of M118 or our product candidates beyond those that we currently
contemplate, if we are unable to successfully complete our clinical trials or
other tests, or if the results of these trials are not positive or are only
modestly positive, we may be delayed in obtaining marketing approval for our
drug candidates or we may not be able to obtain marketing approval at all. Our product development costs will also
increase if we experience delays in testing or approvals. Significant clinical trial delays could allow
our competitors to bring products to market before we do and impair our ability
to commercialize our products or potential products. If any of this occurs, our business will be
materially harmed.
Failure to obtain regulatory approval in foreign
jurisdictions would prevent us from marketing our products abroad.
We intend in the
future to market our products outside of the United States. In order to market
our products in the European Union and many other foreign jurisdictions, we
must obtain separate regulatory approvals and comply with the numerous and
varying regulatory requirements of each jurisdiction. The approval procedure
and requirements varies among countries, and can require, among other things,
submitting or conducting additional testing in each jurisdiction. The time
required to obtain approval abroad may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include all of the risks
associated with obtaining FDA approval, and we may not obtain foreign
regulatory approvals on a timely basis, if at all. Approval by the FDA does not
ensure approval by regulatory authorities in other countries, and approval by
one foreign regulatory authority does not ensure approval by regulatory
authorities in any other foreign country or by the FDA. We and our
collaborators may not be able to file for regulatory approvals and may not
receive necessary approvals to commercialize our products in any market outside
of the United States. The failure to obtain these approvals could materially
adversely affect our business, financial condition and results of operations.
Even if we obtain regulatory approvals, our marketed drugs
will be subject to ongoing regulatory review. If we fail to comply with
continuing United States and foreign regulations, we could lose our approvals
to market drugs and our business would be seriously harmed.
Even after
approval, any drug products we develop will be subject to ongoing regulatory
review, including the review of clinical results which are reported after our
drug products are made commercially available. In addition, the manufacturer
and manufacturing facilities we use to produce any of our drug candidates will
be subject to periodic review and inspection by the FDA. We will be required to
report any serious and unexpected adverse experiences and certain quality
problems with our products and make other periodic reports to the FDA. The
discovery of any new or previously unknown problems with the product,
manufacturer or facility may result in restrictions on the drug or manufacturer
or facility, including withdrawal of the drug from the market. Certain changes
to an approved product, including in the way it is manufactured or promoted,
often require prior FDA approval before the product as modified may be
marketed. If we fail to comply with applicable continuing regulatory
requirements, we may be subject to warning letters, civil penalties, suspension
or withdrawal of regulatory approvals, product recalls and seizures,
injunctions, operating restrictions and/or criminal prosecutions and
penalties. In addition, neither we, nor
any of our third-party collaborators, are permitted to employ in any capacity,
any individual who has been debarred under the FDA’s Application Integrity
Policy, and if such person is or has been so employed, the FDA may delay its
review and approval of some or all of our applications, reject certain studies,
withdraw approval of our applications, and take other adverse administrative
action against us.
28
If third-party payors do not adequately reimburse customers
for any of our approved products, they might not be purchased or used, and our
revenues and profits will not develop or increase.
Our revenues and
profits will depend heavily upon the availability of adequate reimbursement for
the use of our approved product candidates from governmental and other
third-party payors, both in the United States and in foreign markets.
Reimbursement by a third-party payor may depend upon a number of factors,
including the third-party payor’s determination that use of a product is:
·
a
covered benefit under its health plan;
·
safe,
effective and medically necessary;
·
appropriate
for the specific patient;
·
cost-effective;
and
·
neither
experimental nor investigational.
Obtaining
reimbursement approval for a product from each government or other third-party
payor is a time-consuming and costly process that could require us to provide
supporting scientific, clinical and cost-effectiveness data for the use of our
products to each payor. We may not be able to provide data sufficient to gain
acceptance with respect to reimbursement. There is substantial uncertainty
whether any particular payor will reimburse the use of any drug products
incorporating new technology. Even when a payor determines that a product is
eligible for reimbursement, the payor may impose coverage limitations that
preclude payment for some uses that are approved by the FDA or comparable authority.
Moreover, eligibility for coverage does not imply that any product will be
reimbursed in all cases or at a rate that allows us to make a profit or even
cover our costs. Interim payments for new products, if applicable, may also not
be sufficient to cover our costs and may not be made permanent. Reimbursement
rates may vary according to the use of the product and the clinical setting in
which it is used, may be based on payments allowed for lower-cost products that
are already reimbursed, may be incorporated into existing payments for other
products or services, and may reflect budgetary constraints and/or
imperfections in Medicare, Medicaid or other data used to calculate these
rates. Net prices for products may be reduced by mandatory discounts or rebates
required by government health care programs or by any future relaxation of laws
that restrict imports of certain medical products from countries where they may
be sold at lower prices than in the United States.
There have been,
and we expect that there will continue to be, federal and state proposals to
constrain expenditures for medical products and services, which may affect
payments for our products. The Centers for Medicare and Medicaid Services, or
CMS, frequently change product descriptors, coverage policies, product and
service codes, payment methodologies and reimbursement values. Third-party
payors often follow Medicare coverage policy and payment limitations in setting
their own reimbursement rates, and both CMS and other third-party payors may
have sufficient market power to demand significant price reductions. Due in
part to actions by third-party payors, the health care industry is experiencing
a trend toward containing or reducing costs through various means, including
lowering reimbursement rates, limiting therapeutic class coverage and
negotiating reduced payment schedules with service providers for drug products.
Our inability to
promptly obtain coverage and profitable reimbursement rates from
government-funded and private payors for our products could have a material
adverse effect on our operating results and our overall financial condition.
New federal legislation will increase the pressure to reduce
prices of pharmaceutical products paid for by Medicare, which could adversely
affect our revenues, if any.
The Medicare
Prescription Drug Improvement and Modernization Act of 2003, or MMA, changed
the way Medicare covers and reimburses for pharmaceutical products. The
legislation introduced a new reimbursement methodology based on average sales
prices for drugs that are used in hospital settings or under the direct
supervision of a physician and, starting in 2006, expanded Medicare coverage
for drug purchases by the elderly. In addition, the MMA requires the creation
of formularies for self-administered drugs, and provides authority for limiting
the number of drugs that will be covered in any therapeutic class and provides
for plan sponsors to negotiate prices with manufacturers and suppliers of
covered drugs. As a result of the MMA and the expansion of federal coverage of
drug products, we expect continuing pressure to contain and reduce costs of
pharmaceutical products. Cost reduction initiatives and other provisions of
this legislation could decrease the coverage and price that we receive for our
products and could materially adversely affect our operating results and
overall financial condition. While the MMA generally applies only to drug
benefits for Medicare beneficiaries, private payors often follow Medicare
coverage policy and payment limitations in setting their own reimbursement
policies, and any reduction in coverage or payment that results from the MMA
may result in a similar reduction in coverage or payments from private payors.
29
Congress has
considered separate legislation, which if enacted, would permit more widespread
re-importation of drugs from foreign countries into the United States and which
may include re-importation from foreign countries where drugs are frequently
sold at lower prices than in the United States; other proposed legislation
would remove restrictions on CMS’ ability to negotiate discounts directly with
prescription drug manufacturers provided through the Medicare program.
Such legislation, or similar regulatory changes, could decrease the
amount of reimbursement we receive for any approved products which, in turn,
could materially adversely affect our operating results and our overall
financial condition.
If efforts by manufacturers of branded products to delay or
limit the use of generics are successful, our sales of technology-enabled
generic products may suffer.
Many manufacturers
of branded products have increasingly used legislative, regulatory and other
means to delay competition from manufacturers of generic drugs. These efforts
have included:
·
settling
patent lawsuits with generic companies, resulting in such patents remaining an
obstacle for generic approval by others;
·
innovator
companies settling paragraph IV patent litigation with generic companies to
prevent the expiration of the 180-day generic marketing exclusivity period or
to delay the triggering of such exclusivity period;
·
submitting
Citizen Petitions to request the Commissioner of Food and Drugs to take
administrative action with respect to prospective and submitted generic drug
applications;
·
seeking
changes to the United States Pharmacopeia, an industry recognized compilation
of drug standards;
·
pursuing
new patents for existing products or processes which may issue before the
expiration of one patent, which could extend patent protection for a number of
years or otherwise delay the launch of generic drugs; and
·
attaching
special patent extension amendments to unrelated federal legislation.
In February
2003, Aventis filed a Citizen Petition with the FDA requesting that the FDA
withhold approval of any ANDA for a generic version of Lovenox until and unless
the FDA determines that the manufacturing process used by the generic applicant
is equivalent to the process used to make Lovenox, or until the generic
applicant demonstrates through clinical trials that its product is equally safe
and effective as Lovenox, and unless the generic product is shown to contain a
specific molecular structure. Teva,
Amphastar, and others have filed comments opposing the Petition, and Aventis
has filed at least three supplements and numerous reply comments in support of
its Petition. The FDA has yet to rule on
the Petition, and if the FDA ultimately grants the Petition, we and Sandoz may
be unable to obtain approval of our ANDA for M-Enoxaparin, which would materially
harm our business.
Further, some
manufacturers of branded products have engaged in state-by-state initiatives to
enact legislation that restrict the substitution of some branded drugs with
generic drugs. If these efforts to delay or block competition are successful,
we may be unable to sell our generic products, which could have a material
adverse effect on our sales and profitability.
Foreign governments tend to impose strict price controls,
which may adversely affect our revenues, if any.
In some foreign
countries, particularly the countries of the European Union, the pricing of
prescription pharmaceuticals is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. To
obtain reimbursement or pricing approval in some countries, we may be required
to conduct a clinical trial that compares the cost-effectiveness of our product
candidate to other available therapies. If reimbursement of our products is
unavailable or limited in scope or amount, or if pricing is set at
unsatisfactory levels, our business could be adversely affected.
If we do not comply with laws regulating the protection of
the environment and health and human safety, our business could be adversely
affected.
Our research and
development involves, and may in the future involve, the use of hazardous
materials and chemicals and certain radioactive materials and related
equipment. For the years ended December 31, 2006, 2005 and 2004, we spent
approximately $31,000, $19,000, and $25,000, respectively, in order to comply
with environmental and waste disposal regulations. Although we believe that our safety
procedures for handling and disposing of these materials comply with the
standards mandated by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. If an
accident occurs, we could be held liable for resulting damages, which could be
substantial. We are
30
also subject to numerous
environmental, health and workplace safety laws and regulations, including
those governing laboratory procedures, exposure to blood-borne pathogens and
the handling of biohazardous materials. Although we maintain workers’ compensation
insurance as prescribed by the Commonwealth of Massachusetts and, for claims
not covered by workers’ compensation insurance, employer’s liability insurance,
to cover us for costs and expenses we may incur due to injuries to our
employees resulting from the use of these materials, this insurance may not
provide adequate coverage against potential liabilities. We do not maintain
insurance for environmental liability or toxic tort claims that may be asserted
against us. Additional federal, state and local laws and regulations affecting
our operations may be adopted in the future. We may incur substantial costs to
comply with, and substantial fines or penalties if we violate, any of these
laws or regulations.
Risks
Relating to Patents and Licenses
If we are not able to obtain and enforce patent protection
for our discoveries, our ability to successfully commercialize our product
candidates will be harmed and we may not be able to operate our business
profitably.
Our success
depends, in part, on our ability to protect proprietary methods and
technologies that we develop under the patent and other intellectual property
laws of the United States and other countries, so that we can prevent others
from using our inventions and proprietary information. However, we may not hold
proprietary rights to some patents related to our current or future product
candidates. Because patent applications in the United States and many foreign
jurisdictions are typically not published until 18 months after filing, or
in some cases not at all, and because publications of discoveries in scientific
literature lag behind actual discoveries, we cannot be certain that we were the
first to make the inventions claimed in issued patents or pending patent
applications, or that we were the first to file for protection of the
inventions set forth in our patent applications. As a result, we may be
required to obtain licenses under third-party patents to market our proposed
products. If licenses are not available to us on acceptable terms, or at all,
we will not be able to market the affected products.
Our strategy
depends on our ability to rapidly identify and seek patent protection for our
discoveries. This process is expensive and time consuming, and we may not be
able to file and prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. Despite our efforts to protect our
proprietary rights, unauthorized parties may be able to obtain and use
information that we regard as proprietary. The issuance of a patent does not
guarantee that it is valid or enforceable, so even if we obtain patents, they
may not be valid or enforceable against third parties. In addition, the
issuance of a patent does not guarantee that we have the right to practice the
patented invention. Third parties may have blocking patents that could be used
to prevent us from marketing our own patented product and practicing our own
patented technology.
Our pending patent
applications may not result in issued patents. The patent position of
pharmaceutical or biotechnology companies, including ours, is generally
uncertain and involves complex legal and factual considerations. The standards
which the USPTO and its foreign counterparts use to grant patents are not
always applied predictably or uniformly and can change. There is also no
uniform, worldwide policy regarding the subject matter and scope of claims
granted or allowable in pharmaceutical or biotechnology patents. The laws of
some foreign countries do not protect proprietary information to the same
extent as the laws of the United States, and many companies have encountered
significant problems and costs in protecting their proprietary information in
these foreign countries. Accordingly, we do not know the degree of future
protection for our proprietary rights or the breadth of claims allowed in any
patents issued to us or to others. The allowance of broader claims may increase
the incidence and cost of patent interference proceedings and/or opposition
proceedings, and the risk of infringement litigation. On the other hand, the
allowance of narrower claims may limit the value of our proprietary rights. Our
issued patents may not contain claims sufficiently broad to protect us against
third parties with similar technologies or products, or provide us with any
competitive advantage. Moreover, once they have issued, our patents and any
patent for which we have licensed or may license rights may be challenged,
narrowed, invalidated or circumvented. If our patents are invalidated or
otherwise limited, other companies will be better able to develop products that
compete with ours, which could adversely affect our competitive business
position, business prospects and financial condition.
We also rely on
trade secrets, know-how and technology, which are not protected by patents, to
maintain our competitive position. If any trade secret, know-how or other
technology not protected by a patent were to be disclosed to or independently
developed by a competitor, our business and financial condition could be
materially adversely affected.
31
Our competitors may allege that we are infringing their
intellectual property, forcing us to expend substantial resources in resulting
litigation, the outcome of which would be uncertain. Any unfavorable outcome of
such litigation could have a material adverse effect on our business, financial
position and results of operations
.
If any party
successfully asserts that we are infringing their intellectual property or that
our creation or use of proprietary technology infringes upon their intellectual
property rights, we might be forced to incur expenses to litigate the claims
and pay damages, potentially including treble damages, if we are found to have
willfully infringed such parties’ patent rights. In addition, if we are
unsuccessful in litigation, or pending the outcome of litigation, a court could
issue a temporary injunction or a permanent injunction preventing us from
marketing and selling the patented drug or other technology for the life of the
patent that we have allegedly or been deemed to have infringed. Litigation
concerning patents, other forms of intellectual property and proprietary
technologies is becoming more widespread and can be protracted and expensive,
and can distract management and other key personnel from performing their
duties for us.
Any legal action
against us or our collaborators claiming damages and seeking to enjoin any
activities, including commercial activities relating to the affected products,
and processes could, in addition to subjecting us to potential liability for
damages, require us or our collaborators to obtain a license in order to
continue to manufacture or market the affected products and processes. Any
license required under any patent may not be made available on commercially acceptable
terms, if at all. In addition, some licenses may be non-exclusive, and
therefore, 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 effectively market some of our technology and
products, which could limit our ability to generate revenues or achieve
profitability and possibly prevent us from generating revenue sufficient to
sustain our operations.
If we become involved in patent litigation or other
proceedings, we could incur substantial costs, substantial liability for
damages and may be required to stop our product commercialization efforts.
We may need to
resort to litigation to enforce a patent issued to us or to determine the scope
and validity of third-party patent or other proprietary rights in jurisdictions
where we intend to market our products, including the United States, the
European Union, and many other foreign jurisdictions. Alternatively, we may be subject to claims of
patent infringement in jurisdictions where we intend to market our
products. The cost to us of any
litigation or other proceeding relating to determining the validity of
intellectual property rights, even if resolved in our favor, could be substantial
and could divert our management’s efforts. Some of our competitors may be able
to sustain the costs of complex patent litigation more effectively than we can
because they may have substantially greater resources. Moreover, the failure to obtain a favorable
outcome in any litigation in a jurisdiction where there is a claim of patent
infringement could significantly delay marketing of our products in that
particular jurisdiction. The costs and
uncertainties resulting from the initiation and continuation of any litigation
could limit our ability to continue our operations.
We in-license a significant portion of our proprietary
technologies and if we fail to comply with our obligations under any of the
related agreements, we could lose license rights that are necessary to develop
our product candidates.
We are a party to
and rely on a number of in-license agreements with third parties, such as those
with the Massachusetts Institute of Technology, that give us rights to
intellectual property that is necessary for our business. In addition, we
expect to enter into additional licenses in the future. Our current in-license
arrangements impose various development, royalty and other obligations on
us. If we breach our obligations with
regard to our exclusive in-licenses, they could be converted to non-exclusive
licenses or the agreements could be terminated, which would result in our being
unable to develop, manufacture and sell products that are covered by the
licensed technology.
Risks
Relating to Our Dependence on Third Parties
Our 2003 Sandoz Collaboration and 2006 Sandoz Collaboration
are important to our business. If Sandoz fails to adequately perform under
either collaboration, or we or Sandoz terminate all or a portion of either
collaboration, the development and commercialization of some of our drug
candidates, including injectable enoxaparin, would be delayed or terminated and
our business would be adversely affected.
Under our 2003
Sandoz Collaboration, we and Sandoz agree to exclusively work with each other
in the development and commercialization of injectable enoxaparin within the
United States. We also granted to Sandoz the right to negotiate additional
rights for certain products under certain circumstances. Under our 2006 Sandoz
Collaboration, we and Sandoz agree to exclusively work with each other in the
development and commercialization of four follow-on and complex generic
32
products for sale in
specified regions of the world, including M356 and the expansion of
M-Enoxaparin activity into the European Union.
2003 Sandoz Collaboration
Either
we or Sandoz may terminate the 2003 Sandoz Collaboration for material uncured
breaches or certain events of bankruptcy or insolvency by the other party.
Sandoz may also terminate the 2003 Sandoz Collaboration if the injectable
enoxaparin product or the market lacks commercial viability, if new laws or
regulations are passed or court decisions rendered that substantially diminish
our legal avenues for redress, or, in multiple cases, if certain costs exceed mutually
agreed upon limits. If the 2003 Sandoz Collaboration is terminated other than
due to our uncured breach or bankruptcy, we will be granted an exclusive
license under certain intellectual property of Sandoz to develop and
commercialize injectable enoxaparin in the United States. In that event, we
would need to expand our internal capabilities or enter into another
collaboration, which could cause significant delays that could prevent us from
completing the development and commercialization of injectable enoxaparin. If Sandoz terminates the 2003 Sandoz
Collaboration due to our uncured breach or bankruptcy, Sandoz would retain the
exclusive right to develop and commercialize injectable enoxaparin in the
United States. In that event, we would no longer have any influence over the
development or commercialization strategy of injectable Enoxaparin in the
United States. In addition, Sandoz would retain its rights of first negotiation
with respect to certain of our other products in certain circumstances and its
rights of first refusal outside of the United States and the European Union.
Accordingly, if Sandoz terminates the 2003 Sandoz Collaboration, our
introduction of M-Enoxaparin may be significantly delayed, we may decide to
discontinue the M-Enoxaparin project, or our revenues may be reduced, any one
of which could have a material adverse effect on our business.
2006 Sandoz Collaboration
Either
we or Sandoz may terminate the 2006 Sandoz Collaboration for material uncured
breaches or certain events of bankruptcy or insolvency by the other party. In
addition, the following termination rights apply to some of the products, on a
product-by-product basis: (i) if clinical trials are required, (ii) at Sandoz’
convenience within a certain time period, (iii) if the parties agree, or the
relevant regulatory authority states in writing, that our intellectual property
does not contribute to product approval, or (iv) if Sandoz decides to
permanently cease development and commercialization of a product. For some of the products, for any termination
of the 2006 Sandoz Collaboration other than a termination by Sandoz due to our
uncured breach or bankruptcy, or a termination by us alone due to the need for
clinical trials, we will be granted an exclusive license under certain
intellectual property of Sandoz to develop and commercialize the particular
product. In that event, we would need to expand our internal capabilities or
enter into another collaboration, which could cause significant delays that
could prevent us from completing the development and commercialization of such
product. For some products, if Sandoz
terminates the 2006 Sandoz Collaboration due to our uncured breach or
bankruptcy, or if there is a termination by us alone due to the need for
clinical trials, Sandoz would retain the exclusive right to develop and
commercialize the applicable product. In that event, we would no longer have
any influence over the development or commercialization strategy of such
product. In addition, for other
products, if Sandoz terminates the 2006 Sandoz Collaboration due to our uncured
breach or bankruptcy, Sandoz retains a right to license certain of our
intellectual property without the obligation to make any additional payments
for such licenses. For certain products,
if the 2006 Sandoz Collaboration is terminated other than due to our uncured
breach or bankruptcy, neither party will have a license to the other party’s
intellectual property. In that event, we
would need to expand our internal capabilities or enter into another
collaboration, which could cause significant delays that could prevent us from
completing the development and commercialization of such product. Accordingly, if the 2006 Sandoz Collaboration
is terminated, our introduction of certain products may be significantly
delayed, or our revenues may be significantly reduced either of which could
have a material adverse effect on our business.
We depend on third-parties for the manufacture of products.
If in the future we encounter difficulties in our supply or manufacturing
arrangements, our business may be materially adversely affected.
We
have limited personnel with experience in, and we do not own facilities for,
manufacturing any products. In addition, we do not have, and do not intend to
develop, the ability to manufacture material for our clinical trials or at
commercial scale. To develop our drug candidates, apply for regulatory
approvals and commercialize any products, we or our partners need to contract
for or otherwise arrange for the necessary manufacturing facilities and
capabilities. As a result, we expect generally to rely on contract
manufacturers for regulatory compliance. If our contract manufacturers were to
breach or terminate their manufacturing arrangements with us, the development
or commercialization of the affected products or drug candidates could be
delayed, which could have a material adverse effect on our business. In
addition, any change in our
33
manufacturers could be
costly because the commercial terms of any new arrangement could be less
favorable and because the expenses relating to the transfer of necessary
technology and processes could be significant.
We
have relied upon third parties to produce material for preclinical studies and
may continue to do so in the future. Although we believe that we will not have
any material supply issues, we cannot be certain that we will be able to obtain
long-term supply arrangements of those materials on acceptable terms, if at
all. If we are unable to arrange for third-party manufacturing, or to do so on
commercially reasonable terms, we may not be able to complete development of
our products or market them.
In
addition, the FDA and other regulatory authorities require that our products be
manufactured according to cGMP regulations. Any failure by us or our
third-party manufacturers to comply with cGMP, and/or our failure to scale-up
our manufacturing processes could lead to a delay in, or failure to obtain,
regulatory approval. In addition, such failure could be the basis for action by
the FDA to withdraw approvals for drug candidates previously granted to us and
for other regulatory action. To the extent we rely on a third-party
manufacturer, the risk of non-compliance with cGMPs may be greater and the
ability to effect corrective actions for any such noncompliance may be
compromised or delayed.
We may need or elect to enter into alliances or
collaborations with other companies to supplement and enhance our own
capabilities or fund our development efforts. If we are unsuccessful in forming
or maintaining these alliances on favorable terms, or if any collaborative
partner terminates or fails to perform its obligations, our business could be
adversely affected.
Because
we have limited or no capabilities for drug development, manufacturing, sales,
marketing and distribution, we may need to enter into alliances with other
companies that can assist with the development and commercialization of our
drug candidates. We may, for example, form alliances with major pharmaceutical
companies to jointly develop specific drug candidates and to jointly
commercialize them if they are approved. In such alliances, we would expect our
pharmaceutical company partners to provide substantial capabilities in clinical
development, manufacturing, regulatory affairs, sales and marketing. We may not
be successful in entering into any such alliances. Even if we do succeed in
securing such alliances, we may not be able to maintain them if, for example,
development or approval of a drug candidate is delayed or sales of an approved drug
are disappointing.
Factors that may affect
the success of our collaborations include the following:
·
disputes
may arise in the future with respect to the ownership of rights to technology
developed with collaborators;
·
our
collaborators may pursue alternative technologies or develop alternative
products, either on their own or in collaboration with others, that may be
competitive with the products on which they are collaborating with us or which
could affect our collaborators’ commitment to our collaborations;
·
our
collaborators may terminate their collaborations with us, which could make it
difficult for us to attract new collaborators or adversely affect how we are
perceived in the business and financial communities;
·
our
collaborators may pursue higher-priority programs or change the focus of their
development programs, which could affect the collaborators’ commitment to us;
and
·
our
collaborators with marketing rights may choose to devote fewer resources to the
marketing of our product candidates, if any are approved for marketing, than to
products from their own development programs.
In
addition to relying on a third party for its capabilities, we may depend on our
alliances with other companies to provide substantial additional funding for
development and potential commercialization of our drug candidates. We may not
be able to obtain funding on favorable terms from these alliances, and if we
are not successful in doing so, we may not have sufficient funds to develop a
particular drug candidate internally, or to bring drug candidates to market.
Failure or delays in bringing our drug candidates to market will reduce their
competitiveness and prevent us from generating sales revenues, which may
substantially harm our business.
Furthermore,
in an effort to continually update and enhance our proprietary technology
platform we enter into agreements with other companies to develop, license,
acquire and/or collaborate on various technologies. If we are unable to enter
into the desired agreements, if the agreements do not yield the intended
results or if the agreements terminate, we may need to find alternative
approaches to such technology needs.
34
If any of these
occur, the development and commercialization of one or more drug candidates
could be delayed, curtailed or terminated, any of which may adversely affect
our business.
If we are unable to establish sales and marketing
capabilities or enter into agreements with third parties to market and sell our
product candidates, we may be unable to generate product revenues.
We do not have a
sales organization and have no experience as a company in the sales, marketing
and distribution of pharmaceutical products. There are risks involved with
establishing our own sales and marketing capabilities, as well as entering into
arrangements with third parties to perform these services. For example,
developing a sales force is expensive and time consuming and could delay any
product launch. In addition, to the extent that we enter into arrangements with
third parties to perform sales, marketing and distribution services, we will
have less control over sales of our products, and our future revenues would
depend heavily on the success of the efforts of these third parties.
General
Company Related Risks
Our directors, executive officers and major stockholders
have substantial influence or control over matters submitted to stockholders
for approval that could delay or prevent a change in corporate control.
Our directors,
executive officers and principal stockholders, together with their affiliates
and related persons, beneficially owned, in the aggregate, approximately 39.5%
of our outstanding common stock as of March 31, 2007. As a result, these
stockholders, if acting together, may have the ability to determine the outcome
of or influence matters submitted to our stockholders for approval, including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of our assets. In addition, these persons, acting
together, may have the ability to control the management and affairs of our
company. Accordingly, this concentration of ownership may harm the market price
of our common stock by:
·
delaying,
deferring or preventing a change in control of our company;
·
entrenching
our management and/or board;
·
impeding
a merger, consolidation, takeover or other business combination involving our
company; or
·
discouraging a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of our company.
Anti-takeover provisions in our charter documents and under
Delaware law could make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to
replace or remove our current management.
Provisions in our
certificate of incorporation and our by-laws may delay or prevent an
acquisition of us or a change in our management. In addition, these provisions
may frustrate or prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for stockholders to replace
members of our board of directors. Because our board of directors is
responsible for appointing the members of our management team, these provisions
could in turn affect any attempt by our stockholders to replace current members
of our management team. These provisions include:
·
a
classified board of directors;
·
a
prohibition on actions by our stockholders by written consent;
·
a
“poison pill” in accordance with the Company’s Shareholders Rights Plan that
would work to dilute the stock ownership of a potential hostile acquirer,
effectively preventing acquisitions that have not been approved by our board of
directors; and
·
limitations on
the removal of directors.
Moreover, because
we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which prohibits a
person who owns in excess of 15% of our outstanding voting stock from merging
or combining with us for a period of three years after the date of the
transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed
manner. Finally, these provisions establish advance notice requirements for
nominations for election to our board of directors or for proposing matters
that can be acted upon at stockholder meetings. These provisions would apply
even if the offer may be considered beneficial by some stockholders.
35
Our stock price may be volatile, and purchasers of our
common stock could incur substantial losses.
The stock market
in general and the market prices for securities of biotechnology companies in
particular have experienced extreme volatility that often have been unrelated
or disproportionate to the operating performance of these companies. The
trading price of our common stock has been, and is likely to continue to be,
volatile. Our stock price could be subject to wide fluctuations in response to
a variety of factors, including the following:
·
failure
to obtain FDA approval for M-Enoxaparin or other adverse FDA decisions relating
to M-Enoxaparin, including the FDA requiring clinical trials as a condition to
M-Enoxaparin approval;
·
FDA
approval of other ANDAs for generic versions of Lovenox;
·
litigation
involving our company or our general industry or both;
·
a decision in favor of Sanofi-Aventis
in either of the current patent litigation matters, or a settlement related to
either of those cases;
·
results
or delays in our or our competitors’ clinical trials or regulatory filings;
·
failure
to demonstrate therapeutic equivalence with respect to our technology-enabled
generic product candidates and safety and efficacy for our novel development
product candidates;
·
our
ability to manufacture any products to commercial standards;
·
failure
of any of our product candidates, if approved, to achieve commercial success;
·
developments
or disputes concerning our patents or other proprietary rights;
·
changes
in estimates of our financial results or recommendations by securities
analysts;
·
termination
of any of our strategic partnerships;
·
significant
acquisitions, strategic partnerships, joint ventures or capital commitments by
us or our competitors; and
·
investors’
general perception of our company, our products, the economy and general market
conditions.
If any of these factors
causes an adverse effect on our business, results of operations or financial
condition, the price of our common stock could fall and investors may not be
able to sell their common stock at or above their respective purchase prices.
Item
6. Exhibits.
|
10.1
|
|
Termination of Consulting Agreement between Bennett
M. Shaprio and the Registrant dated March 30, 2007.
|
|
|
|
|
|
10.2
|
|
Letter Agreement between Sandoz and Registrant dated
February 1, 2007.
|
|
|
|
|
|
10.3+
|
|
Asset Purchase Agreement between the Registrant,
Parivid LLC and S. Raguram dated April 20, 2007.
|
|
|
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1
|
|
Certification Pursuant to 18 U.S.C.
Section 1350.
|
+ Confidential treatment
requested as to certain portions of this Exhibit, which portions are omitted
and filed separately with the Securities and Exchange Commission.
36
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
Momenta Pharmaceuticals, Inc.
|
|
Date: May 10,
2007
|
|
|
|
|
By:
|
/s/ Craig A. Wheeler
|
|
|
|
Craig A. Wheeler, President and Chief Executive
Officer
(Principal Executive Officer)
|
|
|
|
|
Date: May 10,
2007
|
|
|
|
|
By:
|
/s/ Richard P. Shea
|
|
|
|
Richard P. Shea, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
37
