Investors in Nektar Therapeutics should carefully consider the risks
described below before making an investment decision. The risks described below may not be the only ones relating to our company. This description includes any material changes to and supersedes the description of the risk factors associated with
our business previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013. Additional risks that we currently believe are immaterial may also impair our business operations. Our business, results
of operations, financial condition, cash flows and future prospects and the trading price of our common stock and our abilities to repay our senior secured notes could be harmed as a result of any of these risks, and investors may lose all or part
of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31,
2013, including our consolidated financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission (SEC).
Risks Related to Our Business
Drug
development is a long and inherently uncertain process with a high risk of failure at every stage of development.
We have a number
of proprietary drug candidates and partnered drug candidates in research and development ranging from the early discovery research phase through preclinical testing and clinical trials. Preclinical testing and clinical studies are long, expensive
and highly uncertain processes. It will take us, or our collaborative partners, several years to complete clinical studies. The start or end of a clinical study is often delayed or halted due to changing regulatory requirements, manufacturing
challenges, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability or prevalence of use of a comparator drug or required prior therapy, clinical outcomes, or our and our
partners financial constraints.
Drug development is a highly uncertain scientific and medical endeavor, and failure can
unexpectedly occur at any stage of preclinical and clinical development. Typically, there is a high rate of attrition for drug candidates in preclinical and clinical trials due to scientific feasibility, safety, efficacy, changing standards of
medical care and other variables. The risk of failure increases for our drug candidates that are based on new technologies, such as the application of our advanced polymer conjugate technology to small molecules, including MOVANTIK
TM
, etirinotecan pegol, NKTR-181, NKTR-171 and other drug candidates currently in discovery research or preclinical development. The failure of one or more of our drug candidates could have a material
adverse effect on our business, financial condition and results of operations.
If we or our partners do not obtain regulatory
approval for our drug candidates on a timely basis, or at all, or if the terms of any approval impose significant restrictions or limitations on use, our business, results of operations and financial condition will be negatively affected.
We or our partners may not obtain regulatory approval for drug candidates on a timely basis, or at all, or the terms of any
approval (which in some countries includes pricing approval) may impose significant restrictions or limitations on use. Drug candidates must undergo rigorous animal and human testing and an extensive review process for safety and efficacy by the FDA
and equivalent foreign government health authorities. The time required for obtaining regulatory decisions is uncertain and difficult to predict. The FDA and other U.S. and foreign health authorities have substantial discretion, at any phase of
development, to terminate
23
clinical studies, require additional clinical development or other testing, delay or withhold registration and marketing approval and mandate product withdrawals, including recalls. Further,
health authorities have the discretion to analyze data using their own methodologies that may differ from those used by us or our partners which could lead such authorities to arrive at different conclusions regarding the safety or efficacy of a
drug candidate. In addition, undesirable side effects caused by our drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restricted label or the delay or denial of regulatory
approval by regulatory authorities.
Even if we or our partners receive regulatory approval of a product, the approval may limit the
indicated uses for which the drug may be marketed. Our partnered drugs that have obtained regulatory approval, and the manufacturing processes for these products, are subject to continued review and periodic inspections by the FDA and other
regulatory authorities. Discovery from such review and inspection of previously unknown problems may result in restrictions on marketed products or on us, including withdrawal or recall of such products from the market, suspension of related
manufacturing operations or a more restricted label. The failure to obtain timely regulatory approval of product candidates, any product marketing limitations or a product withdrawal would negatively impact our business, results of operations and
financial condition.
If the FDA requires a cardiovascular safety study for
MOVANTIK
TM
, it could have a material adverse impact on the MOVANTIK
TM
program and our business prospects and financial condition.
The FDA is exploring whether there is any evidence of potential elevated cardiovascular risk possibly related to the class of mu-opioid
antagonist drugs and MOVANTIK
TM
is a mu-opioid antagonist. AstraZeneca completed a 52-week, long-term controlled safety trial of MOVANTIK
TM
as
part of the Phase 3 MOVANTIK
TM
development program. The FDAs general safety concern is based on data from other mu-opioid antagonist programs that may indicate increased cardiovascular risk
associated with opioid withdrawal or the antagonism of the delta subtype of the opioid receptor, for which the FDA has not yet made a causal connection between these mechanisms and elevated cardiovascular risk. On June 11-12, 2014, the FDA held
an Anesthetic and Analgesic Drug Products Advisory Committee (the Advisory Committee) meeting to review cardiovascular safety assessment requirements for the class of peripherally acting opioid receptor antagonists (PAMORAs), which includes MOVANTIK
TM
. The meeting was convened to assess the necessity, timing, design and size of cardiovascular outcomes trials to support approval of products in PAMORA class, for the proposed indication of OIC in
patients taking opioids for chronic non-cancer pain. A majority of the Advisory Committee members voted in favor of a recommendation that the FDA should not require cardiovascular outcomes trials for PAMORAs. However, the FDA is not bound by the
Advisory Committees recommendation and there can be no certainty as to the FDAs final decision until the MOVANTIK
TM
regulatory review process is complete. If the FDA were to require a
CV Safety Study prior to an approval of the NDA filed by AstraZeneca for MOVANTIK
TM
and AstraZeneca terminates the license agreement with us in its entirety or only with respect to its rights in
the United States, it would have a material adverse effect on our business, financial condition, results of operations and prospects.
We
amended our license agreement with AstraZeneca to enter into a risk sharing arrangement in the event that pre-approval or post-approval cardiovascular safety studies are required by the FDA for
MOVANTIK
TM
. The amendment provides that if the FDA requires a cardiovascular safety study prior to approval of MOVANTIK
TM
and, as a result,
AstraZeneca terminates its agreement with us in its entirety, we would be required to repay AstraZeneca the $70.0 million we received from AstraZeneca plus accrued interest at an interest rate of 4.5% per annum, compounded annually. If
AstraZeneca elects to terminate the agreement only with respect to its license agreement rights in the U.S. due to a pre-approval cardiovascular safety study, then such amount would be paid through a 50% reduction of non-U.S. royalty amounts
otherwise payable to us until the aggregate amount of such royalty reduction equals the total principal amount of $70.0 million plus accrued interest at an interest rate of 4.5% per annum, compounded annually. On the other hand, if the FDA
determines a pre-approval cardiovascular safety study of MOVANTIK
TM
is not required, AstraZeneca is obligated to pay us an additional $35.0 million milestone payment. However, if the FDA requires
a post-approval cardiovascular safety study as a condition to regulatory approval, then the royalty rate payable to us from net sales of MOVANTIK
TM
in the U.S. by AstraZeneca would be reduced by
up to two percentage points to fund 33% of the external costs actually incurred by AstraZeneca to fund such post approval study subject to a $35.0 million aggregate cap.
Even with success in previously completed clinical trials, the risk of clinical failure for any drug candidate remains high prior to
regulatory approval.
A number of companies have suffered significant unforeseen failures in late stage clinical studies due to
factors such as inconclusive efficacy or safety, even after achieving positive results in earlier clinical studies that were satisfactory both to them and to reviewing government health authorities. While etirinotecan pegol, Amikacin Inhale, and BAX
855 have each demonstrated positive results from earlier clinical studies, there is a substantial risk that Phase 3 clinical study outcomes for these drug candidates from larger patient populations will not demonstrate positive efficacy, safety or
other clinical outcomes sufficient to support regulatory filings and achieve regulatory approval. Phase 3 clinical study outcomes remain very unpredictable and it is possible that one or more of these Phase 3 clinical studies could fail at any time
due to efficacy, safety or other important clinical findings or regulatory requirements. If one or more of these drug candidates fail in Phase 3 clinical studies, it would have a material adverse effect on our business, financial condition and
results of operations.
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We are a party to numerous collaboration agreements and other significant agreements which
contain complex commercial terms that could result in disputes, litigation or indemnification liability that could adversely affect our business, results of operations and financial condition.
We currently derive, and expect to derive in the foreseeable future, all of our revenue from collaboration agreements with biotechnology and
pharmaceutical companies. These collaboration agreements contain complex commercial terms, including:
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clinical development and commercialization obligations that are based on certain commercial reasonableness performance standards that can often be difficult to enforce if disputes arise as to adequacy of our
partners performance;
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research and development performance and reimbursement obligations for our personnel and other resources allocated to partnered drug candidate development programs;
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clinical and commercial manufacturing agreements, some of which are priced on an actual cost basis for products supplied by us to our partners with complicated cost allocation formulas and methodologies;
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intellectual property ownership allocation between us and our partners for improvements and new inventions developed during the course of the collaboration;
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royalties on drug sales based on a number of complex variables, including net sales calculations, geography, scope of patent claim coverage, patent life, generic competitors, bundled pricing and other factors; and
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indemnity obligations for intellectual property infringement, product liability and certain other claims.
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We are a party to certain significant agreements, including an asset purchase agreement with Novartis pursuant to which we sold a significant
portion of our pulmonary business at the end of 2008, the worldwide exclusive license agreement with AstraZeneca related to the further development and commercialization of MOVANTIK
TM
, and the
purchase and sale agreement with RPI Finance Trust (RPI) related to the sale of our royalty interests in UCBs CIMZIA
®
and Roches
MIRCERA
®
that we completed in February 2012. Each of these agreements contains complex representations and warranties, covenants and indemnification obligations. If we breach any of our
agreements with Novartis, AstraZeneca, RPI or any other third party agreements, it could subject us to substantial liabilities and harm our financial condition.
From time to time, we have informal dispute resolution discussions with third parties regarding the appropriate interpretation of the complex
commercial terms contained in our agreements. One or more disputes may arise or escalate in the future regarding our collaboration agreements, transaction documents, or third-party license agreements that may ultimately result in costly litigation
and unfavorable interpretation of contract terms, which would have a material adverse effect on our business, financial condition and results of operations.
We have substantial future capital requirements and there is a risk we may not have access to sufficient capital to meet our current
business plan. If we do not receive substantial milestone payments from our existing collaboration agreements, execute new high value collaborations or other arrangements, or are unable to raise additional capital in one or more financing
transactions, we would be unable to continue our current level of investment in research and development.
As of June 30,
2014, we had cash and investments in marketable securities valued at approximately $301.4 million, of which $25.0 million was restricted in relation to our 12.0% senior secured notes, and indebtedness of approximately $159.8 million. The
indebtedness includes approximately $125.0 million in senior secured notes due July 2017, but excludes our long-term liability relating to the sale of future royalties as this royalty obligation liability will not be settled in cash. While we
believe that our cash position will be sufficient to meet our liquidity requirements through at least the next 12 months, our future capital requirements will depend upon numerous unpredictable factors, including:
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the cost, timing and outcomes of clinical studies and regulatory reviews of our proprietary drug candidates that we have licensed to our collaboration partners important examples include MOVANTIK
TM
that has been licensed to AstraZeneca, Amikacin Inhale that has been licensed to Bayer, and BAX 855 that is being developed by Baxter;
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if MOVANTIK
TM
is approved by the FDA and EMA, the timing of the commercial launch of MOVANTIK
TM
by AstraZeneca
will be affected by the timing of DEA determination of the decontrolled status of MOVANTIK
TM
we are entitled to milestone payments of $100.0 million and $40.0 million from AstraZeneca upon
the first commercial sale of MOVANTIK
TM
by AstraZeneca in the United States and European Union, respectively.
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if and when we receive potential milestone payments and royalties from our existing collaborations if the drug candidates subject to those collaborations achieve clinical, regulatory or commercial success;
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the progress, timing, cost and results of our clinical development programs in particular our Phase 3 BEACON study for etirinotecan pegol and our clinical studies for NKTR-181;
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the success, progress, timing and costs of our efforts to implement new collaborations, licenses and other transactions that increase our current net cash, such as the sale of additional royalty interests held by us,
term loan or other debt arrangements, and the issuance of securities;
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the outcome of the regulatory review process and commercial success of drug products for which we are entitled to receive royalties (e.g., MOVANTIK
TM
being developed
by AstraZeneca);
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the number of patients, enrollment criteria, primary and secondary endpoints, and the number of clinical studies required by the government health authorities in order to consider for approval our drug candidates and
those of our collaboration partners;
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our general and administrative expenses, capital expenditures and other uses of cash; and
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disputes concerning patents, proprietary rights, or license and collaboration agreements that negatively impact our receipt of milestone payments or royalties or require us to make significant payments arising from
licenses, settlements, adverse judgments or ongoing royalties.
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A significant multi-year capital commitment is required to
advance our drug candidates through the various stages of research and development in order to generate sufficient data to enable high value collaboration partnerships with significant upfront payments or to successfully achieve regulatory approval.
In the event we do not enter into any new collaboration partnerships with significant upfront payments and we choose to continue our later stage research and development programs, we may need to pursue financing alternatives, including dilutive
equity-based financings, such as an offering of convertible debt or common stock, which would dilute the percentage ownership of our current common stockholders and could significantly lower the market value of our common stock. If sufficient
capital is not available to us or is not available on commercially reasonable terms, it could require us to delay or reduce one or more of our research and development programs. If we are unable to sufficiently advance our research and development
programs, it could substantially impair the value of such programs and result in a material adverse effect on our business, financial condition and results of operations.
While we have conducted numerous experiments using laboratory and home-based chemistry techniques that have not been able to convert
NKTR-181 into a rapid-acting and more abusable opioid, there is a risk that a technique could be discovered in the future to convert NKTR-181 into a rapid-acting and more abusable opioid, which would significantly diminish the value of this drug
candidate.
An important objective of our NKTR-181 drug development program is to create a unique opioid molecule that does not
rapidly enter a patients central nervous system and therefore has the potential to be less susceptible to abuse than alternative opioid therapies. To date, we have conducted numerous experiments using laboratory and home-based chemistry
techniques that have been unable to convert NKTR-181 into a rapidly-acting, more abusable form of opioid. In the future, an alternative chemistry technique, process or method of administration, or combination thereof, may be discovered to enable the
conversion of NKTR-181 into a more abusable opioid, which could significantly and negatively impact the commercial potential or diminish the value of NKTR-181.
If we are unable to establish and maintain collaboration partnerships on attractive commercial terms, our business, results of
operations and financial condition could suffer.
We intend to continue to seek partnerships with pharmaceutical and biotechnology
partners to fund a portion of our research and development capital requirements. The timing of new collaboration partnerships is difficult to predict due to availability of clinical data, the outcomes from our clinical studies, the number of
potential partners that need to complete due diligence and approval processes, the definitive agreement negotiation process and numerous other unpredictable factors that can delay, impede or prevent significant transactions. If we are unable to find
suitable partners or negotiate collaboration arrangements with favorable commercial terms with respect to our existing and future drug candidates or the licensing of our intellectual property, or if any arrangements we negotiate, or have negotiated,
are terminated, it could have a material adverse effect on our business, financial condition and results of operations.
Preliminary
and interim data from our clinical studies that we announce or publish from time to time are subject to audit and verification procedures that could result in material changes in the final data and may change as more patient data become available.
From time to time, we publish preliminary or interim data from our clinical studies. Preliminary data remain subject to audit
confirmation and verification procedures that may result in the final data being materially different from the preliminary data we previously published. Interim data are also subject to the risk that one or more of the clinical outcomes may
materially change as patient enrollment continues and more patient data become available. As a result, preliminary and interim data should be viewed with caution until the final data are available. Material adverse changes in the final data could
significantly harm our business prospects.
Delays in clinical studies are common and have many causes, and any significant delay in
clinical studies being conducted by us or our partners could result in delay in regulatory approvals and jeopardize the ability to proceed to commercialization.
We or our partners may experience delays in clinical trials of drug candidates. Etirinotecan pegol in patients with metastatic breast cancer
and BAX 855 are currently in Phase 3 clinical studies, and Bayer has initiated Phase 3 clinical development of BAY41-6551 with the first patient enrolled in April 2013. We are currently in the planning stage for a Phase 3 clinical study for
NKTR-181
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including continuing consultations with leaders in the pain clinical trial field and interactions with the FDA. Because it is unlikely that we will be able to identify a single cause for the
Phase 2 study for NKTR-181 not meeting its primary efficacy endpoint, there is an increased risk in effectively designing a Phase 3 clinical study to demonstrate the efficacy of NKTR-181. These and other of our planned clinical studies may not begin
on time, have an effective design, enroll a sufficient number of patients or be completed on schedule, if at all. Our clinical trials for any of our product candidates could be delayed for a variety of reasons, including:
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delays in obtaining regulatory approval to commence a clinical study;
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delays in reaching agreement with applicable health authorities on a clinical study design;
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imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other health authorities;
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suspension or termination of a clinical study by us, our partners, the FDA or foreign health authorities due to adverse side effects of a drug on subjects in the trial;
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delays in recruiting suitable patients to participate in a trial;
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delays in having patients complete participation in a trial or return for post-treatment follow-up;
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clinical sites dropping out of a trial to the detriment of enrollment rates;
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delays in manufacturing and delivery of sufficient supply of clinical trial materials; and
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changes in health authorities policies or guidance applicable to our drug candidates.
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If the
initiation or completion of any of the planned clinical studies for our drug candidates is delayed for any of the above or other reasons, the regulatory approval process would be delayed and the ability to commercialize and commence sales of these
drug candidates could be materially harmed, which could have a material adverse effect on our business, financial condition and results of operations.
The commercial potential of a drug candidate in development is difficult to predict. If the market size for a new drug is significantly
smaller than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.
It is very difficult to estimate the commercial potential of product candidates due to important factors such as safety and efficacy compared
to other available treatments, including potential generic drug alternatives with similar efficacy profiles, changing standards of care, third party payer reimbursement standards, patient and physician preferences, drug scheduling status, the
availability of competitive alternatives that may emerge either during the long drug development process or after commercial introduction, and the availability of generic versions of our successful product candidates following approval by government
health authorities based on the expiration of regulatory exclusivity or our inability to prevent generic versions from coming to market by asserting our patents. If due to one or more of these risks the market potential for a drug candidate is lower
than we anticipated, it could significantly and negatively impact the commercial terms of any collaboration partnership potential for such drug candidate or, if we have already entered into a collaboration for such drug candidate, the revenue
potential from royalty and milestone payments could be significantly diminished and would negatively impact our business, financial condition and results of operations.
We may not be able to obtain intellectual property licenses related to the development of our drug candidates on a commercially
reasonable basis, if at all.
Numerous pending and issued U.S. and foreign patent rights and other proprietary rights owned by
third parties relate to pharmaceutical compositions, methods of preparation and manufacturing, and methods of use and administration. We cannot predict with any certainty which, if any, patent references will be considered relevant to our or our
collaboration partners technology or drug candidates by authorities in the various jurisdictions where such rights exist, nor can we predict with certainty which, if any, of these rights will or may be asserted against us by third parties. In
certain cases, we have existing licenses or cross-licenses with third parties; however, the scope and adequacy of these licenses is very uncertain and can change substantially during long development and commercialization cycles for biotechnology
and pharmaceutical products. There can be no assurance that we can obtain a license to any technology that we determine we need on reasonable terms, if at all, or that we could develop or otherwise obtain alternate technology. If we are required to
enter into a license with a third party, our potential economic benefit for the products subject to the license will be diminished. If a license is not available on commercially reasonable terms or at all, we may be prevented from developing and
selling the drug, which could significantly harm our business, results of operations, and financial condition.
If any of our
pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable intellectual property protection.
The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues.
We own more than 175 U.S. and 500 foreign patents and a number of pending patent applications that cover various aspects of our technologies. There can be no assurance that patents that have issued will be held valid and enforceable in a court of
law. Even for patents that are held valid and enforceable, the legal process associated with obtaining such a judgment is time
27
consuming and costly. Additionally, issued patents can be subject to opposition or other proceedings that can result in the revocation of the patent or maintenance of the patent in amended
form (and potentially in a form that renders the patent without commercially relevant and/or broad coverage). Further, our competitors may be able to circumvent and otherwise design around our patents. Even if a patent is issued and
enforceable, because development and commercialization of pharmaceutical products can be subject to substantial delays, patents may expire early and provide only a short period of protection, if any, following the commercialization of products
encompassed by our patents. We may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office, which could result in a loss of the patent and/or substantial cost to us.
We have filed patent applications, and plan to file additional patent applications, covering various aspects of our PEGylation and advanced
polymer conjugate technologies and our proprietary product candidates. There can be no assurance that the patent applications for which we apply would actually issue as patents, or do so with commercially relevant and/or broad coverage. The
coverage claimed in a patent application can be significantly reduced before the patent is issued. The scope of our claim coverage can be critical to our ability to enter into licensing transactions with third parties and our right to receive
royalties from our collaboration partnerships. Since publication of discoveries in scientific or patent literature often lags behind the date of such discoveries, we cannot be certain that we were the first inventor of inventions covered by our
patents or patent applications. In addition, there is no guarantee that we will be the first to file a patent application directed to an invention.
An adverse outcome in any judicial proceeding involving intellectual property, including patents, could subject us to significant liabilities
to third parties, require disputed rights to be licensed from or to third parties or require us to cease using the technology in dispute. In those instances where we seek an intellectual property license from another, we may not be able to
obtain the license on a commercially reasonable basis, if at all, thereby raising concerns on our ability to freely commercialize our technologies or products.
We are involved in legal proceedings and may incur substantial litigation costs and liabilities that will adversely affect our business,
financial condition and results of operations.
From time to time, third parties have asserted, and may in the future assert, that
we or our partners infringe their proprietary rights, such as patents and trade secrets, or have otherwise breached our obligations to them. The third party often bases its assertions on a claim that its patents cover our technology platform or drug
candidates or that we have misappropriated its confidential or proprietary information. Similar assertions of infringement could be based on future patents that may issue to third parties. In certain of our agreements with our partners, we are
obligated to indemnify and hold harmless our collaboration partners from intellectual property infringement, product liability and certain other claims, which could cause us to incur substantial costs and liability if we are called upon to defend
ourselves and our partners against any claims. If a third party obtains injunctive or other equitable relief against us or our partners, they could effectively prevent us, or our partners, from developing or commercializing, or deriving revenue
from, certain drugs or drug candidates in the U.S. and abroad. Costs associated with litigation, substantial damage claims, indemnification claims or royalties paid for licenses from third parties could have a material adverse effect on our
business, financial condition and results of operations.
Third-party claims involving proprietary rights or other matters could also
result in substantial settlement payments or substantial damages to be paid by us. For instance, a settlement might require us to enter a license agreement under which we would pay substantial royalties or other compensation to a third party,
diminishing our future economic returns from the related drug. In December 2013, we entered into a litigation settlement with the Research Foundation of the State University of New York (SUNY) pursuant to which we agree to the payment of a total of
$12.0 million in future installments and certain other terms and conditions in exchange for the full release of certain breach of contract claims by SUNY. In October 2011, we entered into a settlement related to trade secret and breach of contract
litigation where we agreed to make an upfront payment of $2.7 million and a future contingent payment of $3.0 million if a certain drug candidate receives FDA approval. In 2006, we entered into a litigation settlement related to an intellectual
property dispute with the University of Alabama in Huntsville pursuant to which we paid $11.0 million and agreed to pay an additional $10.0 million in equal $1.0 million installments over ten years ending with the last payment due on July 1,
2016.
In addition, from time to time, we may pursue claims or initiate lawsuits to protect or enforce our patent or other intellectual
property rights or for other reasons. The cost to us in defending or initiating any litigation or other proceeding, even if resolved in our favor, could be substantial, and litigation would divert our managements attention. Uncertainties
resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.
Our manufacturing operations and those of our contract manufacturers are subject to laws and other governmental regulatory requirements,
which, if not met, would have a material adverse effect on our business, results of operations and financial condition.
We and our
contract manufacturers are required in certain cases to maintain compliance with current good manufacturing practices (cGMP), including cGMP guidelines applicable to active pharmaceutical ingredients, and with laws and regulations governing
manufacture and distribution of controlled substances, and are subject to inspections by the FDA, the Drug Enforcement Administration or comparable agencies in other jurisdictions administering such compliance. We anticipate periodic regulatory
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inspections of our drug manufacturing facilities and the manufacturing facilities of our contract manufacturers for compliance with applicable regulatory requirements. Any failure to follow and
document our or our contract manufacturers adherence to such cGMP and other laws and governmental regulations or satisfy other manufacturing and product release regulatory requirements may disrupt our ability to meet our manufacturing
obligations to our customers, lead to significant delays in the availability of products for commercial use or clinical study, result in the termination or hold on a clinical study or delay or prevent filing or approval of marketing applications for
our products. Failure to comply with applicable laws and regulations may also result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products,
delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could harm our business. The results of these inspections could result in costly
manufacturing changes or facility or capital equipment upgrades to satisfy the FDA that our manufacturing and quality control procedures are in substantial compliance with cGMP. Manufacturing delays, for us or our contract manufacturers, pending
resolution of regulatory deficiencies or suspensions would have a material adverse effect on our business, results of operations and financial condition.
If we or our contract manufacturers are not able to manufacture drugs or drug substances in sufficient quantities that meet applicable
quality standards, it could delay clinical studies, result in reduced sales or constitute a breach of our contractual obligations, any of which could significantly harm our business, financial condition and results of operations.
If we or our contract manufacturers are not able to manufacture and supply sufficient drug quantities meeting applicable quality standards
required to support large clinical studies or commercial manufacturing in a timely manner, it could delay our or our collaboration partners clinical studies or result in a breach of our contractual obligations, which could in turn reduce the
potential commercial sales of our or our collaboration partners products. As a result, we could incur substantial costs and damages and any product sales or royalty revenue that we would otherwise be entitled to receive could be reduced,
delayed or eliminated. In some cases, we rely on contract manufacturing organizations to manufacture and supply drug product for our clinical studies and those of our collaboration partners. Pharmaceutical manufacturing of drugs and devices involves
significant risks and uncertainties related to the demonstration of adequate stability, sufficient purification of the drug substance and drug product, the identification and elimination of impurities, optimal formulations, process and analytical
methods validations, device performance and challenges in controlling for all of these variables. We have faced and may in the future face significant difficulties, delays and unexpected expenses as we validate third party contract manufacturers
required for drug and device supply to support our clinical studies and the clinical studies and products of our collaboration partners. Failure by us or our contract manufacturers to supply drug product or devices in sufficient quantities that meet
all applicable quality requirements could result in supply shortages for our clinical studies or the clinical studies and commercial activities of our collaboration partners. Such failures could significantly and materially delay clinical trials and
regulatory submissions or result in reduced sales, any of which could significantly harm our business prospects, results of operations and financial condition.
Building and validating large scale clinical or commercial-scale manufacturing facilities and processes, recruiting and training qualified
personnel and obtaining necessary regulatory approvals is complex, expensive and time consuming. In the past we have encountered challenges in scaling up manufacturing to meet the requirements of large scale clinical trials without making
modifications to the drug formulation, which may cause significant delays in clinical development. We experienced repeated significant delays in starting the Phase 3 clinical development program for Amikacin Inhale as we sought to finalize and
validate the device design with a demonstrated capability to be manufactured at commercial scale. Drug/device combination products are particularly complex, expensive and time-consuming to develop due to the number of variables involved in the final
product design, including ease of patient and doctor use, maintenance of clinical efficacy, reliability and cost of manufacturing, regulatory approval requirements and standards and other important factors. There continues to be substantial and
unpredictable risk and uncertainty related to manufacturing and supply until such time as the commercial supply chain is validated and proven.
Our revenue is exclusively derived from our collaboration agreements, which can result in significant fluctuation in our revenue from
period to period, and our past revenue is therefore not necessarily indicative of our future revenue.
Our revenue is exclusively
derived from our collaboration agreements, from which we receive contract research payments, milestone payments based on clinical progress, regulatory progress or net sales achievements, royalties and manufacturing revenue. Significant variations in
the timing of receipt of cash payments and our recognition of revenue can result from significant milestone payments based on the execution of new collaboration agreements, the timing of clinical outcomes, regulatory approval, commercial launch and
the achievement of certain annual sales thresholds. The amount of our revenue derived from collaboration agreements in any given period will depend on a number of unpredictable factors, including our ability to find and maintain suitable
collaboration partners, the timing of the negotiation and conclusion of collaboration agreements with such partners, whether and when we or our collaboration partners achieve clinical, regulatory and sales milestones, the timing of regulatory
approvals in one or more major markets, reimbursement levels by private and government payers, and the market introduction of new drugs or generic versions of the approved drug, as well as other factors. Our past revenue generated from collaboration
agreements is not necessarily indicative of our future revenue. If any of our existing or future collaboration partners fails to develop, obtain regulatory approval for, manufacture or ultimately commercialize any product candidate under our
collaboration agreement, our business, financial condition, results of operations and prospectus could be materially and adversely affected.
29
If our partners, on which we depend to obtain regulatory approvals for and to commercialize
our partnered drug candidates, are not successful, or if such collaborations fail, the development or commercialization of our partnered drug candidates may be delayed or unsuccessful.
When we sign a collaborative development agreement or license agreement to develop a drug candidate with a pharmaceutical or biotechnology
company, the pharmaceutical or biotechnology company is generally expected to:
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design and conduct large scale clinical studies;
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prepare and file documents necessary to obtain government approvals to sell a given drug candidate; and/or
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market and sell the drugs when and if they are approved.
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Our reliance on collaboration
partners poses a number of risks to our business, including risks that:
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we may be unable to control whether, and the extent to which, our partners devote sufficient resources to the development programs or commercial marketing and sales efforts;
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disputes may arise or escalate in the future with respect to the ownership of rights to technology or intellectual property developed with partners;
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disagreements with partners could lead to delays in, or termination of, the research, development or commercialization of product candidates or to litigation or arbitration proceedings;
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contracts with our partners may fail to provide us with significant protection, or to be effectively enforced, in the event one of our partners fails to perform;
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partners have considerable discretion in electing whether to pursue the development of any additional product candidates and may pursue alternative technologies or products either on their own or in collaboration with
our competitors;
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partners with marketing rights may choose to devote fewer resources to the marketing of our partnered products than they do to products of their own development or products in-licensed from other third parties;
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the timing and level of resources that our partners dedicate to the development program will affect the timing and amount of revenue we receive;
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we do not have the ability to unilaterally terminate agreements (or partners may have extension or renewal rights) that we believe are not on commercially reasonable terms or consistent with our current business
strategy;
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partners may be unable to pay us as expected; and
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partners may terminate their agreements with us unilaterally for any or no reason, in some cases with the payment of a termination fee penalty and in other cases with no termination fee penalty.
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Given these risks, the success of our current and future partnerships is highly unpredictable and can have a substantial negative or positive
impact on our business. We have entered into collaboration agreements in the past that have been subsequently terminated, such as our collaboration agreement with Pfizer, Inc. for the development and commercialization of inhaled insulin that was
terminated by Pfizer, Inc. in November 2007. If other collaboration agreements are suspended or terminated, our ability to commercialize certain other proposed product candidates could also be negatively impacted. If our collaborations fail, our
product development or commercialization of product candidates could be delayed or cancelled, which would negatively impact our business, results of operations and financial condition.
If we are unable either to create sales, marketing and distribution capabilities or to enter into agreements with third parties to
perform these functions, we will be unable to commercialize our products successfully.
We currently have no sales, marketing or
distribution capabilities. To commercialize any of our drugs that receive regulatory approval for commercialization, we must either develop internal sales, marketing and distribution capabilities, which would be expensive and time consuming, or
enter into collaboration arrangements with third parties to perform these services. If we decide to market our products directly, we must commit significant financial and managerial resources to develop a marketing and sales force with technical
expertise and with supporting distribution, administration and compliance capabilities. Factors that may inhibit our efforts to commercialize our products directly or indirectly with our partners include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to use or prescribe our products;
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the lack of complementary products or multiple product pricing arrangements may put us at a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating and sustaining an independent sales and marketing organization.
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If we, or our partners through our collaborations, are not successful in recruiting sales
and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing our products, which would adversely affect our business, results of operations and financial condition.
To the extent we rely on other pharmaceutical or biotechnology companies with established sales, marketing and distribution systems to market
our products, we will need to establish and maintain partnership arrangements, and we may not be able to enter into these arrangements on acceptable terms or at all. To the extent that we enter into co-promotion or other arrangements, any revenue we
receive will depend upon the efforts of third parties, which may not be successful and are only partially in our control. In the event that we market our products without a partner, we would be required to build a sales and marketing organization
and infrastructure, which would require a significant investment and we may not be successful in building this organization and infrastructure in a timely or efficient manner.
We purchase some of the starting material for drugs and drug candidates from a single source or a limited number of suppliers, and the
partial or complete loss of one of these suppliers could cause production delays, clinical trial delays, substantial loss of revenue and contract liability to third parties.
We often face very limited supply of a critical raw material that can only be obtained from a single, or a limited number of, suppliers, which
could cause production delays, clinical trial delays, substantial lost revenue opportunity or contract liability to third parties. For example, there are only a limited number of qualified suppliers, and in some cases single source suppliers, for
the raw materials included in our PEGylation and advanced polymer conjugate drug formulations. Any interruption in supply or failure to procure such raw materials on commercially feasible terms could harm our business by delaying our clinical
trials, impeding commercialization of approved drugs or increasing our costs.
We rely on trade secret protection and other
unpatented proprietary rights for important proprietary technologies, and any loss of such rights could harm our business, results of operations and financial condition.
We rely on trade secret protection for our confidential and proprietary information. No assurance can be given that others will not
independently develop substantially equivalent confidential and proprietary information or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our trade secrets. In addition, unpatented
proprietary rights, including trade secrets and know-how, can be difficult to protect and may lose their value if they are independently developed by a third party or if their secrecy is lost. Any loss of trade secret protection or other unpatented
proprietary rights could harm our business, results of operations and financial condition.
We expect to continue to incur
substantial losses and negative cash flow from operations and may not achieve or sustain profitability in the future.
For the six
months ended June 30, 2014, we reported a net loss of $78.8 million. If and when we achieve profitability depends upon a number of factors, including the timing and recognition of milestone payments and royalties received, the timing of revenue
under our collaboration agreements, the amount of investments we make in our proprietary product candidates and the regulatory approval and market success of our product candidates. We may not be able to achieve and sustain profitability.
Other factors that will affect whether we achieve and sustain profitability include our ability, alone or together with our partners, to:
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develop drugs utilizing our technologies, either independently or in collaboration with other pharmaceutical or biotech companies;
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effectively estimate and manage clinical development costs, particularly the cost of the BEACON study and the clinical studies for NKTR-181;
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receive necessary regulatory and marketing approvals;
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maintain or expand manufacturing at necessary levels;
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achieve market acceptance of our partnered products;
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receive royalties on products that have been approved, marketed or submitted for marketing approval with regulatory authorities; and
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maintain sufficient funds to finance our activities.
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If government and private
insurance programs do not provide payment or reimbursement for our partnered products or proprietary products, those products will not be widely accepted, which would have a negative impact on our business, results of operations and financial
condition.
In both domestic and foreign markets, sales of our partnered and proprietary products that have received regulatory
approval will depend in part on market acceptance among physicians and patients, pricing approvals by government authorities and the
31
availability of payment or reimbursement from third-party payers, such as government health administration authorities, managed care providers, private health insurers and other organizations.
Such third-party payers are increasingly challenging the price and cost effectiveness of medical products and services. Therefore, significant uncertainty exists as to the pricing approvals for, and the payment or reimbursement status of, newly
approved healthcare products. Moreover, legislation and regulations affecting the pricing of pharmaceuticals may change before regulatory agencies approve our proposed products for marketing and could further limit pricing approvals for, and
reimbursement of, our products from government authorities and third-party payers. A government or third- party payer decision not to approve pricing for, or provide adequate coverage and reimbursements of, our products would limit market acceptance
of such products.
We depend on third parties to conduct the clinical trials for our proprietary product candidates and any failure
of those parties to fulfill their obligations could harm our development and commercialization plans.
We depend on independent
clinical investigators, contract research organizations and other third-party service providers to conduct clinical trials for our proprietary product candidates. We rely heavily on these parties for successful execution of our clinical trials.
Though we are ultimately responsible for the results of their activities, many aspects of their activities are beyond our control. For example, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the
general investigational plan and protocols for the trials, but the independent clinical investigators may prioritize other projects over ours or communicate issues regarding our products to us in an untimely manner. Third parties may not complete
activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or our stated protocols. The early termination of any of our clinical trial arrangements, the failure of third parties to comply with the
regulations and requirements governing clinical trials or our reliance on results of trials that we have not directly conducted or monitored could hinder or delay the development, approval and commercialization of our product candidates and would
adversely affect our business, results of operations and financial condition.
Significant competition for our polymer conjugate
chemistry technology platforms and our partnered and proprietary products and product candidates could make our technologies, products or product candidates obsolete or uncompetitive, which would negatively impact our business, results of operations
and financial condition.
Our PEGylation and advanced polymer conjugate chemistry platforms and our partnered and proprietary
products and product candidates compete with various pharmaceutical and biotechnology companies. Competitors of our PEGylation and polymer conjugate chemistry technologies include Biogen Idec Inc., Savient Pharmaceuticals, Inc.,
Dr. Reddys Laboratories Ltd., Enzon Pharmaceuticals, Inc., SunBio Corporation, Mountain View Pharmaceuticals, Inc., Novo Nordisk A/S (formerly assets held by Neose Technologies, Inc.), and NOF Corporation. Several other chemical,
biotechnology and pharmaceutical companies may also be developing PEGylation technologies or technologies that have similar impact on target drug molecules. Some of these companies license or provide the technology to other companies, while others
are developing the technology for internal use.
There are several competitors for our proprietary product candidates currently in
development. For Amikacin Inhale, the current standard of care includes several approved intravenous antibiotics for the treatment of either hospital-acquired pneumonia or ventilator-associated pneumonia in patients on mechanical ventilators. For
MOVANTIK
TM
, there are currently several alternative therapies used to address opioid-induced constipation (OIC) and opioid-induced bowel dysfunction (OBD), including subcutaneous Relistor
®
(methylnaltrexone bromide), oral Amitizia (lubiprostone), and oral and rectal over-the-counter laxatives and stool softeners such as docusate sodium, senna and milk of magnesia. In addition,
there are a number of companies developing potential products which are in various stages of clinical development and are being evaluated for the treatment of OIC and OBD in different patient populations, including Cubist Pharmaceuticals, Inc.,
Progenics Pharmaceuticals, Inc. in collaboration with Salix Pharmaceuticals, Ltd., Mundipharma Int. Limited, Sucampo Pharmaceuticals, Inc., Develco Pharma GmbH, Alkermes, Inc., GlaxoSmithKline plc, Theravance, Inc., and Takeda Pharmaceutical Company
Limited. For etirinotecan pegol, there are a number of chemotherapies and cancer therapies approved today and in various stages of clinical development for breast and ovarian cancers, including, but not limited to: Abraxane
®
(paclitaxel protein-bound particles for injectable suspension (albumin bound)), Xeloda
®
(capecitabine), Afinitor
®
(everolimus), Doxil
®
(doxorubicin HCl), Ellence
®
(epirubicin), Gemzar
®
(gemcitabine), Halaven
®
(eribulin), Herceptin
®
(trastuzumab), Hycamtin
®
(topotecan), Ixempra
®
(ixabepilone), Navelbine
®
(vinolrebine), Iniparib,
Paraplatin
®
(carboplatin), Taxol
®
(paclitaxel) and Taxotere
®
(docetaxel).
Major pharmaceutical or biotechnology companies with approved drugs or drugs in development for these cancers include, but are not limited to, Bristol-Meyers Squibb Company, Eli Lilly & Co., Roche, GlaxoSmithKline plc, Johnson and Johnson,
Pfizer, Inc. Eisai, Inc., and Sanofi Aventis S.A. There are approved therapies for the treatment of colorectal cancer, including Eloxatin
®
(oxaliplatin), Camptosar
®
(irinotecan), Avastin
®
(bevacizumab), Zaltrap
®
(Ziv-afilbercept), Stivarga
®
(regorafenib), Erbitux
®
(cetuximab), Vectibix
®
(panitumumab), Xeloda
®
(capecitabine), Adrucil
®
(fluorouracil) and Wellcovorin
®
(leucovorin). In
addition, there are a number of drugs in various stages of preclinical and clinical development from companies exploring cancer therapies or improved chemotherapeutic agents to potentially treat colorectal cancer, including, but not limited to,
products in development from Bristol-Myers Squibb Company, Pfizer, Inc., GlaxoSmithKline plc, Antigenics, Inc., F. Hoffmann-La Roche Ltd., Novartis AG, Cell Therapeutics, Inc., Neopharm Inc. (acquired by Insys Therapeutics, Inc.), Meditech Research
Ltd, Alchemia Limited, and Enzon Pharmaceuticals, Inc.
There can be no assurance that we or our partners will successfully develop,
obtain regulatory approvals for and commercialize next-generation or new products that will successfully compete with those of our competitors. Many of our competitors have greater
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financial, research and development, marketing and sales, manufacturing and managerial capabilities. We face competition from these companies not just in product development but also in areas
such as recruiting employees, acquiring technologies that might enhance our ability to commercialize products, establishing relationships with certain research and academic institutions, enrolling patients in clinical trials and seeking program
partnerships and collaborations with larger pharmaceutical companies. As a result, our competitors may succeed in developing competing technologies, obtaining regulatory approval or gaining market acceptance for products before we do. These
developments could make our products or technologies uncompetitive or obsolete.
If product liability lawsuits are brought against
us, we may incur substantial liabilities.
The manufacture, clinical testing, marketing and sale of medical products involve
inherent product liability risks. If product liability costs exceed our product liability insurance coverage, we may incur substantial liabilities that could have a severe negative impact on our financial position. Whether or not we are ultimately
successful in any product liability litigation, such litigation would consume substantial amounts of our financial and managerial resources and might result in adverse publicity, all of which would impair our business. Additionally, we may not be
able to maintain our clinical trial insurance or product liability insurance at an acceptable cost, if at all, and this insurance may not provide adequate coverage against potential claims or losses.
Our future depends on the proper management of our current and future business operations and their associated expenses.
Our business strategy requires us to manage our business to provide for the continued development and potential commercialization of our
proprietary and partnered drug candidates. Our strategy also calls for us to undertake increased research and development activities and to manage an increasing number of relationships with partners and other third parties, while simultaneously
managing the capital necessary to support this strategy. Our decision to bear a majority or all of the clinical development costs of etirinotecan pegol substantially increases our future capital requirements. If we are unable to manage effectively
our current operations and any growth we may experience, our business, financial condition and results of operations may be adversely affected. If we are unable to effectively manage our expenses, we may find it necessary to reduce our
personnel-related costs through reductions in our workforce, which could harm our operations, employee morale and impair our ability to retain and recruit talent. Furthermore, if adequate funds are not available, we may be required to obtain funds
through arrangements with partners or other sources that may require us to relinquish rights to certain of our technologies, products or future economic rights that we would not otherwise relinquish or require us to enter into other financing
arrangements on unfavorable terms.
We are dependent on our management team and key technical personnel, and the loss of any key
manager or employee may impair our ability to develop our products effectively and may harm our business, operating results and financial condition.
Our success largely depends on the continued services of our executive officers and other key personnel. The loss of one or more members of our
management team or other key employees could seriously harm our business, operating results and financial condition. The relationships that our key managers have cultivated within our industry make us particularly dependent upon their continued
employment with us. We are also dependent on the continued services of our technical personnel because of the highly technical nature of our products and the regulatory approval process. Because our executive officers and key employees are not
obligated to provide us with continued services, they could terminate their employment with us at any time without penalty. We do not have any post-employment noncompetition agreements with any of our employees and do not maintain key person life
insurance policies on any of our executive officers or key employees.
Because competition for highly qualified technical personnel
is intense, we may not be able to attract and retain the personnel we need to support our operations and growth.
We must attract
and retain experts in the areas of clinical testing, manufacturing, research, regulatory and finance, and may need to attract and retain marketing and distribution experts and develop additional expertise in our existing personnel. We face intense
competition from other biopharmaceutical companies, research and academic institutions and other organizations for qualified personnel. Many of the organizations with which we compete for qualified personnel have greater resources than we have.
Because competition for skilled personnel in our industry is intense, companies such as ours sometimes experience high attrition rates with regard to their skilled employees. Further, in making employment decisions, job candidates often consider the
value of the stock options they are to receive in connection with their employment. Our equity incentive plan and employee benefit plans may not be effective in motivating or retaining our employees or attracting new employees, and significant
volatility in the price of our stock may adversely affect our ability to attract or retain qualified personnel. If we fail to attract new personnel or to retain and motivate our current personnel, our business and future growth prospects could be
severely harmed.
If earthquakes or other catastrophic events strike, our business may be harmed.
Our corporate headquarters, including a substantial portion of our research and development operations, are located in the San Francisco Bay
Area, a region known for seismic activity and a potential terrorist target. In addition, we own facilities for the manufacture of products using our PEGylation and advanced polymer conjugate technologies in Huntsville, Alabama and own and lease
offices in Hyderabad, India. There are no backup facilities for our manufacturing operations located in Huntsville, Alabama. In the event of an earthquake or other natural disaster, political instability, or terrorist event in any of these
locations, our ability to
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manufacture and supply materials for drug candidates in development and our ability to meet our manufacturing obligations to our customers would be significantly disrupted and our business,
results of operations and financial condition would be harmed. Our collaborative partners may also be subject to catastrophic events, such as earthquakes, floods, hurricanes and tornadoes, any of which could harm our business, results of operations
and financial condition. We have not undertaken a systematic analysis of the potential consequences to our business, results of operations and financial condition from a major earthquake or other catastrophic event, such as a fire, sustained loss of
power, terrorist activity or other disaster, and do not have a recovery plan for such disasters. In addition, our insurance coverage may not be sufficient to compensate us for actual losses from any interruption of our business that may occur.
We have implemented certain anti-takeover measures, which make it more difficult to acquire us, even though such acquisitions may be
beneficial to our stockholders.
Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law,
could make it more difficult for a third party to acquire us, even though such acquisitions may be beneficial to our stockholders. These anti-takeover provisions include:
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establishment of a classified board of directors such that not all members of the board may be elected at one time;
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lack of a provision for cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
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the ability of our board to authorize the issuance of blank check preferred stock to increase the number of outstanding shares and thwart a takeover attempt;
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prohibition on stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of stockholders;
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establishment of advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and
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limitations on who may call a special meeting of stockholders.
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Further, provisions of
Delaware law relating to business combinations with interested stockholders may discourage, delay or prevent a third party from acquiring us. These provisions may also discourage, delay or prevent a third party from acquiring a large portion of our
securities or initiating a tender offer or proxy contest, even if our stockholders might receive a premium for their shares in the acquisition over the then-current market prices. We also have a change of control severance benefit plan, which
provides for certain cash severance, stock award acceleration and other benefits in the event our employees are terminated (or, in some cases, resign for specified reasons) following an acquisition. This severance plan could discourage a third party
from acquiring us.
The price of our common stock is expected to remain volatile.
Our stock price is volatile. During the three months ended June 30, 2014, based on closing prices on The NASDAQ Global Select Market, our
stock price ranged from $14.31 to $10.53 per share. We expect our stock price to remain volatile. A variety of factors may have a significant effect on the market price of our common stock, including the risks described in this section titled
Risk Factors and the following:
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announcements of data from, or material developments in, our clinical studies and those of our collaboration partners, including data regarding efficacy and safety, delays in clinical development, regulatory approval or
commercial launch;
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announcements by collaboration partners as to their plans or expectations related to drug candidates and approved drugs in which we have a substantial economic interest;
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announcements regarding terminations or disputes under our collaboration agreements;
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fluctuations in our results of operations;
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developments in patent or other proprietary rights, including intellectual property litigation or entering into intellectual property license agreements and the costs associated with those arrangements;
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announcements of technological innovations or new therapeutic products that may compete with our approved products or products under development;
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announcements of changes in governmental regulation affecting us or our competitors;
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litigation brought against us or third parties to whom we have indemnification obligations;
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public concern as to the safety of drug formulations developed by us or others;
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our financing needs and activities; and
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general market conditions.
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At times, our stock price has been volatile even in the absence of significant news or
developments. The stock prices of biotechnology companies and securities markets generally have been subject to dramatic price swings in recent years.
The indenture governing the senior secured notes imposes significant operating and financial restrictions on us and our subsidiaries
that may prevent us from pursuing certain business opportunities and restrict our ability to operate our business.
The indenture
governing the senior secured notes contains covenants that restrict our and our subsidiaries ability to take various actions, such as:
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incur or guarantee additional indebtedness or issue disqualified capital stock or cause certain of our subsidiaries to issue preferred stock;
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pay dividends or distributions, redeem equity interests or subordinated indebtedness or make certain types of investments;
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transfer, sell, lease or otherwise dispose of assets and issue or sell equity interests in certain of our subsidiaries;
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incur restrictions on certain of our subsidiaries ability to pay dividends or other distributions to the Company or to make intercompany loans or asset transfers;
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enter into transactions with affiliates;
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engage in any business other than businesses which are the same, similar, ancillary or reasonably related to our business as of July 11, 2012; and
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consummate a merger, consolidation, reorganization or business combination, or sell, assign, transfer, lease or otherwise dispose of all or substantially all of our assets.
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In addition, the indenture governing the senior secured notes contains a financial maintenance covenant requiring us to maintain a $25.0
million segregated cash reserve account until July 1, 2015 to be applied to interest payments on the notes in the event of a default, subject to certain conditions. This indenture also requires us not to permit, thereafter and through the
quarter ending June 30, 2017, the aggregate balance of our unrestricted cash and cash equivalents at the end of any two consecutive fiscal quarters to be less than $25.0 million, subject to certain conditions. Our ability to comply with these
covenants will likely be affected by many factors, including events beyond our control, and we may not satisfy those requirements. Our failure to comply with our debt-related obligations could result in an event of default under our other
indebtedness and the acceleration of our other indebtedness, in whole or in part, could result in an event of default under the indenture governing the senior secured notes.
The restrictions contained in the indenture governing the senior secured notes could also limit our ability to plan for or react to market
conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into acquisitions or to engage in other business activities that would be in our interest.