Set forth below and elsewhere in this report, and in other documents we
file with the SEC are descriptions of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following factors, as well as
other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. The
risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition.
Risks Relating to our Business
Products that appear promising in research and development may be delayed or may fail to reach later stages of clinical development.
The successful development of pharmaceutical products is highly uncertain. Products that appear promising in research and
development may be delayed or fail to reach later stages of development. For example, preliminary data from our Phase 1b trial of ONT-10 in combination with the T-cell agonist antibody, varlilumab, did not demonstrate sufficient activity to move
forward with the program. We, therefore, decided not to continue this trial and, in February 2016, we terminated our collaboration agreement with Celldex. The ongoing or future trials for ONT-380 and our preclinical research and development of our
Chk1 kinase inhibitor may fail to demonstrate that these product candidates are sufficiently safe and effective to warrant further development.
Furthermore, decisions regarding the further development of product candidates must be made with limited and incomplete data, which makes it
difficult to accurately predict whether the allocation of limited resources and the expenditure of additional capital on specific product candidates will result in desired outcomes. Preclinical and clinical data can be interpreted in different ways,
and negative or inconclusive results or adverse medical events during a clinical trial could delay, limit or prevent the development of a product candidate, which could harm our business, financial condition or the trading price of our securities.
There can be no assurance as to whether or when we will receive regulatory approvals for any of our product candidates, including ONT-380 or our Chk1 kinase inhibitor.
There is no assurance that ONT-380 will be safe, effective or receive regulatory approval.
ONT-380 is a mid-stage clinical development candidate and the risks associated with its development are significant. Promising pre-clinical
data in animal models and early clinical data may not be predictive of later clinical trial results. Additional clinical data may fail to establish that ONT-380 is effective in treating HER2+breast cancer or associated brain metastases or may
indicate safety profile concerns not indicated by earlier clinical data. In December 2014, we announced that interim data from our ongoing Phase 1b combination trials indicated preliminary clinical activity and tolerability in a heavily pretreated
patient population. Updates to some of these data were announced in May 2015, December 2015 and June 2016 and provided further preliminary evidence of clinical activity and tolerability, including brain metastases. Based upon this data, we
commenced our Phase 2 clinical trial of ONT-380 in February 2016 and are continuing that trial. However, none of these trials are yet complete, and even if final Phase 1 data are encouraging, the results from the Phase 2 clinical trial and any later
clinical trials may not indicate a favorable safety and efficacy profile for ONT-380 or may otherwise fail to support continued development of this product candidate.
If the results of the current Phase 1b and Phase 2 ONT-380 trials, or of future ONT-380 trials, do not indicate a favorable safety and
efficacy profile for ONT-380, or otherwise fail to support the continued development of ONT-380, a substantial decline in the price of our common stock could result. There can be no assurance as to whether we will be able to successfully develop and
commercialize ONT-380.
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Our development program for our Chk1 kinase inhibitor is at a very early stage, and it may
not be successful or warrant further internal investment.
Our development efforts for our Chk1 kinase inhibitor are at a very
early stage. We have not yet completed any IND-enabling preclinical studies for our Chk1 kinase inhibitor program, and future research and preclinical development of our Chk1 kinase inhibitor may not indicate that our Chk1 kinase inhibitor
successfully inhibits tumor growth. If our preclinical research and development efforts do not support further development of our Chk1 kinase inhibitor, we may suspend such development activities.
Our pipeline as a whole is subject to the inherent risks of mid stage pharmaceutical development and our business is highly dependent on
the success of ONT-380.
As a function of their development stage, preclinical programs and product candidates in clinical
development are inherently subject to a high degree of risk. Research programs to identify new product candidates require substantial technical, financial and human resources. Because our current product pipeline is comprised of technologies in
research stage, pre-clinical development and a product candidate in Phase 1b and 2 clinical trials, our business is heavily subject to the risks of mid stage pharmaceutical development.
If we are not able to advance our other research and preclinical programs or ONT-380 fails, our pipeline of products in development could be
further reduced or eliminated. This would cause our stock price to decline and would have a material adverse effect on our business, including but not limited to our ability to raise capital to rebuild our pipeline and develop future product
candidates.
Our ability to continue with our planned operations is dependent on our success at raising additional capital
sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to complete the development, regulatory approval and commercialization of our product candidates.
We have expended and continue to expend substantial funds in connection with our product development activities and clinical trials and
regulatory approvals. The very limited funds generated currently from our operations will be insufficient to enable us to bring all of our products currently under development to commercialization. Accordingly, we need to raise additional funds from
the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidates. We cannot be certain that additional financing will be available when and as needed or, if
available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders or restrict our ability to conduct our operations. To the extent that we raise
additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. Our actual capital requirements will
depend on numerous factors, including:
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activities and arrangements related to the commercialization of our product candidates;
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the progress of our research and development programs;
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the progress of pre-clinical and clinical testing of our product candidates;
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the time and cost involved in obtaining regulatory approvals for our product candidates;
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the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;
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the effect of competing technological and market developments;
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the effect of changes and developments in our existing licensing and other relationships; and
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the terms of any new collaborative, licensing and other arrangements that we may establish.
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If we require additional financing and cannot secure sufficient financing on acceptable terms, we may need to delay, reduce or eliminate some
or all of our research and development programs, any of which could have a material adverse effect on our business and financial condition.
We have a history of net losses, we anticipate additional losses and we may never become profitable.
Other than the year ended December 31, 2008, we have incurred net losses in each fiscal year since we commenced our research activities.
The net income we realized in 2008 was due entirely to our December 2008 transactions with Merck KGaA, and we do not anticipate realizing net income again for the foreseeable future. As of June 30, 2016, our accumulated deficit was
approximately $551.0 million. Our losses have resulted primarily from expenses incurred in research and development of our product
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candidates. We may make significant capital commitments to fund the development of our product candidates. If these development efforts are unsuccessful, the development costs would be incurred
without any future revenue, which could have a material adverse effect on our financial condition. We do not know when or if we will complete our product development efforts, receive regulatory approval for any of our product candidates, or
successfully commercialize any approved products. As a result, it is difficult to predict the extent of any future losses or the time required to achieve profitability, if at all. Any failure of our products to complete successful clinical trials
and obtain regulatory approval and any failure to become and remain profitable could adversely affect the price of our common stock and our ability to raise capital and continue operations.
If we fail to identify and acquire new product candidates, we may be unable to grow our pipeline.
The success of our product pipeline strategy depends, in part, on our ability to identify, select and acquire product candidates. Proposing,
negotiating and implementing an economically viable product acquisition or license is a lengthy and complex process. We compete for partnering arrangements and license agreements with pharmaceutical and biotechnology companies and academic research
institutions. Our competitors may have stronger relationships with third parties with whom we are interested in collaborating or may have more established histories of developing and commercializing products. As a result, our competitors may have a
competitive advantage in entering into partnering arrangements with such third parties. In addition, even if we find promising product candidates, and generate interest in a partnering or strategic arrangement to acquire such product candidates, we
may not be able to acquire rights to additional product candidates or approved products on terms that we find acceptable, if at all. If we fail to acquire and develop product candidates from others, we may be unable to grow our business.
We expect that any product candidate to which we acquire rights will require significant additional development efforts prior to commercial
sale, including extensive clinical evaluation and approval by the U.S. Food and Drug Administration (FDA) and non-U.S. regulatory authorities. All product candidates are subject to the risks of failure inherent in pharmaceutical product development,
including the risk that early stage data will not be replicable and the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. Even if the product candidates are
approved, we can make no assurance that we would be capable of economically producing the product or that the product would be commercially successful.
The failure to enroll patients for clinical trials may cause delays in developing our product candidates.
We may encounter delays if we are unable to enroll enough patients to timely complete clinical trials. Patient enrollment depends on many
factors, including the size of the patient population, the ability to enroll sites, the nature of the protocol, the proximity of patients to clinical sites, the eligibility criteria for the trial, and competition for patients in completing trials.
Moreover, when one product candidate is evaluated in multiple clinical trials, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. Our product candidates are focused in oncology, which can be a
difficult patient population to recruit. If we fail to enroll patients for clinical trials, our clinical trials may be delayed or suspended, which could delay our ability to generate revenues or raise capital to fund our operations. To enroll
patients, we may have to seek additional clinical sites which cause additional expense and time with no guarantee of recruiting patients to our trials.
There is no assurance that we will be granted regulatory approval for any of our product candidates.
We are currently conducting two Phase 1b trials and a Phase 2 trial for ONT-380 and preclinical research and development of our Chk1 kinase
inhibitor. There can be no assurance that these and future studies and trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries,
including our company, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. For example, in September 2014, we and Merck KGaA announced that Merck KGaA decided to discontinue the clinical
development program of tecemotide in NSCLC, including the Phase III INSPIRE and START2 studies.
Further, we may be unable to submit
applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by various regulatory agencies before we can commercialize the product described in the application. Additionally, even if
applications are submitted, regulatory approval may not be obtained for any of our product candidates, and regulatory agencies could require additional studies to verify safety or efficacy, which could make further development of our product
candidates impracticable. If our product candidates are not shown to be safe and effective in clinical trials, we may not receive regulatory approval, which would have a material adverse effect on our business, financial condition and results of
operations.
We currently rely on third-party manufacturers and other third parties to manufacture, package and supply our product
candidates. Any disruption in production, inability of these third parties to produce adequate, satisfactory quantities to meet our needs or other impediments with respect to development, manufacturing and supply could adversely affect our ability
to continue our research and development activities or successfully complete pre-clinical studies and clinical trials, delay submissions of our regulatory applications or adversely affect our ability to commercialize our product candidates in a
timely manner, or at all.
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We are responsible for the manufacturing, labeling and packaging of ONT-380, which we outsource
to third parties. Manufacture and supply of drug products such as ONT-380 is a complex process involving multiple steps and multiple manufacturers and service providers. If our third-party manufacturers cease or interrupt production, if our
third-party manufacturers and other service providers fail to supply satisfactory materials, products or services for any reason or experience performance delays or quality concerns, or if materials or products are lost in transit or in the
manufacturing process, such interruptions could substantially delay progress on our programs or impact clinical trial drug supply, with the potential for additional costs and a material adverse effect on our business, financial condition and results
of operations.
Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize a product
candidate, third-party manufacturers may need to increase manufacturing capacity, which may require the manufacturers to fund capital improvements to support the scale up of manufacturing and related activities. With respect to our product
candidates, we may be required to provide all or a portion of these funds. Third-party manufacturers may not be able to successfully increase manufacturing capacity for our product candidate for which we obtain marketing approval in a timely or
economic manner, or at all. If any manufacturer is unable to provide commercial quantities of a product candidate, we will need to successfully transfer manufacturing technology to a new manufacturer. Engaging a new manufacturer for a particular
product candidate could require us to conduct comparative studies or use other means to determine equivalence between product candidates manufactured by a new manufacturer and those previously manufactured by the existing manufacturer, which could
delay or prevent commercialization of our product candidates. If any of these manufacturers is unable or unwilling to increase its manufacturing capacity or if alternative arrangements are not established on a timely basis or on acceptable terms,
the development and commercialization of our product candidates may be delayed or there may be a shortage in supply.
Manufacturers of our
products and related service providers must comply with cGMP requirements enforced by the FDA through its facilities inspection program or by foreign regulatory agencies. These requirements include quality control, quality assurance and the
maintenance of records and documentation. Manufacturers of our products and related service providers may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our
manufacturers or service providers compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, or restrictions on the use of products
produced, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers or other service providers failure to
adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for our product candidates, the development and commercialization of our product candidates may be delayed and there may be a shortage in supply, which
may prevent successful commercialization of our products.
Pre-clinical and clinical trials are expensive and time consuming, and
any failure or delay in commencing or completing clinical trials for our product candidates could severely harm our business.
We
are currently conducting Phase 1b clinical trials and a Phase 2 clinical trial for ONT-380. Each of our product candidates must undergo extensive pre-clinical studies and clinical trials as a condition to regulatory approval. Pre-clinical studies
and clinical trials are expensive and take many years to complete. The commencement and completion of clinical trials for our product candidates may be delayed by many factors, including:
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safety issues or side effects;
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delays in patient enrollment and variability in the number and types of patients available for clinical trials;
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poor effectiveness of product candidates during clinical trials;
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governmental or regulatory delays and changes in regulatory requirements, policy and guidelines;
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our ability to obtain regulatory approval to commence a clinical trial and conduct a trial in accordance with good clinical practices;
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our ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials; and
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varying interpretation of data by the FDA and similar foreign regulatory agencies.
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It is
possible that none of our product candidates will complete clinical trials in any of the markets in which we intend to sell those product candidates. Accordingly, we may not receive the regulatory approvals necessary to market our product
candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial condition.
In addition, both prior to and after regulatory approval of a product, regulatory agencies may require us to delay, restrict or discontinue
clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, all statutes and regulations governing the conduct of clinical trials are subject to change in the
future, which could affect the cost of such clinical trials. Any unanticipated delays in clinical studies could delay our ability to generate revenues and harm our financial condition and results of operations.
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We rely on third parties to conduct our clinical trials. If these third parties do not
perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or be able to commercialize our product candidates.
We rely on third parties, such as contract research and clinical organizations, medical institutions, clinical investigators and contract
laboratories, to assist in conducting our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in
accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and
reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and
requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is
compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our
product candidates.
Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.
Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates
will depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurance companies and other members of the medical community as a therapeutic and cost-effective alternative to competing products and
treatments. New patterns of care, alternative new treatments or different reimbursement and payer paradigms, possibly due to economic conditions or governmental policies, could negatively impact the commercial viability of our product candidates. If
our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors,
including:
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our ability to provide acceptable evidence of safety and efficacy;
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the prevalence and severity of adverse side effects;
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availability, relative cost and relative efficacy of alternative and competing treatments;
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the effectiveness of our marketing and distribution strategy;
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publicity concerning our products or competing products and treatments; and
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our ability to obtain sufficient third-party insurance coverage or reimbursement.
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If our
product candidates do not become widely accepted by physicians, patients, third-party payers and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.
Even if regulatory approval is received for our product candidates, we are subject to ongoing regulatory obligations that, if not met,
may adversely affect our ability to commercialize an approved product.
We are subject to ongoing regulatory obligations following
approval of a product including potential requirements for additional clinical trials, ongoing cGMP manufacturing requirements, and other requirements. If a product is approved for commercial sale, safety concerns may arise that were not present in
clinical trials or occur at higher rates than in our clinical trials of the product which may result in regulatory restrictions. In addition, reports of adverse events or safety concerns could result in the FDA or other regulatory authorities
denying or withdrawing approval of the product for any and all indications. There is no assurance that patients will not experience such adverse events or safety concerns.
In addition, we will be required to comply other with limitations and restrictions imposed by U.S., state and foreign governments in
connection with the marketing of an approved product and reimbursement for approved products. Our failure to meet any of these requirements may have an adverse effect on our ability to commercialize an approved product and our business would suffer.
In addition, if we fail to comply with these requirements, we could be subject to penalties, including:
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suspension of clinical trials;
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total or partial suspension of manufacturing or costly new manufacturing requirements;
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withdrawal of regulatory approval;
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operating restrictions;
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disgorgement of profits;
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Any of these penalties may result in substantial costs to us and could
adversely affect our ability to commercialize an approved product and our business would suffer.
Failure to obtain regulatory
approval in foreign jurisdictions would prevent us from marketing our products internationally.
We intend to have our product
candidates marketed outside the United States. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To
date, we have not filed for marketing approval for any of our product candidates and may not receive the approvals necessary to commercialize our product candidates in any market.
The approval procedure varies among countries and may include all of the risks associated with obtaining FDA approval. The time required to
obtain foreign regulatory approval may differ from that required to obtain FDA approval, and additional testing and data review may be required. We may not obtain foreign regulatory approvals on a timely basis, if at all. Additionally, approval by
the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in
obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could limit
commercialization of our products, reduce our ability to generate profits and harm our business.
We may expand our business through
the acquisition of companies or businesses or by entering into collaborations or in-licensing product candidates that could disrupt our business and harm our financial condition.
We have in the past and may in the future seek to expand our pipeline and capabilities by acquiring one or more companies or businesses,
entering into collaborations or in-licensing one or more product candidates. For example, in December 2014, we entered into a license agreement with Array for exclusive rights to develop and commercialize ONT-380. Acquisitions, collaborations and
in-licenses involve numerous risks, including:
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substantial cash expenditures;
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potentially dilutive issuance of equity securities;
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incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
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potential adverse consequences if the acquired assets are worth less than we anticipated or we are unable to successfully develop and commercialize the acquired assets for any reason;
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difficulties in assimilating the operations and technology of the acquired companies;
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potential disputes, including litigation, regarding contingent consideration for the acquired assets;
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the assumption of unknown liabilities of the acquired businesses;
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diverting our managements attention away from other business concerns;
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entering markets in which we have limited or no direct experience; and
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potential loss of our key employees or key employees of the acquired companies or businesses.
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Our experience in making acquisitions, entering collaborations and in-licensing product candidates is limited. We cannot assure you that any
acquisition, collaboration or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, our future success may
depend in part on our ability to manage the growth and technology integration associated with any of these acquisitions, collaborations and in-licenses. We cannot assure you that we would be able to successfully combine our business with that of
acquired businesses, manage collaborations or integrate in-licensed product candidates or that such efforts would be successful. Furthermore, the development or expansion of our business or any acquired business or company or any collaboration or
in-licensed product candidate may require a substantial capital investment by us. We may also seek to raise funds by selling shares of our capital stock, which could dilute our current stockholders ownership interest, or securities convertible
into our capital stock, which could dilute current stockholders ownership interest upon conversion.
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If we are unable to maintain and enforce our proprietary rights, we may not be able to
compete effectively or operate profitably.
Our success is dependent in part on maintaining and enforcing our patents and other
proprietary rights and will depend in large part on our ability to:
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defend patents once issued;
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preserve trade secrets; and
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operate without infringing the patents and proprietary rights of third parties.
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The degree of future
protection for our proprietary rights is uncertain. For example:
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we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications;
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we might not have been the first to file patent applications for these inventions;
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under our license agreement with Array, Array is responsible for the prosecution of patents related to ONT-380, and they may not effectively prosecute and protect those patents;
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others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products;
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it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable
products and may not provide us with any competitive advantages;
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if our pending applications issue as patents, they or our issued patents may be challenged by third parties as infringed, invalid or unenforceable under U.S. or foreign laws; or
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we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar
or alternative technologies.
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The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves
many complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent and patent applications
provide a competitive advantage, it is possible that patent applications owned by or licensed to us will not result in patents being issued, or that, if issued, the patents will later be invalidated or not give us an advantage over competitors with
similar products or technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates.
In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks
and confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and it is possible that others will independently develop substantially equivalent
information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees and consultants to execute a confidentiality and invention assignment
agreement at the commencement of an employment or consulting relationship with us. However, it is possible that these agreements will not provide effective protection of our confidential information or, in the event of unauthorized use of our
intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.
If we
are unable to obtain intellectual property rights to develop or market our products or we infringe on a third-party patent or other intellectual property rights, we may need to alter or terminate a product development program.
If our product candidates infringe or conflict with the rights of others, we may not be able to manufacture or market our product candidates,
which could have a material and adverse effect on us.
Issued patents held by others may limit our ability to develop commercial products.
All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties,
and we cannot be certain that we would be able to obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring
our products to market, that we use in producing our products, or that we use in treating patients with our products.
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We know that others have filed patent applications in various jurisdictions that relate to
several areas in which we are developing products. Some of these patent applications have already resulted in the issuance of patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or
cease activities. Much of our technology, including ONT-380 and our Chk1 kinase inhibitors originated from third-party sources.
If use of
technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States
and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for
example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates or technology, which they could attempt to assert against us.
Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and it is difficult to predict the outcome of any such action. Ultimately, we could be prevented from commercializing a
product, or forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition
and results of operations.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and
other intellectual property rights, and we may be unable to protect our rights in, or to use, our technology.
There has been
significant litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. Others
may challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. We may not be successful in defending
against any such challenges. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture
or market the affected products.
Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to
otherwise protect our proprietary rights can be substantial. If the outcome of litigation is averse to us, third parties may be able to use the challenged technologies without payment to us. There is also the risk that, even if the validity of a
patent were upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. There is no assurance that we would prevail in any legal action or that any license
required under a third-party patent would be made available on acceptable terms or at all. If any of these events were to occur, our business, financial condition and results of operations would be materially and adversely effected.
If any products we develop become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform
initiatives, our ability to successfully commercialize our products will be impaired.
Our future revenues, profitability and
access to capital will be affected by the continuing efforts of governmental and private third-party payers to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control
the cost of drugs through government regulation. We are unsure of the impact recent health care reform legislation may have on our business or what actions federal, state, foreign and private payers may take in response to the recent reforms or
reforms that may be implemented in the future. Therefore, it is difficult to predict the effect of any implemented reform on our business. Our ability to commercialize our products successfully will depend, in part, on the extent to which
reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third-party coverage
may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development. If adequate coverage and reimbursement levels are not provided by government and
third-party payers for use of our products, our products may fail to achieve market acceptance and our results of operations will be harmed.
Governments often impose strict price controls, which may adversely affect our future profitability.
We intend to seek approval to market our future products in both the United States and foreign jurisdictions. If we obtain approval in one or
more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to government control. In
these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. 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 future product to other available therapies.
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Domestic and foreign governments continue to propose and pass legislation designed to reduce the
cost of healthcare, including drugs. In the United States, there have been, and we expect that there will continue to be, federal and state proposals to implement similar governmental control. In addition, increasing emphasis on managed care in the
United States will continue to put pressure on the pricing of pharmaceutical products. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or
collectively, PPACA, became law in the United States. PPACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly affected the pharmaceutical industry.
We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous
coverage criteria and downward pressure on the price for any approved product, and could seriously harm our prospects. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from
private payers. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a
product candidate and may have to limit its commercialization.
The use of our product candidates in clinical trials and the sale
of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or other third parties. If
we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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the inability to commercialize our product candidates.
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Although we currently have product
liability insurance coverage for our clinical trials for expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may
suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to
expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products
approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock
price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
We face
substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.
The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and
biotechnology companies that are researching and marketing products designed to address cancer indications for which we are currently developing products or for which we may develop products in the future. Our future success depends on our ability
to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. We expect any product candidate that we commercialize on our own or with a collaboration partner will
compete with existing, market-leading products and products in development. The following is a landscape view of known marketed products or programs in development for our pipeline programs:
ONT-380.
ONT-380 is an inhibitor of the receptor tyrosine kinase HER2, also known as ErbB2. There are multiple marketed products which
target HER2, including the antibodies trastuzumab (Herceptin ®) and pertuzumab (Perjeta ®) and the antibody toxin conjugate ado-trastuzumab emtansine (Kadcyla®), all from Roche/Genentech. In addition, GlaxoSmithKline markets the dual
HER1/HER2 oral kinase inhibitor lapatinib (Tykerb®) for the treatment of metastatic breast cancer, Puma Biotechnology is developing the HER1/HER2/HER4 inhibitor neratinib, which is in a Phase 3 clinical trial, Merrimack is
developing MM-302, a HER2-targeted liposomal doxorubicin in a Phase 2 clinical trial and MacroGenics is developing margetuximab, a HER2 targeted, Fc-optimized antibody in a Phase 3 clinical trial.
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Checkpoint Kinase 1 Inhibitors.
There are currently no marketed drugs which specifically target Chk1. Genentech is conducting a Phase 1 clinical trial of an
oral Chk1 inhibitor in patients with refractory solid tumors or lymphoma. Eli Lilly and Company is developing an intravenous Chk1 inhibitor in several clinical settings, the most advanced of which is in a Phase 2 clinical trial.
Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of
these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:
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design and develop products that are superior to other products in the market;
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attract qualified scientific, medical, sales and marketing and commercial personnel;
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obtain patent and/or other proprietary protection for our processes and product candidates;
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obtain required regulatory approvals; and
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successfully collaborate with others in the design, development and commercialization of new products.
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Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In
addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful.
If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
If we are unable to enter into agreements with partners to perform sales and marketing functions, or build these functions ourselves, we
will not be able to commercialize our product candidates.
We currently do not have any internal sales, marketing or distribution
capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop a selling, marketing and distribution infrastructure or enter into agreements with partners to perform these services for us. We may
not be able to enter into such arrangements on commercially acceptable terms, if at all. Factors that may inhibit our efforts to commercialize our product candidates without entering into arrangements with third parties 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 prescribe our products;
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the lack of complementary products to be offered by sales personnel, which 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 a sales and marketing organization.
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If
we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates,
which would adversely affect our business and financial condition.
We are in a period of transition following the appointment of
our new president and chief executive officer.
On March 28, 2016, our board of directors appointed Scott Myers as our
President and Chief Executive Officer, effective as of April 4, 2016. We are experiencing a transitional period as Mr. Myers becomes fully integrated into his new role, and such transition may have a disruptive impact on our ability to
implement our business and development strategy and could have a material adverse effect on our business. Any changes in business and development strategies can create uncertainty, may negatively impact our ability to execute our business strategy
quickly and effectively, and may ultimately be unsuccessful. In addition, management transition periods can be difficult as the new management gains detailed knowledge of research and development operations, and friction or further management
changes or disruptions could result from changes in strategy and management style. Until we integrate our new chief executive officer, we may be unable to successfully manage our research and development efforts, and our business could suffer as a
result.
If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on a cost-effective basis, it
will be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.
Our
success depends in large part upon our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management personnel. In addition, future growth will require us to continue to implement and improve our managerial,
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operational and financial systems, and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. Any
difficulties in hiring or retaining key personnel or managing this growth could disrupt our operations. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract,
retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, recent leadership changes, and the intense competition for qualified personnel, we may not be able to effectively recruit, train and
retain additional qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.
Furthermore, we have not entered into non-competition agreements with all of our key employees. In addition, we do not maintain key
person life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of
our employees to our competitors would harm our research and development programs and our business.
Our business is subject to
complex environmental legislation that increases both our costs and the risk of noncompliance.
Our business involves the use of
hazardous material, which requires us to comply with environmental regulations. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials composition of many of our product
candidates. If we use hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages. Environmental regulations could have a material adverse effect on the results of our operations and our
financial position. We maintain insurance for any liability associated with our hazardous materials activities, and it is possible in the future that our coverage would be insufficient if we incurred a material environmental liability.
If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a
timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business, and our stock price, and could result in litigation or similar actions.
Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on
a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a
material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall dramatically. Our management is responsible for establishing and maintaining adequate internal control
over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management does not believe that our
internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives
will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any,
within the company will have been detected.
We cannot be certain that the actions we have taken to ensure we have adequate internal
controls over financial reporting will be sufficient. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals any material weaknesses or significant deficiencies, the correction of any such material
weaknesses or significant deficiencies could require remedial measures which could be costly and time-consuming. In addition, in such a case, we may be unable to produce accurate financial statements on a timely basis. Any associated accounting
restatement could create a significant strain on our internal resources and cause delays in our release of quarterly or annual financial results and the filing of related reports, increase our costs and cause management distraction. Any of the
foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.
We may face risks related to securities litigation that could result in significant legal expenses and settlement or damage awards.
We have in the past been, and may in the future become, subject to claims and litigation alleging violations of the securities
laws or other related claims, which could harm our business and require us to incur significant costs. We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants
in these types of lawsuits. Any future litigation may require significant attention from management and could result in significant legal expenses, settlement costs or damage awards that could have a material impact on our financial position,
results of operations, and cash flows.
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Risks Related to the Ownership of Our Common Stock
The trading price of our common stock may be volatile.
The market prices for and trading volumes of securities of biotechnology companies, including our securities, have been historically volatile.
For example, we experienced significant volatility following a release regarding our Phase 1b studies of ONT-380 in December 2015. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating
performance of particular companies. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
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the results of pre-clinical testing and clinical trials by us, our competitors and/or companies that are developing products that are similar to ours (regardless of whether such products are potentially competitive with
ours);
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public concern as to the safety of products developed by us or others;
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our ability to execute the business strategies of our new chief executive officer;
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technological innovations or new therapeutic products;
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governmental regulations;
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developments in patent or other proprietary rights;
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general market conditions in our industry or in the economy as a whole;
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comments by securities analysts;
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comments made on social media platforms, including blogs, websites, message boards and other forms of Internet-based communications;
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difficulty with the market interpreting and understanding complex data;
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the issuance of additional shares of common stock, or securities convertible into, or exercisable or exchangeable for, shares of our common stock in connection with financings, acquisitions or otherwise;
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the incurrence of debt; and
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political instability, natural disasters, war and/or events of terrorism.
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Additionally, if the
closing price of our common stock as reported on the NASDAQ Global Market falls below $1.00 for 30 consecutive business days, we will fail to be in compliance with the continued listing requirements of the NASDAQ Global Market. In such case, if were
unable to regain compliance within the grace period provided by the NASDAQ Stock Market, our shares would become subject to delisting.
We may seek to raise additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all,
when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders would experience further
dilution.
We expect that we will seek to raise additional capital from time to time in the future. For example, in June 2016 we
sold 40,250,000 shares of our common stock in an underwritten public offering and 17,250 shares of our Series D convertible preferred stock in a registered direct offering.
Future financings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity
securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. If we are able to consummate financings, the trading price of our common stock could be adversely affected and/or the terms of such
financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and would be expected to result
in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting
and economic interest of our existing stockholders.
Several stockholders own a significant percentage of our outstanding capital
stock and will be able to influence stockholder and management decisions, which may conflict with your interests as a stockholder.
As of June 30, 2016, BVF Inc. and its affiliates (BVF) and Baupost, Inc. collectively held combined voting power over approximately 32%
of the outstanding shares of our common stock. Additionally, BVF holds shares of our preferred stock convertible into up to 32,583,000 additional shares of our common stock. As a result of their respective ownership positions, BVF and Baupost each
may have the ability to significantly influence matters requiring stockholder approval, including, without limitation, the election or removal of directors, mergers, acquisitions, changes of control of our company and sales of all or substantially
all of our assets. In
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addition, pursuant to a letter agreement we entered into with BVF in January 2016, BVF nominated two new members to our board of directors, one of which is the President of BVF who beneficially
owns the shares held by BVF. We also have two other shareholders who collectively own approximately 13% of the outstanding shares of our common stock. As a result, of this concentration of ownership, these stockholders; in particular BVF and
Baupost, may have a significant influence in our management and affairs. This influence may delay, deter or prevent acts that may be favored by our other stockholders, as the interests of these stockholders may not always coincide with the interests
of our other stockholders. In addition, this concentration of share ownership may adversely affect the trading price of our shares because it may limit the trading volume and purchase demand for outstanding shares and investors may perceive
disadvantages in owning shares in a company with significant stockholders.
Because we do not expect to pay dividends on our common
stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.
We have never paid cash
dividends on our common shares and have no present intention to pay any dividends in the future. We are not profitable and do not expect to earn any material revenues for at least several years, if at all. As a result, we intend to use all available
cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating
and financial conditions and on such other factors as our board of directors deems relevant. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common
stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
We can issue shares of
preferred stock that may adversely affect the rights of a stockholder of our common stock.
Our certificate of incorporation
authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:
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adversely affect the voting power of the holders of our common stock;
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make it more difficult for a third party to gain control of us;
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discourage bids for our common stock at a premium;
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limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
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otherwise adversely affect the market price or our common stock.
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We have in the past issued,
and we may at any time in the future issue, additional shares of authorized preferred stock. For example, in connection with our September 2014, February 2015 and June 2016 public offerings, we issued 10,000 shares of Series A convertible
preferred stock, 1,333 shares of Series B convertible preferred stock and 17,250 shares of Series D convertible preferred stock, respectively, each share of which is convertible into 1,000 shares of the Companys common stock, subject to
certain ownership restrictions. Concurrently but separate from the February 2015 offering, we entered into an exchange agreement with certain affiliates of BVF to exchange 4,000,000 shares of common stock previously purchased by BVF for 4,000 shares
of Series B convertible preferred stock. In May 2015, we entered into an exchange agreement with certain affiliates of BVF to exchange 7,500,000 shares of common stock previously purchased by BVF for 7,500 shares of Series C convertible preferred
stock, and in June 2016 we sold 17,250 shares of our Series D convertible preferred stock to BVF in a registered direct offering. Shares of our Series A, Series B, Series C and Series D preferred stock are convertible into common stock on a
1-for-1,000 basis. If the holders of such shares of preferred stock convert their shares into common stock, existing holders of our common stock will experience dilution.
Our management has broad discretion over the use of proceeds from the sale of shares of our common and preferred stock and may not use
such proceeds in ways that increase the value of our stock price.
In our June 2016 public offering, we sold 40,250,000 shares of
common stock and 17,250 shares of Series D convertible preferred stock for net proceeds of approximately $43.2 million. We have broad discretion over the use of proceeds from the sale of those shares, and we could spend the proceeds in ways that do
not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the price of
our common stock to decline.