ITEM 1A.
RISK FACTORS
An investment in our stock involves risks.
You should carefully read this entire report and consider the following uncertainties and risks, which may adversely affect our
business, financial condition or results of operations, along with all of the other information included in our other filings with
the Securities and Exchange Commission, before deciding to buy our common stock.
Risks Relating to Our Business
We have incurred losses since our inception, expect
to continue to incur such losses, and may never be profitable.
Since our inception, we have not achieved sustained
profitability. We expect to incur additional losses for the foreseeable future, and our losses could increase as our research and
development efforts and commercial activities progress. We expect that such losses will fluctuate from quarter to quarter and losses
and fluctuations may be substantial.
To become profitable, we, or our collaborative
partners, must successfully manufacture and develop product candidates, receive regulatory approval, and successfully commercialize
and/or enter into profitable agreements with other parties. It could be several years, if ever, before we receive significant revenue
from any current or future license agreements or revenues directly from product sales.
Because of the numerous risks and uncertainties
associated with developing our product candidates and their potential for commercialization, we are unable to predict the extent
of any future losses. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly
or annual basis. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.
Our success depends upon our ability to advance
our products through the various stages of development, especially through the clinical trial process.
To receive the regulatory approvals necessary
for the sale of our product candidates, we or our partners must demonstrate through preclinical studies and clinical trials that
each product candidate is safe and effective. The development process and related regulatory process are complex and uncertain.
Because of the cost and duration of clinical trials, we may decide to discontinue development of product candidates that are unlikely
to show good results in the clinical trials, unlikely to help advance a product to the point of a meaningful collaboration, or
unlikely to have reasonable commercial potential. We may suffer significant setbacks in pivotal pre-clinical studies and clinical
trials (e.g. BCX7353, BCX9930, BCX9250 and galidesivir), even after earlier clinical trials show promising results. The development
of our product candidates, including our clinical trials, may not be adequately designed or executed, which could affect the potential
outcome and analysis of study results. Any of our product candidates may produce undesirable side effects in humans. Any of our
product candidates, including BCX7353, BCX9930 and BCX9250, may indicate or produce undesirable or inconclusive data in our pre-clinical
and clinical studies. The pre-clinical data (including without limitation carcinogenicity, drug-drug interaction studies and toxicity
studies) and clinical data from our product candidates, including BCX7353, BCX9930, and BCX9250, could cause us or regulatory authorities
to interrupt, delay, modify or halt preclinical or clinical trials of a product candidate or may result in restrictions or warnings
that could impact development and the ultimate commercial outcome for a product candidate. Undesirable or inconclusive data or
side effects in humans could also result in the U.S. Food and Drug Administration (the “FDA”) or foreign regulatory
authorities refusing to approve the product candidate for any targeted indications or require restrictions or warnings that could
impact development or the ultimate commercial success for a product candidate. In addition, the FDA or other regulatory agencies
may determine that study data from our product candidates necessitates additional studies or study designs which differ from our
planned development strategy, and regulatory agencies may also require patient monitoring and testing or may implement restrictions
or other conditions on our development activities, any of which could materially impact the cost and timing of our planned development
strategy. We, our partners, the FDA or foreign regulatory authorities may suspend or terminate clinical trials at any time if we
or they believe the trial participants face unacceptable health risks. Pre-clinical studies (including without limitation carcinogenicity,
drug-drug interaction studies and toxicity studies) and clinical trials for our product candidates, including BCX7353, BCX9930,
and BCX9250, and the overall analysis of the balance of safety and efficacy may fail to demonstrate that our product candidates
are safe or effective, which could limit or eliminate the expected commercial viability of those product candidates. Regulatory
authorities may interrupt, delay or halt clinical trials for a product candidate for any number of reasons.
Our ability to successfully complete clinical
trials is dependent upon many factors, including but not limited to:
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our ability to find suitable clinical sites and investigators to enroll patients;
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the ability to maintain contact with patients to provide complete data after treatment;
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our product candidates may not prove to be either safe or effective;
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clinical protocols or study procedures may not be adequately designed or followed by the investigators;
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formulation improvements may not work as expected, which could negatively impact commercial demand for our product candidates;
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manufacturing or quality control problems could affect the supply of product candidates for our trials; and
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delays or changes in our planned development strategy, the regulations or guidelines, or other unexpected conditions or requirements of government agencies.
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Clinical trials are lengthy and expensive.
We or our partners incur substantial expense for, and devote significant time to, preclinical testing and clinical trials, yet
we cannot be certain that the tests and trials will ever result in the commercial sale of a product. For example, clinical trials
require adequate supplies of drug and sufficient patient enrollment. Lack of adequate drug supply or delays in patient enrollment,
including for APeX-2, APeX-S and APeX-J, can result in increased costs and longer development times. Even if we or our partners
successfully complete clinical trials for our product candidates, we or our partners might not file the required regulatory submissions
in a timely manner and may not receive regulatory approval for the product candidates.
We focus on rare diseases, which may create additional
risks and challenges.
Because we focus on developing drugs as treatments
for rare diseases, we may seek orphan drug, breakthrough therapy or fast track designations for our product candidates in the United
States or the equivalent designations elsewhere in the world. Often, regulatory agencies have broad discretion in determining whether
or not to grant such designations. We cannot guarantee that we will be able to receive orphan drug status from the FDA or equivalent
regulatory designations elsewhere. We also cannot guarantee that we will obtain breakthrough therapy or fast track designation,
which may provide certain potential benefits such as more frequent meetings with the FDA to discuss the development plan, intensive
guidance on an efficient drug development program, and potential eligibility for rolling review or priority review. Even if we
are successful in obtaining any such designation by the FDA or other regulatory agency for our product candidates, such designations
may not lead to faster development or regulatory review or approval, and it does not increase the likelihood that our product candidates
will receive marketing approval. We may not be able to obtain or maintain such designations for our product candidates, and our
competitors may obtain these designations for their product candidates, which could impact our ability to develop and commercialize
our product candidates or compete with such competitors, which may adversely impact our business, financial condition or results
of operations.
Although we have received Sakigake designation
for BCX7353 in Japan, we may not experience a faster development, review or approval process compared to the conventional process,
and we could lose the Sakigake designation.
Our clinical trials may not adequately show that
our product candidates are safe or effective.
Progression of our product candidates through
the clinical development process is dependent upon our trials indicating our product candidates have adequate safety and efficacy
in the patients being treated by achieving pre-determined safety and efficacy endpoints according to the clinical trial protocols.
Failure to achieve any of these endpoints in any of our programs, including BCX7353, BCX9930, BCX9250, galidesivir, and our other
rare disease product candidates, could result in delays in our trials or require the performance of additional unplanned trials.
This could result in delays in the development of our product candidates and could result in significant unexpected costs or the
termination of programs.
If our development collaborations with third parties,
such as our development partners, contractors and contract research organizations, fail, the development of our product candidates
will be delayed or stopped.
We rely heavily upon third parties for many
important stages of our product candidate development, including but not limited to:
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discovery of natural proteins that cause or enable biological reactions necessary for the progression of the disease or disorder, called enzyme targets;
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execution of certain pharmacology preclinical studies and late-stage development for our compounds and product candidates;
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management of our Phase 1, 2 and 3 clinical trials, including medical monitoring and data management;
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execution of toxicology studies that may be required to obtain approval for our product candidates;
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formulation improvement strategies and methods; and
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manufacturing the starting materials and drug substance required to formulate our products and the product candidates to be used in our clinical trials, toxicology studies and any potential commercial product.
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Our failure to engage in successful collaborations
at any one of these stages would greatly impact our business. If we do not license enzyme targets or inhibitors from academic institutions
or from other biotechnology companies on acceptable terms, our drug development efforts would suffer. Similarly, if the contract
research organizations that conduct our initial or late-stage clinical trials, conduct our toxicology studies, manufacture our
starting materials, drug substance and product candidates or assist with our regulatory function breached their obligations to
us or perform their services inconsistent with industry standards and not in accordance with the required regulations, this would
delay or prevent both the development of our product candidates and the availability of any potential commercial product.
If we lose our relationship with any one or
more of these parties, we could experience a significant delay in both identifying another comparable provider and then contracting
for its services. We may be unable to retain an alternative provider on reasonable terms, if at all. Even if we locate an alternative
provider, it is likely that this provider may need additional time to respond to our needs and may not provide the same type or
level of service as the original provider. In addition, any provider that we retain will be subject to applicable FDA current Good
Laboratory Practices, current Good Manufacturing Practices (“cGMP”) and current Good Clinical Practices, and comparable
foreign standards. We do not have control over compliance with these regulations by these providers. Consequently, if these practices
and standards are not adhered to by these providers, the development and commercialization of our product candidates could be delayed.
If any of the foregoing risks are realized, our business, financial condition and results of operations could be materially adversely
affected.
Because we have limited manufacturing experience,
we depend on third-party manufacturers to manufacture our product, product candidates and the materials for our product candidates.
Often, especially early in the development and commercialization process, we have only one source for manufacturing. If we cannot
rely on existing third-party manufacturers, we will be required to incur significant costs and potential delays in finding new
third-party manufacturers.
We have limited manufacturing experience and
only a small scale manufacturing facility. We currently rely upon a very limited number of third-party manufacturers to manufacture
the materials required for our product, product candidates and most of the preclinical and clinical quantities of our product candidates.
We depend on these third-party manufacturers to perform their obligations in a timely manner and in accordance with applicable
governmental regulations. Our third-party manufacturers, which may be the only manufacturer we have engaged for a particular product,
may encounter difficulties with meeting our requirements, including but not limited to problems involving:
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inconsistent production yields;
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product liability claims or recalls of commercial product;
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difficulties in scaling production to commercial and validation sizes;
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interruption of the delivery of materials required for the manufacturing process;
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scheduling of plant time with other vendors or unexpected equipment failure;
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potential catastrophes that could strike their facilities or have an effect on infrastructure;
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potential impurities in our drug substance or products that could affect availability of product for our clinical trials or future commercialization;
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poor quality control and assurance or inadequate process controls; and
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lack of compliance or cooperation with regulations and specifications or requests set forth by the FDA or other foreign regulatory agencies, particularly associated with peramivir, BCX7353, BCX9930, BCX9250, galidesivir and our early stage compounds.
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These contract manufacturers may not be able
to manufacture the materials required for our product candidates at a cost or in quantities necessary to make them commercially
viable. We also have no control over whether third-party manufacturers breach their agreements with us or whether they may terminate
or decline to renew agreements with us. To date, our third-party manufacturers have met our manufacturing requirements, but they
may not continue to do so. Furthermore, changes in the manufacturing process or procedure, including a change in the location where
the drug is manufactured or a change of a third-party manufacturer, may require prior review and approval in accordance with the
FDA’s cGMP and comparable foreign requirements. This review may be costly and time-consuming and could delay or prevent the
launch of a product. The FDA or similar foreign regulatory agencies may at any time implement new standards, or change their interpretation
and enforcement of existing standards for manufacture, packaging or testing of products. If we or our contract manufacturers are
unable to comply, we or they may be subject to regulatory action, civil actions or penalties any of which could be costly to us
and could result in a delay or shortage of product.
If we are unable to maintain current manufacturing
or other contract relationships, or enter into new agreements with additional manufacturers on commercially reasonable terms, or
if there is poor manufacturing performance or failure to comply with any regulatory agency on the part of any of our third-party
manufacturers, we may not be able to complete development of, seek timely approval of, or market, our product candidates.
Our raw materials, drug substances, and product
candidates are manufactured by a limited group of suppliers, including some at a single facility. If any of these suppliers were
unable to produce these items, this could significantly impact our supply of product candidate material for further preclinical
testing and clinical trials.
We face intense competition, and if we are unable
to compete effectively, the demand for our products, if any, may be reduced.
The biotechnology and pharmaceutical industries
are highly competitive and subject to rapid and substantial technological change. There are many companies seeking to develop products
for the same indications that we currently target. Our competitors in the United States and elsewhere are numerous and include,
among others, major multinational pharmaceutical and chemical companies and specialized biotechnology firms. Most of these competitors
have greater resources than we do, including greater financial resources, larger research and development staffs and more experienced
marketing and manufacturing organizations. In addition, most of our competitors have greater experience than we do in conducting
clinical trials and obtaining FDA and other regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA or
other regulatory approvals of product candidates more rapidly than we do. Companies that complete clinical trials, obtain required
regulatory approvals, and commence commercial sale of their drugs before we do may achieve a significant competitive advantage,
including patent and FDA exclusivity rights that would delay our ability to market products. We face, and will continue to face,
competition in the licensing of potential product candidates for desirable disease targets, licensing of desirable product candidates,
and development and marketing of our product candidates from academic institutions, government agencies, research institutions
and biotechnology and pharmaceutical companies. Competition may also arise from, among other things:
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other drug development technologies;
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methods of preventing or reducing the incidence of disease, including vaccines; and
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new small molecule or other classes of therapeutic agents.
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Developments by others may render our product candidates
or technologies obsolete or noncompetitive.
We are performing research on or developing products for the treatment
of several rare diseases, including HAE, FOP and diseases of the complement system, as well as developing broad spectrum antivirals
for use as medical countermeasures. We expect to encounter significant competition for any of the pharmaceutical products we are
developing and plan to develop. Companies that complete clinical trials, obtain required funding or government support, obtain
required regulatory approvals and commence commercial sales or stockpiling orders of their products before their competitors may
achieve a significant competitive advantage. Such is the case with the current neuraminidase inhibitors marketed by GlaxoSmithKline
plc and F. Hoffmann-La Roche Ltd. for influenza; CINRYZE
®
, KALBITOR
®
,
FIRAZYR
®
, and TAKHZYRO™, marketed by Shire plc (“Shire”)
or its affiliates, including Takeda Pharmaceutical Company, Ltd., for HAE; BERINERT
®
and HAEGARDA
®
, marketed by CSL Limited (“CSL”) for HAE; RUCONEST
®
,
marketed by Pharming Healthcare, Inc. (“Pharming”) for HAE; and SOLIRIS
®
and ULTOMIRIS™, marketed by Alexion Pharmaceuticals, Inc. for paroxysmal nocturnal hemoglobinuria (“PNH”), atypical
hemolytic uremic syndrome, and myasthenia gravis.
Further, several pharmaceutical and biotechnology
firms have announced efforts in HAE and in other therapeutic areas where we have discovery and development efforts ongoing. KalVista
Pharmaceuticals, Inc. has announced plans to conduct a Phase 2 clinical trial in 2019 of an oral kallikrein inhibitor (KVD900)
as a treatment for acute attacks. KalVista (KVD824) and Attune Pharmaceuticals, Inc. (ATN-249) also have oral kallikrein inhibitors
in Phase 1 clinical trials that may be developed as treatments for HAE. CSL has an anti-factor XII Mab (CSL312) in Phase 2 clinical
development in HAE patients. The drug substance patent of Shire’s acute treatment, Firazyr, expired in July 2019, which
will allow for potential generic entrants to enter the therapeutic space. Currently, there are five investigational therapeutics
under a compassionate use/expanded access framework that can be available in an outbreak setting to treat Ebola virus disease.
In early 2018, Shionogi announced the approval in Japan of Xofluza, an oral treatment for influenza, which also received approval
from the FDA in October of 2018. For FOP, Clementia Pharmaceuticals, acquired in April 2019 by Ipsen, is developing palovarotene,
an oral therapy that is in Phase 2 and 3 trials; Regeneron Pharmaceuticals, Inc.’s injectable REGN2477 is in Phase 2; and
Blueprint Medicines Corporation’s BLU-782 is expected to begin phase 1 trials in 2019. There are many additional potential
competitors in PNH and other complement-mediated diseases. Achillion Pharmaceuticals Inc., Novartis AG and ChemoCentryx, Inc. all
have oral complement inhibitors in Phase 2 or Phase 3 clinical trials. Apellis Pharmaceuticals Inc., Ra Pharmaceuticals, Inc.,
and Omeros Corporation are also developing novel complement inhibitors that have reached Phase 2 or Phase 3 clinical trials. SOLIRIS
is no longer under patent protection and one or more biosimilar versions of that product may be developed. If one or more of our
competitors’ products or programs, including potential competitors not listed, are successful, the market for our products
may be reduced or eliminated.
Compared to us, many of our competitors and
potential competitors have substantially greater:
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capital resources;
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research and development resources, including personnel and technology;
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regulatory experience;
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preclinical study and clinical testing experience;
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manufacturing and marketing experience; and
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production facilities.
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Any of these competitive factors could impede
our funding efforts, render technology and product candidates noncompetitive or eliminate or reduce demand for our product candidates.
We face risks related to our government-funded
programs; if BARDA/HHS or NIAID/HHS were to eliminate, reduce or delay funding from our contracts, this would have a significant
negative impact on the programs associated with such funding and could have a significant negative impact on our revenues and cash
flows.
Our projections of revenues and incoming cash
flows are substantially dependent upon BARDA/HHS and NIAID/HHS reimbursement for the costs related to our galidesivir program.
If BARDA/HHS or NIAID/HHS were to eliminate, reduce or delay the funding for these programs or disallow some of our incurred costs,
we would have to obtain additional funding for continued development or regulatory registration for these product candidates or
significantly reduce or stop the development effort.
In contracting with BARDA/HHS and NIAID/HHS,
we are subject to various U.S. Government contract requirements, including general clauses for a cost-reimbursement research and
development contract, which may limit our reimbursement or if we are found to be in violation could result in contract termination.
If the U.S. Government terminates any of its contracts with us for its convenience, or if we default by failing to perform in accordance
with the contract schedule and terms, significant negative impact on our cash flows and operations could result.
Our government contracts with BARDA/HHS and NIAID/HHS
have special contracting requirements, which create additional risks of reduction or loss of funding.
We have completed work under a contract with
BARDA/HHS for the development of our neuraminidase inhibitor, RAPIVAB. We also have entered into contracts with BARDA/HHS and NIAID/HHS
for the development of galidesivir as a treatment for diseases caused by RNA pathogens, including Marburg virus disease, Yellow
Fever and Ebola virus disease. In contracting with these government agencies, we are subject to various U.S. Government contract
requirements, including general clauses for a cost-reimbursement research and development contract, which may limit our reimbursement
or, if we are found to be in violation, could result in contract termination.
U.S. Government contracts typically contain
a number of extraordinary provisions that would not typically be found in commercial contracts and which may create a disadvantage
and additional risks to us as compared to competitors that do not rely on U.S. Government contracts. These risks include the ability
of the U.S. Government to unilaterally:
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terminate or reduce the scope of our contract with or without cause;
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interpret relevant regulations (federal acquisition regulation clauses);
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require performance under circumstances which may not be favorable to us;
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require an in process review where the U.S. Government will review the project and its options under the contract;
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control the timing and amount of funding, which impacts the development progress of our programs; and
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audit and object to our contract-related costs and fees, including allocated indirect costs.
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Our government contracts with BARDA/HHS and NIAID/HHS
have termination and audit provisions which create additional risks to us.
The U.S. Government may terminate its contracts
with us either for its convenience or if we default by failing to perform in accordance with the contract schedule and terms. Termination
for convenience provisions generally enable us to recover only our costs incurred or committed, and settlement expenses and profit
on the work completed prior to termination. Termination does not permit these recoveries under default provisions. In the event
of termination or upon expiration of a contract, the U.S. Government may dispute wind-down and termination costs and may question
prior expenses under the contract and deny payment of those expenses. Should we choose to challenge the U.S. Government for denying
certain payments under a contract, such a challenge could subject us to substantial additional expenses which we may or may not
recover. Further, if the U.S. Government terminates its contracts with us for its convenience, or if we default by failing to perform
in accordance with the contract schedule and terms, significant negative impact on our cash flows and operations could result.
As a U.S. Government contractor, we are required
to comply with applicable laws, regulations and standards relating to our accounting practices and are subject to periodic audits
and reviews. As part of any such audit or review, the U.S. Government may review the adequacy of, and our compliance with, our
internal control systems and policies, including those relating to our purchasing, property, estimating, compensation and management
information systems. Audits under the active BARDA/HHS and NIAID/HHS galidesivir contracts may occur at the election of the U.S.
Government and have been concluded through fiscal 2015; all subsequent fiscal years are still open and auditable. Based on the
results of its audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs.
This adjustment could impact the amount of revenues reported on a historic basis and could impact our cash flows under the contracts
prospectively. In addition, in the event BARDA/HHS or NIAID/HHS determines that certain costs and fees were unallowable or determines
that the allocated indirect cost rate was higher than the actual indirect cost rate, BARDA/HHS or NIAID/HHS would be entitled to
recoup any overpayment from us as a result. In addition, if an audit or review uncovers any improper or illegal activity, we may
be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of
profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. We could also
suffer serious harm to our reputation if allegations of impropriety were made against us. In addition, under U.S. Government purchasing
regulations, some of our costs may not be reimbursable or allowed under our contracts. Further, as a U.S. Government contractor,
we are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal
actions and liabilities as compared to private sector commercial companies.
If we fail to reach milestones or to make annual
minimum payments or otherwise breach our obligations under our license agreements, our licensors may terminate our agreements with
them and seek additional remedies.
If we are unable or fail to meet payment obligations,
performance milestones relating to the timing of regulatory filings, product supply obligations, post approval commitments for
RAPIVAB, or development and commercial diligence obligations; are unable or fail to make milestone payments or material data use
payments in accordance with applicable provisions; or fail to pay the minimum annual payments under our respective licenses, our
licensors may terminate the applicable license or seek other available remedies. As a result, our development of the respective
product candidate or commercialization of the product would cease.
If we fail to obtain additional financing or acceptable
partnership arrangements, we may be unable to complete the development and commercialization of our product candidates or continue
operations.
As our programs advance, our costs are likely
to increase. Our current and planned discovery activities, pre-clinical and clinical trials, the related development, manufacturing,
regulatory approval process requirements, and the additional personnel resources and testing required for supporting the development
of our product candidates will consume significant capital resources. Our expenses, revenues and cash utilization rate could vary
significantly depending on many factors, including: our ability to raise additional capital; the development progress of our collaborative
agreements for our product candidates; the amount of funding we receive from NIAID/HHS and BARDA/HHS for galidesivir or from other
new partnerships with third parties for the development of our product candidates, including BCX7353, BCX9930, BCX9250 and our
other rare disease product candidates; the commercial success of peramivir achieved by our partners; the amount or profitability
of any orders for peramivir or galidesivir by any government agency or other party; the progress and results of our current and
proposed clinical trials for our most advanced product candidates, including BCX7353, BCX9930, BCX9250 and our other rare disease
product candidates; the progress made in the manufacture of our lead products and the progression of our other programs.
We expect that we will be required to raise
additional capital to complete the development and commercialization of our current product candidates and we may seek to raise
capital at any time. Additional funding, whether through additional sales of securities, additional borrowings, or collaborative
arrangements with partners, including governmental agencies in general and from any BARDA/HHS or NIAID/HHS contract specifically,
may not be available when needed or on terms acceptable to us. The issuance of preferred or common stock or convertible securities,
with terms and prices significantly more favorable than those of the currently outstanding common stock, could have the effect
of diluting or adversely affecting the holdings or rights of our existing stockholders. Additional borrowings may subject us to
more restrictive covenants than are currently applicable to us under our secured credit facility with MidCap Financial, a Delaware
statutory trust (“MidCap”), pursuant to the terms and conditions of that certain Second Amended and Restated Credit
and Security Agreement, dated as of February 5, 2019, between the Company, MDCP, LLC, MidCap, and the lenders thereto (the “Second
Amended and Restated Senior Credit Facility”). In addition, collaborative arrangements may require us to transfer certain
material rights to such corporate partners. Insufficient funds or lack of an acceptable partnership may require us to delay, scale-back
or eliminate certain of our research and development programs.
In order to continue future operations and
continue our drug development programs, we will be required to raise additional capital. In addition to seeking strategic partnerships,
transactions and government funding, we may decide to access the equity or debt markets, incur additional borrowings, or seek other
sources to meet liquidity needs. Our ability to raise additional capital may be limited and may greatly depend upon the success
of ongoing development related to our current drug development programs, including post approval studies for RAPIVAB, the
progress, timeline and ultimate outcome of development programs for our kallikrein inhibitors, such as BCX7353 (including,
but not limited to, formulation progress, the timing and outcome of APeX-2, long-term human safety studies, and carcinogenicity,
drug-drug interaction, toxicity, or other required studies), the progress of BCX9250 for the treatment of FOP, BCX9930 for diseases
of the complement system and other rare disease product candidates. In addition, constriction and volatility in the equity and
debt markets may restrict our future flexibility to raise capital when such needs arise. Furthermore, we have exposure to many
different industries, financing partners and counterparties, including commercial banks, investment banks and partners (which include
investors, licensing partners, and the U.S. Government) which may be unstable or may become unstable in the current economic and
political environment. Any such instability may impact these parties’ ability to fulfill contractual obligations to us or
they might limit or place burdensome conditions upon future transactions with us. Also, it is possible that suppliers may be negatively
impacted. Any such unfavorable outcomes in our current programs or unfavorable economic conditions could place severe downward
pressure on the price of our common stock and may decrease opportunities to raise capital in the capital or credit markets, and
further could reduce the return available on invested corporate cash, which, if severe and sustained, could have a material and
adverse impact on our results of operations and cash flows and limit our ability to continue development of our product candidates.
We may not be able to continue as a going concern
if we do not obtain additional capital.
We have sustained operating losses for the
majority of our corporate history and expect that our 2019 expenses will exceed our 2019 revenues. We expect to continue to incur
operating losses and negative cash flows until revenues reach a level sufficient to support ongoing operations.
Our liquidity needs will be largely determined
by the success of operations in regards to the progression of our product candidates in the future. Our plans to alleviate the
doubt regarding our ability to continue as a going concern primarily include our ability to control the timing and spending on
our research and development programs and raising additional funds through equity financings. We also may consider other plans
to fund operations including: (1) securing or increasing U.S. Government funding of our programs, including obtaining procurement
contracts; (2) out-licensing rights to certain of our products or product candidates, pursuant to which the we would receive cash
milestones; (3) raising additional capital through equity or debt financings or from other sources; (4) obtaining additional product
candidate regulatory approvals, which would generate revenue, milestones and cash flow; (5) reducing spending on one or more research
and development programs, including by discontinuing development; and/or (6) restructuring operations to change our overhead structure.
There can be no assurance that any of our plans
will be successful or that additional capital will be available to us on reasonable terms, or at all, when needed. If we are unable
to obtain sufficient additional capital, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations
altogether or file for bankruptcy.
If we fail to successfully commercialize or establish
collaborative relationships to commercialize certain of our product candidates, or if any partner terminates or fails to perform
its obligations under agreements with us, potential revenues from commercialization of our product candidates could be reduced,
delayed or eliminated.
Our business strategy is to increase the asset
value of our product candidate portfolio. We believe this is best achieved by retaining full product rights or through collaborative
arrangements with third parties as appropriate. As needed, potential third-party relationships could include preclinical development,
clinical development, regulatory approval, marketing, sales and distribution of our product candidates.
Currently, we have established collaborative
relationships with Mundipharma for the development and commercialization of Mundesine and with each of SUL, Shionogi and Green
Cross for the development and commercialization of peramivir on a worldwide basis. The process of establishing and implementing
collaborative relationships is difficult, time-consuming and involves significant uncertainty, including:
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our partners may seek to renegotiate or terminate their relationships with us due to unsatisfactory commercial, regulatory or clinical results, including post approval clinical commitments, a change in business strategy, a change of control or other reasons;
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our contracts for collaborative arrangements may expire;
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our partners may choose to pursue alternative technologies, including those of our competitors;
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we may have disputes with a partner that could lead to litigation or arbitration, such as the ongoing arbitration proceedings between us and each of SUL and Shionogi, which could result in substantial costs and divert the attention of our management;
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we do not have day to day control over the activities of our partners and have limited control over their decisions;
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our ability to generate future event payments and royalties from our partners depends upon their abilities to establish the safety and efficacy of our product candidates, obtain regulatory approvals and achieve market acceptance of products developed from our product candidates;
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we or our partners may fail to properly initiate, maintain or defend our intellectual property rights, where applicable, or a party may utilize our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or expose us to potential liability;
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we or our partners may not devote sufficient capital or resources towards our product candidates; and
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we or our partners may not comply with applicable government regulatory requirements.
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If we or our partners fail to fulfill our responsibilities
in a timely manner, or at all, our commercialization efforts related to that collaboration could be reduced, delayed or terminated,
or it may be necessary for us to assume responsibility for activities that would otherwise have been the responsibility of our
partner. If we are unable to establish and maintain collaborative relationships on acceptable terms, we may have to delay or discontinue
further development of one or more of our product candidates, undertake commercialization activities at our own expense or find
alternative sources of funding. Any delay in the development or commercialization of our product candidates would severely affect
our business, because if our product candidates do not progress through the development process or reach the market in a timely
manner, or at all, we may not receive additional future event payments and may never receive milestone, product sales or royalty
payments.
We do not have a great deal of experience in commercializing
our products or technologies, and our future revenue generation is uncertain.
We do not have a great deal of experience in
commercializing our product candidates or technologies. We currently have limited marketing and commercial capability, no direct
or third-party sales force and limited distribution capabilities. We may be unable to establish or sufficiently increase these
capabilities for products we currently, or plan to, commercialize. In addition, our revenue from collaborative agreements may be
dependent upon the status of our preclinical and clinical programs.
Our ability to receive revenue from products
we commercialize presents several risks, including:
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we or our collaborators may fail to successfully complete clinical trials, or satisfy post-marketing commitments, sufficient to obtain and keep FDA marketing approval;
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many competitors are more experienced and have significantly more resources, and their products could reach the market faster, be more cost effective or have a better efficacy or tolerability profile than our product candidates;
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we may fail to employ a comprehensive and effective intellectual property strategy, which could result in decreased commercial value of our Company and our products;
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we may fail to employ a comprehensive and effective regulatory strategy, which could result in a delay or failure in commercialization of our products;
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our ability to successfully commercialize our products is affected by the competitive landscape, which cannot be fully known at this time;
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reimbursement is constantly changing, which could greatly affect usage of our products; and
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future revenue from product sales would depend on our ability to successfully complete clinical studies, obtain regulatory approvals, and manufacture, market and commercialize our approved drugs.
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Commercialization of peramivir by our partners
is subject to the potential commercialization risks described herein and numerous additional risks. Any potential revenue benefits
to us in the form of milestone payments, royalties or other consideration are highly speculative.
Commercialization success of peramivir is uncertain
and is subject to all the risks and uncertainties disclosed in our other risk factors relating to drug development and commercialization.
In addition, commercialization of peramivir products is subject to further risks and may be negatively impacted by a number of
factors, including, but not limited to, the following:
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peramivir may not prove to be adequately safe and effective for market approval in markets other than the United States, Canada, Japan, Korea , Taiwan, Australia and the European Union;
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necessary funding for post-marketing commitments and further development of peramivir may not be available timely, at all, or in sufficient amounts;
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flu prevention or pandemic treatment concerns may not materialize at all, or in the near future;
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advances in flu vaccines or other antivirals, including competitive i.v. antivirals, could substantially replace potential demand for peramivir;
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a limited number of governmental entities are expected to be the primary potential stockpiling customers for peramivir and if we are not successful at marketing peramivir to these entities for any reason, we will not receive substantial revenues from stockpiling orders;
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government and third party payors may not provide sufficient coverage or reimbursement which would negatively impact the demand for peramivir;
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we may not be able to supply commercial material to our partners and our partners may not be able to maintain or establish sufficient and acceptable commercial manufacturing, either directly or through third-party manufacturers;
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the commercial demand and acceptance for peramivir by healthcare providers and by patients may not be sufficient to result in substantial revenues of peramivir to our partners and may result in little to no milestones or royalties to us;
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effectiveness of marketing and commercialization efforts for peramivir by our partners;
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market satisfaction with existing alternative therapies;
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perceived efficacy relative to other available therapies;
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disease prevalence;
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cost of treatment;
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pricing and availability of alternative products;
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marketing and sales activities of competitors;
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shifts in the medical community to new treatment paradigms or standards of care; and
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relative convenience and ease of administration.
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We are subject to various federal and state laws
related to RAPIVAB and other products under development and, if we or our partners do not comply with these regulations, we could
face substantial penalties.
Our or our partners’ activities related
to RAPIVAB, or any of our other products under development and following their regulatory approval, are subject to regulatory and
law enforcement authorities in addition to the FDA, including the Federal Trade Commission, the Department of Justice, and state
and local governments. In the case of our collaboration with SUL, although SUL is responsible for RAPIVAB marketing and commercialization
efforts, we continue to carry certain risks associated with RAPIVAB because we hold the RAPIVAB NDA. For example, we are responsible
for reporting adverse drug experiences, we have responsibility for certain post-approval studies, we may have responsibilities
and costs related to a recall or withdrawal of RAPIVAB from sale, we may incur liability associated with RAPIVAB manufacturing
contracted by us or in support of any of our partners, we are required to maintain records and provide data and reports to regulatory
agencies related to RAPIVAB (e.g. risk evaluation and mitigation strategies, track and trace requirements, adverse events), and
we may incur certain promotional regulatory and government pricing risks, all of which could have a material adverse impact on
our operations and financial condition.
In addition, we are subject to the federal
physician sunshine act and certain similar physician payment and drug pricing transparency legislation in various states. We are
also subject to various federal and state laws pertaining to health care “fraud and abuse,” including both federal
and state anti-kickback and false claims laws. These laws regulate our or our partners’ operations, sales and marketing practices,
price reporting, and relationships with physicians and other customers and third-party payors. Anti-kickback laws generally prohibit
a manufacturer from soliciting, offering, receiving, or paying any remuneration to generate business, including the purchase or
prescription of a particular drug. Although the specific provisions of these laws vary, their scope is generally broad and there
may be no regulations, guidance or court decisions that clarify how the laws apply to particular industry practices. False claims
laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payors (including
Medicare and Medicaid) claims for reimbursement or services that are false or fraudulent, claims for items or services not provided
as claimed, or claims for medically unnecessary items or services. The sunshine provisions apply to manufacturers with products
reimbursed under certain government programs and require those manufacturers to disclose annually to the federal government certain
payments made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals,
as well as, ownership and investment interests held by physicians (as defined above) and their immediate family members. State
laws may also require disclosure of pharmaceutical pricing information and marketing expenditures. Although we seek to comply with
these statutes, it is possible that our practices, or those of our partners, might be challenged under health care fraud and abuse,
anti-kickback, false claims or similar laws. Violations of the physician sunshine act and similar state legislation or the fraud
and abuse laws may be punishable by civil or criminal sanctions, including fines and civil monetary penalties, and future exclusion
from participation in government healthcare programs.
The principal investigators for our clinical
trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such
services. Under certain circumstances, we may be required to report some of these relationships to certain regulatory authorities,
including the FDA. Consequently, the FDA or other regulatory authority may conclude that a financial relationship between us and
a principal investigator creates a conflict of interest or otherwise affects interpretation of the study. In the event of a conflict
of interest with respect to a study, the integrity of the data generated at the applicable clinical trial site may be questioned
or the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our
marketing applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of marketing
approval of one or more of our product candidates.
We have a number of outstanding post-approval
commitments to the FDA and EMA that we retain, despite our partnership with SUL, which we may not complete successfully or on time
for any number of reasons, including but not limited to lack of funds to complete the studies and insufficient interest by appropriate
sites, investigators or study subjects. For example, as a condition of the approval of RAPIVAB/ALPIVAB, we were required to complete
pediatric patient trials and to submit the final results of these clinical trials to the FDA and EMA. We may be subject to penalties
if we fail to comply with post-approval legal and regulatory requirements and our products could be subject to continual recordkeeping
and reporting requirements, review and periodic inspections by the FDA and other regulatory bodies. Regulatory approval of a product
may be subject to limitations on the indicated uses for which the product may be marketed or to the other restrictive conditions
of approval that limit our ability to promote, sell or distribute a product. Furthermore, the approval of RAPIVAB/ALPIVAB and any
other future product candidates may be subject to requirements for costly post-approval testing and surveillance to monitor its
safety or efficacy.
Advertising and promotion are subject to stringent
FDA rules and oversight and as the holder of the NDA we may be held responsible for any advertising and promotion conducted by
our partner that is not in compliance with the rules and regulations. In particular, the claims in all promotional materials and
activities must be consistent with the FDA approvals for approved products, and must be appropriately substantiated and fairly
balanced with information on the safety risks and limitations of the products. Adverse event information concerning approved products
must be reviewed and as the NDA holder of RAPIVAB we are required to make expedited and periodic adverse event reports to the FDA
and other regulatory authorities.
In addition, the research, manufacturing, distribution,
sale and promotion of products are potentially subject to regulation by various federal, state and local authorities in addition
to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human
Services, the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local
governments. All of these activities are also potentially subject to federal and state healthcare false claims and fraud and abuse
laws, as well as consumer protection and unfair competition laws.
If our operations with respect to RAPIVAB or
our other products that are subject to healthcare laws and regulations are found to be in violation of any of the healthcare fraud
and abuse laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including
civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines,
curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot
be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause
us to incur significant legal expenses and divert our management's attention from the operation of our business. Moreover, achieving
and sustaining compliance with all applicable federal and state fraud and abuse laws may be costly.
We and our partners may be subject to new legislation,
regulatory proposals and healthcare payor initiatives that may increase our costs of compliance and adversely affect our or our
partners’ ability to market our products, including RAPIVAB, obtain collaborators and raise capital.
The Patient Protection and Affordable Care
Act, or PPACA, made extensive changes to the delivery of health care in the U.S. The PPACA included numerous provisions that affect
pharmaceutical companies, some of which became effective immediately and others of which have taken effect over the past several
years. For example, the PPACA expanded health care coverage to the uninsured through private health insurance reforms and an expansion
of Medicaid. The PPACA also imposed substantial costs on pharmaceutical manufacturers, such as an increase in liability for rebates
paid to Medicaid, new drug discounts that must be offered to certain enrollees in the Medicare prescription drug benefit, an annual
fee imposed on all manufacturers of brand prescription drugs in the U.S., and an expansion of an existing program requiring pharmaceutical
discounts to certain types of hospitals and federally subsidized clinics. The PPACA also contains cost containment measures that
could reduce reimbursement levels for health care items and services generally, including pharmaceuticals. It also required reporting
and public disclosure of payments and other transfers of value provided by pharmaceutical companies to physicians and teaching
hospitals.
We expect that the current presidential administration
and U.S. Congress will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the PPACA.
There is still significant uncertainty with respect to the impact that the current presidential administration and the U.S. Congress
may have on the PPACA, if any, and any changes will likely take time to unfold. As such, we cannot predict what effect the PPACA
or other healthcare reform initiatives that may be adopted in the future will have on our business.
The continuing efforts of the government, insurance
companies, managed care organizations and other payors of health care services to contain or reduce costs of health care could
result in decreased net revenues from our pharmaceutical products and decrease potential returns from our development efforts.
In addition, pharmaceutical and device manufacturers are also required to report and disclose certain payments and transfers of
value to, and investment interests held by, physicians and their immediate family members during the preceding calendar year. Failure
to submit required information may result in civil monetary penalties for payments, transfers of value or ownership or investment
interests not reported in an annual submission. Compliance with the PPACA and state laws with similar provisions is difficult and
time consuming, and companies that do not comply with these state laws face civil penalties. Because of the breadth of these laws
and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under
one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition, results of
operations and growth prospects.
In addition, there have been a number of other
legislative and regulatory proposals aimed at changing the pharmaceutical industry. In particular, legislation has been enacted
in certain states and at a federal level that requires development of an electronic pedigree to track and trace each prescription
drug at the saleable unit level through the distribution system. Compliance with these electronic pedigree requirements may increase
our operational expenses and impose significant administrative burdens. In addition, our compliance may be deemed insufficient
and we could face a material adverse effect on our business, financial condition, results of operations and growth prospects. As
a result of these and other new proposals, we may determine to change our current manner of operation, provide additional benefits
or change our contract arrangements, any of which could have a material adverse effect on our business, financial condition and
results of operations.
Adequate coverage and reimbursement in the
U.S. and other markets is critical to the commercial success of RAPIVAB or any other product that we might bring to market. Recently
in the U.S. there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed
products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, reform government
program reimbursement methodologies. Individual states in the United States have been increasingly active in passing legislation
and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing. Regional health care authorities and individual hospitals
are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their
prescription drug and other health care programs. Third-party payors are increasingly challenging the prices charged for medical
products and services and, in some cases, imposing restrictions on the coverage of particular drugs. Many third-party payors negotiate
the price of medical services and products and develop formularies which establish pricing and reimbursement levels. Exclusion
of a product from a formulary can lead to its sharply reduced usage in the third-party payor’s patient population. The process
for obtaining coverage can be lengthy and costly, and we expect that it could take several months before a particular payor initially
reviews our product and makes a decision with respect to coverage. For example, third-party payors may require cost-benefit analysis
data from us in order to demonstrate the cost-effectiveness of RAPIVAB or any other product we might bring to market. For any individual
third-party payor, we may not be able to provide data sufficient to gain reimbursement on a similar or preferred basis to competitive
products, or at all which may have a material adverse effect on our business, financial condition and results of operations.
There are risks related to the potential government
use or sale of peramivir (RAPIVAB).
United States Government use or sale of RAPIVAB
in emergency situations, or otherwise, may result in the use of RAPIVAB outside of its approved use. To the extent that RAPIVAB
is used as a treatment for influenza by the U.S. Government or peramivir by any other government entity, there can be no assurance
that it will prove to be generally safe, well-tolerated and effective. Such government use of RAPIVAB/peramivir may create certain
liabilities for us or our partners in the case of government use outside of the U.S. There is no assurance that we or our manufacturers
will be able to fully meet the demand for peramivir in the event of additional orders. Further, we may not achieve a favorable
price for additional orders of RAPIVAB in the U.S. or peramivir in any other country. Our competitors may develop products that
could compete with or replace peramivir. We may face competition in markets where we have no existing intellectual property protection
or are unable to successfully enforce our intellectual property rights.
There is no assurance that the non-U.S. partnerships
that we have entered into for peramivir will result in any order for peramivir in those countries. There is no assurance that peramivir
will be approved for any use or will achieve market approval in additional countries. In the event that any emergency use or market
approval is granted, there is no assurance that any government order or commercialization of peramivir in any countries will be
substantial or will be profitable to us. In addition, the sale of peramivir, emergency use or other use of peramivir in any country
may create certain liabilities for us and our partners.
If we or our partners do not obtain and maintain
governmental approvals for our product candidates under development, we or our partners will not be able to sell these potential
products, which would significantly harm our business because we will receive no revenue.
We or our partners must obtain regulatory approval
before marketing or selling our future product candidates. If we or our partners are unable to receive regulatory approval and
do not market or sell our future product candidates, we will never receive any revenue from such product sales. In the United States,
we or our partners must obtain FDA approval for product candidates that we intend to commercialize. The process of preparing for
and obtaining FDA approval may be lengthy and expensive, and approval is never certain. Products distributed abroad are also subject
to foreign government regulation and export laws of the United States. Because of the risks and uncertainties in biopharmaceutical
development, our product candidates could take a significantly longer time to gain regulatory approval than we expect or may never
gain approval. If the FDA delays regulatory approval of our product candidates, our management’s credibility, our value and
our operating results may suffer. Even if the FDA or foreign regulatory agencies approve a product candidate, the approval may
limit the indicated uses for a product candidate and/or may require post-approval studies.
The FDA regulates, among other things, the
record keeping and storage of data pertaining to potential pharmaceutical products. We currently store most of our preclinical
research data, our clinical data and our manufacturing data at our facility. While we do store duplicate copies of most of our
clinical data offsite and a significant portion of our data is included in regular backups of our systems, we could lose important
data if our facility incurs damage, or if our vendor data systems fail, suffer damage or are destroyed. If we receive approval
to market our potential products, whether in the United States or internationally, we will continue to be subject to extensive
regulatory requirements. These requirements are wide ranging and govern, among other things:
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adverse drug experience reporting regulations;
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product promotion;
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product manufacturing, including good manufacturing practice requirements; and
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product changes or modifications.
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Our failure to comply with existing or future
regulatory requirements, or our loss of, or changes to, previously obtained approvals, could have a material adverse effect on
our business because we will not receive product or royalty revenues if we or our partners do not receive approval of our products
for marketing.
Royalties and milestone payments from Shionogi
under our license agreement with Shionogi (the "Shionogi Agreement") will be required to be used by Royalty Sub to service
its obligations under its PhaRMA Notes, and generally will not be available to us for other purposes until Royalty Sub has repaid
in full its obligations under the PhaRMA Notes.
In March 2011, our wholly-owned subsidiary
Royalty Sub issued $30.0 million in aggregate principal amount of PhaRMA Notes. The PhaRMA Notes are secured principally by (i)
certain royalty and milestone payments under the Shionogi Agreement, pursuant to which Shionogi licensed from us the rights to
market peramivir in Japan and Taiwan, (ii) rights to certain payments under a Japanese yen/U.S. dollar Currency Hedge Agreement
put into place by us in connection with the issuance of the PhaRMA Notes and (iii) the pledge by us of our equity interest in Royalty
Sub. Payments from Shionogi to us on non-governmental sales under the Shionogi Agreement will generally not be available to us
for other purposes until Royalty Sub has repaid in full its obligations under the PhaRMA Notes. Accordingly, these funds will be
required to be dedicated to Royalty Sub’s debt service and not available to us for product development or other purposes.
As of September 1, 2014, the payments from Shionogi were insufficient for Royalty Sub to service its obligations under the PhaRMA
Notes, resulting in an event of default with respect to the PhaRMA Notes. As a result of this event of default, the holders of
the PhaRMA Notes may be able to pursue acceleration of the PhaRMA Notes and foreclose on the collateral securing the PhaRMA Notes
and our equity interest in Royalty Sub and may exercise other remedies available to them under the indenture or other documents
related to the PhaRMA Notes. In such event, we may not realize the benefit of future royalty payments that might otherwise
accrue to us following repayment of the PhaRMA Notes, we may incur legal costs and we might otherwise be adversely affected.
Because an event of default has occurred under
the PhaRMA Notes, the holders of the PhaRMA Notes may be able to pursue acceleration of the PhaRMA Notes and foreclose on the collateral
securing the PhaRMA Notes and our equity interest in Royalty Sub, in which case we may not realize the benefit of future royalty
payments that might otherwise accrue to us following repayment of the PhaRMA Notes and we could otherwise be adversely affected.
Royalty Sub’s ability to service its
payment obligations in respect of the PhaRMA Notes, and our ability to benefit from our equity interest in Royalty Sub, is subject
to numerous risks. Royalty Sub’s ability to service the PhaRMA Notes may be adversely affected by, among other things, changes
in or any termination of our relationship with Shionogi, reimbursement, regulatory, manufacturing and/or intellectual property
issues, product returns, product recalls, product liability claims and allegations of safety issues, as well as other factors.
As Royalty Sub has been unable to service its obligations under the PhaRMA Notes and an event of default has occurred under the
PhaRMA Notes, the holders of the PhaRMA Notes may be able to pursue acceleration of the PhaRMA Notes and foreclose on the collateral
securing the PhaRMA Notes and our equity interest in Royalty Sub and may exercise other remedies available to them under the
indenture or other documents related to the PhaRMA Notes. In such event, we may not realize the benefit of future royalty
payments that might otherwise accrue to us following repayment of the PhaRMA Notes, we may incur legal costs and we might
otherwise be adversely affected.
We may be required to pay significant premiums
under the Currency Hedge Agreement entered into by us in connection with the issuance of the PhaRMA Notes. In addition, because
our potential obligations under the foreign currency hedge are marked to market, we may experience additional quarterly volatility
in our operating results and cash flows attributable to the Currency Hedge Agreement.
In connection with the issuance by Royalty
Sub of the PhaRMA Notes, we entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value
of the Japanese yen relative to the U.S. dollar. Under the foreign currency hedge agreement, we may be required to pay an annual
premium in the amount of $2.0 million in each May continuing through May 2020. Such payment will be required if, in May of the
relevant year, the spot rate of exchange for Japanese yen-U.S. dollars (determined in accordance with the Currency Hedge Agreement)
is such that the U.S. dollar is worth 100 yen or less. We will be required to mark to market our potential obligations under the
currency hedge and post cash collateral, which may cause us to experience additional quarterly volatility in our operating results
and cash flows as a result. Additionally, we may be required to pay significant premiums or a termination fee under the foreign
currency hedge agreement entered into by us in connection with the issuance of the PhaRMA Notes. We are required to maintain a
foreign currency hedge at 100 yen per dollar under the agreements governing the PhaRMA Notes.
Our Second Amended and Restated
Senior Credit Facility contains restrictions that limit our flexibility in operating our business. We may be required to make a
prepayment or repay the outstanding indebtedness earlier than we expect if a prepayment event or an event of default occurs, including
a material adverse change with respect to us, which could have a material adverse effect on our business.
The Second Amended and Restated Senior Credit
Facility contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit
our ability to, among other things:
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convey, sell, lease, license, transfer or otherwise dispose of certain parts of our business or property;
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change the nature of our business;
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liquidate or dissolve;
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enter into certain change in control or acquisition transactions;
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incur or assume certain debt;
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grant certain types of liens on our assets;
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modify, liquidate or transfer assets in certain collateral accounts;
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pay dividends or make certain distributions to our stockholders;
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make certain investments;
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enter into material transactions with affiliates; and
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modify existing debt or collaboration arrangements.
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The restrictive covenants contained in the
Second Amended and Restated Senior Credit Facility could cause us to be unable to pursue business opportunities that we or our
stockholders may consider beneficial without the lender’s permission or without repaying all Second Amended and Restated
Senior Credit Facility obligations.
A breach of any of these covenants could result
in an event of default under the Second Amended and Restated Senior Credit Facility. An event of default will also occur if, among
other things, a material adverse change in our business, operations or condition occurs, which could potentially include negative
results in clinical trials, or a material impairment of the prospect of our repayment of any portion of the amounts we owe under
the Second Amended and Restated Senior Credit Facility occurs. In the case of a continuing event of default under the agreement,
the lender could elect to declare all amounts outstanding to be immediately due and payable, proceed against the collateral in
which we granted to the lender a security interest under the Second Amended and Restated Senior Credit Facility, or otherwise exercise
the rights of a secured creditor. Amounts outstanding under the Second Amended and Restated Senior Credit Facility are secured
by substantially all of our assets and those of our subsidiaries, excluding certain specified assets but including proceeds from
those assets.
If we fail to adequately protect or enforce our
intellectual property rights or secure rights to patents of others, the value of those rights would diminish.
Our success will depend in part on our ability
and the abilities of our partners to obtain, protect and enforce viable intellectual property rights including but not limited
to trade name, trademark and patent protection for our Company and its products, methods, processes and other technologies we may
license or develop, to preserve our trade secrets, and to operate without infringing the proprietary rights of third parties both
domestically and abroad. The patent position of biotechnology and pharmaceutical companies is generally highly uncertain, involves
complex legal and factual questions and has recently been the subject of much litigation. Neither the United States Patent and
Trademark Office (“USPTO”), the Patent Cooperation Treaty offices, nor the courts of the United States and other jurisdictions
have consistent policies nor predictable rulings regarding the breadth of claims allowed or the degree of protection afforded under
many biotechnology and pharmaceutical patents. Further, we may not have worldwide patent protection for all of our product candidates
and our intellectual property rights may not be legally protected or enforceable in all countries throughout the world. In some
jurisdictions, some of our product candidates in certain programs, including our HAE program, may have short or no composition
of matter patent life and we may therefore rely on orphan drug exclusivity or data exclusivity. There can be no assurance that
we will obtain orphan drug exclusivity or data exclusivity in every jurisdiction. Further, in some jurisdictions, we may rely on
formulation patents or method of use patents. Both the ability to achieve issuance and the enforcement of formulation and method
of use patents can be highly uncertain and can vary from jurisdiction to jurisdiction, and such patents may therefore not adequately
prevent competitors and potential infringers in some jurisdictions. The validity, scope, enforceability and commercial value of
the rights protected by such patents, therefore, is highly uncertain.
We also rely on trade secrets to protect technology
in cases when we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. If
we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborators
and advisors, our ability to receive patent protection or protect our proprietary information may be imperiled.
We may be involved in legal proceedings to protect
or enforce our patents, the patents of our partners or our other intellectual property rights, which could be expensive, time consuming
and unsuccessful.
Competitors may infringe or otherwise violate
our patents, the patents of our licensors or our other intellectual property rights. To counter infringement or unauthorized use,
we may be required to file legal claims, which can be expensive and time-consuming and unsuccessful. An adverse result in any legal
proceeding could put one or more of our patents at risk. Our success depends in part on avoiding the infringement of other parties’
patents and other intellectual property rights as well as avoiding the breach of any licenses relating to our technologies and
products. In the United States, patent applications filed in recent years are confidential for 18 months, while older applications
are not published until the patent issues. As a result, avoiding patent infringement may be difficult and we may inadvertently
infringe third-party patents or proprietary rights. These third parties could bring claims against us, our partners or our licensors
that even if resolved in our favor, could cause us to incur substantial expenses and, if resolved against us, could additionally
cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, our partners or our licensors,
we or they could be forced to stop or delay research, development, manufacturing or sales of any infringing product in the country
or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Such a license may not be
available on acceptable terms, or at all, particularly if the third party is developing or marketing a product competitive with
the infringing product. Even if we, our partners or our licensors were able to obtain a license, the rights may be nonexclusive,
which would give our competitors access to the same intellectual property.
If we or our partners are unable or fail to
adequately initiate, protect, defend or enforce our intellectual property rights in any area of commercial interest or in any part
of the world where we wish to seek regulatory approval for our products, methods, processes and other technologies, the value of
the product candidates to produce revenue would diminish. Additionally, if our products, methods, processes, and other technologies
or our commercial use of such products, processes, and other technologies, including but not limited to any trade name, trademark
or commercial strategy infringe the proprietary rights of other parties, we could incur substantial costs. The USPTO and the patent
offices of other jurisdictions have issued to us a number of patents for our various inventions and we have in-licensed several
patents from various institutions. We have filed additional patent applications and provisional patent applications with the USPTO.
We have filed a number of corresponding foreign patent applications and intend to file additional foreign and U.S. patent applications,
as appropriate. We have also filed certain trademark and trade name applications worldwide. We cannot assure you as to:
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the degree and range of protection any patents will afford against competitors with similar products;
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if and when patents will issue;
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if patents do issue we cannot be sure that we will be able to adequately defend such patents and whether or not we will be able to adequately enforce such patents; or
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whether or not others will obtain patents claiming aspects similar to those covered by our patent applications.
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If the USPTO or other foreign patent office
upholds patents issued to others or if the USPTO grants patent applications filed by others, we may have to:
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obtain licenses or redesign our products or processes to avoid infringement;
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stop using the subject matter claimed in those patents; or
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pay damages.
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We may initiate, or others may bring against
us, litigation or administrative proceedings related to intellectual property rights, including proceedings before the USPTO or
other foreign patent office. Any judgment adverse to us in any litigation or other proceeding arising in connection with a patent
or patent application could materially and adversely affect our business, financial condition and results of operations. In addition,
the costs of any such proceeding may be substantial whether or not we are successful.
Our success is also dependent upon the skills,
knowledge and experience, none of which is patentable, of our scientific and technical personnel. To help protect our rights, we
require all employees, consultants, advisors and partners to enter into confidentiality agreements that prohibit the disclosure
of confidential information to anyone outside of our company and require disclosure and assignment to us of their ideas, developments,
discoveries and inventions. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure or the lawful development by others of such information, and if
any of our proprietary information is disclosed, our business will suffer because our revenues depend upon our ability to license
or commercialize our product candidates and any such events would significantly impair the value of such product candidates.
Our actual or perceived failure to comply with
European governmental regulations and other legal obligations related to privacy, data protection and information security could
harm our business.
European Union (“EU”) member states,
Switzerland and other countries have adopted data protection laws and regulations, which impose significant compliance obligations.
For example, the General Data Protection Regulation (“GDPR”) imposes strict requirements on controllers and processors
of personal data, including special protections for “special category data,” which includes health, biometric and genetic
information of data subjects located in the EU. Further, GDPR provides a broad right for EU member states to create supplemental
national laws, for example relating to the processing of health, genetic and biometric data, which could further limit our ability
to use and share such data or could cause our costs to increase and harm our business and financial condition. GDPR grants individuals
the opportunity to object to the processing of their personal information, allows them to request deletion of personal information
in certain circumstances, and provides the individual with an express right to seek legal remedies in the event the individual
believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer of personal data out of the
EU to the United States or other regions that have not been deemed to offer “adequate” privacy protections.
Failure to comply with the requirements of
the GDPR and the related national data protection laws of the EU member states, which may deviate slightly from the GDPR, may result
in significant fines of up to 4% of global revenues, or €20,000,000, whichever is greater, and in addition to such fines,
our failure to comply with the requirements of GDPR may subject us to litigation and/or adverse publicity, which could have material
adverse effect on our reputation and business. As a result of the implementation of the GDPR, we are required to put in place additional
mechanisms to ensure compliance with the new data protection rules. For example, the GDPR requires us to make more detailed disclosures
to data subjects, requires disclosure of the legal basis on which we can process personal data, makes it harder for us to obtain
valid consent for processing, will require the appointment of a data protection officer where sensitive personal data (i.e., health
data) is processed on a large scale, introduces mandatory data breach notification throughout the EU, imposes additional obligations
on us when we are contracting with service providers and requires us to adopt appropriate privacy governance including policies,
procedures, training and data audit.
We are subject to the supervision of local
data protection authorities in those jurisdictions where we undertake clinical trials. We depend on a number of third parties in
relation to the provision of our services, a number of which process personal data of EU individuals on our behalf. With each such
provider we are required to enter into contractual arrangements under which they are contractually obligated to only process personal
data according to our instructions, and conduct diligence to ensure that they have sufficient technical and organizational security
measures in place.
We are also subject to evolving European privacy
laws on electronic marketing and cookies. The EU is in the process of replacing the e-Privacy Directive (2002/58/EC) with a new
set of rules taking the form of a regulation that will be directly implemented in the laws of each European member state. While
the e-Privacy Regulation was originally intended to be adopted on May 25, 2018, it is still going through the European legislative
process and commentators now expect it to be adopted during the middle or second half of 2020.
The United Kingdom’s decision to withdraw
from the EU could result in increased regulatory and legal complexity, which may make it more difficult for us to do business in
Europe and impose additional challenges in securing regulatory approval of our product candidates in Europe.
Negotiations for the United Kingdom’s
exit from the EU, or Brexit, have caused political and economic uncertainty, including in the regulatory framework applicable to
our operations and product candidates, and this uncertainty may persist for years. Brexit could, among other outcomes, disrupt
the free movement of goods, services and people between the United Kingdom and the EU, and result in increased legal and regulatory
complexities, as well as potential higher costs of conducting business in Europe. For instance, preparations for Brexit have resulted
in the decision to move the EMA from the United Kingdom to the Netherlands. This transition may cause disruption or delays in granting
clinical trial authorization or opinions for marketing authorization, disruption of importation and export of active substance
and other components of new drug formulations, and disruption of the supply chain for clinical trial product and final authorized
formulations.
The cumulative effects of the disruption to
the regulatory framework may add considerably to the development lead time to marketing authorization and commercialization of
products in the EU and/or the United Kingdom. It is possible that there will be increased regulatory complexities, which can disrupt
the timing of our clinical trials and regulatory approvals. In addition, changes in, and legal uncertainty with regard to, national
and international laws and regulations may present difficulties for our clinical and regulatory strategy. Any delay in obtaining,
or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our
product candidates in the United Kingdom and/or the EU and restrict our ability to generate revenues and achieve and sustain profitability.
In addition, as a result of Brexit, other European
countries may seek to conduct referenda with respect to their continuing membership with the EU. Given these possibilities and
others we may not anticipate, as well as the absence of comparable precedent, it is unclear what financial, regulatory and legal
implications the withdrawal of the United Kingdom from the EU would have and how such withdrawal would affect us, and the full
extent to which our business could be adversely affected.
We are subject to legal proceedings, which could
result in losses or unexpected expenditure of time and resources.
From time to time, we may be involved in disputes,
called upon to initiate legal proceedings or to defend ourselves in such legal proceedings relating to our business. Due to
the inherent uncertainties in legal proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An
unfavorable outcome in any such proceedings could have an adverse impact on our business, financial condition and results of operations. If
our stock price is volatile, we may become involved in securities class action lawsuits in the future. Any current or future
dispute resolution or legal proceeding, including without limitation the ongoing arbitration proceedings between us and each of
SUL and Shionogi, regardless of the merits of any such proceeding, could result in substantial costs and a diversion of management’s
attention and resources that are needed to successfully run our business.
We face an inherent risk of liability in the event
that the use or misuse of our products results in personal injury or death and our product liability insurance coverage may be
insufficient.
If the use or misuse of peramivir, forodesine
or any other regulatory body-approved products we or a partner may sell in the future harms people, we may be subject to costly
and damaging product liability claims brought against us by consumers, healthcare providers, pharmaceutical companies, third-party
payors or others. The use of our product candidates in clinical trials, including post marketing clinical studies, could also expose
us to product liability claims. We cannot predict all of the possible harms or side effects that may result from the use of our
products or the testing of product candidates and, therefore, the amount of insurance coverage we currently have may not be adequate
to cover all liabilities or defense costs we might incur. A product liability claim or series of claims brought against us could
give rise to a substantial liability that could exceed our resources. Even if claims are not successful, the costs of defending
such claims and potential adverse publicity could be harmful to our business.
We face an inherent risk of product liability
exposure related to the testing of our product candidates in human clinical trials and will face even greater risks upon any commercialization
by us of our product candidates. We have product liability insurance covering our clinical trials. Clinical trial and product liability
insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance or increase our existing
coverage at a reasonable cost to protect us against losses that could have a material adverse effect on our business. An individual
may bring a product liability claim against us if one of our products or product candidates causes, or is claimed to have caused,
an injury or is found to be unsuitable for consumer use. Any product liability claim brought against us, with or without merit,
could result in:
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liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available;
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an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all;
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withdrawal of clinical trial volunteers or patients;
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damage to our reputation and the reputation of our products, resulting in lower sales;
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regulatory investigations that could require costly recalls or product modifications;
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litigation costs; and
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the diversion of management’s attention from managing our business.
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Insurance coverage is increasingly more costly
and difficult to obtain or maintain.
While we currently have insurance for our business,
property, directors and officers, and our products, insurance is increasingly more costly and narrower in scope, and we may be
required to assume more risk in the future. If we are subject to claims or suffer a loss or damage in excess of our insurance coverage,
we will be required to bear any loss in excess of our insurance limits. If we are subject to claims or suffer a loss or damage
that is outside of our insurance coverage, we may incur significant uninsured costs associated with loss or damage that could have
an adverse effect on our operations and financial position. Furthermore, any claims made on our insurance policies may impact our
ability to obtain or maintain insurance coverage at reasonable costs or at all.
If our facility incurs damage or power is lost
for a significant length of time, our business will suffer.
We store clinical and stability samples at
our facility that could be damaged if our facility incurs physical damage or in the event of an extended power failure. We have
backup power systems in addition to backup generators to maintain power to all critical functions, but any loss of these samples
could result in significant delays in our drug development process.
In addition, we store
most of our preclinical and clinical data at our facilities. Duplicate copies of most critical data are secured off-site. Any significant
degradation or failure of our computer systems could cause us to inaccurately calculate or lose our data. Loss of data could result
in significant delays in our drug development process and any system failure could harm our business and operations.
A significant disruption in our information technology
systems or a cyber-security breach could adversely affect our business.
We are increasingly dependent on information
technology systems to operate our business. Like other companies in our industry, our networks and infrastructure may be vulnerable
to cyber-attacks or intrusions, including by computer hackers, foreign governments, foreign companies or competitors, or may be
breached by employee error, malfeasance or other disruption. A breakdown, invasion, corruption, destruction or interruption of
critical information technology systems could negatively impact operations. If our systems are damaged, fail to function properly
or otherwise become unavailable, we may incur substantial costs to repair or replace them, and we may experience loss of critical
data and interruptions or delays in our ability to perform critical functions, which could adversely affect our business, financial
condition or results of operations. Any compromise of our data security could also result in a violation of applicable privacy
and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information and a loss
of confidence in our data security measures, which could harm our business. There can be no assurance that our efforts to protect
our data and information technology systems will prevent breakdowns or breaches in our systems, or those of third parties with
which we do business, and any such events could adversely affect our business.
If we fail to retain our existing key personnel
or fail to attract and retain additional key personnel, the development of our product candidates and commercialization of our
products and the related expansion of our business will be delayed or stopped.
We are highly dependent upon our senior management
and scientific team, the unexpected loss of whose services might impede the achievement of our development and commercial objectives.
Competition for key personnel with the experience that we require is intense and is expected to continue to increase. Our inability
to attract and retain the required number of skilled and experienced management, commercial, operational and scientific personnel
will harm our business because we rely upon these personnel for many critical functions of our business.
If because of our use of hazardous materials, we
violate any environmental controls or regulations that apply to such materials, we may incur substantial costs and expenses in
our remediation efforts.
Our research and development involves the controlled
use of hazardous materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these materials and some waste products. Accidental contamination or injury
from these materials could occur. In the event of an accident, we could be liable for any damages that result and any liabilities
could exceed our resources. Compliance with environmental laws and regulations or a violation of such environmental laws and regulations
could require us to incur substantial unexpected costs, which would materially and adversely affect our results of operations.
Risks relating to investing in our common stock
Our existing principal stockholders hold a substantial
amount of our common stock and may be able to influence significant corporate decisions, which may conflict with the interest of
other stockholders.
Several of our stockholders own greater than
5% of our outstanding common stock. Our top ten stockholders own more than 50% of BioCryst and can individually, and as a group,
influence our operations based upon their concentrated ownership. These stockholders, if they act together, may be able to influence
the outcome of matters requiring approval of the stockholders, including the election of our directors and other corporate actions.
Our stock price has been, and is likely to continue
to be, highly volatile, which could cause the value of an investment in our common stock to decline significantly.
The market prices for securities of biotechnology
companies in general have been highly volatile and may continue to be highly volatile in the future. Moreover, our stock price
has fluctuated frequently, and these fluctuations are often not related to our financial results. For the twelve months ended June
30, 2019, the 52-week range of the market price of our stock was from $2.80 to $9.95 per share. The following factors, in addition
to other risk factors described in this section, may have a significant impact on the market price of our common stock:
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announcements of technological innovations or new products by us or our competitors;
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developments or disputes concerning patents or proprietary rights;
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additional dilution through sales of our common stock or other derivative securities;
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status of new or existing licensing or collaborative agreements and government contracts;
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announcements relating to the status of our programs;
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developments and announcements regarding new and virulent strains of influenza;
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we or our partners achieving or failing to achieve development milestones;
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publicity regarding actual or potential medical results relating to products under development by us or our competitors;
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publicity regarding certain public health concerns for which we are or may be developing treatments;
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regulatory developments in both the United States and foreign countries;
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public concern as to the safety of pharmaceutical products;
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actual or anticipated fluctuations in our operating results;
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changes in financial estimates or recommendations by securities analysts;
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changes in the structure of healthcare payment systems, including developments in price control legislation;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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additions or departures of key personnel or members of our board of directors;
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purchases or sales of substantial amounts of our stock by existing stockholders, including officers or directors;
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economic and other external factors or other disasters or crises; and
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period-to-period fluctuations in our financial results.
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Future sales and issuances of securities may dilute
the ownership interests of our current stockholders and cause our stock price to decline.
Future sales of our common stock by current stockholders into the
public market could cause the market price of our stock to fall. As of July 31, 2019, there were 110,438.425 shares of our common
stock outstanding. We may from time to time issue securities in relation to a license arrangement, collaboration, merger or acquisition.
We may also sell, for our own account, shares of common stock or other equity securities, from time to time at prices and on terms
to be determined at the time of sale.
As of July 31, 2019, there were a total of 18,724,628 stock options
outstanding, 4,104,450 shares available for issuance under our Amended and Restated Stock Incentive Plan, 716,276 shares available
for issuance under our Inducement Equity Incentive Plan, and 119,194 shares available for issuance under our Employee Stock Purchase
Plan. In addition, we could also make equity grants outside of our Stock Incentive Plan or Inducement Equity Incentive Plan. The
shares underlying existing stock options, restricted stock units and possible future stock options, stock appreciation rights
and stock awards have been registered pursuant to registration statements on Form S-8.
If some or all of such shares are sold or otherwise
issued into the public market over a short period of time, our current stockholders’ ownership interests may be diluted and
the value of all publicly traded shares is likely to decline, as the market may not be able to absorb those shares at then-current
market prices. Additionally, such sales and issuances may make it more difficult for us to sell equity securities or equity-related
securities in the future at a time and price that our management deems acceptable, or at all.
In March 2017, we entered into a Registration
Rights Agreement with entities affiliated with Baker Bros. Advisors LP (the “Baker Entities”) to provide that, if requested,
we will register the shares of our common stock beneficially owned by the Baker Entities for resale under the Securities Act. Our
registration obligations pursuant to the Registration Rights Agreement cover all shares then held or thereafter acquired by the
Baker Entities, for up to ten years, and include our obligation to facilitate certain underwritten public offerings of our common
stock by the Baker Entities in the future. On May 10, 2017, we filed a registration statement on Form S-3 with respect to 11,710,951
shares of common stock held by the Baker Entities. If the Baker Entities, by exercising their underwriting rights or otherwise,
sell a large number of our shares, or the market perceives that the Baker Entities intend to sell a large number of our shares,
this could adversely affect the market price of our common stock.
We have anti-takeover provisions in our corporate
charter documents that may result in outcomes with which you do not agree.
Our board of directors has the authority to
issue up to 4,800,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions
of those shares without further vote or action by our stockholders. The rights of the holders of any preferred stock that may be
issued in the future may adversely affect the rights of the holders of common stock. The issuance of preferred stock could make
it more difficult for third parties to acquire a majority of our outstanding voting stock.
In addition, our certificate of incorporation
provides for staggered terms for the members of the board of directors and supermajority approval of the removal of any member
of the board of directors and prevents our stockholders from acting by written consent. Our certificate also requires supermajority
approval of any amendment of these provisions. These provisions and other provisions of our by-laws and of Delaware law applicable
to us could delay or make more difficult a merger, tender offer or proxy contest involving us.
We have never paid dividends on our common stock
and do not anticipate doing so in the foreseeable future.
We have never paid cash dividends on our stock.
We currently intend to retain all future earnings, if any, for use in the operation of our business. Accordingly, we do not anticipate
paying cash dividends on our common stock in the foreseeable future.