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Item 1.
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Legal Proceedings
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We are participating in dispute resolution proceedings with an insurer over whether or not we
will reimburse that insurer for a portion of the insurer’s contribution to the settlement of a previous securities class action lawsuit involving us and certain of our officers and directors. The amount of our reimbursement will not exceed
$2.25 million, and may be a lesser amount or zero.
Risk Factors Relating to Our Business
We expect to continue to operate at a loss, we may not be able to maintain our current levels of research, development and commercialization activities, and we may
never achieve profitability.
We have experienced significant operating losses since our
inception in 1990, including net losses of $146.9 million for the nine month period ended September 30, 2007, $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of September 30, 2007, we had an accumulated
deficit of $ 1,233.7 million. The process of developing and commercializing our products requires significant research and development work, preclinical testing and clinical trials, as well as regulatory approvals, significant marketing and sales
efforts, and manufacturing capabilities. These activities, together with our general and administrative expenses, require significant investments and are expected to continue to result in significant operating losses for the foreseeable future. To
date, the product revenues we have recognized, including those relating to our only approved product, Ranexa
®
(ranolazine
extended release tablets), have been limited, and have not been sufficient for us to achieve profitability or fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates.
The revenues that we expect to recognize for the foreseeable future relating to Ranexa may not be sufficient for us to achieve or sustain profitability or maintain operations at our current levels or at all.
Our operating results are subject to fluctuations that may cause our stock price to decline.
As we transition from a research and development-focused company to a company with commercial operations and revenues, we expect that our operating results will continue to fluctuate. Our expenses, including payments
owed by us under licensing, collaborative or manufacturing arrangements, are highly variable and may fluctuate from quarter to quarter. Our product revenues are unpredictable and may fluctuate due to many factors, many of which we cannot control.
For example, factors affecting the revenues we receive relating to our only commercial product, Ranexa, and which also impact the revenues received relating to any pharmaceutical product, include:
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the timing and success of product launches by us and our collaborative partners;
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the level of demand for our products, including physician prescribing patterns;
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wholesaler buying patterns, product returns and contract terms;
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reimbursement rates or policies;
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the results of our clinical studies, including our MERLIN TIMI-36 clinical trial of Ranexa, for which we obtained initial data and results in March 2007;
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whether or not the division of cardiovascular and renal products of the FDA decides to accept the supplemental new drug application submission for Ranexa for
review, whether or not the metabolism and endocrinology products division of the FDA decides to accept the new drug application for the Ranexa diabetes data for review, and whether or not the FDA approves these applications;
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the length of time it takes for an approved product to achieve market acceptance, if at all;
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the rebates, discounts and administrative fees on sales of our approved products that we provide to customers and other third parties;
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the extent to which patients fill prescriptions written by their doctors for our approved products, the dosages prescribed, and the amount of co-payments patients
are required to make to fill their prescriptions;
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regulatory constraints on, or delays in the review of, our product promotional materials and programs;
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government regulations or regulatory actions, such as product recalls;
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increased competition from new or existing products or therapies, including lower-priced generic products and alternatives to drug treatment such as interventional
medicine;
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changes in our contract manufacturing activity, including the availability or lack of commercial supplies of products and samples for promotion and distribution;
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timing of non-recurring license fees and the achievement of milestones under new and existing license and collaborative agreements; and
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our product marketing, promotion, distribution, sales and pricing strategies and programs, including product discounts and rebates extended to customers.
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Inventory levels of Ranexa held by wholesalers can also cause our operating results to fluctuate unexpectedly. Although we attempt to
monitor wholesaler inventory of our products, we rely upon information provided by third parties to quantify the inventory levels maintained by wholesalers. In addition, we and the wholesalers may not be effective in matching inventory levels to
end-user demand. Significant differences between actual and estimated inventory levels may result in inadequate or excessive inventory production, product supply in distribution channels, product availability at the retail level, and unexpected
increases or decreases in orders from our major customers. Any of these events may cause our revenues to fluctuate significantly from quarter to quarter, and in some cases may cause our operating results for a particular quarter to be below
expectations. If our operating results do not meet the expectations of securities analysts or investors, the market price of our securities may decline significantly. We believe that quarter-to-quarter comparisons of our operating results may not be
a good indicator of our future performance and should not be relied upon to predict our future performance.
We will need substantial additional capital
in the future. If we are unable to secure additional financing, we may be unable to continue to commercialize our products or continue our research and development activities or continue any of our other operations at current levels, or we may need
to limit, scale back or cease our operations.
As of September 30, 2007, we had cash, cash equivalents and marketable securities of $194.8 million,
compared to $325.2million at December 31, 2006. We expect that our existing cash resources will be sufficient to fund our operations at our current levels of research, development and commercialization activities for at least 12 months.
However, our estimates of future capital use are uncertain, and changes in our commercialization plans, partnering activities, regulatory requirements and other developments may increase our rate of spending and decrease the period of time our
available resources will fund our operations. We expect to maintain a level of operating expenses, not including cost of sales, of approximately $50 million per quarter in the quarter that ends December 31, 2007 and into 2008.
In May 2007, we initiated a restructuring plan to lower annual operating expenses, through significant optimization of our field sales organization, enhanced focus of
R&D activities and reductions in selling, general and administrative spending. The restructuring plan included the elimination of 138 positions, of which 85 were part of the field sales organization and 53 were part of Palo Alto headquarters. In
2007, we still expect to incur substantial R&D expenses in connection with the supplemental new drug application for Ranexa (as well as the new drug application that has been administratively unbundled from the supplemental new drug application)
we submitted to the FDA in September 2007, and in connection with the new drug application for regadenoson we filed with the FDA in May 2007, as well as in connection with ongoing review of the marketing approval application for ranolazine submitted
to European regulatory authorities in late 2006.
Even with the reductions in operating expenses announced in May 2007, we do not expect to generate
sufficient revenues through our marketing and sales of Ranexa in the near term to achieve profitability or to fully fund our operations, including our research, development and commercialization activities relating to Ranexa and our product
candidates. Thus we will likely require substantial additional funding in the form of public or private equity offerings, debt financings, strategic partnerships and/or licensing arrangements in order to continue our research, development and
commercialization activities.
The amount of additional funding that we will require depends on many factors, including, without limitation:
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the amount of revenue that we are able to obtain from approved products, and the time and costs required to achieve those revenues;
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whether or not the division of cardiovascular and renal products of the FDA decides to accept the supplemental new drug application submission for Ranexa for
review, whether or not the metabolism and endocrinology products division of the FDA decides to accept the new drug application for the Ranexa diabetes data for review, and whether or not the FDA approves these applications;
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the timing, scope and results of preclinical studies and clinical trials;
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the costs of commercializing our products, including marketing, promotional and sales costs, product pricing and discounts, rebates and product return rights
extended to customers;
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the costs of manufacturing or obtaining preclinical, clinical and commercial materials;
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the size and complexity of our programs;
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the time and costs involved in obtaining and maintaining regulatory approvals;
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our ability to establish and maintain strategic collaborative partnerships, such as our arrangement with Astellas
relating to regadenoson (including Astellas’s level of promotional activity and degree of success, if any, in gaining market acceptance for regadenoson, if approved and launched, and in convincing physicians to switch from its current
pharmacologic stress agent for use in myocardial perfusion imaging studies, Adenoscan
®
(adenosine injection) or other agents to
regadenoson);
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competing technological and market developments;
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the costs involved in filing, prosecuting, maintaining and enforcing patents; and
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progress in our research and development programs.
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In April 2006, we entered into a common stock purchase agreement with Azimuth which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of
our common stock, or 9,010,404 shares, whichever occurs first, at a discount of 3.8% to 5.8%, to be determined based on our market capitalization at the start of each sale period. The term of the purchase agreement ends May 1, 2009, and in 2006
Azimuth purchased an aggregate of 2,744,118 shares for proceeds, net of issuance costs, of approximately $39.8 million under the purchase agreement. Upon each sale of our common stock to Azimuth under the purchase agreement, we have also agreed to
pay Reedland Capital Partners a placement fee equal to one fifth of one percent of the aggregate dollar amount of common stock purchased by Azimuth. Azimuth is not required to purchase our common stock when the price of our common stock is below $10
per share. Assuming that all 6,266,286 shares remaining for sale under the purchase agreement were sold at the $8.98 closing price of our common stock on September 28, 2007 (and assuming that Azimuth agreed to purchase our common stock at this
price), the additional aggregate net proceeds, assuming the largest possible discount, that we could receive under the purchase agreement with Azimuth would be approximately $52.9 million.
Additional financing may not be available on acceptable terms or at all. If we are unable to raise additional funds, we may, among other things:
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have to delay, scale back or eliminate some or all of our research and/or development programs;
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have to delay, scale back or eliminate some or all of our commercialization activities;
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lose rights under existing licenses;
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have to relinquish more of, or all of, our rights to products or product candidates on less favorable terms than we would otherwise seek; and
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be unable to operate as a going concern.
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If
additional funds are raised by issuing equity or convertible debt securities, including sales of common stock under our equity line of credit, our existing stockholders will experience dilution.
The success of our company is largely dependent on the success of Ranexa.
We launched Ranexa in the United States market in March 2006 and recognized revenues from sales of Ranexa for the first time in the quarter ended June 30, 2006. Ranexa is currently our only commercial product, and we expect that Ranexa
will account for all of our product sales at least for the next several years, unless we obtain rights to other approved products. In order for us to successfully commercialize Ranexa, our sales of Ranexa must increase significantly from current
levels. We continue to spend significant amounts of capital in connection with the commercialization of Ranexa, and we continue to invest significant amounts of capital in the development of Ranexa, including in connection with the review of the
supplemental new drug application for Ranexa (as well as the new drug application that has been administratively unbundled from the supplemental new drug application) that we submitted in the United States in September 2007, and in connection with
on-going review of the marketing approval application for ranolazine submitted to European regulatory authorities in late 2006.
Our continued substantial
investments in Ranexa are based in part on market forecasts, which are inherently uncertain. Market forecasts are particularly uncertain in the case of Ranexa because Ranexa is a new product with a novel mechanism of action and is the first new drug
therapy for chronic angina in the United States in over twenty years. In addition, we announced significant operating expense reductions in May 2007, which included significant reductions in the field sales organization and headquarters sales and
marketing personnel and significant reductions in sales and marketing program expenditures. We significantly reduced the number of sales territories (from approximately 250 to approximately 145), which has resulted in less overall coverage for our
sales territories in the aggregate as well as larger territories for many sales personnel. If we fail to significantly increase our level of Ranexa sales, our ability to generate product revenues, our ability to raise additional capital and our
ability to maintain our current levels of research, development and commercialization activities will all be materially impaired, and the price of our common stock will decline. As a result, the success of our company is largely dependent on the
success of Ranexa.
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Our success in commercializing Ranexa in key territories such as the United States and Europe is likely to depend on our
ability to enter into one or more strategic arrangements relating to the product. The negotiation, consummation and implementation of strategic arrangements relating to pharmaceutical products are complex and time-consuming, and assuming that we
seek strategic arrangements relating to the product in key territories, we may not be able to reach mutually acceptable terms, which may delay or prevent us from achieving or maximizing successful commercialization of the product in one or more key
territories.
For example, we believe that the product may have potential in the general practitioner market in the United States if, for example, the FDA
approves Ranexa as first-line therapy for patients suffering from chronic angina as contemplated under our special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, as well as if the FDA approves adding
reduction of HbA1c in coronary artery disease patients with diabetes to the product labeling. However, we do not presently have the resources to market and promote in broad markets in the United States, and the revenues we expect to recognize for
the foreseeable future from Ranexa may not be sufficient for us to reach broader markets on our own. As a result we may be dependent on being able to enter into one or more strategic partnership, collaboration and/or co-promotion arrangements in
order to reach broader markets in the United States, and we may not be able to successfully enter into any such arrangement with third parties on terms that are favorable to us, if at all. In addition, under any such arrangement, our future
revenues for Ranexa may depend heavily on the success of any such third party and we may have limited or no control over their resources and activities.
With regards to the potential European market for ranolazine, we have only very limited personnel in Europe and at the present time we do not have the resources to commercialize ranolazine in Europe on our own. In late 2006 we submitted a
marketing approval application for ranolazine to the European regulatory authorities. However, the cost of goods for ranolazine (which includes a royalty we owe to Roche on sales of the product) may make it challenging or prohibitive to profitably
commercialize the product in one or more key countries in Europe, if it is approved by European regulatory authorities, in light of various national price control arrangements. We will be dependent on being able to enter into one or more strategic
partnership, collaboration and/or co-promotion arrangements in order to reach the European market, and we may not be able to successfully enter into any such arrangement with third parties on terms that are favorable to us, if at all. In
addition, under any such arrangement, our future revenues for ranolazine in Europe would depend heavily on the success of any such third party and we may have limited or no control over their resources and activities under any such arrangement.
While we have negotiated a special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study of Ranexa, this agreement
does not guarantee any particular regulatory outcome from regulatory review of the study or the product, including any changes to product labeling or approvals.
Our MERLIN TIMI-36 clinical trial was a large clinical study of Ranexa which enrolled approximately 6,500 patients. We obtained and announced initial data and results from the trial in March 2007, which showed that the study did not meet
the primary efficacy endpoint relating to treatment of acute coronary syndromes (ACS), a potential new indication, despite an overall trend favoring Ranexa for the composite primary endpoint of cardiovascular death, myocardial infarction and
recurrent ischemia. These results also showed that Ranexa did not have a significant effect on the rate of cardiovascular death or myocardial infarction, individually or as a composite, but the cumulative incidence of recurrent ischemia was
significantly lower in patients receiving Ranexa, compared to patients receiving placebo. The initial data and results obtained in March 2007 also showed no adverse trend in death or arrhythmias in patients receiving Ranexa. The primary results from
the MERLIN TIMI-36 clinical study were published in the scientific literature in April 2007. Analysis of additional data and results from the MERLIN TIMI-36 study is ongoing.
In 2004 we reached written agreement with the division of cardiovascular and renal products of the FDA on a special protocol assessment agreement for the MERLIN TIMI-36 clinical trial of Ranexa. The FDA’s special
protocol assessment process is used to create a written agreement between the sponsoring company and the FDA regarding clinical trial design, clinical endpoints, study conduct, data analyses and other clinical trial matters. It is intended to
provide assurance that if pre-specified trial results are achieved, they may serve as the primary basis for an efficacy claim in support of a new drug application. However, a special protocol assessment agreement is not a guarantee of a product
approval, or of any labeling claims about the product. For example, a special protocol assessment agreement is not binding on the FDA if public health concerns unrecognized at the time the agreement was entered into become evident, other new
scientific concerns regarding product safety or efficacy arise, or if the sponsor company fails to comply with the agreed upon trial protocols.
Under our
special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, if this study had met its primary efficacy endpoint, it could have resulted in approval of Ranexa for the treatment and long-term prevention of ACS.
However, based on the MERLIN TIMI-36 data and results, which showed that the study did not meet its primary efficacy endpoint, we do not plan to submit a new drug application with the FDA seeking approval for Ranexa (including any intravenous
formulation of the product) for the treatment of ACS.
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Also under our special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, the
division of cardiovascular and renal products of the FDA agreed that this study could support potential approval of Ranexa as first-line therapy for patients suffering from chronic angina if treatment with Ranexa is not associated with an adverse
trend in death and arrhythmia compared to placebo, even if statistical significance for the primary efficacy endpoint in the study is not achieved. The term “no adverse trend in death and arrhythmia” is not defined in the special protocol
assessment agreement, and the FDA will interpret this aspect of the special protocol assessment agreement in the context of the data and results from the MERLIN TIMI-36 study. We believe the MERLIN TIMI-36 data and results should support expansion
of the existing Ranexa approved indication to include first-line treatment of angina, in accordance with our special protocol assessment agreement with the FDA, and we submitted a supplemental new drug application to the division of cardiovascular
and renal products of the FDA in September 2007 seeking approval to modify the existing product labeling to expand the product indication to include first-line angina treatment, to reduce cautionary language and to obtain other product labeling
changes for the product. Of course, the FDA retains significant latitude and discretion in interpreting the terms of any special protocol assessment agreement, as well as in interpreting the data and results from any study that is the subject of
such an agreement, such as the MERLIN TIMI-36 clinical study. As a result, the existence of our special protocol assessment agreement with the division of cardiovascular and renal products of the FDA relating to the MERLIN TIMI-36 clinical trial is
not a guarantee of approval of the supplemental new drug application we submitted in September 2007.
Similarly, the existence of this special protocol
assessment agreement is not a guarantee of particular labeling claims relating to product safety, such as the reduced cautionary wording we are seeking, or product efficacy, such as reductions in anti-diabetic parameters or ventricular arrhythmias.
In November 2007, we announced that the FDA requested that we pay a second filing user fee and officially notified us that the metabolism and endocrinology products division of the FDA will undertake a formal review of the diabetes data, as a
separate new drug application filing to that division. Specifically, the FDA informed us that a new drug application has been administratively unbundled from the parent new drug application (which is held by the division of cardiovascular and renal
products of the FDA) to provide for clinical review by the metabolism and endocrinology products division of the FDA of our proposed labeling change to add reduction of HbA1c in coronary artery disease patients with diabetes to the approved labeling
for Ranexa. We do not have any special protocol assessment agreement in place with the metabolism and endocrinology products division of the FDA.
Assuming
that the division of cardiovascular and renal products of the FDA decides to accept the supplemental new drug application submission for review, and assuming that the metabolism and endocrinology products division of the FDA decides to accept the
new drug application for review, each application would have a filing date of September 27, 2007. In connection with these applications, assuming they are each accepted for review we expect that the FDA divisions will review all the safety data
and results from the MERLIN TIMI-36 study (including those relating to death and arrhythmia) and other studies included in the applications, and that the FDA will exercise its broad regulatory discretion in interpreting these data and results, as
well as the terms of the special protocol assessment agreement, in determining whether the data and results demonstrate that Ranexa is not associated with an adverse trend in death and arrhythmia, and in determining whether to approve the product
for first-line therapy for chronic angina patients, whether to reduce cautionary language in the product labeling, whether to add reduction of HbA1c in coronary artery disease patients with diabetes to the product labeling, whether to add labeling
related to reductions in ventricular arrhythmias, and what other labeling changes to allow, if any. As a result of these various factors, uncertainty remains as to whether the MERLIN TIMI-36 study will support a potential approval of Ranexa as
first-line therapy for patients suffering from chronic angina and what labeling changes, if any, will result. Even if the FDA approves the supplemental new drug application (as well as the separate new drug application that has been administratively
unbundled from the supplemental new drug application) submitted in September 2007, we would not have FDA-approved modified labeling that we can use for promotional purposes until mid-2008 (assuming that the FDA accepts our supplemental new drug
application and new drug application for review and provides its approval(s) at the end of one standard review cycle).
The special protocol assessment
agreement with the FDA also requires that we successfully complete a clinical evaluation of higher doses of Ranexa before any potential approval of Ranexa as first-line therapy for patients suffering from chronic angina. We have completed a clinical
evaluation of higher doses of Ranexa, and we believe that the data and results from this separate study will satisfy this additional special protocol assessment requirement. These data and results were submitted to the FDA for review in our
supplemental new drug application submitted to the division of cardiovascular and renal products of the FDA, and we do not know if the FDA will agree that this aspect of the special protocol assessment agreement has been satisfied.
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Also in connection with our special protocol assessment agreement relating to the MERLIN TIMI-36 clinical study, we
expect that the FDA will review our compliance with the study protocol. In addition, we expect that the FDA will conduct inspections of some of the approximately 450 MERLIN TIMI-36 clinical sites, most of which are located in 16 foreign countries.
We do not know whether the clinical sites will pass such FDA inspections, and negative inspection results or regulatory questions arising from such inspections (for example, relating to data from clinical sites), could significantly delay or prevent
any potential regulatory approval or expansion of the product labeling for Ranexa.
Depending on the results of the FDA’s decisions regarding whether
to accept for review, and whether or not to approve, our supplemental new drug application (as well as the separate new drug application that has been administratively unbundled from the supplemental new drug application) submitted in September
2007, as well as the decisions of the FDA review divisions with respect to any labeling modifications, our ability to generate product revenues, raise additional capital, and maintain our current levels of research, development and commercialization
activities could be materially negatively affected. If the FDA does not approve our applications, our continued ability to commercialize Ranexa could be seriously impaired or stopped altogether.
Ranexa may not achieve market acceptance or generate revenues.
Ranexa is currently our only approved product. If Ranexa fails to achieve broader market acceptance than it has to date, our product sales and our ability to maintain our current levels of research, development and commercialization
activities, as well as our ability to become profitable in the future, will all be adversely affected. Many factors may affect the rate and level of market acceptance of Ranexa in the United States, including:
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our product marketing, promotion, distribution sales and pricing strategies and programs and the effectiveness of our sales and marketing efforts;
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our ability to provide acceptable evidence of the product’s safety, efficacy, cost-effectiveness and convenience compared to that of competing products or
therapies;
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new data or adverse event information relating to the product or any similar products, especially our MERLIN TIMI-36 clinical trial of Ranexa;
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regulatory actions resulting from new data or information or other factors, especially the FDA’s actions relating to our supplemental new drug application (as
well as the new drug application that has been administratively unbundled from the supplemental new drug application) submitted in September 2007, in which we are seeking to modify the existing product labeling to expand the product indication to
include first-line angina treatment, to reduce cautionary language, to add reduction of HbA1c in coronary artery disease patients with diabetes to the product labeling, and to make other product labeling changes;
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the extent to which physicians do or do not prescribe a product to the full extent encompassed by product labeling or prescribe a product inconsistently with
product labeling;
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regulatory constraints on, or delays in the review of, our product promotional materials and programs;
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the perception of physicians and other members of the healthcare community of the product’s safety, efficacy, cost-effectiveness and convenience compared to
that of alternative or competing products or therapies;
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patient and physician satisfaction with the product;
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publicity concerning the product or similar products;
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the introduction, availability and acceptance of alternative or competing treatments, including lower-priced generic products;
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the availability and level of third-party reimbursement for the product, including the ability to gain formulary acceptance and favorable formulary positioning,
without prior authorizations or step-edits, for the product on government and managed care formularies and the discounts and rebates offered in return;
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our ability to satisfy post-marketing safety surveillance responsibilities and safety reporting requirements;
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whether regulatory authorities impose risk management programs on the product, which can vary widely in scope, complexity and impact on market acceptance of a
product, and can include education and outreach programs, controls on the prescribing, dispensing or use of the product, and/or restricted access systems;
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the continued availability of third parties to manufacture and distribute the product and product samples for us on acceptable terms, and their continued ability to
manufacture commercial-scale quantities of the product successfully and on a timely basis;
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the size of the overall market for the product;
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the outcome of patent or product liability litigation, if any, related to the product;
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regulatory developments relating to the development, manufacture, commercialization or use of the product; and
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changes in the regulatory or business environment.
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For example, we believe that the currently approved product labeling for Ranexa has had and will continue to have a direct impact on our marketing, promotional and sales programs for this product, and has adversely affected market
acceptance of this product. For example, the current approved product labeling for Ranexa contains contraindications and warnings regarding a potential safety risk of QT prolongation and a type of fatal arrhythmia, among other potential risks. In
addition, the current indication statement in the labeling states that because Ranexa prolongs the QT interval in a dose-dependent manner, the product should be reserved for use in chronic angina patients who have not achieved an adequate response
with other antianginal drugs, and should be used in combination with other common antianginal treatments, specifically amlodipine, beta-blockers or nitrates. Based on the MERLIN TIMI-36 clinical study results, we submitted a supplemental new drug
application with the FDA in September 2007 seeking to modify the existing product labeling to expand the indication to include first-line angina treatment and reduce cautionary language. However, we do not know if the FDA will accept for review, or
will approve, our supplemental new drug application (or the new drug application that has been administratively unbundled from the supplemental new drug application). Even if the FDA does approve our supplemental new drug application (and the new
drug application that has been administratively unbundled from the supplemental new drug application), we will not have FDA-approved modified labeling that we can use for promotional purposes until mid-2008 (assuming that the FDA accepts the
applications for review and provides approvals at the end of one standard review cycle). Even if the FDA approves modified product labeling for Ranexa that provides for first-line angina treatment with reduced cautionary wording and other labeling
improvements such as a reduction of HbA1c in coronary artery disease patients with diabetes, we may not be able to significantly increase sales of Ranexa with the resources available to us.
In addition, we believe that physician prescribing patterns are substantially affected by their perceptions of a product, particularly a new product such as Ranexa. We
believe that many physicians’ perceptions of Ranexa have been negatively impacted by the currently approved product labeling for Ranexa. Even if the FDA approves modified product labeling for Ranexa that provides for first-line angina treatment
with reduced cautionary wording and other labeling improvements, such as a reduction of HbA1c in coronary artery disease patients with diabetes, favorably modifying physician perceptions for the product may prove very difficult for us with the
resources available to us, which would impact product acceptance and revenues over time.
We must submit all promotional materials to the FDA at the time
of first use, including in connection with any potential FDA approval of the supplemental new drug application we submitted in September 2007. If the FDA raises concerns regarding our proposed or actual promotional materials, we may be required to
modify or discontinue using them and provide corrective information to healthcare practitioners. We do not know whether our promotional materials will allow us to effectively promote Ranexa with healthcare practitioners and managed care audiences.
For example, the current approved product labeling states that the mechanism of action of Ranexa is unknown, which may make it difficult for us to address potential questions and concerns regarding the product such as safety concerns.
The pharmaceutical and biopharmaceutical industries, and the market for cardiovascular drugs in particular, are intensely competitive. Ranexa and any of our product
candidates that receive regulatory approval will compete with well-established, proprietary and generic cardiovascular therapies that have generated substantial sales over a number of years and are widely used and accepted by health care
practitioners.
In addition to direct competition, our products will also have to compete against the promotional efforts for other products in order to be
noticed by physicians and patients. The level of promotional effort in the pharmaceutical and biopharmaceutical markets has increased substantially over time. Market acceptance of our products will be affected by the level of promotional effort that
we are able to provide. The level of our promotional efforts will depend in part on our ability to train, deploy and retain an effective sales and marketing organization, as well as our ability to secure additional financing. We cannot assure you
that the level of promotional effort that we will be able to provide for our products or the levels of additional financing we are able to secure, if any, will be sufficient to obtain market acceptance of our products. We may also be hampered in our
promotional efforts by a lack of familiarity with our company and our products among healthcare practitioners in the United States.
37
The commercialization of our products is substantially dependent on our ability to develop effective sales and
marketing capabilities.
Our successful commercialization of Ranexa in the United States depends on our ability to maintain an effective sales and
marketing organization in the United States. We have hired, trained and deployed our first sales force, which is a national cardiovascular specialty sales force, and which began promoting Ranexa in March 2006.
In May 2007 we announced significant reductions in our field sales organization and headquarters sales and marketing personnel as well as significant reductions in sales
and marketing program expenditures. We significantly reduced the number of sales territories (from approximately 250 to approximately 145), which has resulted in less overall coverage for our sales territories in the aggregate as well as larger
territories for many sales personnel. These significant reductions in personnel and expenditures may result in failure to adequately cover our current sales territories, or to cover through alternative marketing efforts the territories in which we
have elected not to have sales representation, and may result in reduced sales force productivity, a negative effect on product prescribing and less revenues from Ranexa. The success of our marketing and promotional strategies will also depend on
our ability to retain and recruit the caliber of sales representatives necessary to implement our strategy, which focuses on promotion to cardiologists. The territory realignment and operating expense and headcount reductions we announced in May
2007 could significantly limit our ability to successfully retain and recruit qualified sales personnel with the level of technical, selling and institutional experience typical of specialty pharmaceutical sales personnel. Any failure to retain or
attract qualified personnel could significantly delay or hinder the success of our commercial strategies, and could result in lower market acceptance and product revenues for Ranexa.
We may increase or decrease the size of our sales force in the future, or change territory alignments in the
future, depending on many factors, including the effectiveness of the sales force, the level of market acceptance of Ranexa, whether the FDA accepts and reviews our supplemental new drug application (and the new drug application that has been
administratively unbundled from the supplemental new drug application) submitted in September 2007 and the results of any such regulatory reviews, and any partnering arrangements we may enter into from time to time. Developing and implementing key
marketing messages and programs, as well as deploying, retaining and managing a national sales force and additional personnel, is very expensive, complex and time-consuming. We do not know if our marketing strategies and programs will be effective.
We also do not know if our sales force is sufficient in size, scope or effectiveness to compete successfully in the marketplace and gain acceptance for Ranexa. Among other factors, we may not be able to gain sufficient access to healthcare
practitioners, which would have a negative effect on our ability to promote Ranexa and gain market acceptance. Even if we gain access to healthcare practitioners, we may not be able to change prescribing patterns in favor of Ranexa. For example, our
marketing and sales efforts relating to ACEON
®
(perindopril erbumine) Tablets in the United States prior to our termination of
our co-promotion agreement for that product did not produce a significant increase in prescribing patterns relating to that product.
Even after
a product has been approved for commercial sale, if we or others identify previously known or unknown side effects or manufacturing problems occur, approval could be withdrawn or sales of the product could be significantly reduced.
Once a product is approved for marketing, adverse effects whether known or new and unknown must be reported to regulatory authorities on an ongoing basis, and usage of
any drug product in the general population is less well-controlled than in the pre-approval setting of carefully monitored clinical trial testing. In addition, once a product is approved, others are free to generate new data regarding the product,
which they may publish in the scientific literature or otherwise publicize, without any control by the drug manufacturer.
If we or others identify
previously unknown side effects for Ranexa or any products perceived to be similar to Ranexa, or if any already known side effect becomes a more serious or frequent concern than was previously thought on the basis of new data or other developments,
or if manufacturing problems occur, then in any of those circumstances:
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sales of the product may decrease significantly;
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regulatory approval for the product may be restricted or withdrawn;
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we may decide to, or be required to, send product warning letters or field alerts to physicians and pharmacists;
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reformulation of the product, additional preclinical or clinical studies, changes in labeling of the product or changes to or re-approvals of manufacturing
facilities may be required;
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our reputation in the marketplace may suffer; and
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investigations and lawsuits, including class action suits, may be brought against us.
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Any of the above occurrences would harm or prevent sales of Ranexa and increase our costs and expenses, and could mean that our ability to commercialize the product is
seriously impaired or stopped altogether.
Unlike other treatments for angina currently being used in the United States, the approved labeling for Ranexa
warns of the risk that because the product prolongs the QT interval, it may cause a type of fatal arrhythmia known to healthcare practitioners as torsades de pointes. This fatal arrhythmia occurs in the general population of patients with
cardiovascular
38
disease at a low rate of incidence (although the precise rate may be debatable), and can be triggered by a wide variety of factors including drugs, genetic
predisposition and medical conditions (such as low blood potassium levels or slow heart rate) that are not uncommon among patients with cardiovascular disease. Now that Ranexa is approved in the United States, the product is being used in a wider
population and in a less controlled fashion than in clinical studies of the product, including in patients with chronic angina who may be predisposed to the occurrence of torsades de pointes or other fatal arrhythmias. These patients are often
receiving other medications for a variety of conditions. In this potential patient population for Ranexa, it is inevitable that some patients receiving Ranexa will die suddenly, that in some or even many of these cases there will not be sufficient
information available to rule out Ranexa as a contributing factor or cause of mortality, and that required safety reporting from physicians or from us to regulatory authorities may link Ranexa to torsades de pointes, sudden death or other serious
adverse effects. As a result, regulatory authorities, healthcare practitioners and/or patients may perceive or conclude that the use of Ranexa is associated with torsades de pointes, sudden death, or other serious adverse effects, any of which could
mean that our ability to commercialize Ranexa could be seriously impaired or stopped altogether, and we may become subject to potentially significant product liability litigation and other claims against us. This would harm our business, increase
our cash requirements and result in continued operating losses and a substantial decline in our stock price.
We may be subject to product liability
claims and we have only limited product liability insurance.
The manufacture and sale of human drugs and other therapeutic products involve an inherent
risk of product liability claims and associated adverse publicity. The approved labeling for Ranexa includes warnings regarding QT prolongation and the risk of arrhythmias and sudden death, and regarding tumor promotion. We may be subject to product
liability claims in the future, including if patients who have taken Ranexa die, experience arrhythmias, contract cancer, or suffer some other serious adverse effect. Any product liability claims could have a material negative effect on the market
acceptance and sales of our products. We currently have only limited product liability insurance for clinical trials testing and only limited commercial product liability insurance. We do not know if we will be able to maintain existing or obtain
additional product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms or at all. If we are unable to obtain or maintain
sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to continue to develop or commercialize our products or any product candidates that may receive regulatory
approval in the future. A successful product liability claim brought against us in excess of our insurance coverage, if any, may require us to make substantial payments. This could adversely affect our cash position and results of operations and
could increase the volatility of our stock price.
If we are unable to compete successfully in our market, it will harm our business.
There are many existing drug therapies approved for the treatment of the diseases targeted by our products, and we are also aware of companies that are developing new
potential drug products that will compete in the same markets as our products. Ranexa competes with several well established classes of drugs for the treatment of chronic angina in the United States, including generic and/or branded beta-blockers,
calcium channel blockers and long acting nitrates, and additional potential angina therapies may be under development. In addition, surgical treatments and interventions such as coronary artery bypass grafting and percutaneous coronary intervention
are another option for angina patients (especially in the United States), and may be perceived by healthcare practitioners as preferred methods to treat the cardiovascular disease that underlies and causes angina.
There are numerous marketed generic and/or branded pharmacologic stress agents, and at least two potential A
2A
-adenosine receptor agonist compounds under development, that could compete with our regadenoson product candidate, if it is approved for marketing. We are
also aware of companies that are developing products that may compete with our other product candidates and programs. We may also be unaware of other potentially competitive products, product candidates or programs. Many of these potential
competitors have substantially greater product development capabilities and financial, scientific, marketing and sales resources. Other companies may succeed in developing products earlier or obtaining approvals from regulatory authorities more
rapidly or broadly than either we or our strategic partners are able to achieve. Potential competitors may also develop products that are safer, more effective or have other potential advantages compared to those under development or proposed to be
developed by us and our strategic partners. In addition, research, development and commercialization efforts by others could render our technology or our products obsolete or non-competitive.
Failure to obtain adequate reimbursement from government health administration authorities, private health insurers and other organizations could materially adversely
affect our future business, market acceptance of our products, results of operations and financial condition.
Our ability and the ability of our
collaborative partners to market and sell Ranexa and any of our product candidates that receive regulatory approval in the future will depend significantly on the extent to which reimbursement for the cost of Ranexa and those product candidates and
related treatments will be available from government health administration authorities, private health insurers and other organizations. Third-party payers and governmental health administration
39
authorities are increasingly attempting to limit and/or regulate the price of medical products and services, especially branded prescription drugs. In
addition, the increased emphasis on managed healthcare in the United States will put additional pressure on product pricing and usage, which may adversely affect our product sales and revenues.
For example, under the Medicare Prescription Drug Improvement and Modernization Act of 2003, Medicare beneficiaries are now able to elect coverage for prescription drugs
under Medicare Part D, and the various entities providing such coverage have set up approved drug lists or formularies and are negotiating rebates and other price concessions from pharmaceutical manufacturers, which impacts drug access, patient
copayments and product revenues, and may increase pressure to lower prescription drug prices over time. These changes in Medicare reimbursement could have a negative effect on the revenue that we derive from sales of Ranexa, for example, when we
provide rebates and other price concessions in order for Ranexa to be placed on approved drug lists or formularies. Any additional statutory or regulatory changes, including potential changes to Medicare Part D, could also place pressure on product
pricing and usage.
Even if our products are deemed to be safe and effective by regulatory authorities, third-party payers and governmental health
administration authorities commonly direct patients to generic products or other lower-priced therapeutic alternatives, and there are an increasing number of such alternatives available, including numerous lower-priced generic products available to
treat the condition for which Ranexa is approved. Many third-party payers establish a preference for selected products in a category and provide higher levels of formulary acceptance and coverage for preferred products and higher co-payments for
non-preferred products. Significant uncertainty exists as to the reimbursement status of recently approved health care products, such as Ranexa. As a result, it can be difficult to predict the availability or amount of reimbursement for Ranexa or
how the product will be positioned relative to other antianginal products and therapies.
In February 2006, we set the wholesale acquisition cost of Ranexa
at a higher price than the cost of any other antianginal drug currently on the market in the United States. In 2007, we increased the wholesale acquisition cost of Ranexa to adjust for inflation, and launched and priced a new dosage form of the
product consistent with this pricing strategy. Our pricing for Ranexa may result in less favorable reimbursement and formulary positioning for the product with third-party payers and under government programs including Medicare, and may result in
more or higher barriers to patient access to the product such as higher co-payments and/or prior authorization requirements. Even if we obtain favorable reimbursement or formulary positioning for Ranexa, we may not be able to maintain this
positioning if the product does not meet utilization expectations. If we fail to obtain or maintain favorable reimbursement or formulary positioning for Ranexa, health care providers may limit how much or under what circumstances they will prescribe
or administer the product, and patients may resist having to pay out-of-pocket for it. We are offering discounts or rebates to some customers to attempt to contract for favorable formulary status, which will lower the amount of product revenues we
receive. In addition, our product revenues are affected by our pricing for the approved dosing and approved dosage strengths for Ranexa and by the dosage regimens and strengths most commonly prescribed by physicians. To date, the lower dosage form
of Ranexa, which is lower priced than the higher dosage form, is the most commonly prescribed dosage, which impacts product revenues but may also support favorable formulary positioning by third-party payers. These competing factors will affect the
market acceptance of Ranexa in the United States as well as the amount of product revenues we will receive for the product.
For sales of any of our
products in Europe, if approved, we will be required to seek reimbursement approvals on a country-by-country basis. We cannot be certain that any products approved for marketing will be considered cost effective, that reimbursement will be
available, or that allowed reimbursement will be adequate in these markets. In addition, in Europe, various government entities control the prices of prescription pharmaceuticals and often expect prices of prescription pharmaceuticals to decline
over the life of the product or as volumes increase. As a result, reimbursement policies and pricing controls could adversely affect our or any strategic partners’ ability to sell our products on a profitable basis in Europe.
Our customer base is highly concentrated.
Our principal customers
are a small number of wholesale drug distributors. These customers comprise a significant part of the distribution network for pharmaceutical products in the United States. Three large wholesale distributors, AmerisourceBergen Corporation, Cardinal
Health, Inc. and McKesson Corporation, control a significant share of the market in the United States. Our ability to distribute any product, including Ranexa, to retail pharmacy chains and to recognize revenues on a timely basis is substantially
dependent on our ability to maintain commercially reasonable agreements with each of these wholesale distributors and the extent to which these distributors, over whom we have no control, comply with such agreements. Our agreements with wholesaler
distributors may contain terms that are not favorable, given our relative lack of market leverage (as a company with only one approved product) or other factors, which could adversely affect our commercialization of Ranexa. The loss or bankruptcy of
any of these customers could materially and adversely affect our future results of operations, financial condition and our ability to distribute our products.
40
Guidelines and recommendations published by various organizations may affect the use of our products.
Government agencies issue regulations and guidelines directly applicable to us and to our products. In addition, professional societies, practice management groups,
private health/science foundations, and organizations involved in various diseases from time to time publish guidelines or recommendations to the health care and patient communities. These various sorts of recommendations may relate to such matters
as product usage, dosage, route of administration, and use of related or competing therapies. These organizations have in the past made recommendations about our products or products that compete with our products, such as the treatment guidelines
of the American Heart Association. These sorts of recommendations or guidelines could result in decreased usage of our products. In addition, the perception by the investment community or stockholders that any such recommendations or guidelines will
result in decreased usage of our products could adversely affect the market price of our common stock.
We may be required to defend lawsuits or pay
damages in connection with the alleged or actual violation of healthcare statutes such as fraud and abuse laws, and our corporate compliance programs can never guarantee that we are in compliance with all relevant laws and regulations.
Our commercialization efforts in the United States are subject to various federal and state laws pertaining to pharmaceutical promotion and healthcare
fraud and abuse, including the Food, Drug and Cosmetic Act, the Prescription Drug Marketing Act, and federal and state anti-kickback, fraud and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to offer or
pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a drug. The federal government has published many regulations relating to the anti-kickback statutes, including numerous safe
harbors or exemptions for certain arrangements. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payers (including Medicare and Medicaid), claims for reimbursed drugs or
services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services.
Our
activities relating to the sale and marketing of our products, and those of our strategic partners (such as Astellas in the case of our regadenoson arrangement), will be subject to scrutiny under these laws and regulations. It may be difficult to
determine whether or not our activities, or those of our strategic partners, comply with these complex legal requirements. Violations are punishable by significant criminal and/or civil fines and other penalties, as well as the possibility of
exclusion of the product from coverage under governmental healthcare programs, including Medicare and Medicaid. If the government were to investigate or make allegations against us or any of our employees, or sanction or convict us or any of our
employees, for violations of any of these legal requirements, this could have a material adverse effect on our business, including our stock price. Similarly, under our license and collaboration arrangement with respect to regadenoson, if Astellas
becomes subject to investigation, allegation or sanction relating to its commercialization of regadenoson (if any), our ability to continue to obtain revenues from the sale of regadenoson (if approved and launched) could be seriously impaired or
stopped altogether.
Our activities and those of our strategic partners could be subject to challenge for many reasons, including the broad scope and
complexity of these laws and regulations, the difficulties in interpreting and applying these legal requirements, and the high degree of prosecutorial resources and attention being devoted to the biopharmaceutical industry and health care fraud by
law enforcement authorities. During the last few years, numerous biopharmaceutical companies have paid multi-million dollar fines and entered into burdensome settlement agreements for alleged violation of these requirements, and other companies are
under active investigation. Although we have developed and implemented corporate and field compliance programs as part of our commercialization of Ranexa, we cannot assure you that we or our employees, directors or agents were, are or will be in
compliance with all laws and regulations or that we will not come under investigation, allegation or sanction.
In addition, we are required to prepare and
report product pricing-related information to federal and state governmental authorities, such as the Department of Veterans Affairs and under the Medicaid program. The calculations used to generate the pricing-related information are complex and
require the exercise of judgment. If we fail to accurately and timely report product pricing-related information or to comply with any of these or any other laws or regulations, various negative consequences could result, including criminal and/or
civil prosecution, substantial criminal and/or civil penalties, exclusion of the approved product from coverage under governmental healthcare programs (including Medicare and Medicaid), costly litigation and restatement of our financial statements.
In addition, our efforts to comply with this wide range of laws and regulations are, and will continue to be, time-consuming and expensive.
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The successful commercialization of our products, including regadenoson if it is approved for marketing in the United
States, is substantially dependent on the successful and timely performance of our strategic collaborative partners and other vendors, over whom we have little or no control.
We are dependent on the performance of our key strategic collaborative partners for the successful commercialization of some of our product candidates. Our key collaborative partnerships include the following:
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Biogen Idec Inc. (formerly Biogen Inc.)—a 1997 license agreement under which we licensed rights to Biogen to
develop and commercialize products produced based on our A
1
adenosine receptor antagonist patents or technologies, which Biogen Idec has labeled its
Adentri™ program; and
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Astellas US LLP. (formerly Fujisawa Healthcare, Inc.)—a 2000 collaboration and license agreement to develop and commercialize second generation pharmacologic
cardiac stress agents, including regadenoson.
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The successful commercialization of
our regadenoson program and of the Adentri™ program each depend significantly on the efforts of our collaborative partners for each of these programs. For example, in May 2007 we submitted a new drug application to the FDA seeking approval for
regadenoson for potential use as a pharmacologic stress agent in myocardial perfusion imaging studies. If the new drug application is approved by the FDA, under our agreement with Astellas we must transfer the new drug application, and all
responsibility for the product, to Astellas immediately after such FDA approval. Our agreement with Astellas also provides that Astellas is solely responsible for, and has sole decision-making authority regarding, all aspects of the commercial
manufacture, distribution, pricing, reimbursement, marketing, promotion and sales of regadenoson in North America, if regadenoson is approved anywhere in that territory. As a result, we cannot control and will not necessarily know the level of
investment Astellas makes or the degree of priority that Astellas places on the regadenoson program compared to its other products and programs, including compared to its current product for use in myocardial perfusion imaging studies,
Adenoscan
®
(adenosine injection). Among other things, we will not be able to control Astellas’ level of activity or
expenditure relating to the launch, manufacture (including inventory build-up) or commercialization of regadenoson, if approved, or the degree of motivation or success of Astellas, if any, in gaining market acceptance for regadenoson, if approved
and launched, and in convincing physicians to switch from Astellas’ current pharmacologic stress agent Adenoscan
®
or other
agents to regadenoson. Similarly, Biogen Idec has sole responsibility for all worldwide development and commercialization of products from the Adentri™ program, if any.
We cannot control the amount and timing of resources that any of our strategic partners devote to these programs. Conflicting priorities, competing demands, other
product opportunities or other factors that we cannot control and of which we may not be aware may cause any of our strategic partners to deemphasize our programs or to pursue competing technologies or product candidates. For example, under our
agreement with Astellas, Astellas is obligated to use commercially reasonable diligent efforts consistent with industry standards to carry out its responsibilities to manufacture, market, promote and sell regadenoson in the United States if it is
approved by the FDA, and Astellas is required to launch regadenoson within six months after FDA approval (if any), except if commercial supplies are not available for launch for reasons reasonably outside the control of Astellas, in which case
Astellas has up to an additional six months in which to launch the product in the United States. The agreement does not obligate Astellas to satisfy any minimum detailing or commercialization expenditure requirements with respect to regadenoson, if
approved.
In addition, these arrangements are each complex, and disputes may arise between the parties, which could lead to delays in the development or
commercialization of the products involved. If Astellas fails to successfully manufacture, launch, market and sell regadenoson in North America, if approved, we will receive minimal or even no revenues under the arrangement. If Biogen Idec fails to
successfully develop and commercialize any product from the Adentri™ program, we will receive no revenues under the arrangement. To the extent that we enter into additional co-promotion or other commercialization arrangements in the future, our
revenues will depend upon the efforts of third parties over which we will have little control.
Our successful commercialization of Ranexa depends on the
performance of numerous third-party vendors over which we have little control. For example, we rely entirely on third-party vendors to manufacture and distribute Ranexa in the United States, to administer our physician sampling programs relating to
Ranexa, and to perform some important sales and marketing operations functions, such as our product call centers, warehousing and the logistics related to product ordering and distribution. As a result, our level of success in commercializing Ranexa
depends significantly on the efforts of these third parties, as well as our strategic partners. If these third parties fail to perform as expected, our ability to market and promote Ranexa would be significantly compromised.
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We have no manufacturing facilities and depend on third parties to manufacture and distribute Ranexa, and to
manufacture our product candidates.
We do not operate, and have no current plans to develop, any manufacturing or distribution facilities, and we
currently lack the resources and capability to manufacture or distribute any of our products ourselves on a commercial scale or to manufacture clinical supplies of product candidates. As a result, we are dependent on corporate partners, licensees,
contract manufacturers and other third parties for the manufacturing and distribution of clinical and commercial scale quantities of all of our products and product candidates, including Ranexa.
For example, we have entered into several agreements with third-party manufacturers relating to Ranexa, including for commercial-scale active pharmaceutical ingredient,
bulk tablet manufacturing, packaging and supply of an important raw material component of the product. We currently rely on a single supplier at each step in the production cycle for Ranexa, and a single party for distribution of Ranexa to
wholesalers. In addition, under our agreement with Astellas relating to regadenoson, Astellas is solely responsible for the commercial manufacture and supply of regadenoson, if approved, in their territory and Astellas in turn is dependent on third
parties for the manufacture of the active pharmaceutical ingredient and the drug product, including a single supplier for the active pharmaceutical ingredient. Our ability to commercialize Ranexa, and Astellas’ ability to commercialize
regadenoson, if approved, are each entirely dependent on these arrangements, and would be affected by any delays or difficulties in performance on the part of the parties involved. For example, in the case of our Ranexa supply chain, because we rely
on a single manufacturer at each step in the production cycle for the product, the failure of any manufacturers to supply product on a timely basis or at all, or to manufacture our product in compliance with product specifications or applicable
quality or regulatory requirements, or to manufacture product or samples in volumes sufficient to meet market demand, would adversely affect our ability to commercialize Ranexa, could result in inventory write-offs, and could negatively affect
product revenues and our operating results.
Furthermore, we and our third-party manufacturers, laboratories and clinical testing sites may be required to
pass pre-approval inspections of facilities by the FDA and corresponding foreign regulatory authorities before obtaining marketing approvals. Even after product approval, our facilities and those of our contract manufacturers remain subject to
periodic inspection by the FDA and other domestic and foreign regulatory authorities. We cannot guarantee that any such inspections will not result in compliance issues that could prevent or delay marketing approval or negatively impact our ability
to maintain product approval or distribution, or require us to expend money or other resources to correct. In addition, we or our third-party manufacturers are required to adhere to stringent federal regulations setting forth current good
manufacturing practices for pharmaceuticals. These regulations require, among other things, that we manufacture our products and maintain our records in a carefully prescribed manner with respect to manufacturing, testing and quality control
activities. In addition, drug product manufacturing facilities in California must be licensed by the State of California, and other states may have comparable requirements. We cannot assure you that we will be able to obtain such licenses when and
where needed.
All of our products in development require regulatory review and approval prior to commercialization. Any delay in the regulatory review
or approval of any of our product candidates will harm our business.
All of our products in development require regulatory review and approval prior to
commercialization. Any delays in the regulatory review or approval of our product candidates in development would delay market launch, increase our cash requirements, increase the volatility of our stock price and result in additional operating
losses.
The process of obtaining FDA and other required regulatory approvals, including foreign approvals, often takes many years and can vary
substantially based upon the type, complexity and novelty of the products involved. Furthermore, this approval process is extremely complex, expensive and uncertain. We may not be able to maintain our proposed schedules for the submission or review
of any new drug application, supplemental new drug application or equivalent foreign application seeking approval for Ranexa, regadenoson or any of our other product candidates or for any new uses or other changes to approved product labeling or
manufacturing.
If we submit any new drug application or supplemental new drug application to the FDA, the FDA must first decide whether to either accept
or reject the submission for filing, and if we submit any such application to European regulatory authorities, they must first decide whether to validate it for further review. As a result, we cannot be certain that any of our submissions will be
reviewed. If the FDA accepts our submission for review, the agency will also determine whether the application will undergo review on a standard ten-month review cycle or on a priority six-month review cycle. The FDA has broad regulatory discretion
in granting priority review to an application, and a decision to grant priority review is never a guarantee of any particular regulatory outcome (such as approval), since the regulatory standard for making a decision to grant priority review is
entirely different from the regulatory standards for deciding whether or not to approve an application for marketing. If any of our submissions are reviewed, including our supplemental new drug application (and the new drug application that has been
administratively unbundled from the supplemental new drug application) submitted in September 2007 for Ranexa, we cannot be certain that we will be able to respond to any regulatory requests during the review period in a timely manner without
delaying potential regulatory action. We also cannot be certain that any of our products or proposed product changes, such as labeling changes, will be approved by the FDA or foreign regulatory authorities.
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A delay in approval, or a rejection, of a marketing application in the United States or foreign markets may be based upon
many factors, including regulatory requests for additional analyses, reports, clinical inspections, clinical and/or preclinical data and/or studies, questions regarding data or results, unfavorable review by advisory committees, changes in
regulatory policy during the period of product development and/or the emergence of new information regarding our products or other products. For example, in 2005 we withdrew our marketing authorization application for ranolazine filed with the
European regulatory authorities because regulators requested additional clinical pharmacokinetic data regarding the product prior to approval. In December 2006, we announced that we submitted a new marketing authorization application seeking
approval of ranolazine for the treatment of chronic angina with the European regulatory authorities, including additional data and results from studies conducted after March 2004. We do not know if the additional data and results included in our
application will result in favorable action by the European regulatory authorities with respect to the marketing approval application, or whether such authorities will view the second application more favorably than the original application which we
withdrew.
Data obtained from preclinical and clinical studies are subject to different interpretations, which could delay, limit or prevent regulatory
review or approval of any of our products by the FDA or foreign regulatory authorities. For example, some drugs that prolong the QT interval, which is a measurement of specific electrical activity in the heart as captured on an electrocardiogram,
carry an increased risk of serious cardiac rhythm disturbances that can cause a type of fatal arrhythmia known as torsades de pointes, while other drugs that prolong the QT interval do not carry an increased risk of this fatal arrhythmia. Ranexa
causes small but statistically significant mean increases in the QT interval. However, other clinical and preclinical data, including the results of the MERLIN TIMI-36 study (which showed no adverse trend in death or arrhythmias in patients
receiving Ranexa) indicate that Ranexa does not pre-dispose patients to this fatal arrhythmia. Regulatory authorities may interpret the Ranexa data differently than we do, which could delay, limit or prevent additional regulatory approvals relating
to Ranexa.
Similarly, as a routine part of the evaluation of any product candidate, clinical studies are generally conducted to assess the potential for
drug-drug interactions that could impact potential product safety. While we believe that the interactions between Ranexa and other drugs have been well characterized as part of our clinical development program, these data are subject to regulatory
interpretation and an unfavorable interpretation by regulatory authorities could delay, limit or prevent additional regulatory approvals of Ranexa.
Furthermore, regulatory attitudes towards the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information (including as relates to other
drugs and/or other medical therapies), changing policies and agency funding, staffing and leadership. We cannot be sure whether current or future changes in the regulatory environment will be favorable or unfavorable to our business prospects. For
example, we were informed by the FDA in 2006 that the agency has transferred responsibility for our regadenoson program to a review division at the FDA that has not previously handled the program. The development program for regadenoson is at a late
stage, with two Phase 3 studies successfully completed, and we have submitted a new drug application to this FDA review division in May 2007. As a result of the FDA transfer of review responsibility for the program, this review division, which has
no prior involvement in the design or implementation of our regadenoson program, is responsible for making the decision as to whether or not to approve the new drug application submitted in May 2007, and our ability to obtain potential product
approval from the FDA for regadenoson could be negatively affected. We do not have any special protocol assessment agreement in place for the regadenoson program.
The fact that the design of our two successful Phase 3 studies of regadenoson is novel may also delay or prevent any potential approval of a new drug application for regadenoson. The two identical Phase 3 studies are non-inferiority
studies, using a complex comparison based on multiple readings of reperfusion imaging scans by various blinded human scan readers. This is an unusual study design and there is an inherently high degree of variability in the reading of reperfusion
imaging scans (meaning that a single scan reviewed by two different readers, or even a single scan reviewed twice by the same reader, can produce different results). These studies also required blinded human readers to review and interpret
electrocardiographic data, a process that is also subject to inherent interpretative variability. Even though both Phase 3 studies of regadenoson had positive results, there can be no assurance that these Phase 3 study data, or the other data,
results and information included in our new drug application submitted in May 2007, will be sufficient to obtain marketing approval for regadenoson in the United States, or abroad if any approval for regadenoson is sought outside the United States.
We cannot predict the review time for any of our submissions with any regulatory authorities. Review times also can be affected by a variety of factors,
including budget and funding levels and statutory, regulatory and policy changes.
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We intend to file applications for regulatory approval of our products in various foreign jurisdictions from time to time
in the future. However, we have not received any regulatory approvals in any foreign jurisdiction for the commercial sale of any of our products. There are potentially important substantive differences in reviews of approval applications in the
United States and foreign jurisdictions such as Europe. For example, preclinical and/or clinical trials and data that are accepted by the FDA in support of a new drug application may not be accepted by foreign regulatory authorities, and trials and
data acceptable to foreign regulatory authorities in support of a product approval may not be accepted by the FDA. In addition, approval of a product in one jurisdiction is no guarantee that any other regulatory authorities will also approve it.
The successful development of drug products is highly uncertain and requires significant expenditures and time. Any delay in the development of any of
our drug product candidates will harm our business.
Successful development of drug products is highly uncertain. Product candidates that appear
potentially promising in research or development may be delayed or fail to reach later stages of development or the market for many reasons, including:
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preclinical tests may show the product candidate to be toxic or lack efficacy in animal models;
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clinical study results may show the product candidate to be less effective than desired or to have harmful or problematic side effects;
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we may fail to receive the necessary regulatory approvals, or experience a delay in receiving such approvals;
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we may encounter difficulties in formulating the product candidate, or in obtaining clinical supplies or source(s) of commercial-scale supply;
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manufacturing costs, pricing or reimbursement issues or other factors may make the product candidate uneconomical; and
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third parties may have proprietary or contractual rights that may prevent or discourage the product candidate from being developed.
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All of our product candidates in development require further preclinical studies and/or clinical trials, and will require regulatory review and approval, prior to
marketing and sale. Any delays in the development of our product candidates would delay our ability to seek and obtain regulatory approvals, increase our cash requirements, increase the volatility of our stock price and result in additional
operating losses. One potential cause of a delay in product development is a delay in clinical trials. Many factors could delay completion of any of our clinical trials, including, without limitation:
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slower than anticipated patient enrollment and/or event rates;
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difficulty in obtaining sufficient supplies of clinical trial materials; and
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adverse events occurring during the clinical trials.
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We may be unable to maintain our proposed schedules for investigational new drug applications, which are regulatory filings made by a drug sponsor to the FDA to allow human clinical testing in the United States, and equivalent foreign
applications and clinical protocol submissions to other regulatory agencies. In addition, we may be unable to maintain our proposed schedules for initiation and completion of clinical trials as a result of FDA or other regulatory action or other
factors, such as lack of funding, the occurrence of adverse safety effects or other complications that may arise in any phase of a clinical trial program.
We rely on a large number of clinical research organizations and foreign clinical sites to conduct our clinical trials, including the MERLIN TIMI-36 clinical trial of Ranexa and the Phase 3 studies of regadenoson, which may adversely
affect our ability to complete our clinical trials on a timely basis or the outcome of our clinical trials.
The successful development of our products
is substantially dependent on the successful and timely performance of contract research organizations, or CROs, and foreign clinical sites. We use CROs to perform a variety of tasks in the conduct of our clinical trials, including patient
recruitment, project management, monitoring and auditing of clinical sites, data management, data analysis, core laboratory services, site close-out and inspection readiness. For example, we have relied on several clinical CROs to conduct almost all
aspects of our MERLIN TIMI-36 study of Ranexa. With approximately 450 clinical sites in the United States and 16 foreign countries and over 6,500 patients enrolled in the study, the MERLIN TIMI-36 study is the largest and most complicated clinical
trial that we have conducted to date, and it is a complex trial to close-out. We have a very limited ability to control the quality of personnel assigned by CROs to our projects. If any of these tasks are not performed by our CROs in an accurate and
timely fashion, our clinical trials may be delayed and the results of our clinical trials may be adversely affected. In addition, our heavy reliance on CROs may subject us and the CROs to additional demanding regulatory inspections, which can delay
and adversely affect the regulatory review and approval of our products (such as Ranexa in the case of the MERLIN TIMI-36 study) and product candidates (such as regadenoson).
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A significant portion of the sites conducting clinical trials of our product candidates, including the Phase 3 studies of
regadenoson, are or were outside of the United States. The use of foreign clinical sites is often subject to additional risks. For example, contracts, informed consents, study protocols and complex medical terminology must be accurately translated
into foreign languages. During the conduct of the study, study data contained in foreign-language source documents must be accurately and timely translated into English and reported back to study authorities. In addition, standards of medical care,
clinical practice and patient populations vary from country to country, as well as the degree and manner of regulatory oversight. All of these factors introduce heterogeneity into the study, which makes the conduct of the study more complex. Due in
part to the added complexity of conducting foreign clinical trials, we expect that the FDA and other regulatory authorities may be likely to conduct clinical site inspections of foreign clinical sites in connection with the review of marketing
applications covering our products and product candidates. To the extent that the FDA or other regulatory authorities are not satisfied with the foreign clinical site, the data from the affected sites may be excluded from the trial’s database
or there may be other impacts, which can adversely affect the results of the study or the timing or results of the regulatory authority’s review of any marketing application containing those study results. Our business could be harmed if the
availability or quality of the results of any of our material clinical studies (such as our MERLIN TIMI-36 clinical study and our Phase 3 studies of regadenoson) is delayed or adversely affected by any of these factors.
If we are unable to satisfy governmental regulations relating to the development and commercialization of our drug candidates, we may be subject to significant FDA
sanctions.
The research, testing, manufacturing and marketing of drug products are subject to extensive regulation by numerous regulatory authorities
in the United States, including the FDA, and in other countries. Failure to comply with FDA or other applicable regulatory requirements may subject a company to administrative or judicially imposed sanctions, including, without limitation:
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warning letters and other regulatory authority communications objecting to matters such as promotional materials and requiring corrective action such as corrective
communications to healthcare practitioners;
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product seizure or detention;
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total or partial suspension of manufacturing; and
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FDA refusal to review or approve pending new drug applications for unapproved products or supplemental new drug applications for previously approved products,
and/or similar rejections of marketing applications or supplements by foreign regulatory authorities.
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If we are unable to attract and
retain collaborators, licensors and licensees, the development of our products could be delayed and our future capital requirements could increase substantially.
We may not be able to retain or attract corporate and academic collaborators, licensors, licensees and other strategic partners. Our business strategy requires us to enter into various arrangements with these parties,
and we are dependent upon the success of these parties in performing their obligations. If we fail to enter into and maintain these arrangements, the development and/or commercialization of our products would be delayed, we may be unable to proceed
with the development, manufacture or sale of products or we might have to fund development of a particular product candidate internally. If we have to fund the development and commercialization of substantially all of our products internally, our
future capital requirements will increase substantially.
We or our strategic partners may also have to meet performance milestones, and other obligations
under our collaborative arrangements. If we fail to meet our obligations under our collaborative arrangements, our partners could terminate their arrangements or we could suffer other consequences such as losing our rights to the compounds at issue.
For example, under our agreement with Astellas relating to regadenoson, we are responsible for development activities and must meet development milestones in order to receive development milestone payments. Under our license agreement with Roche
relating to Ranexa, we are required to use commercially reasonable efforts to develop and commercialize ranolazine for angina, and have milestone payment obligations.
The collaborative arrangements that we may enter into in the future may place responsibility on a strategic partner for preclinical testing and clinical trials, manufacturing and preparation and submission of
applications for regulatory approval of potential pharmaceutical products. We cannot control the amount and timing of resources that our strategic partners devote to our programs. If a partner fails to successfully develop or commercialize any
product, product launch would be delayed. In addition, our partners may pursue competing technologies or product candidates. In addition, arrangements in our industry are extremely complex, particularly with respect to intellectual property rights,
financial provisions, and other provisions
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such as the parties’ respective rights with respect to decision-making. Disputes may arise in the future with respect to these issues, such as the
ownership of rights to any technology developed with or by third parties. These and other possible disagreements between us and our partners could lead to delays in the research, development or commercialization of product candidates, or in the
amendment or termination of one or more of our license and collaboration agreements. These disputes could also result in litigation or arbitration, which is time consuming, expensive and uncertain.
If we are unable to effectively protect our intellectual property, we may be unable to complete development of any products and we may be put at a competitive
disadvantage; and, if we are involved in an intellectual property rights dispute, we may not prevail and may be subject to significant liabilities or required to license rights from a third party, or cease one or more product programs.
Our success will depend to a significant degree on, among other things, our ability to:
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obtain patents and licenses to patent rights;
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maintain trade secrets;
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operate without infringing on the proprietary rights of others.
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However, we cannot be certain that any patent will issue from any of our pending or future patent applications, that any issued patent will not be lost through an interference or opposition proceeding, reexamination
request, litigation or other proceeding, that any issued patent will be sufficient to protect our technology and investments or prevent the entry of generic or other competition into the marketplace, or that we will be able to obtain any extension
of any patent beyond its initial term. The following table shows the expiration dates in the United States for the primary compound patents for our key products and product candidates:
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Product/Product Candidate
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United States
Primary Compound
Patent Expiration
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Ranexa
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2003
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*
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Regadenoson
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2019
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*
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Because ranolazine is a new chemical entity, under applicable United States laws we have received marketing exclusivity for the ranolazine compound as a new chemical entity until
January 2011. In addition, the United States compound patent relating to Ranexa has been granted several one-year interim patent term extensions under the Hatch-Waxman Act, and we expect that a patent term extension under the Hatch-Waxman Act will
be granted that will extend the patent protection to May 2008 for the approved product, which is the Ranexa extended-release tablet, for the use in chronic angina approved by the FDA in January 2006. Also, the United States Patent and Trademark
Office has issued patents claiming various sustained release formulations of ranolazine and methods of using sustained release formulations of ranolazine, including the formulation tested in our Phase 3 trials for Ranexa, for the treatment of
chronic angina. These patents expire in 2019. We do not have any issued patent claims covering any intravenous formulation of ranolazine on a stand-alone basis, or any issued patent claims covering Ranexa for use in diabetes or diabetes-related
conditions, and we may not be able to obtain any issued patent claims based on data and results from the MERLIN TIMI-36 study. After January 2011, patent term extension and new chemical entity exclusivity will no longer be available for ranolazine
in the United States, and unless additional exclusivity relating to a successful supplemental new drug application can be obtained and that exclusivity period extends past January 2011, we will be entirely reliant on our owned or licensed patents
claiming uses and formulations of Ranexa, especially the formulation and method of use patents described above, to continue to protect our substantial investments in Ranexa’s development and commercialization. It is possible that one or more
competitors could develop competing products that do not infringe these patent claims, or could succeed in invalidating or rendering unenforceable all or any of these issued patent claims. One or more of these patents could be lost through a reissue
or reexamination submission and subsequent evaluation by the United States Patent and Trademark Office or through litigation (or other proceeding) wherein issues of validity and/or enforceability such as inequitable conduct, inventorship, ownership,
prior art, and/or enablement can be raised. These patents could also be lost as a result of interference or opposition proceedings. Any intellectual property-related claims against us relating to any of these patents, with or without merit, as well
as any claims initiated by us against third parties, if any, would be time-consuming, expensive and risky to defend or prosecute, and could negatively affect our ability to commercialize Ranexa, product revenues and our operating results. In
general, if we assert a patent against an alleged infringer and the alleged infringer is successful in invalidating one, more or all of the patents, or in having one, more or all of the patents declared unenforceable, the protection afforded by the
patent(s) would be diminished or lost.
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In addition to these issued patents, we seek to file patent applications relating to each of our potential products, and
we seek trade name and trademark protection for our commercialized products such as Ranexa. Although patent applications filed in the United States are now published eighteen months after their filing date, this statutory change applies only to
applications filed on or after November 2000. Applications filed in the United States prior to this date are maintained in secrecy until a patent issues. As a result, we can never be certain that others have not filed patent applications for
technology covered by our pending applications or that we were the first to invent the technology. There may be third-party patents, patent applications, trademarks and other intellectual property relevant to our compounds, products, services,
development efforts and technology which are not known to us and that may block or compete with our compounds, products, services, development efforts or technology. For example, competitors may have filed applications for, or may have received or
in the future may receive, patents, trademarks and/or other proprietary rights relating to compounds, products, services, development efforts or technology that block or compete with ours.
In addition, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office. These proceedings determine the priority
of invention and, thus, the right to a patent for the claimed technology in the United States. We may also become involved in opposition proceedings in connection with foreign patents.
Generic challenges and related patent litigation are common in the biopharmaceutical industry. Litigation,
interference and opposition proceedings, even if they are successful, are expensive, time-consuming and risky to pursue, and we could use a substantial amount of our financial resources in any such case. Such litigation may be necessary to enforce
any patents or trademarks issued to us and/or to our strategic partners, or to determine the scope and validity of the proprietary rights of us or third parties, including our strategic partners. For example, in May 2005, Astellas, our strategic
partner for the regadenoson program in North America, announced that Astellas and third parties filed patent infringement lawsuits relating to the submission of an abbreviated new drug application seeking approval of a generic version of
Adenoscan
®
(adenosine injection), a pharmacologic stress agent approved for marketing in the United States. Regadenoson, if it is
approved, would be intended to be a second generation pharmacologic stress agent in the United States market. In October 2007, Astellas announced a preliminary settlement of these lawsuits, under the terms of which a third party generic
pharmaceutical manufacturer will be able to launch their generic version of Adenoscan pursuant to a license in September 2012, or earlier under certain conditions (which have not been disclosed publicly). This settlement remains subject to court
approval. These developments could negatively impact Astellas’ transition from marketing Adenoscan
®
(adenosine injection) to
marketing the second generation regadenoson product (if approved), including if a generic version of Adenoscan
®
(adenosine
injection) comes on the market prior to the launch and establishment of regadenoson on the market (if approved).
We also must not
infringe valid patents or trademarks of others that might cover our compounds, products, services, development efforts or technology. If third parties own or have valid proprietary rights to technology or other intellectual property that we need in
our product development and commercialization efforts, we may need to obtain licenses to those rights. We cannot assure you that we will be able to obtain such licenses on economically reasonable terms, if at all. If we fail to obtain any necessary
licenses, we may be unable to complete any of our current or future product development and commercialization activities. If any such infringement of third party proprietary rights or inability to obtain any necessary licenses related to our lead
product Ranexa, this could negatively affect our ability to commercialize Ranexa, product revenues and our operating results.
We also rely on proprietary
technology and information, including trade secrets, to develop and maintain our competitive position. Although we seek to protect all of our proprietary technology and information, in part by confidentiality agreements with employees, consultants,
collaborators, advisors and corporate partners, these agreements may be breached. We cannot assure you that the parties to these agreements will not breach them or that these agreements will provide meaningful protection or adequate remedies in the
event of unauthorized use or disclosure of our proprietary technology or information. In addition, we routinely grant publication rights to our scientific collaborators. Although we may retain the right to delay publication to allow for the
preparation and filing of a patent application covering the subject matter of the proposed publication, we cannot assure you that our collaborators will honor these agreements. Publication prior to the filing of a patent application could mean that
we would lose the ability to patent the technology in most countries outside the United States (and could also lose that ability in the United States if a patent application is not filed there within one year after such publication), and third
parties or competitors could exploit the technology. Although we strive to take the necessary steps to protect our proprietary technology, including trade secrets, we may not be able to do so. As a result, third parties may gain access to our trade
secrets and other proprietary technology, or our trade secrets and other proprietary technology or information may become public. In addition, it is possible that our proprietary technology or information will otherwise become known or be discovered
independently by third parties, including our competitors.
In addition, we may also become subject to claims that we are using or misappropriating trade
secrets of others without having the right to do so. Such claims can result in litigation, which can be expensive, time-consuming and risky to defend.
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Litigation and disputes related to intellectual property matters are widespread in the biopharmaceutical industry.
Although to date no third party has asserted a claim of infringement against us, we cannot assure you that third parties will not assert patent or other intellectual property infringement claims against us with respect to our compounds, products,
services, technology or other matters in the future. If they do, we may not prevail and, as a result, we may be subject to significant liabilities to third parties, we may be required to license the disputed rights from the third parties or we may
be required to cease using the technology or developing or selling the compounds or products at issue. We may not be able to obtain any necessary licenses on economically reasonable terms, if at all. Any intellectual property-related claims against
us, with or without merit, as well as claims initiated by us against third parties, may be time-consuming, expensive and risky to defend or prosecute. If we assert a patent against an alleged infringer and the alleged infringer is successful in
invalidating the patent, the protection afforded by the patent is lost.
Our business depends on certain key personnel, the loss of whom could weaken
our management team, and on attracting and retaining qualified personnel.
The growth of our business and our success depends in large part on our
ability to attract and retain key management, research and development, sales and marketing and other operating and administrative personnel. Our key personnel include all of our executive officers and vice presidents, many of whom have very
specialized scientific, medical or operational knowledge regarding one or more of our key products. We have entered into an employment agreement with our Chairman and CEO that contains severance and change-of-control provisions. We have entered into
executive severance agreements with certain key personnel, and have a severance plan that covers our full-time employees. We do not maintain key-person life insurance on any of our employees. The loss of the services of one or more of our key
personnel or the inability to attract and retain additional personnel and develop expertise as needed could limit our ability to develop and commercialize our existing and future product candidates. Such persons are in high demand and often receive
competing employment offers. Our ability to retain our key personnel will also be dependent on the reactions of employees, customers and regulatory authorities to the MERLIN TIMI-36 clinical study results (including the regulatory outcome with
respect to the applications we submitted in September 2007 with these results) and our ability to substantially increase sales of Ranexa over time.
Our
operations involve hazardous materials, which could subject us to significant liability.
Our research and development and manufacturing activities
involve the controlled use of hazardous materials, including hazardous chemicals, radioactive materials and pathogens, and the generation of waste products. Accordingly, we are subject to federal, state and local laws governing the use, handling and
disposal of these materials. We may have to incur significant costs to comply with additional environmental and health and safety regulations in the future. We currently do not carry insurance for hazardous materials claims. We do not know if we
will be able to obtain insurance that covers hazardous materials claims on acceptable terms with adequate coverage against potential liabilities, if at all. Although we believe that our safety procedures for handling and disposing of hazardous
materials comply in all material respects with regulatory requirements, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any
resulting damages, which may exceed our financial resources and may materially adversely affect our business, financial condition and results of operations. Although we believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will not be required to incur significant costs to comply with environmental laws and regulations in the future. There can also be no assurance that our operations, business or
assets will not be materially adversely affected by current or future environmental laws or regulations.
We are exposed to risks related to foreign
currency exchange rates.
Some of our costs and expenses are denominated in foreign currencies. Most of our foreign expenses are associated with our
clinical studies or the operations of our United Kingdom-based wholly owned subsidiary. We are primarily exposed to changes in exchange rates with Europe and Canada. When the United States dollar weakens against these currencies, the dollar value of
the foreign-currency denominated expense increases, and when the dollar strengthens against these currencies, the dollar value of the foreign-currency denominated expense decreases. Consequently, changes in exchange rates, and in particular a
weakening of the United States dollar, may adversely affect our results of operations. We currently do not hedge against our foreign currency risks.
Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant, uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. For example, we do not carry earthquake insurance. In the event of a major earthquake in our region, our business could suffer
significant and uninsured damage and loss. We currently maintain general liability, property, auto, workers’ compensation, products liability, directors’ and officers’, employment practices, cargo and inventory, foreign liability,
crime and fiduciary insurance policies. We do not know, however, if we will be able to maintain existing insurance at all, or if so that it will have adequate levels of coverage
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for any liabilities. Premiums for many types of insurance have increased significantly over the years, and depending on market conditions and our
circumstances, certain types of insurance such as directors’ and officers’ insurance or products liability insurance may not be available on acceptable terms or at all. Any significant uninsured liability, or any liability that we incur in
excess of our insurance coverage, may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
Risk Factors Relating to Our Common Stock and Convertible Debt
Investor confidence and share value may be adversely impacted if
our independent auditors provide to us an adverse opinion or a disclaimer of opinion regarding the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include in annual reports on Form 10-K an
assessment by management of the effectiveness of internal control over financial reporting. This requirement applies to each of our annual report filings on Form 10-K. If we are not successful in maintaining adequate internal control over financial
reporting, or if our service providers fail to maintain adequate internal controls on which we rely to prepare our financial statements, our management may determine that our internal control over financial reporting is not effective. In addition,
if our independent auditors are not satisfied with the effectiveness of our internal control over financial reporting, including the level at which these controls are documented, designed, operated or monitored, then they may issue an adverse
opinion or a disclaimer of opinion. Any of these events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact
the market price of our shares, increase the volatility of our stock price and adversely affect our ability to raise additional funding.
The market
price of our stock has been and may continue to be highly volatile, and the value of an investment in our common stock may decline.
Within the last 12
months, our common stock has traded between $6.43 and $14.67 per share. The market price of the shares of our common stock has been and may continue to be highly volatile. Announcements and other events may have a significant impact on the market
price of our common stock. We may have no control over information announced by third parties, such as our corporate partners or our competitors, which may impact our stock price.
Other announcements and events that can impact the market price of the shares of our common stock include, without limitation:
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results of our clinical trials and preclinical studies, or those of our corporate partners or our competitors;
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regulatory actions with respect to our products or our competitors’ products, including whether or not the division of cardiovascular and renal products of the
FDA decides to accept the supplemental new drug application submission for Ranexa for review, whether or not the metabolism and endocrinology products division of the FDA decides to accept the new drug application for the Ranexa diabetes data for
review, and whether or not the FDA approves these applications;
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our product sales and product revenues, including prescribing patterns and trends for Ranexa;
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achievement of other research or development milestones, such as completion of enrollment of a clinical trial or making a regulatory filing;
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adverse developments regarding the safety and efficacy of our products, our product candidates, or third-party products that are similar to our products or our
product candidates;
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developments in our relationships with corporate partners;
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developments affecting our corporate partners;
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government regulations, reimbursement changes and governmental investigations or audits related to us or to our products;
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changes in regulatory policy or interpretation;
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developments related to our patents or other proprietary rights or those of our competitors;
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changes in the ratings of our securities by securities analysts;
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operating results or other developments that do not meet the expectations of public market analysts and investors;
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purchases or sales of our securities by investors who seek to exploit the volatility of our common stock price;
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rumors or inaccurate information;
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market conditions for biopharmaceutical or biotechnology stocks in general; and
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general economic and market conditions.
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In
addition, if we fail to reach an important research, development or commercialization milestone or result by a publicly expected deadline, even if by only a small margin, there could be a significant negative impact on the market price of our common
stock. In addition, as we approach the announcement of important news, we expect the price of our common stock to be particularly volatile.
The stock
market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and biopharmaceutical companies, and which have often been unrelated to their operating
performance. These broad market fluctuations may adversely affect the market price of our common stock. In addition, sales of substantial amounts of our common stock in the public market could lower the market price of our common stock.
Our indebtedness and debt service obligations may adversely affect our cash flow, cash position and stock price.
As of September 30, 2007, we had approximately $399.5 million in long-term convertible debt and aggregate annual debt service obligations on this debt of
approximately $11.0 million. If we issue other debt securities in the future, our debt service obligations and interest expense will increase. We intend to fulfill our debt service obligations from our existing cash and investments. In the future,
if we are unable to generate cash or raise additional cash through financings sufficient to meet these obligations and need to use existing cash or liquidate investments in order to fund these obligations, we may have to delay or curtail research,
development and commercialization programs. In addition, our failure to comply with the covenants and conditions in the indentures covering our convertible debt, such as our failure to make timely interest payments or our failure to timely file
periodic reports required under the Securities Exchange Act of 1934, as amended, could trigger a default under our convertible debt. Any default could result in the acceleration of the payment of all of our outstanding debt, which would have a
material adverse effect on our cash position and on our ability to maintain operations at our current levels or at all.
Our indebtedness could have
significant additional negative consequences, including, without limitation:
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requiring the dedication of a portion of our cash to service our indebtedness and to pay off the principal at maturity, thereby reducing the amount of our expected
cash available for other purposes, including funding our commercialization efforts, research and development programs and other capital expenditures;
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increasing our vulnerability to general adverse economic conditions;
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limiting our ability to obtain additional financing; and
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placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.
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If we sell shares of our common stock under our equity line of credit arrangement or in other future financings, existing common
stockholders will experience immediate dilution and, as a result, our stock price may go down.
We may from time to time issue additional shares of
common stock at a discount from the current trading price of our common stock. As a result, our existing common stockholders will experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. For example,
in April 2006, we entered into a common stock purchase agreement with Azimuth, which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of our common
stock, or 9,010,404 shares, whichever occurs first, at a discount. The term of the purchase agreement ends May 1, 2009. Azimuth is not required to purchase shares of our common stock when the price of our common stock is below $10 per share. In
2006, Azimuth purchased an aggregate 2,744,118 shares of our common stock for proceeds, net of issuance costs, of approximately $39.8 million under the purchase agreement. Our existing common stockholders will experience immediate dilution upon the
purchase of any additional shares of our common stock by Azimuth.
In addition, as opportunities present themselves, we may enter into financing or similar
arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders will experience dilution.
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Provisions of Delaware law and in our charter, by-laws and our rights plan may prevent or frustrate any attempt by our
stockholders to replace or remove our current management and may make the acquisition of our company by another company more difficult.
Our board of
directors has adopted a stockholder rights plan, authorized executive severance benefit agreements for our officers in the event of a change of control, and adopted a severance plan for all non-officer employees in the event of a change of control.
In December 2005 the board approved an employment agreement with our chairman and chief executive officer that contains severance and change-of-control provisions. Our rights plan and these various severance-related arrangements may delay or prevent
a change in our current management team and may render more difficult an unsolicited merger or tender offer.
In addition, the following provisions of our
amended and restated certificate of incorporation, as amended, and our by-laws, may have the effects of delaying or preventing a change in our current management and making the acquisition of our company by a third party more difficult:
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our board of directors is divided into three classes with approximately one third of the directors to be elected each year, necessitating the successful completion
of two proxy contests in order for a change in control of the board to be effected;
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any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing;
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advance written notice is required for a stockholder to nominate a person for election to the board of directors and for a stockholder to present a proposal at any
stockholder meeting; and
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directors may be removed only for cause by a vote of a majority of the stockholders and vacancies on the board of directors may only be filled by a majority of the
directors in office.
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In addition, our board of directors has the authority to issue shares of preferred stock without stockholders’
approval, which also could make it more difficult for stockholders to replace or remove our current management and for another company to acquire us. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law, which could delay a merger, tender offer or proxy contest or make a similar transaction more difficult. In general, this statute prohibits a publicly held Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
If any or all of our existing notes and debentures are converted into shares of our common stock, existing common stockholders will experience immediate dilution and,
as a result, our stock price may go down.
Our existing convertible debt is convertible, at the option of the holder, into shares of our common stock at
varying conversion prices, subject to the satisfaction of certain conditions. We have reserved shares of our authorized common stock for issuance upon conversion of our existing convertible notes and convertible debentures. If any or all of our
existing notes and debentures are converted into shares of our common stock, our existing stockholders will experience immediate dilution and our common stock price may be subject to downward pressure. If any or all of our notes and debentures are
not converted into shares of our common stock before their respective maturity dates, we will have to pay the holders of such notes or debentures the full aggregate principal amount of the notes or debentures, as applicable, then outstanding. Any
such payment would have a material adverse effect on our cash position. Alternatively, from time to time we might need to modify the terms of the notes and/or the debentures prior to their maturity in ways that could be dilutive to our stockholders,
assuming we can negotiate such modified terms. In addition, the existence of these notes and debentures may encourage short selling of our common stock by market participants.
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