ITEM 1A.
RISK FACTORS
An investment in our stock involves risks. You should carefully read this entire report and consider the
following uncertainties and risks, which may adversely affect our business, financial condition, liquidity, prospects or results
of operations, along with all of the other information included in our other filings with the Securities and Exchange Commission,
before deciding to buy our common stock.
Risks Relating to Our Business
We have incurred losses since our inception, expect to continue to incur
such losses, and may never be profitable.
Since our inception, we have not achieved sustained profitability.
We expect to incur additional losses for the foreseeable future, and our losses could increase as our research and development
efforts progress. We expect that such losses will fluctuate from quarter to quarter and losses and fluctuations may be substantial.
To become profitable, we, or our collaborative partners, must successfully
manufacture and develop product candidates, receive regulatory approval, and successfully commercialize and/or enter into profitable
agreements with other parties. It could be several years, if ever, before we receive significant revenue from any current or future
license agreements or revenues directly from product sales.
Because of the numerous risks and uncertainties associated with developing
our product candidates and their potential for commercialization, we are unable to predict the extent of any future losses. Even
if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are
unable to achieve and sustain profitability, the market value of our common stock will likely decline.
Our success depends upon our ability to advance our products through
the various stages of development, especially through the clinical trial process.
To receive the regulatory approvals necessary for the sale of our
product candidates, we or our partners must demonstrate through preclinical studies and clinical trials that each product candidate
is safe and effective. The development process and related regulatory process are complex and uncertain. Because of the cost and
duration of clinical trials, we may decide to discontinue development of product candidates that are unlikely to show good results
in the clinical trials, unlikely to help advance a product to the point of a meaningful collaboration, or unlikely to have reasonable
commercial potential. We may suffer significant setbacks in pivotal pre-clinical studies and clinical trials (e.g. galidesivir,
BCX7353, other kallikrein inhibitors and our other rare disease product candidates), even after earlier clinical trials show promising
results. The development of our product candidates, including our clinical trials, may not be adequately designed or executed,
which could affect the potential outcome and analysis of study results. Any of our product candidates may produce undesirable side
effects in humans. The pre-clinical and clinical data from our product candidates could cause us or regulatory authorities to interrupt,
delay, modify or halt preclinical or clinical trials of a product candidate. Undesirable or inconclusive data or side effects in
humans could also result in the FDA or foreign regulatory authorities refusing to approve the product candidate for any targeted
indications. In addition, the FDA or other regulatory agencies may determine that study data from our product candidates necessitates
additional studies or study designs which differ from our planned development strategy, and regulatory agencies may also require
patient monitoring and testing or may implement restrictions or other conditions on our development activities, any of which could
materially impact the cost and timing of our planned development strategy. We, our partners, the FDA or foreign regulatory authorities
may suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks.
Clinical trials may fail to demonstrate that our product candidates are safe or effective and have acceptable commercial viability.
Regulatory authorities may interrupt, delay or halt clinical trials for a product candidate for any number of reasons.
Our ability to successfully complete clinical trials is dependent
upon many factors, including but not limited to:
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our ability to find suitable clinical sites and investigators to enroll patients;
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the ability to maintain contact with patients to provide complete data after treatment;
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our product candidates may not prove to be either safe or effective;
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clinical protocols or study procedures may not be adequately designed or followed by the investigators;
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formulation improvements may not work as expected, which could negatively impact commercial demand for our product candidates;
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manufacturing or quality control problems could affect the supply of product candidates for our trials; and
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delays or changes in our planned development strategy, the regulations or guidelines, or other unexpected conditions or requirements of government agencies.
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Clinical trials are lengthy and expensive. We or our partners incur substantial expense for, and devote significant
time to, preclinical testing and clinical trials, yet we cannot be certain that the tests and trials will ever result in the commercial
sale of a product. For example, clinical trials require adequate supplies of drug and sufficient patient enrollment. Lack of adequate
drug supply or delays in patient enrollment, including for APeX-2, APeX-S and ZENITH-1, can result in increased costs and longer
development times. Even if we or our partners successfully complete clinical trials for our product candidates, we or our partners
might not file the required regulatory submissions in a timely manner and may not receive regulatory approval for the product candidates.
We focus on rare diseases, which may create additional risks and challenges.
Because we focus on developing drugs as treatments for rare diseases,
we may seek orphan drug, breakthrough therapy or fast track designations for our product candidates in the United States or the
equivalent designations elsewhere in the world. Often, regulatory agencies have broad discretion in determining whether or not
to grant such designations. We cannot guarantee that we will be able to receive orphan drug status from the FDA or equivalent regulatory
designations elsewhere. We also cannot guarantee that we will obtain breakthrough therapy or fast track designation, which may
provide certain potential benefits such as more frequent meetings with the FDA to discuss the development plan, intensive guidance
on an efficient drug development program, and potential eligibility for rolling review or priority review. Even if we are successful
in obtaining any such designation by the FDA or other regulatory agency for our product candidates, such designations may not lead
to faster development or regulatory review or approval, and it does not increase the likelihood that our product candidates will
receive marketing approval. We may not be able to obtain or maintain such designations for our product candidates, and our competitors
may obtain these designations for their product candidates, which could impact our ability to develop and commercialize our product
candidates or compete with such competitors, which may adversely impact our business, financial condition or results of operations.
Although we have received Sakigake designation for BCX7353 in Japan,
we may not experience a faster development, review or approval process compared to the conventional process.
Our clinical trials may not adequately show that our product candidates
are safe or effective.
Progression of our product candidates through
the clinical development process is dependent upon our trials indicating our product candidates have adequate safety and efficacy
in the patients being treated by achieving pre-determined safety and efficacy endpoints according to the clinical trial protocols.
Failure to achieve any of these endpoints in any of our programs, including BCX7353, galidesivir and our other rare disease product
candidates, could result in delays in our trials or require the performance of additional unplanned trials. This could result in
delays in the development of our product candidates and could result in significant unexpected costs or the termination of programs.
If our development collaborations with third parties, such as our development
partners and contract research organizations, fail, the development of our product candidates will be delayed or stopped.
We rely heavily upon third parties for many important stages of our
product candidate development, including but not limited to:
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discovery of compounds that cause or enable biological reactions necessary for the progression of the disease or disorder, called enzyme targets;
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licensing or designing of enzyme inhibitors for development as product candidates;
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execution of certain preclinical studies and late-stage development for our compounds and product candidates;
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management of our clinical trials, including medical monitoring and data management;
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execution of additional toxicology studies that may be required to obtain approval for our product candidates;
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formulation improvement strategies and methods; and
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manufacturing the starting materials and drug substance required to formulate our products and the product candidates to be used in our clinical trials, toxicology studies and any potential commercial product.
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Our failure to engage in successful collaborations at any one of these
stages would greatly impact our business. If we do not license enzyme targets or inhibitors from academic institutions or from
other biotechnology companies on acceptable terms, our drug development efforts would suffer. Similarly, if the contract research
organizations that conduct our initial or late-stage clinical trials, conduct our toxicology studies, manufacture our starting
materials, drug substance and product candidates or manage our regulatory function breached their obligations to us or perform
their services inconsistent with industry standards and not in accordance with the required regulations, this would delay or prevent
both the development of our product candidates and the availability of any potential commercial product.
If we lose our relationship with any one or more of these parties,
we could experience a significant delay in both identifying another comparable provider and then contracting for its services.
We may be unable to retain an alternative provider on reasonable terms, if at all. Even if we locate an alternative provider, it
is likely that this provider may need additional time to respond to our needs and may not provide the same type or level of service
as the original provider. In addition, any provider that we retain will be subject to applicable FDA current Good Laboratory Practices
(“cGLP”), current Good Manufacturing Practices (“cGMP”) and current Good Clinical Practices (“cGCP”),
and comparable foreign standards. We do not have control over compliance with these regulations by these providers. Consequently,
if these practices and standards are not adhered to by these providers, the development and commercialization of our product candidates
could be delayed. If any of the foregoing risks are realized, our business, financial condition and results of operations could
be materially adversely affected.
Because we have limited manufacturing experience, we depend on third-party
manufacturers to manufacture our product, product candidates and the materials for our product candidates. Often, especially early
in the development and commercialization process, we have only one source for manufacturing. If we cannot rely on existing third-party
manufacturers, we will be required to incur significant costs and potential delays in finding new third-party manufacturers.
We have limited manufacturing experience and only a small scale manufacturing
facility. We currently rely upon a very limited number of third-party manufacturers to manufacture the materials required for our
product, product candidates and most of the preclinical and clinical quantities of our product candidates. We depend on these third-party
manufacturers to perform their obligations in a timely manner and in accordance with applicable governmental regulations. Our third-party
manufacturers, which may be the only manufacturer we have engaged for a particular product, may encounter difficulties with meeting
our requirements, including but not limited to problems involving:
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inconsistent production yields;
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product liability claims or recalls of commercial product;
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difficulties in scaling production to commercial and validation sizes;
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interruption of the delivery of materials required for the manufacturing process;
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scheduling of plant time with other vendors or unexpected equipment failure;
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potential catastrophes that could strike their facilities or have an effect on infrastructure;
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potential impurities in our drug substance or products that could affect availability of product for our clinical trials or future commercialization;
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poor quality control and assurance or inadequate process controls; and
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lack of compliance or cooperation with regulations and specifications or requests set forth by the FDA or other foreign regulatory agencies, particularly associated with peramivir, BCX7353, galidesivir and our early stage compounds.
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These contract manufacturers may not be able to manufacture the materials
required for our product candidates at a cost or in quantities necessary to make them commercially viable. We also have no control
over whether third-party manufacturers breach their agreements with us or whether they may terminate or decline to renew agreements
with us. To date, our third-party manufacturers have met our manufacturing requirements, but they may not continue to do so. Furthermore,
changes in the manufacturing process or procedure, including a change in the location where the drug is manufactured or a change
of a third-party manufacturer, may require prior review and approval in accordance with the FDA’s cGMP and comparable foreign
requirements. This review may be costly and time-consuming and could delay or prevent the launch of a product. The FDA or similar
foreign regulatory agencies may at any time implement new standards, or change their interpretation and enforcement of existing
standards for manufacture, packaging or testing of products. If we or our contract manufacturers are unable to comply, we or they
may be subject to regulatory action, civil actions or penalties any of which could be costly to the Company and could result in
a delay or shortage of product.
If we are unable to maintain current manufacturing or other contract
relationships, or enter into new agreements with additional manufacturers on commercially reasonable terms, or if there is poor
manufacturing performance or failure to comply with any regulatory agency on the part of any of our third-party manufacturers,
we may not be able to complete development of, seek timely approval of, or market, our product candidates.
Our raw materials, drug substances, and product candidates are manufactured
by a limited group of suppliers, including some at a single facility. If any of these suppliers were unable to produce these items,
this could significantly impact our supply of product candidate material for further preclinical testing and clinical trials.
We face intense competition, and if we are unable to compete effectively,
the demand for our products, if any, may be reduced.
The biotechnology and pharmaceutical industries are highly competitive
and subject to rapid and substantial technological change. There are many companies seeking to develop products for the same indications
that we currently target. Our competitors in the United States and elsewhere are numerous and include, among others, major multinational
pharmaceutical and chemical companies and specialized biotechnology firms. Most of these competitors have greater resources than
we do, including greater financial resources, larger research and development staffs and more experienced marketing and manufacturing
organizations. In addition, most of our competitors have greater experience than we do in conducting clinical trials and obtaining
FDA and other regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA or other regulatory approvals of
product candidates more rapidly than we do. Companies that complete clinical trials, obtain required regulatory approvals, and
commence commercial sale of their drugs before we do may achieve a significant competitive advantage, including patent and FDA
exclusivity rights that would delay our ability to market products. We face, and will continue to face, competition in the licensing
of potential product candidates for desirable disease targets, licensing of desirable product candidates, and development and marketing
of our product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical
companies. Competition may also arise from, among other things:
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other drug development technologies;
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methods of preventing or reducing the incidence of disease, including vaccines; and
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new small molecule or other classes of therapeutic agents.
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Developments by others may render our product candidates or technologies
obsolete or noncompetitive.
We are performing research on or developing products for the treatment
of several rare disorders, including HAE, as well as developing broad spectrum antivirals for use as medical countermeasures. We
expect to encounter significant competition for any of the pharmaceutical products we are developing and plan to develop. Companies
that complete clinical trials, obtain required funding or government support, obtain required regulatory approvals and commence
commercial sales or stockpiling orders of their products before their competitors may achieve a significant competitive advantage.
Such is the case with the current neuraminidase inhibitors marketed by GSK and Roche for influenza; CINRYZE
®
, KALBITOR
®
and FIRAZYR
®
, marketed by Shire Pharmaceuticals, Inc. (“Shire”) for HAE; BERINERT
®
and
HAEGARDA
®
marketed by CSL for HAE; and RUCONEST
®
marketed by Pharming Healthcare, Inc. (“Pharming”)
for HAE.
Further, several pharmaceutical and biotechnology firms have announced efforts in HAE and in other therapeutic
areas where we have discovery and development efforts ongoing. Notably, prophylactic treatment for HAE is becoming increasingly
competitive with the recent approval of CSL’s HAEGARDA, Shire’s positive Phase 3 data for the monoclonal antibody,
lanadelumab, and Pharming’s completion of a Phase 2 HAE prophylaxis trial for RUCONEST. Additionally, Kalvista Pharmaceuticals,
Inc. (KVD818) and Attune Pharmaceuticals, Inc. (ATN-249) have oral candidates for HAE prophylaxis in Phase 1 development. Therapeutic
products with potentially promising data to treat Ebola include Mapp Biopharmaceutical, Inc.’s ZMapp (antibody-based) and
Gilead Sciences, Inc.’s product currently under development (small molecule), both of which have been used in Ebola infected
patients. Shionogi also recently announced positive Phase 3 data for S033188, an oral treatment for influenza. If one or more of
our competitors’ products or programs are successful, the market for our products may be reduced or eliminated.
Compared to us, many of our competitors and potential competitors
have substantially greater:
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capital resources;
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research and development resources, including personnel and technology;
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regulatory experience;
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preclinical study and clinical testing experience;
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manufacturing and marketing experience; and
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production facilities.
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Any of these competitive factors could impede our funding efforts,
render technology and product candidates noncompetitive or eliminate or reduce demand for our product candidates.
We face risks related to our government-funded programs; if BARDA/HHS
or NIAID/HHS were to eliminate, reduce or delay funding from our contracts, this would have a significant negative impact on the
programs associated with such funding and could have a significant negative impact on our revenues and cash flows.
Our projections of revenues and incoming cash flows are substantially
dependent upon BARDA/HHS and NIAID/HHS reimbursement for the costs related to our galidesivir program. If BARDA/HHS or NIAID/HHS
were to eliminate, reduce or delay the funding for these programs or disallow some of our incurred costs, we would have to obtain
additional funding for continued development or regulatory registration for these product candidates or significantly reduce or
stop the development effort.
In contracting with BARDA/HHS and NIAID/HHS, we are subject to various
U.S. Government contract requirements, including general clauses for a cost-reimbursement research and development contract, which
may limit our reimbursement or if we are found to be in violation could result in contract termination. If the U.S. Government
terminates any of its contracts with us for its convenience, or if we default by failing to perform in accordance with the contract
schedule and terms, significant negative impact on our cash flows and operations could result.
Our government contracts with BARDA/HHS and NIAID/HHS have special contracting
requirements, which create additional risks of reduction or loss of funding.
We have completed work under a contract with BARDA/HHS for the development
of our neuraminidase inhibitor, RAPIVAB. We also have entered into contracts with BARDA/HHS and NIAID/HHS for the development of
galidesivir as a treatment for diseases caused by RNA pathogens, including Marburg virus disease and Ebola virus disease. In contracting
with these government agencies, we are subject to various U.S. Government contract requirements, including general clauses for
a cost-reimbursement research and development contract, which may limit our reimbursement or, if we are found to be in violation,
could result in contract termination.
U.S. Government contracts typically contain a number of extraordinary
provisions that would not typically be found in commercial contracts and which may create a disadvantage and additional risks to
us as compared to competitors that do not rely on U.S. Government contracts. These risks include the ability of the U.S. Government
to unilaterally:
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terminate or reduce the scope of our contract with or without cause;
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interpret relevant regulations (federal acquisition regulation clauses);
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require performance under circumstances which may not be favorable to us;
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require an in process review where the U.S. Government will review the project and its options under the contract;
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control the timing and amount of funding, which impacts the development progress of our programs; and
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audit and object to our contract-related costs and fees, including allocated indirect costs.
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Our government contracts with BARDA/HHS and NIAID/HHS have termination
and audit provisions which create additional risks to us.
The U.S. Government may terminate its contracts with us either for
its convenience or if we default by failing to perform in accordance with the contract schedule and terms. Termination for convenience
provisions generally enable us to recover only our costs incurred or committed, and settlement expenses and profit on the work
completed prior to termination. Termination does not permit these recoveries under default provisions. In the event of termination
or upon expiration of a contract, the U.S. Government may dispute wind-down and termination costs and may question prior expenses
under the contract and deny payment of those expenses. Should we choose to challenge the U.S. Government for denying certain payments
under a contract, such a challenge could subject us to substantial additional expenses which we may or may not recover. Further,
if the U.S. Government terminates its contracts with us for its convenience, or if we default by failing to perform in accordance
with the contract schedule and terms, significant negative impact on our cash flows and operations could result.
As a U.S. Government contractor, we are required to comply with applicable
laws, regulations and standards relating to our accounting practices and are subject to periodic audits and reviews. As part of
any such audit or review, the U.S. Government may review the adequacy of, and our compliance with, our internal control systems
and policies, including those relating to our purchasing, property, estimating, compensation and management information systems.
Audits conducted by the U.S. Government for the completed BARDA/HHS peramivir contract have been performed and concluded through
fiscal 2009; all subsequent fiscal years are still open and auditable. Audits under the active BARDA/HHS and NIAID/HHS galidesivir
contracts may occur at the election of the U.S. Government and have been concluded through fiscal 2013. Based on the results of
its audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs. This adjustment
could impact the amount of revenues reported on a historic basis and could impact our cash flows under the contracts prospectively.
In addition, in the event BARDA/HHS or NIAID/HHS determines that certain costs and fees were unallowable or determines that the
allocated indirect cost rate was higher than the actual indirect cost rate, BARDA/HHS or NIAID/HHS would be entitled to recoup
any overpayment from us as a result. In addition, if an audit or review uncovers any improper or illegal activity, we may be subject
to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits, suspension
of payments, fines and suspension or prohibition from doing business with the U.S. Government. We could also suffer serious harm
to our reputation if allegations of impropriety were made against us. In addition, under U.S. Government purchasing regulations,
some of our costs may not be reimbursable or allowed under our contracts. Further, as a U.S. Government contractor, we are subject
to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities
as compared to private sector commercial companies.
If we fail to reach milestones or to make annual minimum payments or
otherwise breach our obligations under our license agreements, our licensors may terminate our agreements with them and seek additional
remedies.
If we are unable or fail to meet payment obligations, performance
milestones relating to the timing of regulatory filings, product supply obligations, post approval commitments for RAPIVAB, or
development and commercial diligence obligations; are unable or fail to make milestone payments or material data use payments in
accordance with applicable provisions; or fail to pay the minimum annual payments under our respective licenses, our licensors
may terminate the applicable license or seek other available remedies. As a result, our development of the respective product candidate
or commercialization of the product would cease.
If we fail to obtain additional financing or acceptable partnership
arrangements, we may be unable to complete the development and commercialization of our product candidates or continue operations.
As our programs advance, our costs are likely to increase. Our current
and planned discovery activities, pre-clinical and clinical trials, the related development, manufacturing, regulatory approval
process requirements, and the additional personnel resources and testing required for supporting the development of our product
candidates will consume significant capital resources. Our expenses, revenues and cash utilization rate could vary significantly
depending on many factors, including: our ability to raise additional capital; the development progress of our collaborative agreements
for our product candidates; the amount of funding we receive from NIAID/HHS and BARDA/HHS for galidesivir or from other new partnerships
with third parties for the development of our product candidates, including BCX7353 and our other rare disease product candidates;
the commercial success of peramivir achieved by our partners; the amount or profitability of any orders for peramivir or galidesivir
by any government agency or other party; the progress and results of our current and proposed clinical trials for our most advanced
product candidates, including BCX7353 and our other rare disease product candidates; the progress made in the manufacture of our
lead products and the progression of our other programs.
We expect that we will be required to raise additional capital to
complete the development and commercialization of our current product candidates and we may seek to raise capital at any time.
Additional funding, whether through additional sales of securities, additional borrowings, or collaborative arrangements with partners,
including governmental agencies in general and from any BARDA/HHS or NIAID/HHS contract specifically, may not be available when
needed or on terms acceptable to us. The issuance of preferred or common stock or convertible securities, with terms and prices
significantly more favorable than those of the currently outstanding common stock, could have the effect of diluting or adversely
affecting the holdings or rights of our existing stockholders. Additional borrowings may subject us to more restrictive covenants
than are currently applicable to us under our September 23, 2016 Senior Credit Facility with an affiliate of MidCap Financial Services,
LLC, as administrative agent (the “Senior Credit Facility”). In addition, collaborative arrangements may require us
to transfer certain material rights to such corporate partners. Insufficient funds or lack of an acceptable partnership may require
us to delay, scale-back or eliminate certain of our research and development programs.
In order to continue future operations and continue our drug development programs, we will be required to
raise additional capital. In addition to seeking strategic partnerships, transactions and government funding, we may decide to
access the equity or debt markets, incur additional borrowings, or seek other sources to meet liquidity needs. Our ability to raise
additional capital may be limited and may greatly depend upon the success of ongoing development related to our current drug development
programs, including post approval studies for RAPIVAB, the progress, timeline and ultimate outcome of our kallikrein
inhibitors, including the BCX7353 program (including, but not limited to, formulation progress, Phase 3 trials, long-term human
safety studies, and the timing of carcinogenicity or other required studies), the progress of our other rare disease product candidates,
funding for and continued successful development of galidesivir, and the progress of our early discovery programs. In addition,
constriction and volatility in the equity and debt markets may restrict our future flexibility to raise capital when such needs
arise. Furthermore, we have exposure to many different industries, financing partners and counterparties, including commercial
banks, investment banks and partners (which include investors, licensing partners, and the U.S. Government) which may be unstable
or may become unstable in the current economic and political environment. Any such instability may impact these parties’
ability to fulfill contractual obligations to us or they might limit or place burdensome conditions upon future transactions with
us. Also, it is possible that suppliers may be negatively impacted. Any such unfavorable outcomes in our current programs or unfavorable
economic conditions could place severe downward pressure on the price of our common stock and may decrease opportunities to raise
capital in the capital or credit markets, and further could reduce the return available on invested corporate cash, which, if severe
and sustained, could have a material and adverse impact on our results of operations and cash flows and limit our ability to continue
development of our product candidates.
We may not be able to continue as a going concern if we do not obtain
additional capital.
We have sustained operating losses for the majority of our corporate
history and expect that our 2017 expenses will exceed our 2017 revenues. We expect to continue to incur operating losses and negative
cash flows until revenues reach a level sufficient to support ongoing operations.
Our liquidity needs will be largely determined by the success of operations in regards to the progression
of our product candidates in the future. Our plans to alleviate the doubt regarding our ability to continue as a going concern
primarily include our ability to control the timing and spending on our research and development programs and raising additional
funds through equity financings. We also may consider other plans to fund operations including: (1) securing or increasing
U.S. Government funding of our programs, including obtaining procurement contracts; (2) out-licensing rights to certain of our
products or product candidates, pursuant to which the we would receive cash milestones; (3) raising additional capital through
equity or debt financings or from other sources; (4) obtaining additional product candidate regulatory approvals, which would generate
revenue, milestones and cash flow; (5) reducing spending on one or more research and development programs, including by discontinuing
development; and/or (6) restructuring operations to change our overhead structure.
There can be no assurance that any of our plans will be successful
or that additional capital will be available to us on reasonable terms, or at all, when needed. If we are unable to obtain sufficient
additional capital, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether
or file for bankruptcy.
If we fail to successfully commercialize or establish collaborative
relationships to commercialize certain of our product candidates, or if any partner terminates or fails to perform its obligations
under agreements with us, potential revenues from commercialization of our product candidates could be reduced, delayed or eliminated.
Our business strategy is to increase the asset value of our product
candidate portfolio. We believe this is best achieved by retaining full product rights or through collaborative arrangements with
third parties as appropriate. As needed, potential third-party relationships could include preclinical development, clinical development,
regulatory approval, marketing, sales and distribution of our product candidates.
Currently, we have established collaborative relationships with Mundipharma
for the development and commercialization of forodesine and with each of Shionogi and Green Cross for the development and commercialization
of peramivir in Japan, Taiwan and South Korea. Most recently we have established a collaborative relationship with Seqirus UK Limited
for RAPIVAB on a worldwide basis other than Israel, Japan, Korea and Taiwan. The process of establishing and implementing collaborative
relationships is difficult, time-consuming and involves significant uncertainty, including:
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our partners may seek to renegotiate or terminate their relationships with us due to unsatisfactory commercial, regulatory or clinical results, including post approval clinical commitments, a change in business strategy, a change of control or other reasons;
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our contracts for collaborative arrangements may expire;
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our partners may choose to pursue alternative technologies, including those of our competitors;
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we may have disputes with a partner that could lead to litigation or arbitration;
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we do not have day to day control over the activities of our partners and have limited control over their decisions;
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our ability to generate future event payments and royalties from our partners depends upon their abilities to establish the safety and efficacy of our product candidates, obtain regulatory approvals and achieve market acceptance of products developed from our product candidates;
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we or our partners may fail to properly initiate, maintain or defend our intellectual property rights, where applicable, or a party may utilize our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or expose us to potential liability;
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we or our partners may not devote sufficient capital or resources towards our product candidates; and
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we or our partners may not comply with applicable government regulatory requirements.
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If we or our partners fail to fulfill our responsibilities in a timely
manner, or at all, our commercialization efforts related to that collaboration could be reduced, delayed or terminated, or it may
be necessary for us to assume responsibility for activities that would otherwise have been the responsibility of our partner. If
we are unable to establish and maintain collaborative relationships on acceptable terms, we may have to delay or discontinue further
development of one or more of our product candidates, undertake commercialization activities at our own expense or find alternative
sources of funding. Any delay in the development or commercialization of our product candidates would severely affect our business,
because if our product candidates do not progress through the development process or reach the market in a timely manner, or at
all, we may not receive additional future event payments and may never receive milestone, product sales or royalty payments.
We do not have a great deal of experience in commercializing our products
or technologies, and our future revenue generation is uncertain.
We do not have a great deal of experience in commercializing our product
candidates or technologies. We currently have limited marketing and commercial capability, no direct or third-party sales force
and limited distribution capabilities. We may be unable to establish or sufficiently increase these capabilities for products we
currently, or plan to, commercialize. In addition, our revenue from collaborative agreements may be dependent upon the status of
our preclinical and clinical programs.
Our ability to receive revenue from products we commercialize presents
several risks, including:
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we or our collaborators may fail to successfully complete clinical trials, or satisfy post-marketing commitments, sufficient to obtain and keep FDA marketing approval;
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many competitors are more experienced and have significantly more resources, and their products could reach the market faster, be more cost effective or have a better efficacy or tolerability profile than our product candidates;
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we may fail to employ a comprehensive and effective intellectual property strategy, which could result in decreased commercial value of our Company and our products;
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we may fail to employ a comprehensive and effective regulatory strategy, which could result in a delay or failure in commercialization of our products;
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our ability to successfully commercialize our products is affected by the competitive landscape, which cannot be fully known at this time;
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reimbursement is constantly changing, which could greatly affect usage of our products; and
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future revenue from product sales would depend on our ability to successfully complete clinical studies, obtain regulatory approvals, and manufacture, market and commercialize our approved drugs.
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Commercialization of peramivir by our partners is subject to the potential
commercialization risks described herein and numerous additional risks. Any potential revenue benefits to us in the form of milestone
payments, royalties or other consideration are highly speculative.
Commercialization success of peramivir is uncertain and is subject
to all the risks and uncertainties disclosed in our other risk factors relating to drug development and commercialization. In addition,
commercialization of peramivir products is subject to further risks and may be negatively impacted by a number of factors, including,
but not limited to, the following:
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peramivir may not prove to be adequately safe and effective for market approval in markets other than the United States, Canada, Japan, Korea and Taiwan;
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necessary funding for post-marketing commitments and further development of peramivir may not be available timely, at all, or in sufficient amounts;
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flu prevention or pandemic treatment concerns may not materialize at all, or in the near future;
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advances in flu vaccines or other antivirals, including competitive i.v. antivirals, could substantially replace potential demand for peramivir;
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a limited number of governmental entities are expected to be the primary potential stockpiling customers for peramivir and if we are not successful at marketing peramivir to these entities for any reason, we will not receive substantial revenues from stockpiling orders;
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government and third party payors may not provide sufficient coverage or reimbursement which would negatively impact the demand for peramivir;
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we may not be able to supply commercial material to our partners and our partners may not be able to maintain or establish sufficient and acceptable commercial manufacturing, either directly or through third-party manufacturers;
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the commercial demand and acceptance for peramivir by healthcare providers and by patients may not be sufficient to result in substantial revenues of peramivir to our partners and may result in little to no milestones or royalties to us;
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effectiveness of marketing and commercialization efforts for peramivir by our partners;
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market satisfaction with existing alternative therapies;
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perceived efficacy relative to other available therapies;
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disease prevalence;
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cost of treatment;
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pricing and availability of alternative products;
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marketing and sales activities of competitors;
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shifts in the medical community to new treatment paradigms or standards of care; and
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relative convenience and ease of administration.
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We are subject to various federal and state laws related to RAPIVAB and
other products under development and, if we or our partners do not comply with these regulations, we could face substantial penalties.
Our or our partners’ activities related to RAPIVAB, or any of
our other products under development and following their regulatory approval, are subject to regulatory and law enforcement authorities
in addition to the FDA, including the Federal Trade Commission, the Department of Justice, and state and local governments. In
the case of our collaboration with SUL, although SUL is responsible for RAPIVAB marketing and commercialization efforts, we continue
to carry certain risks associated with RAPIVAB because we hold the RAPIVAB NDA. For example, we are responsible for reporting adverse
drug experiences, we have responsibility for certain post-approval studies, we may have responsibilities and costs related to a
recall or withdrawal of RAPIVAB from sale, we may incur liability associated with RAPIVAB manufacturing contracted by us or in
support of any of our partners, we are required to maintain records and provide data and reports to regulatory agencies related
to RAPIVAB (e.g. risk evaluation and mitigation strategies, track and trace requirements, adverse events), and we may incur certain
promotional regulatory and government pricing risks, all of which could have a material adverse impact on our operations and financial
condition.
In addition, we are subject to the federal physician sunshine act
and certain similar physician payment and drug pricing transparency legislation in various states. We are also subject to various
federal and state laws pertaining to health care “fraud and abuse,” including both federal and state anti-kickback
and false claims laws. These laws regulate our or our partners’ operations, sales and marketing practices, price reporting,
and relationships with physicians and other customers and third-party payors. Anti-kickback laws generally prohibit a manufacturer
from soliciting, offering, receiving, or paying any remuneration to generate business, including the purchase or prescription of
a particular drug. Although the specific provisions of these laws vary, their scope is generally broad and there may be no regulations,
guidance or court decisions that clarify how the laws apply to particular industry practices. False claims laws prohibit anyone
from knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid)
claims for reimbursement or services that are false or fraudulent, claims for items or services not provided as claimed, or claims
for medically unnecessary items or services. The sunshine provisions apply to manufacturers with products reimbursed under certain
government programs and require those manufacturers to disclose annually to the federal government certain payments made to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as, ownership
and investment interests held by physicians (as defined above) and their immediate family members. State laws may also require
disclosure of pharmaceutical pricing information and marketing expenditures. Although we seek to comply with these statutes, it
is possible that our practices, or those of our partners, might be challenged under health care fraud and abuse, anti-kickback,
false claims or similar laws. Violations of the physician sunshine act and similar state legislation or the fraud and abuse laws
may be punishable by civil or criminal sanctions, including fines and civil monetary penalties, and future exclusion from participation
in government healthcare programs.
We have a number of outstanding post-marketing commitments to the
FDA that we retain, despite our partnership with SUL, which we may not complete successfully or on time for any number of reasons,
including but not limited to lack of funds to complete the studies and insufficient interest by appropriate sites, investigators
or study subjects. For example, as a condition of the approval of RAPIVAB, we are required to complete a pediatric patient study
of RAPIVAB and to submit the final results of this clinical trial to the FDA. Depending on the FDA’s evaluation of the data
from this clinical trial, we may be unable to expand the indication for RAPIVAB or we may be required to include specific warnings
or limitations on dosing this product, which could negatively impact sales of RAPIVAB and negatively impact our relationship with
our partner. We may be subject to penalties if we fail to comply with post-approval legal and regulatory requirements and our products
could be subject to continual recordkeeping and reporting requirements, review and periodic inspections by the FDA and other regulatory
bodies. Regulatory approval of a product may be subject to limitations on the indicated uses for which the product may be marketed
or to the other restrictive conditions of approval that limit our ability to promote, sell or distribute a product. Furthermore,
the approval of RAPIVAB and any other future product candidates may be subject to requirements for costly post-marketing testing
and surveillance to monitor its safety or efficacy.
Advertising and promotion are subject to stringent FDA rules and oversight
and as the holder of the NDA we may be held responsible for any advertising and promotion conducted by our partner that is not
in compliance with the rules and regulations. In particular, the claims in all promotional materials and activities must be consistent
with the FDA approvals for approved products, and must be appropriately substantiated and fairly balanced with information on the
safety risks and limitations of the products. Adverse event information concerning approved products must be reviewed and as the
NDA holder of RAPIVAB we are required to make expedited and periodic adverse event reports to the FDA and other regulatory authorities.
In addition, the research, manufacturing, distribution, sale and promotion
of products are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including
the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department
of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments. Until we can
successfully transfer the pricing responsibilities to our partner, we remain responsible for pricing and rebate programs. Pricing
and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended,
and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply
Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially
subject to federal and state healthcare false claims and fraud and abuse laws, as well as consumer protection and unfair competition
laws.
If our operations with respect to RAPIVAB or our other products
that are subject to healthcare laws and regulations are found to be in violation of any of the healthcare fraud and abuse laws
described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal
penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or
restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although
compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely
eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur
significant legal expenses and divert our management's attention from the operation of our business. Moreover, achieving and sustaining
compliance with all applicable federal and state fraud and abuse laws may be costly.
We and our partners may be subject to new legislation, regulatory proposals
and healthcare payor initiatives that may increase our costs of compliance and adversely affect our or our partners’ ability
to market our products, including RAPIVAB, obtain collaborators and raise capital.
The Patient Protection and Affordable Care Act, or PPACA, made extensive
changes to the delivery of health care in the U.S. The PPACA included numerous provisions that affect pharmaceutical companies,
some of which became effective immediately and others of which have taken effect over the past several years. For example, the
PPACA expanded health care coverage to the uninsured through private health insurance reforms and an expansion of Medicaid. The
PPACA also imposed substantial costs on pharmaceutical manufacturers, such as an increase in liability for rebates paid to Medicaid,
new drug discounts that must be offered to certain enrollees in the Medicare prescription drug benefit, an annual fee imposed on
all manufacturers of brand prescription drugs in the U.S., and an expansion of an existing program requiring pharmaceutical discounts
to certain types of hospitals and federally subsidized clinics. The PPACA also contains cost containment measures that could reduce
reimbursement levels for health care items and services generally, including pharmaceuticals. It also required reporting and public
disclosure of payments and other transfers of value provided by pharmaceutical companies to physicians and teaching hospitals.
We expect that the current presidential administration and U.S. Congress
will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the PPACA. There is still
significant uncertainty with respect to the impact that the current presidential administration and the U.S. Congress may have
on the PPACA, if any, and any changes will likely take time to unfold. As such, we cannot predict what effect the PPACA or other
healthcare reform initiatives that may be adopted in the future will have on our business.
We cannot predict what effect the PPACA or other healthcare reform
initiatives that may be adopted in the future will have on our business. The continuing efforts of the government, insurance companies,
managed care organizations and other payors of health care services to contain or reduce costs of health care could result in decreased
net revenues from our pharmaceutical products and decrease potential returns from our development efforts. In addition, pharmaceutical
and device manufacturers are also required to report and disclose certain payments and transfers of value to, and investment interests
held by, physicians and their immediate family members during the preceding calendar year. Failure to submit required information
may result in civil monetary penalties for payments, transfers of value or ownership or investment interests not reported in an
annual submission. Compliance with the PPACA and state laws with similar provisions is difficult and time consuming, and companies
that do not comply with these state laws face civil penalties. Because of the breadth of these laws and the narrowness of the safe
harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such
a challenge could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
In addition, there have been a number of other legislative and regulatory
proposals aimed at changing the pharmaceutical industry. In particular, legislation has been enacted in certain states and at a
federal level that requires development of an electronic pedigree to track and trace each prescription drug at the saleable unit
level through the distribution system. Compliance with these electronic pedigree requirements may increase our operational expenses
and impose significant administrative burdens. In addition, our compliance may be deemed insufficient and we could face a material
adverse effect on our business, financial condition, results of operations and growth prospects. As a result of these and
other new proposals, we may determine to change our current manner of operation, provide additional benefits or change our contract
arrangements, any of which could have a material adverse effect on our business, financial condition and results of operations.
Adequate coverage and reimbursement in the U.S. and other markets
is critical to the commercial success of RAPIVAB or any other product that we might bring to market. Recently in the U.S. there
has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which
has resulted in several Congressional inquiries and proposed bills designed to, among other things, reform government program reimbursement
methodologies. Third-party payors are increasingly challenging the prices charged for medical products and services and, in some
cases, imposing restrictions on the coverage of particular drugs. Many third-party payors negotiate the price of medical services
and products and develop formularies which establish pricing and reimbursement levels. Exclusion of a product from a formulary
can lead to its sharply reduced usage in the third-party payor’s patient population. The process for obtaining coverage can
be lengthy and costly, and we expect that it could take several months before a particular payor initially reviews our product
and makes a decision with respect to coverage. For example, third-party payors may require cost-benefit analysis data from us in
order to demonstrate the cost-effectiveness of RAPIVAB or any other product we might bring to market. For any individual third-party
payor, we may not be able to provide data sufficient to gain reimbursement on a similar or preferred basis to competitive products,
or at all which may have a material adverse effect on our business, financial condition and results of operations.
There are risks related to the potential government use or sale of peramivir
(RAPIVAB).
United States Government use or sale of RAPIVAB in emergency situations,
or otherwise, may result in the use of RAPIVAB outside of its approved use. To the extent that RAPIVAB is used as a treatment for
influenza by the U.S. Government or peramivir by any other government entity, there can be no assurance that it will prove to be
generally safe, well-tolerated and effective. Such government use of RAPIVAB/peramivir may create certain liabilities for us or
our partners in the case of government use outside of the U.S. There is no assurance that we or our manufacturers will be able
to fully meet the demand for peramivir in the event of additional orders. Further, we may not achieve a favorable price for additional
orders of RAPIVAB in the U.S. or peramivir in any other country. Our competitors may develop products that could compete with or
replace peramivir. We may face competition in markets where we have no existing intellectual property protection or are unable
to successfully enforce our intellectual property rights.
There is no assurance that the non-U.S. partnerships that we have
entered into for peramivir will result in any order for peramivir in those countries. There is no assurance that peramivir will
be approved for any use or will achieve market approval in additional countries. In the event that any emergency use or market
approval is granted, there is no assurance that any government order or commercialization of peramivir in any countries will be
substantial or will be profitable to us. In addition, the sale of peramivir, emergency use or other use of peramivir in any country
may create certain liabilities for us and our partners.
If we or our partners do not obtain and maintain governmental approvals
for our product candidates under development, we or our partners will not be able to sell these potential products, which would
significantly harm our business because we will receive no revenue.
We or our partners must obtain regulatory approval before marketing
or selling our future product candidates. If we or our partners are unable to receive regulatory approval and do not market or
sell our future product candidates, we will never receive any revenue from such product sales. In the United States, we or our
partners must obtain FDA approval for product candidates that we intend to commercialize. The process of preparing for and obtaining
FDA approval may be lengthy and expensive, and approval is never certain. Products distributed abroad are also subject to foreign
government regulation and export laws of the United States. Because of the risks and uncertainties in biopharmaceutical development,
our product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval.
If the FDA delays regulatory approval of our product candidates, our management’s credibility, our value and our operating
results may suffer. Even if the FDA or foreign regulatory agencies approve a product candidate, the approval may limit the indicated
uses for a product candidate and/or may require post-approval studies.
The FDA regulates, among other things, the record keeping and storage
of data pertaining to potential pharmaceutical products. We currently store most of our preclinical research data, our clinical
data and our manufacturing data at our facility. While we do store duplicate copies of most of our clinical data offsite and a
significant portion of our data is included in regular backups of our systems, we could lose important data if our facility incurs
damage, or if our vendor data systems fail, suffer damage or are destroyed. If we receive approval to market our potential products,
whether in the United States or internationally, we will continue to be subject to extensive regulatory requirements. These requirements
are wide ranging and govern, among other things:
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adverse drug experience reporting regulations;
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product promotion;
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product manufacturing, including good manufacturing practice requirements; and
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product changes or modifications.
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Our failure to comply with existing or future regulatory requirements,
or our loss of, or changes to, previously obtained approvals, could have a material adverse effect on our business because we will
not receive product or royalty revenues if we or our partners do not receive approval of our products for marketing.
Royalties and milestone payments from Shionogi under our license agreement
with Shionogi (the “Shionogi Agreement”) will be required to be used by Royalty Sub to service its obligations under
its PhaRMA Notes, and generally will not be available to us for other purposes until Royalty Sub has repaid in full its obligations
under the PhaRMA Notes.
In March 2011, our wholly-owned subsidiary Royalty Sub issued $30.0
million in aggregate principal amount of PhaRMA Notes. The PhaRMA Notes are secured principally by (i) certain royalty and milestone
payments under the Shionogi Agreement, pursuant to which Shionogi licensed from us the rights to market peramivir in Japan and
Taiwan, (ii) rights to certain payments under a Japanese yen/U.S. dollar Currency Hedge Agreement put into place by us in connection
with the issuance of the PhaRMA Notes and (iii) the pledge by us of our equity interest in Royalty Sub. Payments from Shionogi
to us on non-governmental sales under the Shionogi Agreement will generally not be available to us for other purposes until Royalty
Sub has repaid in full its obligations under the PhaRMA Notes. Accordingly, these funds will be required to be dedicated to Royalty
Sub’s debt service and not available to us for product development or other purposes. As of September 1, 2014, the payments
from Shionogi were insufficient for Royalty Sub to service its obligations under the PhaRMA Notes, resulting in an event of default
with respect to the PhaRMA Notes. As a result of this event of default, the holders of the PhaRMA Notes may be able to pursue acceleration
of the PhaRMA Notes and foreclose on the collateral securing the PhaRMA Notes and our equity interest in Royalty Sub and may exercise
other remedies available to them under the indenture or other documents related to the PhaRMA Notes. In such event, we may
not realize the benefit of future royalty payments that might otherwise accrue to us following repayment of the PhaRMA Notes, we
may incur legal costs and we might otherwise be adversely affected.
Because an event of default has occurred under the PhaRMA Notes, the
holders of the PhaRMA Notes may be able to pursue acceleration of the PhaRMA Notes and foreclose on the collateral securing the
PhaRMA Notes and our equity interest in Royalty Sub, in which case we may not realize the benefit of future royalty payments that
might otherwise accrue to us following repayment of the PhaRMA Notes and we could otherwise be adversely affected.
Royalty Sub’s ability to service its payment obligations in
respect of the PhaRMA Notes, and our ability to benefit from our equity interest in Royalty Sub, is subject to numerous risks.
Royalty Sub’s ability to service the PhaRMA Notes may be adversely affected by, among other things, changes in or any termination
of our relationship with Shionogi, reimbursement, regulatory, manufacturing and/or intellectual property issues, product returns,
product recalls, product liability claims and allegations of safety issues, as well as other factors. As Royalty Sub has been unable
to service its obligations under the PhaRMA Notes and an event of default has occurred under the PhaRMA Notes, the holders of the
PhaRMA Notes may be able to pursue acceleration of the PhaRMA Notes and foreclose on the collateral securing the PhaRMA Notes and
our equity interest in Royalty Sub and may exercise other remedies available to them under the indenture or other documents
related to the PhaRMA Notes. In such event, we may not realize the benefit of future royalty payments that might otherwise
accrue to us following repayment of the PhaRMA Notes, we may incur legal costs and we might otherwise be adversely affected.
We may be required to pay significant premiums under the Currency Hedge
Agreement entered into by us in connection with the issuance of the PhaRMA Notes. In addition, because our potential obligations
under the foreign currency hedge are marked to market, we may experience additional quarterly volatility in our operating results
and cash flows attributable to the Currency Hedge Agreement.
In connection with the issuance by Royalty Sub of the PhaRMA Notes,
we entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese yen relative
to the U.S. dollar. Under the foreign currency hedge agreement, we may be required to pay an annual premium in the amount of $2.0
million in each May continuing through May 2020. Such payment will be required if, in May of the relevant year, the spot rate of
exchange for Japanese yen-U.S. dollars (determined in accordance with the Currency Hedge Agreement) is such that the U.S. dollar
is worth 100 yen or less. We will be required to mark to market our potential obligations under the currency hedge and post cash
collateral, which may cause us to experience additional quarterly volatility in our operating results and cash flows as a result.
Additionally, we may be required to pay significant premiums or a termination fee under the foreign currency hedge agreement entered
into by us in connection with the issuance of the PhaRMA Notes. We are required to maintain a foreign currency hedge at 100 yen
per dollar under the agreements governing the PhaRMA Notes.
Our Senior Credit Facility
contains restrictions that limit our flexibility in operating our business. We may be required to make a prepayment or repay the
outstanding indebtedness earlier than we expect if a prepayment event or an event of default occurs, including a material adverse
change with respect to us, which could have a material adverse effect on our business.
The Senior Credit Facility contains various
covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other
things:
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convey, sell, lease, license, transfer or otherwise dispose of certain parts of our business or property;
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change the nature of our business;
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liquidate or dissolve;
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enter into certain change in control or acquisition transactions;
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incur or assume certain debt;
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grant certain types of liens on our assets;
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modify, liquidate or transfer assets in certain collateral accounts;
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pay dividends or make certain distributions to our stockholders;
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make certain investments;
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enter into material transactions with affiliates; and
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modify existing debt or collaboration arrangements.
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The restrictive covenants contained in the
Senior Credit Facility could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial
without the lender’s permission or without repaying all Senior Credit Facility obligations.
A breach of any of these covenants could result in an event of default
under the Senior Credit Facility. An event of default will also occur if, among other things, a material adverse change in our
business, operations or condition occurs, which could potentially include negative results in clinical trials, or a material impairment
of the prospect of our repayment of any portion of the amounts we owe under the Senior Credit Facility occurs. In the case of a
continuing event of default under the agreement, the lender could elect to declare all amounts outstanding to be immediately due
and payable, proceed against the collateral in which we granted to the lender a security interest under the Senior Credit Facility,
or otherwise exercise the rights of a secured creditor. Amounts outstanding under the Senior Credit Facility are secured by substantially
all of our assets and those of our subsidiaries, excluding certain specified assets but including proceeds from those assets.
If we fail to adequately protect or enforce our intellectual property
rights or secure rights to patents of others, the value of those rights would diminish.
Our success will depend in part on our ability and the abilities of
our partners to obtain, protect and enforce viable intellectual property rights including but not limited to trade name, trademark
and patent protection for our Company and its products, methods, processes and other technologies we may license or develop, to
preserve our trade secrets, and to operate without infringing the proprietary rights of third parties both domestically and abroad.
The patent position of biotechnology and pharmaceutical companies is generally highly uncertain, involves complex legal and factual
questions and has recently been the subject of much litigation. Neither the United States Patent and Trademark Office (“USPTO”),
the Patent Cooperation Treaty offices, nor the courts of the United States and other jurisdictions have consistent policies nor
predictable rulings regarding the breadth of claims allowed or the degree of protection afforded under many biotechnology and pharmaceutical
patents. Further, we may not have worldwide patent protection for all of our product candidates and our intellectual property rights
may not be legally protected or enforceable in all countries throughout the world. In some jurisdictions, some of our product candidates
in certain programs, including our HAE program, may have short or no composition of matter patent life and we may therefore rely
on orphan drug exclusivity or data exclusivity. There can be no assurance that we will obtain orphan drug exclusivity or data exclusivity
in every jurisdiction. Further, in some jurisdictions, we may rely on formulation patents or method of use patents. Both the ability
to achieve issuance and the enforcement of formulation and method of use patents can be highly uncertain and can vary from jurisdiction
to jurisdiction, and such patents may therefore not adequately prevent competitors and potential infringers in some jurisdictions.
The validity, scope, enforceability and commercial value of the rights protected by such patents, therefore, is highly uncertain.
We also rely on trade secrets to protect technology in cases when
we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. If we cannot maintain
the confidentiality of our technology and other confidential information in connection with our collaborators and advisors, our
ability to receive patent protection or protect our proprietary information may be imperiled.
We may be involved in lawsuits to protect or enforce our patents, the
patents of our partners or our other intellectual property rights, which could be expensive, time consuming and unsuccessful
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Competitors may infringe or otherwise violate our patents, the patents
of our licensors or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to
file legal claims, which can be expensive and time-consuming and unsuccessful. An adverse result in any litigation or defense proceeding
could put one or more of our patents at risk. Our success depends in part on avoiding the infringement of other parties’
patents and other intellectual property rights as well as avoiding the breach of any licenses relating to our technologies and
products. In the United States, patent applications filed in recent years are confidential for 18 months, while older applications
are not published until the patent issues. As a result, avoiding patent infringement may be difficult and we may inadvertently
infringe third-party patents or proprietary rights. These third parties could bring claims against us, our partners or our licensors
that even if resolved in our favor, could cause us to incur substantial expenses and, if resolved against us, could additionally
cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, our partners or our licensors,
we or they could be forced to stop or delay research, development, manufacturing or sales of any infringing product in the country
or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Such a license may not be
available on acceptable terms, or at all, particularly if the third party is developing or marketing a product competitive with
the infringing product. Even if we, our partners or our licensors were able to obtain a license, the rights may be nonexclusive,
which would give our competitors access to the same intellectual property.
If we or our partners are unable or fail to adequately initiate, protect,
defend or enforce our intellectual property rights in any area of commercial interest or in any part of the world where we wish
to seek regulatory approval for our products, methods, processes and other technologies, the value of the product candidates to
produce revenue would diminish. Additionally, if our products, methods, processes, and other technologies or our commercial use
of such products, processes, and other technologies, including but not limited to any trade name, trademark or commercial strategy
infringe the proprietary rights of other parties, we could incur substantial costs. The USPTO and the patent offices of other jurisdictions
have issued to us a number of patents for our various inventions and we have in-licensed several patents from various institutions.
We have filed additional patent applications and provisional patent applications with the USPTO. We have filed a number of corresponding
foreign patent applications and intend to file additional foreign and U.S. patent applications, as appropriate. We have also filed
certain trademark and trade name applications worldwide. We cannot assure you as to:
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the degree and range of protection any patents will afford against competitors with similar products;
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if and when patents will issue;
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if patents do issue we cannot be sure that we will be able to adequately defend such patents and whether or not we will be able to adequately enforce such patents; or
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whether or not others will obtain patents claiming aspects similar to those covered by our patent applications.
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If the USPTO or other foreign patent office upholds patents issued
to others or if the USPTO grants patent applications filed by others, we may have to:
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obtain licenses or redesign our products or processes to avoid infringement;
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stop using the subject matter claimed in those patents; or
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pay damages.
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We may initiate, or others may bring against us, litigation or
administrative proceedings related to intellectual property rights, including proceedings before the USPTO or other foreign patent
office. Any judgment adverse to us in any litigation or other proceeding arising in connection with a patent or patent application
could materially and adversely affect our business, financial condition and results of operations. In addition, the costs of any
such proceeding may be substantial whether or not we are successful.
Our success is also dependent upon the skills, knowledge and experience,
none of which is patentable, of our scientific and technical personnel. To help protect our rights, we require all employees, consultants,
advisors and partners to enter into confidentiality agreements that prohibit the disclosure of confidential information to anyone
outside of our company and require disclosure and assignment to us of their ideas, developments, discoveries and inventions. These
agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such information, and if any of our proprietary information
is disclosed, our business will suffer because our revenues depend upon our ability to license or commercialize our product candidates
and any such events would significantly impair the value of such product candidates.
Our failure to comply with data protection
laws and regulations could lead to government enforcement actions and significant penalties against us and adversely impact our
operating results.
European Union (“EU”) Member
States, Switzerland and other countries have adopted data protection laws and regulation, which impose significant compliance obligations. For
example, the EU Data Protection Directive, as implemented into national laws by the EU Member States, imposes strict obligations
and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and
adverse event reporting. Data protection authorities from the different EU Member States may interpret the EU Data Protection
Directive and national laws differently, which adds to the complexity of processing personal data in the European Union, and guidance
on implementation and compliance practices is often updated or otherwise revised. Our failure to comply with these laws and
regulations could lead to government enforcement actions and significant penalties against us and adversely impact our operating
results.
We are subject to litigation, which could
result in losses or unexpected expenditure of time and resources.
From time to time, we may be called upon to defend ourselves against
lawsuits relating to our business. Due to the inherent uncertainties in litigation, we cannot accurately predict the ultimate
outcome of any such proceedings. An unfavorable outcome in any such proceedings could have an adverse impact on our business,
financial condition and results of operations. If our stock price is volatile, we may become involved in securities class
action lawsuits in the future. Any litigation in the future, regardless of its merits, could result in substantial costs and
a diversion of management’s attention and resources that are needed to successfully run our business.
We face an inherent risk of liability in the event that the use or misuse
of our products results in personal injury or death and our product liability insurance coverage may be insufficient.
If the use or misuse of peramivir, forodesine or any other regulatory body-approved products we or a partner
may sell in the future harms people, we may be subject to costly and damaging product liability claims brought against us by consumers,
healthcare providers, pharmaceutical companies, third-party payors or others. The use of our product candidates in clinical trials,
including post marketing clinical studies, could also expose us to product liability claims. We cannot predict all of the possible
harms or side effects that may result from the use of our products or the testing of product candidates and, therefore, the amount
of insurance coverage we currently have may not be adequate to cover all liabilities or defense costs we might incur. A product
liability claim or series of claims brought against us could give rise to a substantial liability that could exceed our resources.
Even if claims are not successful, the costs of defending such claims and potential adverse publicity could be harmful to our business.
We face an inherent risk of product liability exposure related to
the testing of our product candidates in human clinical trials and will face even greater risks upon any commercialization by us
of our product candidates. We have product liability insurance covering our clinical trials. Clinical trial and product liability
insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance or increase our existing
coverage at a reasonable cost to protect us against losses that could have a material adverse effect on our business. An individual
may bring a product liability claim against us if one of our products or product candidates causes, or is claimed to have caused,
an injury or is found to be unsuitable for consumer use. Any product liability claim brought against us, with or without merit,
could result in:
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liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available;
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an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all;
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withdrawal of clinical trial volunteers or patients;
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damage to our reputation and the reputation of our products, resulting in lower sales;
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regulatory investigations that could require costly recalls or product modifications;
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litigation costs; and
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the diversion of management’s attention from managing our business.
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Insurance coverage is increasingly more costly and difficult to obtain
or maintain.
While we currently have insurance for our business, property, directors
and officers, and our products, insurance is increasingly more costly and narrower in scope, and we may be required to assume more
risk in the future. If we are subject to claims or suffer a loss or damage in excess of our insurance coverage, we will be required
to bear any loss in excess of our insurance limits. If we are subject to claims or suffer a loss or damage that is outside of our
insurance coverage, we may incur significant uninsured costs associated with loss or damage that could have an adverse effect on
our operations and financial position. Furthermore, any claims made on our insurance policies may impact our ability to obtain
or maintain insurance coverage at reasonable costs or at all.
If our facility incurs damage or power is lost for a significant length
of time, our business will suffer.
We store clinical and stability samples at our facility that could
be damaged if our facility incurs physical damage or in the event of an extended power failure. We have backup power systems in
addition to backup generators to maintain power to all critical functions, but any loss of these samples could result in significant
delays in our drug development process.
In addition, we store most of our preclinical
and clinical data at our facilities. Duplicate copies of most critical data are secured off-site. Any significant degradation or
failure of our computer systems could cause us to inaccurately calculate or lose our data. Loss of data could result in significant
delays in our drug development process and any system failure could harm our business and operations.
A significant disruption in our information technology systems or a
cyber-security breach could adversely affect our business.
We are increasingly dependent on information technology systems to
operate our business. Like other companies in our industry, our networks and infrastructure may be vulnerable to cyber-attacks
or intrusions, including by computer hackers, foreign governments, foreign companies or competitors, or may be breached by employee
error, malfeasance or other disruption. A breakdown, invasion, corruption, destruction or interruption of critical information
technology systems could negatively impact operations. If our systems are damaged, fail to function properly or otherwise
become unavailable, we may incur substantial costs to repair or replace them, and we may experience loss of critical data and interruptions
or delays in our ability to perform critical functions, which could adversely affect our business, financial condition or results
of operations. Any compromise of our data security could also result in a violation of applicable privacy and other laws, significant
legal and financial exposure, damage to our reputation, loss or misuse of the information and a loss of confidence in our data
security measures, which could harm our business. There can be no assurance that our efforts to protect our data and information
technology systems will prevent breakdowns or breaches in our systems, or those of third parties with which we do business, and
any such events could adversely affect our business.
If we fail to retain our existing key personnel or fail to attract and
retain additional key personnel, the development of our product candidates and commercialization of our products and the related
expansion of our business will be delayed or stopped.
We are highly dependent upon our senior management and scientific
team, the unexpected loss of whose services might impede the achievement of our development and commercial objectives. Competition
for key personnel with the experience that we require is intense and is expected to continue to increase. Our inability to attract
and retain the required number of skilled and experienced management, commercial, operational and scientific personnel will harm
our business because we rely upon these personnel for many critical functions of our business.
If because of our use of hazardous materials, we violate any environmental
controls or regulations that apply to such materials, we may incur substantial costs and expenses in our remediation efforts.
Our research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of these materials and some waste products. Accidental contamination or injury from these
materials could occur. In the event of an accident, we could be liable for any damages that result and any liabilities could exceed
our resources. Compliance with environmental laws and regulations or a violation of such environmental laws and regulations could
require us to incur substantial unexpected costs, which would materially and adversely affect our results of operations.
Risks relating to investing in our common stock
Our existing principal stockholders hold a substantial amount of our
common stock and may be able to influence significant corporate decisions, which may conflict with the interest of other stockholders.
Several of our stockholders own greater than 5% of our outstanding
common stock. Our top ten stockholders own more than 50% of BioCryst and can individually, and as a group, influence our operations
based upon their concentrated ownership. These stockholders, if they act together, may be able to influence the outcome of matters
requiring approval of the stockholders, including the election of our directors and other corporate actions.
Our stock price has been, and is likely to continue to be, highly volatile,
which could cause the value of an investment in our common stock to decline significantly.
The market prices for securities of biotechnology companies in general
have been highly volatile and may continue to be highly volatile in the future. Moreover, our stock price has fluctuated frequently,
and these fluctuations are often not related to our financial results. For the twelve months ended September 30, 2017, the 52-week
range of the market price of our stock was from $2.82 to $9.25 per share. The following factors, in addition to other risk factors
described in this section, may have a significant impact on the market price of our common stock:
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announcements of technological innovations or new products by us or our competitors;
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developments or disputes concerning patents or proprietary rights;
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additional dilution through sales of our common stock or other derivative securities;
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status of new or existing licensing or collaborative agreements and government contracts;
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announcements relating to the status of our programs;
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developments and announcements regarding new and virulent strains of influenza;
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we or our partners achieving or failing to achieve development milestones;
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publicity regarding actual or potential medical results relating to products under development by us or our competitors;
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publicity regarding certain public health concerns for which we are or may be developing treatments;
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regulatory developments in both the United States and foreign countries;
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public concern as to the safety of pharmaceutical products;
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actual or anticipated fluctuations in our operating results;
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changes in financial estimates or recommendations by securities analysts;
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changes in the structure of healthcare payment systems, including developments in price control legislation;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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additions or departures of key personnel or members of our board of directors;
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purchases or sales of substantial amounts of our stock by existing stockholders, including officers or directors;
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economic and other external factors or other disasters or crises; and
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period-to-period fluctuations in our financial results.
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Future sales and issuances of securities may dilute the ownership interests
of our current stockholders and cause our stock price to decline.
Future sales of our common stock by current stockholders into the
public market could cause the market price of our stock to fall. As of October 31, 2017, there were 98,404,761 shares of our common
stock outstanding. We may from time to time issue securities in relation to a license arrangement, collaboration, merger or acquisition.
We may also sell, for our own account, shares of common stock or other equity securities, from time to time at prices and on terms
to be determined at the time of sale.
As of October 31, 2017, there were 13,530,572 stock options and restricted
stock units outstanding, 1,606,959 shares available for issuance under our Amended and Restated Stock Incentive Plan, and 330,270
shares available for issuance under our Employee Stock Purchase Plan. In addition, we could also make equity compensation grants
outside of our Stock Incentive Plan. The shares underlying existing stock options, restricted stock units and possible future stock
options, stock appreciation rights and stock awards have been registered pursuant to registration statements on Form S-8.
If some or all of such shares are sold or otherwise issued into the
public market over a short period of time, our current stockholders’ ownership interests may be diluted and the value of
all publicly traded shares is likely to decline, as the market may not be able to absorb those shares at then-current market prices.
Additionally, such sales and issuances may make it more difficult for us to sell equity securities or equity-related securities
in the future at a time and price that our management deems acceptable, or at all.
In March 2017, we entered into a Registration
Rights Agreement with entities affiliated with Baker Bros. Advisors LP (the “Baker Entities”) to provide that, if requested,
we will register the shares of our common stock beneficially owned by the Baker Entities for resale under the Securities Act. Our
registration obligations pursuant to the Registration Rights Agreement cover all shares then held or thereafter acquired by the
Baker Entities, for up to ten years, and include our obligation to facilitate certain underwritten public offerings of our common
stock by the Baker Entities in the future. On May 10, 2017, we filed a registration statement on Form S-3 with respect to 11,710,951
shares of common stock held by the Baker Entities. If the Baker Entities, by exercising their underwriting rights or otherwise,
sell a large number of our shares, or the market perceives that the Baker Entities intend to sell a large number of our shares,
this could adversely affect the market price of our common stock.
We have anti-takeover provisions in our corporate charter documents
that may result in outcomes with which you do not agree.
Our board of directors has the authority to issue up to 4,800,000
shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of those shares without
further vote or action by our stockholders. The rights of the holders of any preferred stock that may be issued in the future may
adversely affect the rights of the holders of common stock. The issuance of preferred stock could make it more difficult for third
parties to acquire a majority of our outstanding voting stock.
In addition, our certificate of incorporation provides for staggered
terms for the members of the board of directors and supermajority approval of the removal of any member of the board of directors
and prevents our stockholders from acting by written consent or from calling special meetings of stockholders. Our certificate
also requires supermajority approval of any amendment of these provisions. These provisions and other provisions of our by-laws
and of Delaware law applicable to us could delay or make more difficult a merger, tender offer or proxy contest involving us.
We have never paid dividends on our common stock and do not anticipate
doing so in the foreseeable future.
We have never paid cash dividends on our stock. We currently intend
to retain all future earnings, if any, for use in the operation of our business. Accordingly, we do not anticipate paying cash
dividends on our common stock in the foreseeable future.